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Devon Pension Fund Annual Report and Accounts Summary 2019-20

County Treasurer's Report


Over the course of the 2019/20 year, the value of the Devon Pension Fund decreased from £4.302 billion (as at 31 March 2019) to £4.011 billion as at 31 March 2020, a decrease of around £291 million. Up until the end of December, the Fund was performing well with a return of +7.6% for the financial year to date. But then the world was hit by the coronavirus pandemic. Global markets suffered huge losses, including the biggest fall of US and UK markets in a single day since 1987. As a result, the Devon Pension Fund’s investment return for the year, net of fees, was -8.0%. This was below the Fund’s strategic benchmark of -4.9%. The impact of the coronavirus on the world economy has been huge and much uncertainty remains. It is likely to take several years for the global economy to recover and this will present significant challenges to the management of the pension fund.

The performance of the administration team has improved significantly following the restructure in 2018/19, and it is anticipated that this trend will continue as staff adapt to the new ways of working. Peninsula Pensions is now well-positioned to manage and respond to the ever increasing workloads and demands caused by a growth in the number of members and employers joining the fund, increases in requests for information and to ensure continued compliance with future regulations changes. The situation with Covid-19 presented a different challenge to overcome. Early action was taken to identify and mitigate potential risks from an operational perspective, and communications were issued to all fund members and employers explaining how the team intended to communicate and operate during the pandemic. Communication and technology, including ‘Member Self-Service’ (our online communication portal) and remote working, have enabled the team to continue to conduct business as usual and there has been no impact on service provision.

Along with nine other Local Government Pension Scheme (LGPS) funds, the Devon Pension Fund is a shareholder in the Brunel Pension Partnership Ltd, a company set up to pool investment assets in order to reduce investment costs and improve risk management. Since the company was set up two years ago the Devon Fund has been gradually transitioning its investment assets. During the Autumn of 2019, the management of the global equities and emerging markets portfolios transitioned from Aberdeen Standard Investments across to Brunel, and management of the property fund assets transferred from La Salle to Brunel. By 31 March 2020, around 65% of the Devon Fund’s investment assets were under Brunel’s management. The Devon Pension Fund will continue to be responsible for deciding the strategic allocation between different asset classes to meet local investment objectives, but the Brunel Pension Partnership will be responsible for selection and monitoring of the external investment managers who will manage the investments.

Investment Performance

As indicated above, the asset value of the Fund at the end of the 2019/20 financial year was £4.011 billion. This represents an investment return of -8.0% net of fees, compared with the Fund’s internally set strategic benchmark target of -4.9%. As set out above, the impact of the coronavirus on world markets has been severe, resulting in significant negative returns over the last quarter.

The Fund’s strategic benchmark is set as an average of the benchmarks for each of the investment portfolios, weighted according to the Fund’s strategic asset allocation targets. The diversified growth funds have a cash plus target, meaning that their benchmark will be to achieve a positive return against cash. Given the market circumstances of the quarter to March, achieving a positive return was an unrealistic expectation, and their performance also did not hold up as well as would have been expected. The negative returns they experienced were the major reason that the Fund underperformed its strategic benchmark. The specialist equity funds also significantly underperformed, with their more concentrated holdings including a couple of companies severely impacted by the crisis. The cost of transitioning assets to Brunel will also have had a small impact on relative performance.

Pension fund investment management has to consider the long term, and the Investment and Pension Fund Committee’s principal aim for the Fund is therefore to maintain high performance over the longer term. However, performance over the last quarter has had a significant impact on the long-term investment returns. The following chart presents the investment returns achieved by the Devon Fund compared to the Fund’s benchmark over each of the last five years, plus the total annualised return over the last three years and the last five years. Performance Figures are shown net of fees.

Investment performance bar chart

Fund solvency

The Fund is required to have an actuarial valuation conducted every three years. The most recent triennial valuation, as at 31 March 2019, has been carried out by the Fund Actuary, Barnett Waddingham over the last year. The valuation determined that the Devon Pension Fund’s funding level had improved from 84% to 91%, compared with the previous 2016 valuation.

The results of the 2019 actuarial valuation have been prepared in accordance with the current legislative arrangements for the Fund, taking into account revised financial assumption and longevity projections, as set out in the Funding Strategy Statement. The Fund’s assets were valued at £4,273m against future pension liabilities assessed at £4,672m, giving a deficit for this valuation of £399m. The average deficit recovery period for the Fund as a whole has been set at 19 years, which is a reduction from the 22 years set at the previous valuation. The improvement in the funding level and reduction of the deficit recovery period showed good progress towards the long term objective of 100% solvency.

However, the Fund Actuary has reassessed the position as at 31 March 2020, using the approach of rolling forward the data from the 2019 valuation, and updating it for subsequent investment returns, pension and salary increases. While it is not possible to assess the accuracy of the estimated liability as at 31 March 2020 without completing a full valuation, the results will be indicative of the underlying position. As a result of the impact of coronavirus Covid-19 on world markets, and the resulting fall in the value of the Fund’s assets, the Actuary has estimated that on an unsmoothed basis, considering market conditions as at 31 March 2020 only, the funding level will have deteriorated to around 86%.

Asset allocation

The Investment and Pension Fund Committee is charged with the responsibility for governance and stewardship of the Fund and making decisions about strategic asset allocation policy.

Following a review undertaken by Mercer investment consultants, the Committee agreed a revised Investment Strategy Statement in February 2019. The revised strategy objectives were broadly consistent with the previous review undertaken in 2016/17, which set out a direction of travel towards a long term target to be achieved by a phased implementation over a five year period, which would also tie in with the launch of new investment portfolios by the Brunel Pension Partnership.

In line with that strategy, the Committee agreed some small changes to asset allocation targets during 2019/20. The Fund has committed a total of £175 million to Brunel’s infrastructure portfolio with the objective of increasing the infrastructure allocation to 6% of the Fund. However, as at 31 March only £23 million of that commitment had been drawn down, and the investment therefore remained below the target allocation. It is the intention to increase the allocation to private markets further over the next two years and significant further commitments have been made in 2020/21, across infrastructure, private equity and private debt.

A further investment of £110 million into Brunel’s low volatility equities portfolio was made in September, to bring the target allocation up to 5%. During 2020/21, it is planned to make a further allocation to bring the overall strategic allocation up to around 7%. This is in line with the policy set out in the Investment Strategy Statement, with the aim of reducing risk without impacting the Fund’s investment return potential.

The Fund’s actual asset allocation as at 31 March 2020 is shown in the following chart:


asset allocation pie chart


As a result of the coronavirus pandemic, the Fund faces a period of uncertainty around how the global economy will recover. However, the Fund is a long-term investor and that will provide some mitigation to the immediate impact. We will need to ensure that the Fund strategy is positioned to benefit from any recovery while providing diversification to manage the short and medium-term risks. The impact of the pandemic has understandably overshadowed the good progress that had been made by the fund in moving from an 84% funding level to a 91% funding level at the March 2019 Valuation. This was a pleasing result for the Fund, but recent events have been a significant setback to that progress.

During the year we transitioned a further 20% of our assets across to the Brunel Pension Partnership, mainly comprising the Fund’s allocations to passive equities. We expect that the majority of the Fund’s remaining investments will transition during 2020/21, although delays can be expected as a result of the coronavirus crisis. The Committee will continue to focus on its strategic asset allocation to ensure the Fund can achieve its funding targets and continue to meet its liabilities to pay pensions over the medium to longer term.

The Fund remains committed to ensuring that it provides an excellent service to pension fund members and value for money for both pension fund members and local taxpayers.

Mary Davis
County Treasurer
July 2020

Summary Pension Fund Accounts

Fund Account

Contributions and benefits
Contributions receivable:
Employers 137,431 207,397
Employees 38,765 40,758
Transfers in from other schemes 6,134 17,279
Total 182,330 265,434
Benefits Payable
Pensions (149,688) (157,626)
Lump Sums (26,759) (27,170)
Death Benefits (4,191) (3,674)
Refunds (735) 14
Transfers out to other schemes (9,012) (12,770)
Total (190,385) (21,226)
Net additions from dealings with Fund Members
(8,055) 64,208
Management Expenses (17,999) (19,732)
Return on Investments:
Investment Income 49,937 59,351
Change in market value of Investments 191,167 (394,994)
Net Return on Investments 241,904 (335,643)
Net Increase (Decrease) in the Fund during the year 215,850 (291,167)
Opening Net Assets of the Fund as at 1 April
4,086,432 4,302,282
Net Assets of the Fund as at 31 March 4,302,432 4,011,115


Net Asset Statement

Investments at Market Value
Fixed Interest
UK Public Sector Bonds 11,770 13,721
Overseas Government Bonds 135,440 153,358
Corporate Bonds – Global 75,489 106,363
Equities (Listed)
UK 39,901 0
Overseas 348,734 0
Pooled Investments 3,224,966 3,307,127
Pooled Property Investments 378,934 372,962
Derivatives 5,146 (3,101)
Foreign Currency 5,447 8,511
Short Term Deposits and Cash Equivalents 22,581 27,243
Cash and Bank Deposits 37,875 12,043
Investment Payables and Receivables 5,478 2,623
Total 4,292,156 4,001,277
Long Term and Current Assets 20,792 34,584
Long Term and Current Liabilities (10,666) (24,746)
Net Assets of the Fund as at 31 March 4,302,282 4,011,115

Current Investment Managers

Managers and Mandates

Market Value 31 March 2020
% of Total Investments
Brunel Pension Partnership
Passive Equities 1,505,380 37.6
Global High Alpha Equities 241,385 6.0
Emerging Market Equities 179,009 4.5
Low Volatility Equities 186,409 4.7
Property 379,709 9.5
Infrastructure 25,117 0.6
Lazard Asset Management
Global Bonds 279,109 7.0
Wellington Management
Multi-Asset Credit 246,737 6.2
Baillie Gifford & Co
Diversified Growth Fund 274,513 6.8
Baring Asset Management
Diversified Growth Fund 251,548 6.3
DCC Investment Team
Specialist Equities 143,940 3.6
Infrastructure 147,501 3.7
Private Debt 107,367 2.7
Cash 33,553 0.8


Supported by Devon County Council