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UNIVERSITY OF OXFORD

STAFF PENSION SCHEME

Annual Report & Accounts

for the year to 31st March 2012

Pension Schemes Registry Number: 10009029 HMRC Registration Number: 00333061RQ

University of Oxford Staff Pension Scheme

G:\Annual Accounts\2011-12\Annual Report.doc 1

TRUSTEES’ ANNUAL REPORT

FOR THE YEAR TO 31st MARCH 2012

PREFACE

The University of Oxford Staff Pension Scheme, commonly known as OSPS, is a multi-employer final salary scheme set up under trust. As at the date of this report, the benefits paid from the scheme are based on the members’ pensionable salaries when they retire or leave OSPS, and on the number of years of pensionable service built up in OSPS. Members’ and employers’ contributions are invested to provide a fund out of which benefits are paid. OSPS has over 11,000 members and assets of around £370 million as at 31st March 2012.

The Annual Report and Accounts describes the management of OSPS and its financial development during the year to 31st March 2012 and subsequently. The report includes the annual financial statements for the Scheme that have been prepared and audited in accordance with regulations made under Sections 41(1) and (6) of the Pensions Act 1995 and comply with the Statement of Recommended Practice (“SORP”), “Financial Reports of Pension Schemes (revised May 2007)”.

If you have any queries about this report or about any entitlement to benefits under OSPS, or if you would like further general information about OSPS, please contact either the Secretary to the Trustees or the Pensions Officer (OSPS) at the addresses shown below.

Also, information about the scheme may be found on the University’s website: www.admin.ox.ac.uk/finance/pensions/osps/

A copy of the Trust Deed and Rules governing OSPS can also be obtained from the Pensions Officer.

The registered address of the Scheme is:

The Secretary to the Trustees, University of Oxford Staff Pension Scheme, University Offices, Wellington Square, Oxford OX1 2JD

Enquiries about the Scheme generally, or member’s pension benefits, should be addressed to:

The Pensions Officer (OSPS), Tel. No. (01865) 616020 Finance Division, e-mail. [email protected] University of Oxford,

23-38 Hythe Bridge Street, Oxford OX1 2EP

The University of Oxford Staff Pension Scheme is registered with the Pension Schemes Registry, registration number: 10009029.

The Scheme is also registered with HM Revenue and Customs, registration number: 00333061RQ.



TRUSTEES’ ANNUAL REPORT

FOR THE YEAR TO 31st MARCH 2012

TABLE OF CONTENTS

Page

1. Trustees and Advisers 3

2. Trustees Report to the Members:

2A. Introduction 4

2B. The Scheme 5

2C. Review of the Year 9

2D. Investment Review 14

3. Associated Participating Employers 24

4. Scheme Membership Statistics 26

5. Financial Statements:

5A. Fund Account 27

5B. Net Assets Statement 28

5C. Notes to the Financial Statements 29

6. Statement of Trustees’ Responsibilities 36

7. Auditor’s Reports

7A. Report of the Independent Auditor 37

7B. Independent Auditor’s Statement about Contributions 38

8. Compliance:

8A. Schedule of Contributions and Recovery Plan 39

8B. Actuarial Certificates 43

8C. Summary Funding Statement 45

9. New Benefits Structure 46



1. TRUSTEES AND ADVISERS AS AT 31st MARCH 2012

Board of Trustees First Appointed [2] Mr R. E. B. Allnutt Independent 1st April 2009 [3] Mr R. L. Bowler Pensioner 1st April 2009 [3] Mr J. L. Catney Department of Physics 4th July 2006 [2] Professor G. L. Clark School of Geography 1st April 2008 [2] Mrs A. P. Davies Department of Materials 20th February 2006 [2] Mr W. P. J. Jensen Exeter College 29th June 2011 [3] Ms K. M. M. Kele Land Agents Office 8th April 2010 [2] Mr F. N. Marshall University College 1st October 2009 [3] Ms S. L. McMinn Christ Church 1st April 2011 [1] Mr J. N. Sykes Independent (Chairman) 13th April 2011 [4] vacancy Pensioner

The bodies appointing the Trustees are: [1] The Vice Chancellor of the University. [2] The Council of the University. [3] The active membership of the Scheme. [4] The pensioners of the Scheme.

The Secretary to the Trustees is: Mr S. D. B. Ellis, Finance Division, 23-38 Hythe Bridge Street, Oxford OX1 2EP.

The Actuary appointed by the Trustees is: Mr J. Harvey, Aon Hewitt Limited, 25 Marsh Street, Bristol BS1 4AQ.

The Pensions Consultancy Services Provider appointed by the Trustees is: Aon Hewitt Limited, 25 Marsh Street, Bristol BS1 4AQ.

The provider of investment advice and related services appointed by the Trustees is: Lane Clark & Peacock LLP, 30 Old Burlington Street, London W1S 3NN.

The Investment Managers appointed by the Trustees are: Blackrock Advisors (UK) Ltd, Murray House, 1 Royal Mint Court, London EC3N 4HH. Macquarie Investment Management (UK), Level 29 Citypoint, One Ropemaker Street, London EC2Y 9HD. Prudential Assurance Co. Ltd., Abbey Gardens, 55 King’s Road, Reading, Berks, RG1 3AH. Schroder Property Investment Management, 31 Gresham Street, London EC2V 7QA. State Street Global Advisors, 20 Churchill Place, Canary Wharf, London E14 5HJ.

The Custodian appointed by the Trustees is: State Street Bank and Trust Company, 20 Churchill Place, Canary Wharf, London E14 5HJ.

The Manager of the Scheme’s Money Purchase AVC Facility is: Prudential Assurance Co. Ltd., Abbey Gardens, 55 King’s Road, Reading, Berks, RG1 3AH

The Bank appointed by the Trustees is: Lloyds TSB Bank plc, Carfax, Oxford OX1 4AA.

The Solicitor and Legal Adviser appointed by the Trustees is: Burges Salmon LLP, One Glass Wharf, Bristol, BS2 0ZX. Pensions Partner – Mr T. Illston.

The Auditor appointed by the Trustees is: RSM Tenon Audit Limited, Charterhouse, Legge Street, Birmingham B4 7EU. Engagement Partner – Mrs M. Crooks.



2. TRUSTEE’S REPORT TO THE MEMBERS

2A. INTRODUCTION

The Trustees of the University of Oxford Staff Pension Scheme (“OSPS”) have pleasure in presenting the Annual Report and Accounts of the Scheme for the year to 31st March 2012.

The purpose of the Report is to describe to members how the Scheme and its investments have been managed during the year and to highlight a number of key administrative matters. The Report does not take into account the value of liabilities to pay pensions and other benefits in the future - this is reviewed when periodic actuarial valuations of the Scheme are carried out. The last actuarial valuation of the Scheme was completed as at 31st March 2010 and the Scheme’s Summary Funding Statement is included on page 45 of this Report. The Actuary’s Certification of the Technical Provisions is included on page 44 of this report.

This Annual Report meets all the requirements of current legislation and related Regulations.

Additional Voluntary Contributions (“AVCs”) are invested under the same Trust Deed and Rules as members’ and employers’ normal contributions to the Scheme. Members who have chosen to invest their AVCs with Prudential receive an individual benefit statement from Prudential each year outlining the value of their accumulated funds.

The Financial Statements for the year to 31st March 2012 are set out on pages 27 to 35.

This Report and the Financial Statements on pages 27 to 35 were approved by the Trustees on [26th September 2012] and signed on behalf of all the Trustees by:

Trustee:

Trustee:



2. TRUSTEE’S REPORT TO THE MEMBERS

2B. THE SCHEME

2B.1 INTRODUCTION

The University of Oxford Staff Pension Scheme was set up in 1978, originally to provide pensions for the technical, clerical and ancillary staff of the University. Since that time, it has welcomed the participation of Colleges and other bodies affiliated to the University as Associated Participating Employers. The Associated Participating Employers make up around 40% of the active membership of the Scheme.

The Scheme is a “defined benefit” scheme – it provides retirement and other benefits that are dependent on the member’s length of service and final pensionable salary.

2B.2 TRUST DEED AND RULES

2B.2.1 Trust Deed and Rules

The Scheme is administered in accordance with the Trust Deed and Rules, the most recent definitive version of which was executed on 1st January 2011. The new Trust Deed and Rules incorporates all the amendments to 1st January 2011. The Trust Deed and Rules also refer to any overriding legislation.

2B.2.2 Scheme Changes

During the course of the year, the scheme was amended once. On 1st October 2011, an amended deed was executed to insert a rule specifying the benefits to be paid in the event of the death of a member in service after the normal pension date. This provision had been inadvertently omitted.

Subsequent to the year end, on 29th May 2012, an amending deed was executed to permit flexible apportionment arrangements and to record a flexible apportionment arrangement in respect of the Oxford University Rugby Club. Further details are recorded on page 10 (section 2C.3) of this Report.

2B.3 TRUSTEES

2B.3.1 Constitution of the Trustees

Eleven Trustees manage the Scheme. Four (one of whom may be a pensioner) of these are members of the Scheme elected by the active members of the Scheme, one is a pensioner elected by the pensioners of the Scheme, five are appointed by the Council of the University, and the eleventh Trustee, the Chairman of the Trustees, is appointed by the Vice-Chancellor of the University after consultation with the other Trustees.

A Trustee’s term of office is three years, after which time the Trustee is eligible for reappointment for a further term. There is no limit to the number of terms an individual may continue to be a Trustee. If a Trustee leaves part way through his or her term of office, their replacement will be appointed initially for the remainder of that term.

2B.3.2 Trustees

Details of the Trustees as at 31st March 2012 are shown at page 3. Subsequent changes and a list of the present Trustees are reported on page 9 (section 2C.1.1) of this Report.

The Trustees have appointed from amongst their number two sub-committees – an Investment Sub-Committee and a General Purposes Sub-Committee, details of which are set out on page 9 (section 2C.1.3) of this Report.



2B.3.3 Trustee Training

All Trustees have been given an initial briefing concerning their duties by the Secretary. In addition, codes of practice published by the Pensions Regulator are presented to them. Trustees are also encouraged to complete the on-line training programme, “trusteetoolkit”, provided by the Pensions Regulator. This programme is designed to meet the standards set out in the Pensions Regulator’s Code of Practice No. 07, “Trustee Knowledge and Understanding”. Trustees are also encouraged to attend external courses and conferences.

Additionally, formal training is delivered by either by the scheme’s legal adviser or the scheme’s actuary ahead of each Trustees’ meeting. The objective of this training, each session of which takes around one hour, is to keep Trustees up to date with regulatory developments and topics of particular interest to this scheme.

2B.3.4 Secretary to the Trustees

The Secretary to the Trustees is Mr S. D. B. Ellis. Mr Ellis is also the University’s Head of Pensions. Subsequent to the end of the year, Mr Ellis elected to take flexible retirement. The University has appointed Mrs J. Killick, formerly Head of Pensions at the BBC, to be Head of Pensions and Secretary to the Trustees, with effect from 9th July 2012.

2B.3.5 Trustees’ Responsibilities with regard to the accounts

The responsibilities of the Trustees with regard to the Scheme's accounts are shown on page 36.

2B.3.6 Member Nominated Trustees (“MNTs”)

As described on page 5 (section 2B.3.1), and in compliance with the Pensions Act 2004, five of the Trustees are persons elected by the membership of the Scheme (the so-called Member Nominated Trustees, or “MNTs”). This number exceeds the statutory minimum requirement that at least one third of the Trustees are MNTs. The Rules of the Scheme provide that four of the five MNT posts are filled by direct ballot of the active membership of the Scheme (one of these may be a pensioner and the rest must be active members of the Scheme) and the fifth post is filled by direct ballot of the pensioners of the Scheme. The process provides that a ballot would only be held if there were more nominations than vacant posts. The Trustees employed Electoral Reform Services to conduct the process on their behalf.

All Trustee posts, including those for MNTs, are subject to a three year term of office, staggered so that no more than four Trustee posts (two MNT posts) are subject to an annual ballot. However, the number of posts subject to the annual ballot may be increased in order to fill any unplanned vacancies that may arise.

2B.4 SCHEME GOVERNANCE

2B.4.1 Scheme Registration – Pension Schemes Registry

The Scheme is registered with the Pension Schemes Registry and is subject to regulation by the Pensions Regulator (TPR). The Scheme’s registration number is 10009029.

2B.4.2 Scheme Registration – HM Revenue and Customs

The Scheme is registered by the Pension Schemes and Audit Office of HM Revenue and Customs as a Registered Scheme under Schedule 36, Finance Act 2004. This enables contributions to the Scheme to be eligible for tax relief and for the Scheme to enjoy certain other tax privileges. The Scheme’s HM Revenue and Customs reference is 00333061RQ.

The Trustees are not aware of any reason why this status should be withdrawn or compromised.



2B.4.3 State Earnings Related Pension Scheme / State Second Pension

Members of the Scheme have been “contracted out” from the State Second Pension Scheme and its predecessor, the State Earnings Related Pension Scheme (SERPS) since 6th April 1995 under Part III of the Pension Schemes Act 1993 as subsequently amended. The Scheme’s contracting out reference number (SCON) is S2803061H. Each employer participating in the Scheme will have its own unique Employer’s contracting out reference number (ECON).

2B.4.4 Data Protection Registration

In compliance with the Data Protection Act 1998, the registered Data Controller of the Scheme is “The Trustees of the University of Oxford Staff Pension Scheme”. The registered Data Controller is authorised to process personal and other data in connection with the administration of the Scheme. The Scheme’s Data Protection registration number is Z6919534.

2B.4.5 Bank Account

The following arrangements have been made in connection with banking facilities for the Scheme:

(a) The Scheme maintains its own bank account with Lloyds TSB plc, separate from the banking facilities used by either the Principal Employer or any of the Associated Participating Employers. This account is used to accept Scheme contributions from all the Associated Participating Employers, all transfer values received and the net value of contributions received from the University (see below). The account is also used for monetary transactions between the Scheme and the Investment Managers, and to pay all benefits (except pensions, see below) and expenses in respect of the Scheme.

(b) The University, as administrator of the Scheme, pays through its own accounts pensions to members and their beneficiaries. Payments from the bank account of the University are offset against Scheme contributions receivable from the University, the net value of which is either paid into or from the Trustees’ bank account.

2B.4.6 Compliance and Governance

The Trustees actively seek to comply with all relevant legislation and to manage the scheme in accordance with “best practice” as expressed in the codes of practice published by the Pensions Regulator. In pursuit of this aim, Trustees are encouraged to undertake the training described on page 6 (section 2B.3.3.).

The Trustees have also undertaken an assessment of the risks of managing the Scheme. The initial assessment was carried out with assistance from an external specialist, and has resulted in a list of risks and their associated evaluation of the degree of each risk. During the course of the year, Trustees have undertaken a rolling review of the highest risks with the aim of putting in place appropriate controls or processes to mitigate those risks. The Trustees will continue to undertake a rolling review of the risk register.

Trustees also monitor internal controls, in accordance with the Pensions Regulator’s Code of Practice 09 (“Internal Controls”), to mitigate the risks of fraud and financial mismanagement. The Trustees have also reviewed a draft anti-bribery policy, which was finalised and adopted after the end of the year. No fraud, bribery or mismanagement has been identified.

2B.4.7 Dispute Resolution Procedure

The Trustees have devised and published a dispute resolution procedure to consider complaints from members or their representatives. The Trustees reviewed and adopted a revised procedure at their meeting on 12th April 2012, the revision being recommended by the General Purposes Sub-Committee.

The revised procedure comprises a number of stages as follows:

(a) A complainant should write to the Secretary, who will discuss the complaint with the General Purposes Sub-Committee. The Secretary will communicate the outcome of those discussions to the complainant.



(b) Should the complainant remain dissatisfied, he or she should appeal to the Trustees by writing to the Chairman of the Trustees at the University Offices. The Chairman will discuss the complaint with his fellow Trustees and will communicate the Trustees’ decision to the complainant.

(c) If the complainant is still not satisfied, he or she has the right to take up the complaint with the Pensions Advisory Service, and/or the Pensions Ombudsman.

Full details are available from the Pensions Officer or the Secretary (see page 1 for contact details).

2B.5. EMPLOYERS

2B.5.1 Principal Employer

The Principal Employer sponsoring the Scheme is the University, or to be more precise, the Chancellor, Masters and Scholars of the University of Oxford.

2B.5.2 Associated Participating Employers

The Scheme has welcomed many Colleges and other bodies affiliated to the University as Associated Participating Employers. At 31st March 2012, there were 47 active and 8 former Associated Participating Employers, a list of which is shown on pages 24 and 25.

2B.6. APPOINTMENT OF SCHEME ADVISORS

During the year the Trustees continued to be advised by a number of independent pension specialists, all of whom were formally appointed.

Actuarial advice was provided by Mr J. Harvey, of Aon Hewitt Limited.

Technical advice and advice on general administrative matters was provided by Aon Hewitt Limited.

Burges Salmon is the Scheme’s solicitor and legal advisor and RSM Tenon Audit Limited is the Scheme’s auditor.

Investment advice was provided by Aon Hewitt Limited until the appointment of Lane Clark & Peacock LLP on 1st November 2011 as the Scheme’s investment adviser.

Further details of the Scheme’s advisors are shown on page 3.

2B.7. APPOINTMENT OF SCHEME ADMINISTRATOR

In 2001, the Trustees entered into a formal administration agreement with the University. The agreement appointed the University as administrator of the Scheme, set service standards and standard charges for the routine administration of the Scheme.

The agreement was updated and confirmed by the Trustees at their meeting on 16th April 2009. The University and the Trustees continue to work in partnership within the framework of the administration agreement to improve the efficacy of the Pensions Department.

The Trustees wish to record their appreciation for the hard work of the administrative staff assigned to the administration of the Scheme.



2. TRUSTEES REPORT TO THE MEMBERS

2C. REVIEW OF THE YEAR

2C.1. TRUSTEES

2C1.1. Retirements and Appointments

Details of the constitution and number of Trustees are detailed on pages 5 and 6 of this report. The Trustees in post as at 31st March 2012 are listed on page 3.

During the year under report, in accordance with the terms of office, the appointments of Ms S. L. McMinn, Mr R. L. Bowler, Mr F. N. Marshall and Mr R. E. B. Allnutt ended at 31st March 2012.

Mr B. J. Kemp, a founder Trustee of the Scheme, died on 27th January 2012 and the Trustees extend their sincere condolences to his widow and family.

In accordance with the arrangements for the election of Member Nominated Trustees (see page 6), a letter sent in January 2012 to all active members asking for nominations to fill the vacancy for two Member Nominated Trustees vice Ms McMinn and Mr Bowler, and at the same time a letter was sent to all pensioner members asking for nominations to fill the vacancy for a Member Nominated Trustee vice Mr Kemp.

In the event, there were four nominations for the two “active member” vacancies and a ballot of the active membership was duly held. The result of the ballot, reported by Electoral Reform Services on 1st April 2012, was that Mr Bowler and Ms McMinn won the majority of votes and were therefore elected to serve as Trustees for a three year term to 31st March 2015.

With regard to the pensioners’ nominations, there was only one nomination received, from Mrs F. M. Battye. Mrs Battye had been a former MNT prior to her retirement in 2008 There being no other nominations, Mrs Battye was elected unopposed to serve as a Trustee for the remainder of Mr Kemp’s term, i.e. from 1st April 2012 to 31st March 2014, when she will be eligible to stand for re-election.

Accordingly, the Trustees at the date of this report were: Mr R. E. B. Allnutt, Mrs F. M. Battye, Mr R. L. Bowler, Mr J. L. Catney, Professor G. L. Clark, Mrs A. P. Davies, Mr W. P. J. Jensen, Ms K. M. M. Kele, Mr F. N. Marshall, Ms S. L. McMinn, and Mr J. N. Sykes (chairman).

2C.1.2. Meetings of the Trustees

During the year to 31st March 2012, the full board of Trustees met formally four times, on 14th April 2011, 2nd June 2011, 6th October 2011 and 5th January 2012.

2C.1.3. Sub-Committees of the Board of Trustees

As mentioned on page 5 of this report, the Trustees have appointed from amongst their number two sub-committees – an Investment Sub-Committee and a General Purposes Sub-Committee, details of which follow.

The Investment Sub-Committee (ISC) meets quarterly, or more frequently if required, to review the progress of the Scheme’s investments, and to consider and recommend to the full Board of Trustees changes in investment strategy, allocations and other investment related matters. As at 31st March 2012, the ISC comprised Mr J. N. Sykes (Chairman), Mr R. E. B. Allnutt, Mr J. L. Catney, Mr F. N. Marshall and Professor G. L. Clark. The ISC met on 26th May 2011, 25th August 2011, 24th November 2011, and 19th March 2012 to review progress over the previous calendar quarter. The ISC also met on monthly between the quarterly meetings to consider investment strategy.

The General Purposes Sub-Committee (GPSC) deals with matters such as applications for ill-health retirement, the disbursement of cash lump sums arising upon the deaths of members, the



payment of adult & child dependant's pensions and such other delegated business as the Trustees have determined. The GPSC is scheduled to meet monthly, but does not meet if there is no business for it to conduct. All matters dealt with by the GPSC are reported to the next full Trustees’ meeting for ratification. As at 31st March 2012, the GPSC comprised Mrs A. P. Davies (Chairman), Mr R. L. Bowler, Mr J. L. Catney and Ms K. M. M. Kele. There was one vacancy as at the end of the year which was subsequently filled by Ms S. L. McMinn.

2C.1.4. Transition to Corporate Trustee

The Trustees have for some time been considering a move to managing the Scheme by a Corporate Trustee. A Corporate Trustee would be an independent company limited by guarantee. It would be the sole trustee of the scheme. The present individual Trustees would become Directors of the corporate trustee. The Director’s terms of office and methods of appointment would be exactly the same as for the current Trustees.

The key advantage of a corporate trustee is that it provides greater protection to its Directors than individual Trustees are afforded. This makes it easier for individual members to stand for Director posts, knowing that their personal liability is limited by the corporate trustee’s articles of association.

It is planned to make this transition to a corporate trustee before the end of 2012.

2C.2. SCHEME

Apart from the changes described on page 5 (section 2B.2.2) of this report, there were no other scheme changes during the year.

The Scheme’s investment strategy, allocations and investment management are described in the “Investment Review” section of this report, pages 14 to 23.

2C.3. ASSOCIATED PARTICIPATING EMPLOYERS

The full list of Associated Participating Employers as at 31st March 2012 is shown on pages 24 and 25.

During the course of the year, it was discovered that the Oxford University Rugby Football Club had been participating in the Scheme in respect of its employees. The Trustees determined that the Club could participate in the Scheme if it could find a guarantor willing to be joined with it in the deed of adherence. The Club was unable to find a guarantor, so the Trustees had no alternative but to terminate the Club’s participation. The Club was unable to meet the debt that arose on this cessation event, but the University agreed to enter into a flexible apportionment agreement with the Club and the Trustees whereby the Club’s debt is apportioned to the University. The agreement, which also amended the Rules to accommodate such an arrangement, was executed on 29th May 2012.

2C.4. REVIEW OF EMPLOYER COVENANTS

Having considered the strength of each participating employer’s covenant with the Scheme in the preceding year, a further review was deferred until the next year (2012/13). The previous year’s review concluded that all the participating employers were likely to be able to continue to pay the requisite employer contributions into the future and also that the employers all had sufficient assets to be able to meet the estimated employer debt should the need arise.

2C.5. MEMBERSHIP

The number of active members increased slightly over the year, and overall membership continued to grow. Overall movement in the numbers of active members, deferred pensioners and pensioners is as follows.

The number of active members increased to 4,192 at 31st March 2012.

The number of former members with preserved benefits increased to 3,652 at 31st March 2012.



The number of members and beneficiaries in receipt of a pension grew to 3,164 at 31st March 2012.

An analysis of membership movements during the year is shown on page 26.

2C.6. INCREASES TO PENSIONS IN PAYMENT

The scheme provides for preserved pensions and pensions in payment to be increased in line with price inflation as measured by the movement in the Retail Prices Index (RPI) over twelve months to September each year. New preserved pensions and new pensions receive a proportionate increase. Increases are applied annually in April.

Percentage increases paid by the scheme in the past ten years are as shown in the following table:

Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Increase % 1.7 2.8 3.1 2.7 3.6 3.9 5.0 0.0 4.6 5.6

2C.7. SCHEME RULES

As reported on page 5 (section 2B.2.2.) of this report, the rules of the scheme were amended once during the course of the period of this report and once subsequent to the end of the year.

2C.8. SALARY EXCHANGE FOR PENSION CONTRIBUTIONS

The University operates an arrangement known as “Salary Exchange”. Members of the Scheme are automatically enrolled into Salary Exchange three months after joining the Scheme unless the member applies in writing to opt out from the arrangement. Under Salary Exchange, a member of the Scheme is deemed to have reduced his or her pensionable salary by an amount equivalent to their normal Scheme contribution. At the same time, the deduction from salary for their normal Scheme contribution is reduced to nil and the University increases its contribution by the same amount. The overall contribution to the Scheme remains the same, and the member’s pensionable salary and Scheme benefits are not affected. At the date of this report, this facility does not apply in respect of member’s additional voluntary contributions.

The advantage of Salary Exchange is that both the member and the employer make savings in NI contributions whilst maintaining the level of benefits and retaining tax relief on contributions.

As at 31st March 2012, less than 8% of the University’s eligible employees had opted out from the Salary Exchange arrangement.

Four Associated Participating Employers are also operating similar schemes. Less than 3% of their eligible employees had opted out from their respective arrangements at 31st March 2012.

2C.9. ACTUARIAL VALUATION

The Actuary carried out the requisite triennial actuarial valuation of the Scheme as at 31st March 2010. Preliminary results were reported to the Trustees in early 2011. Since that time, the Trustees have been in discussion with the University to agree the results, the Statement of Funding Principles, the Schedule of Contributions, and the Recovery Plan. These items were all agreed on 30th June 2011, within the statutory time limit for agreeing and adopting the valuation.

The valuation showed that the Scheme had an actuarial deficit as at 31st March 2010 of £82.4 million against liabilities of £393.9 million, giving a funding target ratio of 79% funded. The report showed the ongoing funding of the Scheme could be met by employee contributions at the rate of 6.35% of pensionable salaries and long term employer contributions of 21.5% of pensionable salaries. This contribution rate is designed to improve the scheme’s funding target ratio to 100% funded over seventeen years.



A copy of the full report of the actuary is available on the Scheme’s web site, the URL of which is: http://www.admin.ox.ac.uk/media/global/wwwadminoxacuk/localsites/finance/documents/pensions/osps/Valuation_Report_FINAL.pdf.

The Actuary is expected to carry out the next triennial valuation as at 31st March 2013, the results of which are expected to be agreed and published in 2014.

2C.10. SCHEDULE OF CONTRIBUTIONS AND RECOVERY PLAN

Consequent to the Actuarial valuation as at 31st March 2010, the Actuary certified a Schedule of Contributions in compliance with the requirements of the Pensions Act 2004. The Schedule sets out the rates of employees’ and employers’ contributions and has been agreed by the Trustees and the University on behalf of all the participating employers. The Trustees and the University have also agreed a Recovery Plan which confirms the employers will continue to contribute at the 21.5% of total pensionable salaries. The formal Schedule and Recovery Plan are replicated on pages 39 - 42 of this report. The original Schedule and Recovery Plan is available for inspection at the Pensions Office.

2C.11. CONTINGENT ASSET

The Trustees and the University have agreed to create and maintain a “contingent asset”. This is an asset which can be assigned to the Trustees in the extreme event that the University is unable to continue to meet its contribution obligations. The asset represents additional resources available to the Trustees to ensure that all accrued benefits are secured in full should the Scheme have to wind up following this event.

The Pensions Regulator regards the existence of a contingent asset as a major step towards reducing the risk that a scheme would require the support of the Pensions Protection Fund in the future. As such, the existence of a contingent asset will help to keep the Scheme’s levy to the Pension Protection Fund at as low a level as possible.

The agreement formalising the contingent asset was executed on 22nd September 2009. The contingent asset takes the form of a floating charge on certain of the University’s assets specified in a reserve set up in the University’s accounts. The first such reserve was reported in the University’s financial statements for the year to 31st July 2009. The reserve comprised a list of property and cash, the total value of which as at 31st July 2011 was certified by an independent chartered surveyor to be £100m.

2C.12. TRANSFER VALUES

The Trustees reviewed the basis for calculating transfer values (cash equivalents) paid from the Scheme in October 2011. Having taken advice from the Actuary, the Trustees decided a method and assumptions to calculate transfer values. The assumptions follow the Scheme’s “technical provisions” – broadly, the assumptions used in the latest actuarial valuation of the Scheme as at 31st March 2010 as agreed on 30th June 2011. Accordingly, during the period of this report, transfer values have been calculated in accordance with the Occupational Pension Schemes (Transfer Values) Regulations 1996 as amended by the Occupational Pension Schemes (Transfer Values) (Amendment) Regulations 2009. No discretionary benefits have been included in the calculation of transfer values. None of the cash equivalent transfer values paid was less than the full value of the member’s preserved benefits.

The Scheme continues in membership of the Public Sector Transfer Club, which enables scheme transfers between participating employers to be made on a benefits equivalent basis.

2C.13. LEGISLATION

There was no significant piece of legislation affecting the Scheme during the course of the period of this report.

http://www.admin.ox.ac.uk/media/global/wwwadminoxacuk/localsites/finance/documents/pensions/osps/Valuation_Report_FINAL.pdf

http://www.admin.ox.ac.uk/media/global/wwwadminoxacuk/localsites/finance/documents/pensions/osps/Valuation_Report_FINAL.pdf



2C.14. CHANGES TO THE BENEFITS STRUCTURE

Following a detailed review of the Scheme and its funding, the University proposed changing the benefits structure of the scheme from a final salary basis to a career average basis. Two alternatives proposals were put to the active contributors to the scheme and eligible employees who had not joined the scheme in a formal consultation process. All recipients of the consultation document were asked to respond with their preferred proposal. The consultation period ended in late June 2012, and responses showed a clear preference for “Package A”, a summary of which is shown on page 46 of the report. On 9th July 2012, the Council of the University, on behalf of itself and all the participating employers, approved the implementation of the package of changes with effect from 1st January 2013. The University has now asked the Trustees to make the necessary changes and work is progressing on this.

2C.15. SUMMARY OF CONTRIBUTIONS PAID IN THE YEAR TO 31ST MARCH 2012

The contributions payable to the scheme during the period to 31st March 2012 by the Employers under the Schedule of Contributions were as set out below.

£000

Ordinary Contributions

from members: 2,356

from employers:

Ongoing funding: 14,781

Re members’ Salary Exchange: 2,968

Deficit Funding: 3,289

Augmentations: 17

Contributions payable under the Schedule of Contributions: 23,411

Other Contributions

from members:

AVCs: 486

Total Contributions Receivable 23,897

2C.16. FINANCIAL REVIEW

The financial statements on pages 27 to 35 have been prepared and audited in compliance with regulations made under sections 41(1) and (6) of the Pensions Act 1995. A summary of the key points for the year to 31st March 2012 follows:

£000 £000

Scheme value at 31st March 2011 342,944 Member related income 25,408 Benefits and expenses (19,590) Net member related income 5,818 Net investment income 688 Investment management expenses (466) Increase in market value of investments 21,887

Scheme value at 31st March 2012 370,871



TRUSTEES REPORT TO THE MEMBERS

2D. INVESTMENT REVIEW

2D.1. STATEMENT OF INVESTMENT PRINCIPLES

In compliance with the provisions of the Pensions Act 1995, the Trustees have drawn up a Statement of Investment Principles (SIP). At their meeting in October 2011, the Trustees reviewed the SIP which reflected the strategic decisions that had been taken during the preceding year. The Trustees adopted the SIP as presented, noting the intention to move towards the target allocations over 2012, pending further reviews of the investment strategy.

The SIP records the Trustees’ overall investment objective which is to set a long-term investment strategy that targets an expected return over the liabilities (as valued by Gilt yields) of 2-3% per annum (net of fees).

A copy of the current SIP can be obtained from the Secretary to the Trustees at the address shown on page 1 of this Report.

2D.2. INVESTMENT MANAGERS

The Scheme’s assets are invested in accordance with the Trust Deed and Rules, the Trustees’ Statement of Investment Principles and their investment strategy as agreed with the University. In formulating the agreed strategy, the Trustees, through their Investment Sub-Committee, have taken advice from Hewitt Associates and the Scheme’s Actuary. The day-to-day management of the Scheme’s investments is delegated by the Trustees to the appointed investment managers.

During the year to 31st March 2012, the major part of the Scheme’s invested assets continued to be managed by Blackrock Advisors (UK) Ltd (“BAUK”) and State Street Global Advisors (“SSgA”). In addition, a portfolio of property unit investments is managed on behalf of the Trustees by Schroder Property Investment Management (“SPIM”); and the Trustees have allocated a sum to be invested in infrastructure investments (funds which provide capital for airports, ports, toll roads, etc.) managed by Macquarie Investment Management (UK) Limited (“MIMUK”)).

BAUK, SSgA, SPIM and MIMUK are all regulated by the Financial Services Authority.

2D.3. PERFORMANCE MEASUREMENT

The Trustees continually monitor the investment performance of the investment managers and take specialist advice in this regard from a specialist fund management performance measurement service.

During the period under report, this service was provided by WM Performance Services, a wholly owned subsidiary of the Scheme’s custodian, State Street Bank and Trust Company (see section 2D.4 below).

2D.4. SAFEGUARDING THE ASSETS

The Trustees are responsible for safeguarding the assets of the Scheme. To this end, particular attention is paid to the custodial arrangements operated by the Investment Managers. The Trustees appointed State Street Bank and Trust Company (“SSBT”) as their global custodian on 18th December 2006 to ensure the safe custody of the Scheme’s assets.

SSBT also provides a full investment accounting service and an investment performance management service with effect from 1st January 2007 (see section 2D.3 above).

The custodian’s duty is to ensure that the Scheme’s assets are properly identified and are held



separately from the assets of the investment manager. Confirmation of the existence of the Scheme’s investments is obtained from the custodian as part of the annual audit by the Scheme’s appointed auditor.

2D.5. INVESTMENT EXPENSES

BAUK charges a fee based on a sliding scale as a percentage of the market value of the investments in each investment vehicle managed by BAUK. This is expected to give rise to an annual fee of around 0.14% of the market value of the fund.

SSgA charges a policy fee of £1,000 per annum and a fee calculated on a sliding scale as a percentage of the market value of the investments in each investment vehicle managed by SSgA. The annual fee is around 0.09% of the market value of the fund.

SPIM charges a management fee of 0.2% per annum of the market value of all the assets under its management.

MIMUK charges a fee based on the commitment by the Scheme to the Macquarie European Infrastructure Fund II (“MEIF2”). These fees are charged as part of the Scheme’s commitment payments. Aon Hewitt negotiated a fee rebate arrangement in respect its clients and the Scheme’s share of the rebate is returned to the Scheme. Accordingly, the net fee payable to MEIF2 is around 0.15% per annum of the total commitment to MEIF2.

These fees are generally inclusive of internal commissions earned within each respective group. Also, fees for BAUK, SSgA and SPIM are calculated and payable at quarterly intervals. All these investment expenses are borne by the Scheme.

2D.6. BLACKROCK ADVISORS (UK) LIMITED (“BAUK”)

The Trustees appointed BAUK to provide active and indexed equity and fixed interest investment services with the following objectives:

(a) To actively manage a global, balanced portfolio of bonds (fixed interest and index-linked) which is to be invested with reference to the benchmark shown below, outperforming the return of the benchmark by 1.5% per annum, measured over rolling three year periods;

(b) To passively manage a global, balanced portfolio of equities which is to be invested with reference to the allocation shown below, achieving the highest degree of tracking accuracy against the benchmark index over time at the lowest cost possible; and

(c) To use pooled vehicles for equity and fixed income investments and cash management.

During the course of the year, the allocation to BAUK remained at around 51% of the Scheme’s total assets.

The benchmark set for BAUK is to manage a portfolio in the target proportions allocated as shown in the following table, on the next page. The table also shows the relevant index against which each sector is to be measured for performance purposes. BAUK may vary the proportion in each sector by up to 1.5% of each target allocation in order to take advantage of better performing sectors. Transition to the new target allocations indicated by the Statement of Investment Principles was postponed pending further developments in the development of a longer term investment strategy.



Market Sector

Target asset allocation

Index

UK Equities 51.5% FTSE All-Share Index

US Equities 5.8% FTSE All-World Developed USA Index

European Equities 7.8%

FTSE All-World Developed Europe (ex UK) Index

Japanese Equities

5.8%

FTSE All-World Developed Japan Index

Pacific (ex Japan) Equities

FTSE All-World Developed Asia Pacific ex Japan Index

UK Fixed Interest 5.8% FTSE UK Gilts All-Stocks Index

UK Index-linked Bonds 23.3% FTSE UK Gilts Index-Linked Over 5 Years Index

100.0%

Investments within the equity sectors are by units in BAUK’s “Aquila Life” range of pooled funds. Investments within the UK Fixed Interest sector are by units in the BAUK “Ascent Life” Gilt Fund. Investments within the UK index-linked bonds sector are by units in the BAUK “Ascent” UK Real return Bond Fund. In addition BAUK may use their Sterling Liquidity Fund for cash management.

The table below shows the distribution of the Scheme’s assets invested with BAUK as at 31st March 2012.

At 31st March 2012 At 31st March 2011

Market Sector Investments

(£m) %

allocation Investments

(£m) %

allocation

Equities:

UK 97.90 52.6 89.81 51.5

North America 11.88 6.4 10.91 6.3

Europe 13.81 7.4 13.57 7.8

Japan 5.21 2.8 5.17 3.0

Pacific ex-Japan 4.46 2.4 4.70 2.7

Total Equities 133.26 71.6 124.16 71.3

Bonds:

Fixed Interest 11.40 6.1 9.98 5.7

Index Linked 41.38 22.3 40.04 23.0

Total Bonds 52.78 28.4 50.02 28.7

Total Holdings 186.04 100.0 174.18 100.0

Cash: 0.00 0.0 0.00 0.0

Total Investments in BAUK 186.04 100.0 174.18 100.0

As % of total Scheme investments: 50.4 51.0



2D.7. STATE STREET GLOBAL ADVISORS (“SSGA”)

The Trustees appointed SSgA to provide passive indexed equity and fixed interest investment services with the following objectives:

(a) To passively manage a global, balanced portfolio which is to be invested with reference to the allocation shown below;

(b) To achieve the highest degree of tracking accuracy against the benchmark index over time at the lowest cost possible;

(c) To use pooled vehicles for equity and fixed income investments and cash management.

During the course of the year, the allocation to SSgA increased from around 37% of the Scheme’s total assets to around 39% of the Scheme’s assets. This increase can be attributed to two main factors – the relative movements in the values held by other investment managers; and the further allocation of spare cash into a new bond portfolio managed by SSgA.

SSgA have invested these assets in their Managed Pension Funds Limited insurance contract under which the assets are invested in units of various designated sub-funds as shown in the table below.

The benchmark set for SSgA is to manage a portfolio in the target proportions allocated as shown in the following table. The table also shows the relevant index against which each sub-fund is to be measured for performance purposes. SSgA may vary the proportion in each sector by up to 1.5% of each target allocation in order to facilitate the achievement of their objectives. Transition to the new target allocations indicated by the Statement of Investment Principles was postponed pending further developments in the development of a longer term investment strategy. The target proportions shown below do not include the additional allocation by the Trustees of spare cash to a new bond portfolio managed by SSgA.

Managed Pension Funds Limited (MPF) sub-fund

Target asset allocation

Index

UK Equity Index sub-fund 50.0% FTSE All-Share Index

North America Equity Index sub-fund

6.0% FTSE All-World USA Index

Europe ex UK Equity Index sub-fund

8.0% FTSE All-World Europe (ex UK) Index

Asia Pacific ex-Japan Equity Index sub-fund

6.0% FTSE All-World Developed Asia Pacific (ex-Japan) Index

UK Conventional Gilts Over 15 Years Index sub-fund

5.0% FTA British Government Conventional Gilts Over 15 Years Index

Index-Linked Gilts Over 5 Years Index sub-fund

25.0% FTA British Government Index-Linked Gilts Over 5 Years Index

100.0%

The following table overleaf shows the distribution of the Scheme’s assets invested with SSgA as at 31st March 2012.





(£m) %


(£m) %

allocation

Equities:

UK 58.19 40.8 55.00 43.4

North America 7.27 5.1 7.14 5.7

Europe 9.43 6.6 8.31 6.6

Pacific ex-Japan 7.04 4.9 7.50 5.9

Total Equities 81.93 57.4 77.95 61.6

Bonds:

Fixed Interest 14.18 9.9 10.94 8.6

Index Linked 46.55 32.7 37.73 29.8

Total Bonds 60.73 42.6 48.67 38.4

Total Holdings 142.66 100.0 126.62 100.00

Cash: 0.0 0.0 0.00 0.0

Total investments 142.66 100.0 126.62 100.0


2D.8. SCHRODER PROPERTY INVESTMENT MANAGEMENT (“SPIM”)

The Trustees appointed SPIM to provide passive and active property investment services with the following objectives:

(a) To invest the assets allocated to SPIM in a range of property investments;

(b) To out-perform the benchmark index, the IPD UK Pooled Property Fund Indices – All Balanced Funds Weighted Average, by 0.5% per annum, net of fees, over rolling three year periods;

(c) To use pooled vehicles for the investments in property and for cash management.

During the course of the year, the allocation to SPIM was maintained at around 5.8% of the Scheme’s total assets. There was a small decrease attributable to the relative poor performance of this asset class against the Scheme’s other investments.

SPIM have invested these assets in a range of property unit trusts, six of which are regarded as “core” funds, six of which represent specialist funds, one is designated as an “opportunity” fund and one is a European property fund. Holdings in the opportunity fund have been realised and re-allocated elsewhere. The funds and their relative allocations, together with their designation, are shown in the table overleaf.




Property Unit Trust Type 1 Investments

(£m) %


(£m) %

allocation

BlackRock UK Property Fund C 2.70 12.0 2.69 12.4

Hermes Property Unit Trust C 2.87 12.8 2.81 12.9

Schroder Exempt Property Unit Trust

C 2.50 11.1 2.45 11.2

Standard Life Investments Pooled Pension Property Fund

C 3.02 13.5 2.89 13.3

Threadneedle Property Unit Trust

C 2.07 9.2 1.54 7.1

Mayfair Capital Property Unit Trust 2

C 0.57 2.5 0.19 0.9

Henderson Central London Office Fund

S 1.49 6.6 1.51 7.0

Hercules Unit Trust S 0.94 4.2 0.44 2.0

RREEF UK Industrial Property Fund

S 1.51 6.7 1.54 7.1

UNITE UK Student Accommodation Fund

S 0.41 1.8 0.39 1.8

Hansteen UK Industrial Property Trust

S 0.83 3.7 0.78 3.6

Real Income Fund 3 S 0.12 0.5 - -

Ediston Opportunity Fund O - - 0.57 2.6

Schroder Real Estate Fund of Funds – Continental Europe Fund II 4

E 2.40 10.7 2.19 10.1

Total Holdings: 21.43 95.3 19.99 92.0

Cash 1.08 4.8 1.70 7.8

Other Investment Balances 5 (0.03) (0.1) 0.04 0.2

Total: 1.05 4.7 1.75 8.0


As % of total Scheme investments:

6.1 6.4

Notes:

1. Type is as follows: “C” is a Core fund, “S” is a Specialist fund, “O” is an Opportunity fund, and “E” is an

European fund.

2. The Trustees have committed to a total investment of £800,000 to the Mayfair Capital Property Unit

Trust. As at 31st March 2012, £147,000 remains to be drawn down as and when suitable opportunities

arise.

3. The Trustees have committed to a total investment of £400,000 to the Real Income Fund. As at

31st March 2012, £276,000 remains to be drawn down as and when suitable opportunities arise.

4. The Trustees have committed to a total investment of €3,600,000 (approximately £3,001,000 as at

31st March 2012) to the Continental Europe Fund II. As at 31

st March 2012, €258,000 (approximately

£215,000) remains to be drawn down against this commitment as and when suitable opportunities arise.

5. “Other Investment Balances” includes the accrual of dividends to be re-invested and liabilities for

investments purchased.



The Continental European Fund II, the Ediston Opportunity Fund, the Henderson Central London Office Fund, the Hercules Unit Trust, and the UNITE UK Student Accommodation Fund are closed funds which limit the disposability of units in those funds. Units in all the other funds are freely tradeable at either monthly or quarterly intervals.

In 2011, the Trustees committed £800,000 of equity to the Mayfair Capital Property Unit Trust, of which £147,115 remains to be drawn down against this commitment as and when suitable investment opportunities arise. This was a new fund which SPIM helped to set up as an exclusive vehicle for Schroder UK Property Multi Manager clients. As founding investors, SPIM has been able to shape the terms, strategy and risk profile of the fund to match the strategy of this portfolio. To that end, the fund aims to provide a low risk, diversified exposure to all mainstream commercial property markets with low gearing and a bias towards income.

During the course of the year, SPIM committed £400,000 of equity to the Real Income Fund, of which £276,000 remains to be drawn down against this commitment as and when suitable investment opportunities arise.

The exposure to the property market may be re-classified according to the type of property, as shown in the following table, which reflects the position as at 31st March 2012.

Property Sector % of assets allocated

Central London Offices 16.7

Rest of UK Offices 12.0

Industrial 20.6

Standard Retail 8.4

Shopping Centres 4.7

Retail Warehouses 14.6

Other (e.g. European Real Estate) 23.0

100.0

2D.9. MACQUARIE INVESTMENT MANAGEMENT UK LIMITED (“MIMUK”)

The Trustees appointed MIMUK to provide passive and active infrastructure investment services with the following objectives:

(a) To invest the assets allocated to MIMUK in an European infrastructure portfolio;

(b) To out-perform the benchmark index by 5.0% per annum, net of fees, over rolling three periods;

(c) To use pooled vehicles for the investments and for cash management.

During the course of the year, the allocation to MIMUK increased both in currency terms and also increased as a proportion of the scheme’s assets to around 4.5% of the Scheme’s total assets. As expected, MIMUK continued to draw down against the Trustees’ commitment of €18,000,000, culminating in a final drawdown in January 2012. The Trustees are now fully committed to this fund with a total investment of €18,000,000 (approximately £15,003,000 as at 31st March 2012).

MIMUK has invested these assets in their Macquarie European Infrastructure Fund II (MEIF2”), a limited partnership arrangement, which had a final closing on 29th June 2009 with total investor commitments of around €4.63 bn.



The benchmark index is the Retail Prices Index.

The following table shows the distribution of the Scheme’s assets invested with MIMUK as reported at 31st March 2012 converted to GBP by the exchange rate as at 31st March 2012.


Infrastructure Fund Investments

(£m) %


(£m) %

allocation

Macquarie European Infrastructure Fund II1

15.17 100.0 15.24 100.0

Total Holdings: 15.17 100.0 15.24 100.0

Cash: 0.00 0.0 0.00 0.0

Other Investment Balances2: 0.00 0.0 0.00 0.0

Total: 0.00 0.0 0.00 0.0



Notes:

1. The Trustees committed to a total investment of €18,000,000 (approximately £15,003,000 as at 31 March

2012) to the MEIF2. As at 31st March 2012, this commitment has been fully drawn.

2. “Other Investment Balances” includes accrual of dividends to be re-invested.

2D.10. INVESTMENT REPORT

2D.10.1 The Value of the Scheme’s Assets

In common with most other funded occupational pension schemes, a significant part of the Scheme’s assets are invested in equities. Consequently, the Scheme’s assets were significantly affected by the world-wide sentiment in equity markets over the year.

The value of the Scheme’s investments increased from £341.5 million to £369.0 million during the year to 31st March 2012. The increase in value, £27.5 million, derives from £5.4 million of new money being invested during the period, plus £0.7 million investment income and other investment balances, less investment management expenses of £0.5m, plus an increase in the overall market value of the investments held at 31st March 2011 or acquired during the year of £21.9 million.

Subsequent to the end of the year, the financial markets remain volatile so the value of the assets of the Scheme are not growing at the expected rate. The Trustees continue to monitor the situation, mindful that they have invested the assets for the long term.

2D.10.2 Trustees’ Review of Investment Strategy

During the course of the year, equity markets strengthened but, subsequent to the end of the year, have fallen again. The Trustees placed new money into a bond portfolio managed by SSgA. The allocation to the Macquarie infrastructure fund is now fully funded and the allocation to Schroder’s European property fund is 93% funded with the remaining commitment held in cash (Euros) pending final allocation. It is the policy for Trustees to continue to place new money on the money markets when interest rates are appropriate, awaiting the opportunity to invest when market conditions are appropriate.

As previously reported, the Trustees have been reviewing their investment strategy. The Trustees are taking a long term view and do not wish to take precipitate action that they might



later regret. In particular, they wish to avoid the necessity to sell equities to fund new allocations, preferring instead to utilise the SSgA bond allocation and other net income.

The Trustees are continuing to review their strategy and further movement towards the allocations reported in the previous year’s Annual Report has been suspended, although committed payments to the property portfolio managed by SPIM (page 19, section 2D.8) continued as required.

Instead, the Trustees have agreed to reduce the allocation to UK equities, and utilise some of the bond portfolio managed by SSgA, by appointing four specialist managers to achieve greater diversity whilst also seeking to invest in return generating assets. To this end, the Trustees have appointed Capital International Portfolios to invest in the emerging markets sector. The Trustees have allocated £14m to this investment which was made on 12th June 2012. In addition, the Trustees have appointed Baring Asset Management Limited to manage an investment of around £18m in their Global Brands Fund, Standard Life Assurance Company Limited to manage an investment of around £14m in their Global Absolute Returns Strategy Fund, and BAUK to manage an investment of around £14m in the Blackrock Dynamic Diversified Growth Fund. These last three investments have not yet been finalised. The Trustees are also considering merging the passively managed assets that are currently placed with both SSgA and BAUK.

As a result of these decisions, the actual distribution of investments as shown in the table on the following page (section 2D.10.4) does not match with either the target allocations set out in the preceding sections or the target allocations set out in the Statement of Investment Principles. These target allocations will be re-defined as part of the ongoing investment strategy review during the course of the next twelve months. A revised Statement of Investment Principles will be considered by the Trustees at their meeting in September 2012.

2D.10.3 The Performance of the Scheme’s Assets

Over the twelve months to 31st March 2012, the Scheme’s invested assets achieved a return of 6.5%, 0.9% less than the benchmark return. As reported in section 2D.5 above, the fees payable reflect the total assets under management. Consequently, fees over the twelve months to 31st March 2012 have increased as a result of this growth in the Scheme’s assets.

As a guide to the longer-term achievements of the Scheme’s invested assets, the table below shows weighted average benchmark investment returns over three years and five years to 31st March 2012:

Period Benchmark Scheme Assets Performance

Over 3 years 15.2% pa 15.3% pa 0.1% pa

Over 5 years 3.9% pa 3.6% pa -0.3% pa



2D.10.4 The Distribution of the Scheme’s Investments at 31st March 2012

The following table shows the distribution of the Scheme’s investments as at 31st March 2012.

At 31st March 2012, there was no employer related investment.



(£m) % allocation Investments

(£m) %

allocation

Equities:

UK 156.09 42.3 144.81 42.4

North America 19.15 5.2 18.05 5.3

Europe 23.24 6.3 21.88 6.4

Japan 5.21 1.4 5.17 1.5

Pacific ex-Japan 11.49 3.1 12.20 3.6

Total Equities 215.18 58.3 202.11 59.2

Bonds:

Fixed Interest 25.59 6.9 20.92 6.1

Index Linked 87.93 23.8 77.77 22.8

Total Bonds 113.52 30.8 98.69 28.9

Other Investments:

Property 21.43 5.8 19.99 5.8

Infrastructure Funds 15.17 4.1 15.24 4.5

WPIA2 2.05 0.6 2.19 0.6

AVC3 0.16 0.0 0.20 0.1

Total Other Investments 38.82 10.5 37.62 11.00

Total Holdings 367.52 99.6 338.42 99.1

Cash4 1.35 0.4 3.08 0.9

Other Investment balances5 (0.03) 0.0 0.04 0.0

Total Investments 368.84 100.0 341.54 100.0

Notes:

1. Sections 2D.6, 2D.7, 2D.8 and 2D.9 above show the breakdown of the investments held by each of the Investment Managers.

2. “WPIA” is a With Profits Investment Account with the Prudential Assurance Company, representing the members’ share of the 1998 surplus distribution.

3. “AVC” is members’ Additional Voluntary Contributions invested with the Prudential Assurance Company.

4. Cash is the sum of cash held by the Investment Managers.

5. “Other Investment Balances” includes accrual of dividends to be re-invested and liabilities for investments

purchased.

.



3. ASSOCIATED PARTICIPATING EMPLOYERS AS AT 31st MARCH 2012

Employer and Post Code Active Former Members Members and Pensioners

Balliol College, OX1 3BJ 72 101

Brasenose College, OX1 4AJ 54 55

Chapter House Shop, OX1 1DP 2 1

Christ Church, OX1 1DP 137 124

Corpus Christi College, OX1 4JF 56 41

Exeter College, OX1 3DP 41 75

Green Templeton College, OX2 6HG 24 96

Green Templeton Services Limited, OX2 6HG 2 1

Hertford College, OX1 3BW 54 74

ISIS Innovation Limited, OX2 7SG 8 14

Jesus College, OX1 3DW 51 120

Keble College, OX1 3PG 48 82

Lady Margaret Hall, OX2 6QA 44 59

Linacre College, OX1 3JA 25 32

Lincoln College, OX1 3DR 67 47

Magdalen College, OX1 4AU 114 41

Mansfield College, OX1 3TF 23 13

Merton College, OX1 4JA 87 81

New College, OX1 3BN 65 106

Nuffield College, OX1 1NF 32 59

Oxford Centre for Hebrew and Jewish Studies, OX5 1PY 13 29

Oxford Centre for Islamic Studies, OX1 2AR 2 9

Oxford Colleges Admissions Office, OX1 2JD 8 11

Oxford Limited, OX1 4BW 3 7

Oxford Said Business School Ltd, OX1 1HP 52 23

Oxford University Endowment Management, OX1 2JD 0 1

Oxford University Students Union, OX1 2HU 6 6

Pembroke College, OX1 1DW 67 33

The Queen’s College, OX1 4AW 56 46

Regent’s Park College, OX1 2LB 6 1

Rhodes House (The Rhodes Trust), OX1 3RG 5 9

Ruskin College, OX1 2HE 30 46

St Anne’s College, OX2 6HS 67 52

St Antony’s College, OX2 6JF 41 91

St Catherine’s College, OX1 3UJ 47 36

St Edmund Hall, OX1 4AR 60 53

St Hilda’s College, OX4 1DY 44 58

St Hugh’s College, OX2 6LE 59 55

St John’s College, OX1 3JP 2 3

St Peter’s College, OX1 2DL 29 73

St Stephen’s House, OX4 1JX 3 3



2. ASSOCIATED PARTICIPATING EMPLOYERS AS AT 31st MARCH 2012 continued

Employer and Post Code Active Former Members Members and Pensioners

Trinity College, OX1 3BH 45 66

University College, OX1 4BH 50 35

Voltaire Foundation, OX2 6JX 1 4

Wadham College, OX1 3PN 46 47

Wolfson College, OX2 6UD 56 116

Worcester College, OX1 2HB 74 66

Associated Participating Employers Total Membership: 1,878 2,201

Former Associated Participating Employers:

Associated Examining Board 5

Local Examinations Syndicate 32

Oxford & Cambridge Examinations Board 16

Oxford Society, OX1 2JF 1

Somerville College 1

St Mary’s Church 1

University of Cambridge Local Examinations Syndicate 61

William Osler House, OX3 9BL 2

Former Associated Participating Employers Total Membership: 119

Notes:

1. Statistics for Magdalen College includes employees of Magdalen Development Company Limited, a wholly owned subsidiary of the College.

2. Statistics for New College includes employees of New College School, a department of the College.

3. Statistics in respect of former members include only those former members who have an entitlement to benefits under the Scheme.

4. The Principal Employer, the University of Oxford, had 2,314 active members and 4,496 former members and pensioners at 31st March 2012.



3. SCHEME MEMBERSHIP STATISTICS

At 31

st March 2012 At 31

st March 2011

Active Members:

At Start of Period 4,145 4,318

Plus: New Entrants 721 630

Less: Deaths in Service (10) (6) Retrospective Opt-outs* (82) (56) Leavers taking Refund (29) (23) Leavers with Preserved Benefits (270) (327) Undecided Leavers (149) (185) Retirements (134) (206)

At End of Period: 4,192 4,145

* Retrospective opt-outs are eligible employees who elect to opt out from membership shortly after their automatic entry into the Scheme. The opt-out is with effect from the date of joining the scheme.

Former Members with Preserved Benefits (including Undecided Leavers):

At Start of Period: 3,532 3,380

Plus: Leavers with preserved benefits 270 327 Undecided Leavers 150 185 Other new preserved pensioners 1 4

Less: Transfers Out (91) (164) Deaths in Deferment (4) (4) Retirement (80) (76) Other cessations (126) (118)


Pensions in Payment:

At Start of Period: 2,974 2,742

Plus: Retirements from active membership 134 206 Retirements from deferment 80 76 New dependant’s pensions 34 30

Less: Commutations (1) (1) Cessations (57) (79)




4. FINANCIAL STATEMENTS

5A. FUND ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2012

2011/12 2010/11

Notes £000 £000

Contributions and Benefits

Contributions 3 23,897 24,269

Transfers In 4 1,511 1,681

25,408 25,950

Benefits 5 (14,351) (14,758)

Leavers 6 (4,560) (6,580)

Administrative Expenses 7 (679) (684)

(19,590) (22,022)

Net Additions from dealings with members 5,818 3,928

Returns on Investments

Investment Income 8 688 651

Investment Management Expenses 9 (466) (423)

Change in Market Value of Investments 10 21,887 24,565

Net Return on Investments 22,109 24,793

Net increase/(decrease) in fund during the year 27,927 28,721

Net Assets of the Scheme

At End of Previous Period 342,944 314,223

At End of Period 370,871 342,944

The notes on pages 29 to 35 form part of these financial statements




5B. NET ASSETS STATEMENT AT 31ST MARCH 2012

2011/12 2010/11

Notes £000 £000

Investments

Pooled Investment Vehicles 10 365,311 336,029

Money Purchase Investments 10 2,053 2,198

Cash Deposits 10 1,346 3,076

Other Investment Balances 10 94 41

368,804 341,344

AVC Investment 10 156 197

Total Investment assets 368,960 341,541

Investment liabilities 10 (123) -

Current Assets 11 3,344 2,738

Current Liabilities 12 (1,310) (1,335)

Net Assets of the Scheme at 31st March 2012 370,871 342,944

The Financial Statements summarise the transactions of the Scheme and deal with the net assets at the disposal of the Trustees. They do not take account of obligations to pay pensions and benefits that fall due after 31st March 2012. The actuarial position of the Scheme, which does take account of such obligations, is dealt with by the Scheme’s Summary Funding Statement on page 45 of this annual report and these Financial Statements should be read in conjunction with them.

The notes on pages 29 to 35 form part of these financial statements

The financial statements were approved by the Trustees on 26th September 2012 and signed on 26th September 2012 on behalf of all the Trustees by:

Trustee:

Trustee:




5C. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH 2012

Note 1. Basis of preparation.

The Financial Statements have been prepared in accordance with the Occupational Pensions Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 and in accordance with the Statement of Recommended Practice (SORP) "Financial Reports of Pension Schemes" (Revised May 2007).

Note 2. Accounting policies

A summary of the accounting policies, which have been applied consistently, is set out below:

(a) Investment and cash deposits: Listed investments are included at market value at 31st March 2012. Where appropriate, market values listed in overseas currencies are translated into sterling at the rates of exchange ruling at 31st March 2012. Transactions in overseas currencies are converted at the date of the transaction. Pooled investment vehicles are valued at 31st March 2012 at bid or last traded price. Assets held in limited partnerships are stated at the value given by the manager nearest end of the Scheme year, at the currency rate at that date.

(b) Income from investments: Receipts and other income from investments are dealt with on an accruals basis.

(c) Contribution income: Ordinary contributions are included on an accruals basis.

(d) Additional Voluntary Contributions (AVCs): AVCs are accounted for on an accruals basis, in the same way as other contributions, and the resulting investments are included in the net assets statement.

(e) Transfers in from, and out to, other schemes: Transfer values receivable from other schemes represent the amounts received during the year for members who have joined the Scheme and transferred their previous pension entitlements. Transfer values payable to other schemes represent the amounts paid during the year for members who left the Scheme and transferred their preserved pension entitlements. Group transfers are accrued if members have already transferred to/from the Scheme and a reasonable estimate of the transfer value can be made.

(f) Benefits payable: Benefits payable are accounted for as they fall due. They include all valid claims notified to the Trustees during the year.

(g) Benefits payable – annuities: The Scheme holds insurance policies to cover pensions in payment deriving from the proceeds of money purchase assets held by the Trustees. The cost of acquiring these policies is written off in the fund account for the year in which they are purchased. The policies represent the cost of discharging the obligations of the Scheme to the relevant members at the time of purchase. Accordingly, no value is attributed to these policies in the net assets statement.

(h) Profits and losses: Profits and losses on the disposal of investments are the difference between sale proceeds and the last recorded valuation of those investments.

(i) Investment management expenses: Investment management expenses are included on an accruals basis. The charging basis of these expenses for each investment manager is detailed in the Investment Review section of the Trustee Report on page 15 (section 2D.5.).



Note 3. Contributions Receivable 2011/12 2010/11

£000 £000 From Members: Ordinary Contributions 2,356 2,363 Additional Voluntary Contributions 486 597

2,842 2,960

From Employers: Ordinary Contributions 14,781 15,165 Deficit Funding 3,289 3,101 Augmentations Received 17 28 Members’ salary sacrifice 2,968 3,015

21,055 21,309

Total Contributions Receivable 23,897 24,269

Members’ and Employers’ Ordinary Contributions were paid in accordance with the Schedule of Contributions certified by the Actuary. During the period of this report, members contributed at the rate of 6.35% of pensionable salary and employers contributed at the rate of 21.5% of members’ pensionable salaries. The employer’s contribution rate comprised 17.85% for ongoing funding and 3.65% for deficit recovery for the period 1st April 2011 to 30th June 2011, and subsequently for the period 1st July 2011 to 31st March 2012, 17.5% and 4.0% respectively. The deficit recovery element is payable for 15 years from 1st July 2011.

The University operates a salary sacrifice arrangement whereby a member’s salary is reduced by the amount of the member’s ordinary contribution. The employer then pays both the member’s contribution on the member’s behalf and the employer’s contribution. A member is automatically enrolled into this arrangement three months after joining the Scheme unless the member applies in writing to opt out from the arrangement. The advantage of this arrangement is that both the member and the employer make savings in NI contributions whilst maintaining the level of benefits and retaining tax relief on contributions. As at 31st March 2012, less than 8% of the University’s eligible employees had opted out from this arrangement. Four Associated Participating Employers are also operating similar arrangements, with less than 3% of their eligible employees having opted out from their respective arrangements at 31st March 2012.

Note 4. Transfer Values Receivable from other schemes

2011/12 2010/11

£000 £000

Club Transfers In 455 431 Non-Club Transfers In 1,056 1,250

Total Transfer Values Receivable 1,511 1,681

The Scheme participates in the Public Sector Transfer Club which allows members to receive a pensionable service credit in the scheme that is equivalent in value to the previous pensionable service accrued with another Club member.



Note 5. Benefits Payable 2011/12 2010/11

£000 £000

Pensions 9,709 8,610 Lump Sum Retirement Benefits 3,693 5,061 Commutations 8 12 Lump Sum Death Benefits 941 1,075

Total Benefits Payable 14,351 14,758

Note 6. Payments to and on Account of Leavers 2011/12 2010/11

£000 £000

Refunds of Members’ Contributions and State Scheme Premiums 113 150

Individual Transfers to Other Schemes 4,447 6,430

Total Payments on Account of Leavers 4,560 6,580

Note 7. Administrative Expenses 2011/12 2010/11

£000 £000

University’s Administration Fee (see Note 13) 429 443 Chairman’s Remuneration (see Note 13) 11 9 Actuarial Fees 160 165 Audit Fee 13 13 Legal Fees 48 31 Miscellaneous Expenses 18 23

Total Administrative Expenses 679 684

Note 8. Investment Income 2011/12 2010/11

£000 £000

Income from Pooled Investment Vehicles 675 634 Short term deposit interest 1 4 Bank account interest 7 8 Interest from Investment Managers 5 5

Total Investment Income 688 651

Other pooled investment vehicles are accumulation funds and any income from the underlying assets is re-invested in the fund and is reflected in the market values of the investments.



Note 9. Investment Management Expenses 2011/12 2010/11

£000 £000

Investment Management & Custody - BAUK 252 230 Investment Management & Custody - SSgA 120 110 Investment Management & Custody - SPIM 32 46 Commitment fee and other adjustments - MIMUK 0 (24) Custody Fees – State Street Bank 50 50 Performance Measurement Services 12 12

Total Investment Management Expenses 466 423

MIMUK manages the Macquarie European Infrastructure Fund II (MEIF2) which receives fees directly as part of commitment payments to MEIF2. Aon Hewitt has negotiated a fee rebate arrangement in respect its clients and the above figures reflect the Scheme’s share of the rebate.

Note 10. Investments

(a) Asset Reconciliation

Value At Purchases Sales Change in Value At 01/04/11 at Cost Proceeds Market 31/03/12 Value £000 £000 £000 £000 £000

Pooled Investment Vehicles 336,029 20,353 (12,891) 21,820 365,311 Money Purchase Investments 2,198 - (243) 98 2,053 AVC Investment 197 51 (98) 6 156

338,424 20,404 (13,232) 21,924 367,520 Cash Deposits 3,076 (37) 1,346 Other Investment Balances 42 94

Total 341,541 21,887 368,960

(b) Transaction costs

Transaction costs are included in the cost of purchases and sale proceeds. Transaction costs include costs charged directly to the Scheme such as fees, commissions, stamp duty and other fees. Transaction costs are incurred through the bid-offer spread on investments within pooled investment vehicles and are not separately provided to the Scheme.

(c) Concentration of Investments

Although the Scheme’s investment holdings in the unit trusts managed by the Investment Managers exceeded 5% of its net assets, the diversity of the investment holdings of those unit trusts means that effectively the Scheme has no single investment holding which accounted for more than 5% of its net assets at 31st March 2012.

The list overleaf shows those unit trusts whose value exceeded 5% of the Scheme’s net assets as at 31st March 2012:



At 31/03/2012 At 31/03/2011 £000 £000 BAUK: Aquila Life UK Equity Fund Units £ 97,902 £ 89,811 Ascent UK Real Return Bond Fund Units £ 41,376 £ 40,043 SSgA Managed Pension Fund: UK Equity Index Units £ 58,187 £ 54,999 UK Over 5 years Index Linked Gilts Units £ 46,555 £ 37,731

(d) Self Investment

The Scheme has no investments in the University or any of the Associated Participating Employers. Furthermore, there was no other employer related investment at any time during the year or at the year end.

(e) Money Purchase Assets

The Scheme holds money purchase assets in the form of units in a With Profits Investment Account with the Prudential Assurance Company Limited. The assets are not designated to individual members, but form part of the investment pool that benefits may be funded from.

(f) AVC Investments

The Trustees hold assets invested separately from the main fund in the form of insurance contracts and deposit contracts with The Prudential Assurance Company Limited for members electing to pay additional voluntary contributions in this format. The proceeds from these contracts secure additional benefits on a money purchase basis. Members participating in this arrangement each receive an annual statement made up to 5th April confirming the amounts held to their account and the movements in the year.

Members may also elect to make additional voluntary contributions that are invested in the mainstream scheme investments. Members participating in this arrangement secure additional benefits by the virtue of the purchase of additional service.

(g) Pooled Investment Vehicles

At 31/03/2012 At 31/03/2011 £000 £000

Pooled Property Investments 21,434 19,987 Assets held in a UK Limited Partnership 15,175 15,237 Other Pooled Investment Vehicles 328,702 300,805

Total Pooled Investment Vehicles 365,311 336,029

Pooled property investments are managed on behalf of the Trustees by Schroder Property Investment Management (“SPIM”). Included in this range of pooled property investments are three investments in which further investment has been committed as follows.

(i) The total commitment of the Scheme to the Schroder Real Estate Fund of Funds - Continental Europe Fund II includes a total investment of €3,600,000 (approximately £3,001,000 as at 31st March 2012), of which €258,000 (approximately £215,000 as at 31st March 2012) remains to be drawn down against this commitment.

(ii) The total commitment of the Scheme to the Mayfair Capital Property Unit Trust includes a total investment of £800,000, of which £147,115 remains to be drawn down against this commitment as at 31st March 2012.

(iii) The total commitment of the Scheme to the Real Income Fund includes a total investment of £400,000, of which £276,482 remains to be drawn down against this commitment as at 31st March 2012.



The assets held in the Limited Partnership comprises Limited Partner capital and loans. The total original commitment of the Scheme to the Partnership of €18,000,000 has now been fully drawn. The value is based on the audited accounts of the limited partnership to 31st March 2012, in which the value of the assets of the partnership are stated at cost less any permanent diminution in the value of specific assets. There may therefore be unrealised gains not included in the financial statements of the Scheme.

(h) Investment Liabilities

Investment liabilities are sums due in respect of planned investments that were in the procurement process as at 31st March 2012. The procurement of those investments was completed shortly after 31st March 2012.

(i) Other Investments Notes

The companies managing the pooled investment vehicles are registered in the United Kingdom.

Note 11. Current Assets

At At 31/03/2012 31/03/2011

£000 £000

Debtors and Prepayments: Contributions due in respect of Members 169 190 Contributions due from Employers 1,467 1,380 Benefits in advance 25 63 Other debtors 9 12 Total Debtors 1,670 1,645

Cash Balances: Bank account 1,674 1,094

Total Current Assets 3,344 2,738

Contributions due in respect of Members and due from the Employers were all received shortly after the period end in accordance with the Schedule of Contributions.

Note 12. Current Liabilities

At At 31/03/2012 31/03/2011

£000 £000

Creditors: Accrued Expenses (338) (455) Amounts due to University for Pensions paid (840) (752) Contribution payments due to Prudential (0) (32) Benefit and leaver payments due (119) (83) H M Revenue and Customs (13) (13)

Total Current Liabilities (1,310) (1,335)



Note 13. Related Party Transactions

The Trustees entered into an Administration Agreement with the University with effect from 1st August 2001. The Agreement was reviewed and renewed with effect from 16th April 2009. Under the Administration Agreement, the University charges the Trustees an Administration Fee that is based on actual work throughput and commercial fee rates.

The Scheme makes use of the University’s payroll and accounting systems to pay members’ pensions and certain of the Scheme’s operational expenses. At the year end, the University owed the Scheme £118,247 (2011: £108,569); this amount comprised contributions due in respect of March 2012 of £1,155,309 (2011: £1,189,179), less the pension payroll cost for March 2012 of £838,741 (2011: £752,246) and less expenses of £198,321 (2011: £328,363).

Mr B. J. Kemp, the Trustee elected by the pensioner members of the Scheme, received a pension from the Scheme in accordance with the Scheme’s Trust Deed and Rules until his death on 27th January 2012. Mr R. L. Bowler, a Trustee elected by the active members of the Scheme, received a pension from the Scheme in accordance with the Scheme’s Trust Deed and Rules.

Dr S. R. Porter, former Chairman, received remuneration from the Scheme in respect of his services as Chairman until 30th April 2011. Mr J. N. Sykes, the present Chairman of the Trustees, received remuneration from the Scheme in respect of his services as Chairman. Relevant details are shown under Note 7 above.

Several of the Trustees incurred expenses during the course of the year, primarily in respect of training courses and travel to meetings. These expenses were reimbursed from the Scheme. Total expenses reimbursed for the year amounted to £818 (2011: £977).

There were no other related party transactions during the year within the context of FRS8.

Note 14. Contingent Asset

The Trustees and the University have agreed to create and maintain a “contingent asset”. This is an asset which can be assigned to the Trustees in the extreme event that the University is unable to continue to meet its contribution obligations. The asset represents additional resources available to the Trustees to help ensure that all accrued benefits are secured in full should the Scheme have to wind up following this event.

The Pensions Regulator regards the existence of a contingent asset as a major step towards reducing the risk that a scheme would require the support of the Pensions Protection Fund in the future. As such, the existence of a contingent asset will help to keep the Scheme’s levy to the Pension Protection Fund at as low a level as possible.

The agreement formalising the contingent asset was executed on 22nd September 2009. The contingent asset takes the form of a floating charge on certain of the University’s assets specified in a reserve set up in the University’s accounts. The first such reserve was reported in the University’s financial statements for the year to 31st July 2009. The reserve comprised a list of property and cash, the total value of which as at 31st July 2011 was certified by an independent chartered surveyor to be £100m.



6. STATEMENT OF TRUSTEES’ RESPONSIBILITIES WITH REGARD TO THE ACCOUNTS

The financial statements are the responsibility of the Trustees. Pension scheme regulations require the Trustees to make available to Scheme members, beneficiaries and certain other parties, audited financial statements for each Scheme year which:

show a true and fair view of the financial transactions of the Scheme during the Scheme year and of the amount and disposition at the end of that year of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the Scheme year, in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice); and

contain the information specified in the Schedule to the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, including a statement whether the financial statements have been prepared in accordance with the Statement of Recommended Practice (SORP) “Financial Reports of Pension Schemes” (Revised May 2007).

The Trustees have supervised the preparation of the financial statements and have agreed suitable accounting policies, to be applied consistently, making any estimates and judgements on a prudent and reasonable basis.

The Trustees are also responsible for making available certain other information about the scheme in the form of an Annual Report.

The Trustees are responsible under pensions legislation for ensuring that there is prepared, maintained and from time to time revised a Schedule of Contributions showing the rates of contributions payable towards the scheme by or on behalf of the employer and the active members of the scheme and the dates on or before which such contributions are to be paid. The Trustees are also responsible for keeping records in respect of contributions received in respect of any active member of the scheme and for monitoring whether contributions are made to the scheme by the employer in accordance with the Schedule of Contributions. Where breaches of the Schedule occur, the Trustees are required by the Pensions Acts 1995 and 2004 to consider making reports to the Pensions Regulator and the members.

The Trustees also have a general responsibility for ensuring that adequate accounting records are kept and for taking such steps as are reasonably open to them to safeguard the assets of the Scheme and to prevent and detect fraud and other irregularities, including the maintenance of an appropriate system of internal control.



7. INDEPENDENT AUDITOR’S REPORTS 7A. REPORT TO THE TRUSTEES OF THE UNIVERSITY OF OXFORD STAFF PENSION

SCHEME

We have audited the accounts of University of Oxford Staff Pension Scheme for the year ended 31st March 2012 which comprise the fund account, the net assets statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Scheme’s Trustees, as a body, in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, made under the Pensions Act 1995. Our audit work has been undertaken so that we might state to the Scheme’s Trustees those matters we are required to state to them in an Auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Scheme and the Scheme’s Trustees as a body, for our audit work, for this report, or the opinions we have formed.

Respective responsibilities of trustees and the auditor

As explained more fully in the Statement of Trustees’ Responsibilities set out Part 6 of this Annual Report, the Scheme’s Trustees are responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the scheme’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the trustees; and the overall presentation of the financial statements.

In addition, we read all the financial and nonfinancial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion

In our opinion the accounts:

• show a true and fair view of the financial transactions of the Scheme during the year ended 31st March 2012, and of the amount and disposition at that date of its assets and liabilities, other than the liabilities to pay pensions and benefits after the end of the year;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• contain the information specified in Regulation 3 of, and the Schedule to, the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 made under the Pensions Act 1995.

RSM Tenon Audit Limited 26th September 2012

Statutory Auditor Charterhouse, Legge Street, Birmingham, B4 7EU



7. INDEPENDENT AUDITOR’S REPORTS 7B. STATEMENT ABOUT CONTRIBUTIONS TO THE TRUSTEES OF UNIVERSITY OF

OXFORD STAFF PENSION SCHEME

We have examined the summary of contributions to the University of Oxford Staff Pension Scheme for the year ended 31st March 2012 set out in section 2C.14 of the Trustees’ Report.

This statement is made solely to the Scheme’s Trustees, as a body, in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, made under the Pension Act 1995. Our work has been undertaken so that we might state to the Scheme’s Trustees those matters we are required to state to them in an Auditor’s statement about contributions and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Scheme and the Scheme’s Trustees as a body, for our work, for this statement, or the opinions we have formed.

Respective responsibilities of Trustees and the auditor

As explained more fully in the Statement of Trustees’ Responsibilities set out Part 6 of this Annual Report, the Scheme’s Trustees are responsible for ensuring that there is prepared, maintained and from time to time revised a schedule of contributions showing the rates and due dates of certain contributions payable towards the scheme by or on behalf of the employer and the active members of the scheme. The Trustees are also responsible for keeping records in respect of contributions received in respect of active members of the scheme and for monitoring whether contributions are made to the scheme by the employer in accordance with the schedule of contributions.

It is our responsibility to provide a Statement about Contributions paid under the schedule of contributions and to report our opinion to you.

Scope of work on Statement about Contributions

Our examination involves obtaining evidence sufficient to give reasonable assurance that contributions reported in the attached summary of contributions have in all material respects been paid at least in accordance with the schedule of contributions. This includes an examination, on a test basis, of evidence relevant to the amounts of contributions payable to the scheme and the timing of those payments under the schedule of contributions.

Statement about Contributions payable under the schedule of contributions

In our opinion contributions as reported in the summary of contributions and payable under the schedule of contributions, have in all material respects been paid at least, for the period from 1st April 2011 to 30th June 2011 in accordance with the schedule of contributions certified by the actuary on 31st October 2008, and for the period from 1st July 2011 to 31st March 2012 in accordance with the schedule of contributions certified by the actuary on 30th June 2011.

RSM Tenon Audit Limited 26th September 2012

Statutory Auditor Charterhouse, Legge Street, Birmingham, B4 7EU



8. COMPLIANCE

8A. SCHEDULE OF CONTRIBUTIONS AND RECOVERY PLAN FOR THE UNIVERSITY OF OXFORD STAFF PENSION SCHEME

8A.1. SCHEDULE OF CONTRIBUTIONS

Introduction

This schedule of contributions has been prepared by the Trustees to satisfy the requirements of Section 227 of the Pensions Act 2004, after obtaining the advice of Jay Harvey, the Scheme Actuary and after obtaining the agreement of the University of Oxford, on behalf of all the participating employers.

It comes into effect on the date of its certification by the Scheme Actuary and covers the period to 30 June 2026. The Trustees are responsible for preparing a revised schedule no later than 30 June 2014.

Participating Employers

This schedule covers contributions to the Scheme from all employers who participate in the Scheme from time to time.

Employer Contributions

The participating employers will contribute to the Scheme at the rate of 21.5% of Pensionable Salaries, which is made up of the following elements:

Period

Contributions to cover the future accrual of benefits and

the expenses of administering the Scheme

(% of Pensionable Salaries)

Additional contributions to satisfy the recovery plan

dated 30 June 2011


1 July 2011 to 31 March 2012 17.5 4.0

1 April 2012 to 31 March 2013 18.1 3.4

1 April 2013 to 31 March 2014 18.7 2.8

1 April 2014 to 31 March 2015 18.6 2.9

1 April 2015 to 31 March 2016 18.6 2.9

1 April 2016 to 31 March 2017 18.5 3.0

1 April 2017 to 31 March 2018 18.4 3.1

1 April 2018 to 31 March 2019 18.3 3.2

1 April 2019 to 30 June 2026 18.2 3.3

The participating employers will ensure that the Trustees receive these contributions within 19 days of the end of the calendar month to which the contributions relate.

In addition to the amounts shown above, each participating employer will reimburse the Scheme in respect of its share of Pension Protection Fund (PPF) and other statutory levies within one month of a demand for payment from the Trustees.



Employee Contributions

Employees who are active members of the Scheme will contribute to the Scheme at the rate of 6.35% of Pensionable Salary.

The employers will ensure that the Trustees receive the contributions payable by their employees within 19 days of the end of the calendar month in which the contributions were deducted from the employees’ salaries.

These amounts do not include members’ Additional Voluntary Contributions.

Signed on behalf of the Trustees of the University of Oxford Staff Pension Scheme

Name: J N Sykes

Position: Chairman of Trustees

Date: 30 June 2011

Signed on behalf of the University of Oxford:

Name: G F B Kerr

Position: Director of Finance

Date: 30 June 2011

Note: The University of Oxford has been nominated as the employers’ representative for this purpose.



8. COMPLIANCE

8A. SCHEDULE OF CONTRIBUTIONS AND RECOVERY PLAN FOR THE UNIVERSITY OF OXFORD STAFF PENSION SCHEME

8A.2. RECOVERY PLAN

Introduction

This recovery plan has been prepared by the Trustees to satisfy the requirements of Section 226 of the Pensions Act 2004, after obtaining the advice of Jay Harvey, the Scheme Actuary, and after obtaining the agreement of the University of Oxford, on behalf of all the participating employers.

It follows the actuarial valuation of the Scheme as at 31 March 2010, which revealed a funding shortfall (technical provisions minus value of assets) of £82.4M.

Steps to be taken to ensure that the Statutory Funding Objective is met

To eliminate the funding shortfall, the Trustees and the University have agreed that the employers will pay the following additional contributions (i.e. contributions over and above those needed to cover benefits being earned in the future) to the Scheme over the period from 1 July 2011 to 30 June 2026:

Period Contribution


1 July 2011 to 31 March 2012 4.0

1 April 2012 to 31 March 2013 3.4

1 April 2013 to 31 March 2014 2.8

1 April 2014 to 31 March 2015 2.9

1 April 2015 to 31 March 2016 2.9

1 April 2016 to 31 March 2017 3.0

1 April 2017 to 31 March 2018 3.1

1 April 2018 to 31 March 2019 3.2

1 April 2019 to 30 June 2026 3.3

Period in which the statutory funding objective should be met

Under this recovery plan, if the assumptions made are borne out in practice the funding shortfall will be eliminated by 30 June 2026, i.e. within a period of 15 years. The assumptions are:

■ Technical provisions continue to be calculated according to the method and assumptions set out in the Statement of Funding Principles dated 30 June 2011, with financial conditions unchanged from those at the effective date of the valuation;

■ The Scheme continues to remain open to new joiners, with the age profile of the active membership remaining stable throughout the period and the overall salary roll growing in line with the assumption underlying the technical provisions; and

■ Scheme experience is in line with the assumptions underlying the technical provisions, except that the investment return during the period is equal to 7.0% per annum, on both existing assets and future contributions.



Progress towards meeting the Statutory Funding Objective

On the assumptions made, 50% of the above additional contributions will be paid by 31 May 2020, i.e. within a period of 8 years and 11 months.

Signed on behalf of the Trustees of the University of Oxford Staff Pension Scheme

Name: J N Sykes

Position: Chairman of Trustees

Date: 30 June 2011

Signed on behalf of the University of Oxford:

Name: G F B Kerr

Position: Director of Finance

Date: 30 June 2011

Note: The University of Oxford has been nominated as the employers’ representative for this purpose.



8. COMPLIANCE

8B. ACTUARIAL CERTIFICATES FOR THE UNIVERSITY OF OXFORD STAFF PENSION SCHEME

8B.1. ACTUARIAL CERTIFICATION OF THE SCHEDULE OF CONTRIBUTIONS

Name of scheme: The University of Oxford Staff Pension Scheme

Adequacy of rates of contributions

1. I certify that, in my opinion, the rates of contributions shown in this schedule of contributions are such that the statutory funding objective could have been expected on 31 March 2010 to be met by the end of the period specified in the recovery plan 30 June 2011.

2. I also certify that the rates of contributions forming part of this Schedule which the Scheme requires me to determine are not lower than I would have provided for had I had responsibility for preparing or revising the schedule, the statement of funding principles and any recovery plan.

Adherence to statement of funding principles

3. I hereby certify that, in my opinion, this schedule of contributions is consistent with the statement of funding principles dated 30 June 2011.

The certification of the adequacy of the rates of contributions for the purpose of securing that the statutory funding objective can be expected to be met is not a certification of their adequacy for the purpose of securing the scheme's liabilities by the purchase of annuities, if the scheme were wound up.

Signed: J M Harvey Date: 30 June 2011

Qualification: Fellow of the Institute and Faculty of Actuaries

Address: 40 Queen Square, Bristol, BS1 4QP Name of employer: Aon Hewitt Ltd



8. COMPLIANCE

8B. ACTUARIAL CERTIFICATES FOR THE UNIVERSITY OF OXFORD STAFF PENSION SCHEME

8B.2. ACTUARIAL CERTIFICATION OF TECHNICAL PROVISIONS

ACTUARIAL CERTIFICATE GIVEN FOR THE PURPOSE S OF REGULATION 7(4)(A) OF THE

OCCUPATIONAL PENSION SCHEMES (SCHEME FUNDING) REGULATIONS 2005

Name of scheme: The University of Oxford Staff Pension Scheme

Calculation of technical provisions

I certify that, in my opinion, the calculation of the Scheme’s technical provisions as at 31 March 2010 is made in accordance with regulations under section 222 of the Pensions Act 2004. The calculation uses a method and assumptions determined by the Trustees of the Scheme and set out in the Statement of Funding Principles dated 30 June 2011.

Signed: J M Harvey Date: 30 June 2011

Qualification: Fellow of the Institute and Faculty of Actuaries

Address: 40 Queen Square, Bristol, BS1 4QP Name of employer: Aon Hewitt Ltd



8. COMPLIANCE

8C. SUMMARY FUNDING STATEMENT

At the date of the latest valuation (31st March 2010), the Scheme’s actuary found:

The Scheme had assets of £311.5 million

The amount the Scheme needed to provide benefits was £393.9 million

This gave a shortfall of £82.4 million

This is the same as a funding ratio of 79%

Our action plan

The University and the other associated participating employers are currently paying regular contributions of 21.5% of members’ pensionable salaries with effect from 1st August 2008. This level of contributions is intended to clear the shortfall by 30th June 2026.

Members are currently paying regular contributions 6.35% of pensionable salary.

The Scheme’s solvency position

If the Scheme had started winding up at 31st March 2010, the actuary estimated that the amount the Scheme needed to ensure benefits were paid in full (on the solvency basis) was £601.2 million. On this basis the Scheme’s shortfall was £289.7 million.

This figure is needed to get a complete picture of the Scheme’s financial health, but it does not mean that the University is thinking of ending the Scheme.

Changes since 31st March 2010

The figures in this funding statement are based on the results of the last valuation, and the position will have changed since then. It is difficult to say exactly how it will have changed without doing full up-to-date calculations.

Since then, the Scheme’s actuary has carried out an annual actuarial report designed to provide an approximate update of the valuation position as at 31st March 2012. He estimated that, as at that date, the shortfall had increased to around £115.4 million. This is equivalent to a funding ratio of approximately 70%.

This deterioration in the Scheme’s estimated funding position is mainly due to falling gilt yields which have been partially offset by positive investment returns on the Scheme’s investments over the year and the deficit reduction contributions.

The next formal actuarial valuation of the Scheme is due as at 31st March 2013, the preliminary results of which are due to be reported towards the end of 2013.

Payment to the University of Oxford

The Trustees are required to tell you whether there have been any payments to the University out of the Scheme in the previous twelve months. The Trustees have paid the University an administration fee for the administration services provided by the University to the Trustees under a formal administration agreement between the University and the Trustees for those services. Additionally the Trustees have reimbursed the University in respect of (a) pensions paid through the University’s payroll on behalf of the Trustees; and (b) certain expenses settled by the University on behalf of the Trustees. The Trustees have made no other payment to either the University or any of the associated participating employers.



9. NEW BENEFITS STRUCTURE WITH EFFECT FROM 1ST JANUARY 2013

The following summary of the new benefits structure was approved by the Council of the University, on behalf of itself and all the participating employers, on 9th July 2012.

The new structure:

replaces Final Salary with Career Average Revalued Earnings (CARE) as the basis for scheme benefits for all OSPS members.

maintains the link to the Retail Price Index (RPI) for inflation adjustment, but introduces an inflation cap set at 8% a year.

introduces a choice of three cost plans (currently, an employee contribution of 6.35% buys accrual at 1/80th) as follows:

o lower cost, with an accrual rate of 1/90th and an employee contribution of 5.6%.

o standard cost, with an accrual rate of 1/85th and an employee contribution of 6.6%.

o higher cost, with an accrual rate of 1/80th and an employee contribution of 7.8%.

reduces the death in service lump sum to three-times salary (from four-times salary).

reduces the dependant’s pension to ½ pension (from 2/3 pension).

changes the Normal Pension Age (NPA) to the 65th birthday, with the NPA subsequently broadly following any future change in the State Pension Age.

removes the upper age limit to membership (the maximum pension age remaining at 75).

develops simpler rules for enhanced benefits when pension is taken after the NPA.

introduces flexible retirement.

university of oxford staff pension scheme · wellington square, ... mr s. d. b. ellis, finance...

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