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ContentsMANAGEMENT STRUCTURE 2

CHAIR’S INTRODUCTION 3

MANAGEMENT REPORT 5

INVESTMENT REPORT 7

FINANCIAL STATEMENTS 10

STATEMENT OF RESPONSIBILITIES 15

AUDITORS’ REPORT 16

SCHEME ADMINISTRATION 17

CONSULTING ACTUARY’S STATEMENT 21

APPENDIX A EMPLOYER MEMBERSHIP 24

APPENDIX B PENSIONS COMMITTEE ITEMS 25

APPENDIX C INFORMATION CONTACTS 26

1

2

1 PENSION FUND MANAGEMENT COMMITTEEVoting MembersChair: Cllr T Harney WirralVice Chair:Cllr S A Brown Wirral

Cllr G Davies Wirral Cllr Anne Ibbs SeftonCllr F M Doyle Wirral Cllr B O’Hare KnowsleyCllr W A Duffey Wirral Cllr K Turner LiverpoolCllr I J Mackenzie Wirral Cllr J Fletcher St HelensCllr A McLachlan Wirral Jayne Brown (LJMU)Cllr R K Moon Wirral Non-district Employer Representative

Cllr H Smith WirralCllr G C J Watt Wirral

Employee RepresentativesMr P Goodwin UnisonMr P Wiggins Unison

Officers of the FundIan Coleman Director of FinanceDavid Smith Deputy Director of FinanceJohn Parry Head of Pension FundPeter Mawdsley Principal Pensions OfficerMark Reaney Head of Legal and Member ServicesColin Hughes Assistant Borough Solicitor

2 ADVISERS TO INVESTMENT MONITORING WORKING PARTYDirector of FinanceHead of Pension FundMercer Investment ConsultingSarah BatesNoel Mills

3 OTHERSAuditor Audit CommissionBankers The Royal Bank of Scotland plcConsultant Actuary Mercer HR ConsultingCustodian of Assets State StreetEthical Advisers Pensions and Investment Research Consultants LtdProperty Advisers Cordea Savills Fund ManagementPerformance Measurement The WM CompanySolicitor Wirral MBCAVC Providers Equitable Life Assurance Society

Standard LifePrudential

ManagementStructureAt 31 March 2007

The Overall Aim of the FundThe principal aim of the Fund is to

provide secure pensions, effectively and

efficiently administered at the lowest

cost to the contributing employers. This

requires the Fund to strike a balance

between achieving the most from its

investments and the need to exercise

prudence and caution in considering its

future liability profile. The Pensions

Committee reviews the Fund's

investments, at regular intervals, with

the help of its various professional

advisers, to ensure that they remain

appropriate.

Investment Performance of the FundDuring the year under review, the Fund

has advanced in value by around £250m

to £4.3bn, a positive overall investment

return of 6.2%, compared to its bespoke

benchmark return of 7.3%. With

financial markets having risen

significantly since 2003, the twelve

month period to March 2007 has seen

moderate returns. The Fund compared

marginally unfavourably with the

average Local Authority Fund, which was

more heavily weighted in favour of

equities.

Many equity markets produced double

digit returns although in the US and

Japan these were offset by currency

weakness. In sterling terms, the major

markets performance was; the

UK(+11.1%), Continental Europe(+12.4%),

North America(-0.9%), Japan(-9.9%),

Pacific (+12.3%), Property (+15.6%)

and there were solid contributions from

cash and alternative investments. Bonds

were little changed. The management of

the Fund, distribution of assets and

performance are dealt with in more

detail later in this report.

The ten-year return of the Fund at

8.0% per annum compound remains

well ahead of both average earnings

and inflation.

3

“

Chair’s Introduction

Councillor Ann McLachlan, Chair of Pensions Committee

“As the new Chair of the Pensions Committee, I am pleased to presentMerseyside Pension Fund’s Annual Report for the year ended 31 March 2007.The aim of the report is to highlight the important issues affecting the Fundover the last twelve months as well as providing more general informationregarding the pension scheme.”

“

Actuarial ValuationAt the last triennial actuarial valuation at

31 March 2004, against a background of

three consecutive years of negative

equity growth, the funding level had

fallen from 94% to 76% of projected

actuarial liabilities.

At the time of writing, the triennial

valuation as at 31 March 2007, has not

been finalised. Initial indications are that

the strong investment performance over

the past three years has contributed to a

material improvement in the funding

level but, to a very great extent, this has

been offset by anticipated increases in

longevity. Where known, the financial

implications of the changes to the Local

Government Pension Scheme have been

taken into account in the actuarial

valuation as at 31 March 2007.

Communication with FundEmployers and MembersThe current active membership of the

Fund stands at approximately 51,000

with around 38,000 in receipt of

pensions and 23,000 members with

deferred benefits.

Effective communication remains a

crucial issue for the Fund, which has

continued to offer a variety of

presentations and training courses to

members and employers during the year.

The redesigned Fund website, launched

last year, has been well received with

Actuarial Valuationmore than 800,000 hits in its first year.

There is an increasing take-up of the

email alert service.

The annual Employers’ Conference held

at the Maritime Museum in November

2006 was again well attended and

featured speakers from the Department

for Communities and Local Government,

the Fund’s Actuary, Mercer Human

Resource Consulting and members and

officers from the Fund.

Past Changes and the FutureDuring the past year, the staff of the

Administration and Investment teams

have been involved with the

implementation of a number of new sets

of regulations as part of the ongoing

modernisation of the Scheme.

Changes to regulations were made,

linked to the introduction of the new

simplified tax regime including

increasing the maximum tax free lump

sum available by commutation and

introducing ”flexible retirement”

arrangements. Regulations dealing with

removal of the “85 Year” rule were

implemented from 1 October 2006 with

transitional protections, in full or in part,

extended to relevant members retiring

before 1 April 2020.

Actuarial ValuationRegulations have been published in

respect of Benefits, Membership and

Contributions for the new look Scheme

due to replace the current Scheme from

April 2008. Separate regulations dealing

with Administration and Transitional

Provisions are still awaited.

John Parry, the Head of Pension Fund,

retired at the end of March and we wish

him a happy and healthy retirement.

John joined the Fund in 1997 as

Accountant before taking over as Head of

Pension Fund in 2002. He is succeeded

by Peter Wallach who has been with the

Fund since 2004.

As ever, the continued success of the

Fund depends on the combined efforts of

all those concerned with the operation of

the Fund. In conclusion, I should like to

thank the Committee, the Scheme

employers and their staff, the financial

advisors, the external investment

managers and all of the Fund’s

Investment and Administration staff for

all their considerable work in delivering

the service to Scheme members.

4

5

ManagementReportYear ending 31 March 2007

Management of the FundThe overall responsibility for the

management of the Fund rests with the

Pensions Committee, now chaired by

Councillor Ann McLachlan (who replaced

Councillor Tom Harney in May 2007).

In 2006/07 the Committee, as set out on

page 2, comprised of Councillors from

the Wirral Labour group (4),

Conservatives (3), Liberal Democrats (3),

representatives of the four other

District Authorities (Liverpool,

St. Helens, Knowsley and Sefton) and

an independent representative from the

other employers. Also in attendance are

employee representatives (2), the

Director of Finance and other officers of

the Fund. The Committee meets around

five times a year to review the

administrative and investment issues

affecting the Fund.

The Committee also ensures that the

management of the Fund’s assets falls

within the requirements of the Local

Government Pension Scheme

(Management and Investment of Funds)

Regulations 1998. These regulations

require the Fund to have regard to both

diversification and suitability of

investments and stipulate the

requirement to take proper advice when

making investment decisions.

The more detailed consideration of

investment strategy and asset

allocation of the Fund’s portfolios is

considered by an Investment

Monitoring Working Party. This Working

Party meets quarterly to review

investment strategy and to receive

reports on investment activity

undertaken in the previous period. One

of its important tasks is to monitor the

performance of the Fund’s external

managers in conjunction with

professional advisers and the Fund’s

officers. The Working Party comprises

representatives from the Pensions

Committee, two independent advisers

as well as Mercers Investment

Consulting and members of the in-

house investment team.

6

With regard to its investment

management activities, the Fund uses a

combination of internal and external

managers, and active and passive

strategies. Active UK and European

equity portfolios are managed internally

with parallel portfolios managed by

external managers. Barclays Global

Investors currently manage the

comparative UK portfolio and JP

Morgan, appointed in August 2006, the

comparative European portfolio.

Nomura are responsible for equities in

Emerging Markets, Japan and the Far

East. During the year, a strategic

decision was taken to change the

management of North American

equities to a wholly passive basis. At

the time of writing, the process for

appointing a new passive manager is

well advanced. Active Bonds are

managed by Schroders and Legal &

General Investment Management. Legal

& General also manage the passive

investments in a pooled fund. Internal

fund managers report to the Director of

Finance through regular Fund Operating

Group meetings and follow laid down

compliance procedures. External and

internal fund managers have been given

specific benchmarks against which

performance is measured and

monitored quarterly at meetings of the

Investment Monitoring Working Party.

Cordea Savills Investment Management

Ltd, who report to the Head of Pension

Fund, act as strategic property advisers.

The day-to-day management of the

properties is handled by CB Richard

Ellis, with an independent half yearly

valuation of the portfolio being carried

out by Colliers Erdman Lewis.

Peter Wallach,Head of Pension Fund

7

Investment StrategyThe Fund is managed within the rules and

guidelines set out in the 1998

Regulations, which consolidated and

simplified previous regulations. These

regulations set parameters for the types

and limits that the Fund can invest in

certain asset classes.

The investment strategy of the Fund has

been to maximise returns over the

medium to long term whilst having regard

to its liability commitments. This has led

to a more bespoke structure, better suited

to matching the Fund's maturity and

liability profile. The requirement to

maintain a balanced portfolio of assets

across a diversified portfolio invested in a

range of stocks and sectors, remains of

paramount importance. At the beginning

of the year the asset/liability relationship

was reviewed by Mercer HR Consulting

and the recommendations have been

implemented.

Corporate GovernanceMerseyside Pension Fund recognises its

responsibility as an investor to promote

and encourage corporate governance

within the companies in which it

invests. The Fund believes that good

corporate governance is an important

element in reducing the risk of

corporate failure and enhancing returns

over the long term. The principles of

corporate governance outlined in the

'revised combined code' established by

the Cadbury, Greenbury, Hampel and

Higgs Committees are supported by the

Fund which has an active policy of

engagement with companies, including

using its proxy votes at all major UK &

European company AGMs and EGMs to

promote best practice. The Fund receives

detailed advice and recommendations

from Pensions and Investment Research

Consultants Ltd. (PIRC) to inform its

voting decisions and is an active

InvestmentReportYear ending 31 March 2007

Figure 1. Portfolio Distribution (Market Value at 31 March 2007)

Portfolio Distribution (Market Value at 31 March 2007)

% o

f tot

al a

sset

s

Leyland Otter, Investments

member of the Local Authority Pension

Fund Forum. Councillor Sue Brown is on

the Local Authority Pension Fund Forum

(LAPFF) executive board.

The Fund is also an active member of the

Institutional Investors Group on Climate

Change (IIGCC). Through its PIRC, LAPFF

and IIGCC affiliations, the Fund seeks to

support the development of consistent,

informed and fair corporate governance

policies that promote good practice

across the market as well as for

individual companies.

The Fund is substantially compliant with

the Myner's principles on institutional

investment. Further information is

contained in the revised Statement of

Investment Principles which is reviewed

annually by the Pensions Committee.

The current statement is available from

the Fund office at PO Box 120,

Castle Chambers, 43 Castle Street,

Liverpool L69 2NW. It covers:

● Effective Decision Making

● Clear Objectives

● Focus on Asset Allocation

● Expert Advice

● Explicit Mandates

● Activism

● Appropriate Benchmarks

● Performance Measurement

● Transparency

● Regular Reporting

Fund CompositionThe Fund's composition is largely dictated

by its bespoke strategic benchmark,

which is determined in consultation with

the Fund's actuary. This strategic

benchmark is the main gauge against

which investment performance is

measured and is reviewed periodically to

ensure it continues to meet the liability

profile of the Fund.

The Fund's actual composition at the

beginning and end of the reporting period

is depicted in Figure 1.

Strategic Asset StructureAsset Strategic Class Benchmark

% %UK Equities 31Overseas Equities 25US 8.0European (Ex UK) 9.0Japan 3.0Asia Pacific 2.5Emerging Markets 2.5Fixed Interest 26UK Gilts 7.0Overseas Bonds 0.0UK Index Linked 13.0Corporate Bonds 6.0Property 10Venture Capital/Other Investments 6Cash 2Total 100

MPF Total Return by Asset Class in year ended 31 March 2007

Largest UK Equity Holdings as at 31 March 2007Company Market Value Equity

£'000 %

BP PLC 37,260 7.4HSBC 27,575 5.5GlaxoSmithKline 24,098 4.8Vodafone 23,120 4.6Royal Bank of Scotland 18,720 3.8

Royal Dutch Shell 18,601 3.7Astrazeneca 14,080 2.8Barclays 13,339 2.7Tesco 13,328 2.7Lion Trust 11,495 2.3

201,616 40.3 The top 10 holdings represent 40.3 % of thetotal in house UK Equity Portfolio and 14.4%of total UK equities (4.7% of total fund).

Figure 2. Total Return by Asset Class in year ended 31 March 2007

Largest Property Holdings as at 31 March 2007Property Market Value

£'000

Tunsgate Square 33,575GuildfordCunard Building 32,475LiverpoolWillowbrook 30,250 Retail ParkLoughboroughFarnham Retail Park 24,100Middlemarch Business Park 22,300Coventry37/38 Curzon Street 22,000LondonHorns Road 19,000Retail Park IlfordHigh Street 15,900Windsor

8

Tesco

9

Actively managed UK and overseas

equity mandates were the largest

contributor to the Fund underperforming

its bespoke benchmark by 1.1%.

In the UK, the Fund returned 9.2%

against a target benchmark of 11.1%.

European equities (excluding UK)

returned 11.5% against a benchmark

return of 12.4%.

In North America, the Fund returned a

negative 3.2% against a benchmark

return of minus 0.9%. This marked a

reversal of last year’s outperformance.

Performance in Japan was also

disappointing with the Fund

returning a negative 13.6% against a

benchmark return of minus 9.9%.

In both markets, returns would have

been positive but for the strength of

Sterling against the Dollar and the Yen.

Elsewhere, the Fund’s stock market

returns from the Pacific Basin (excluding

Japan) were 18.6% against a benchmark

return of 20.3%, and performance came

in ahead of benchmark in the Emerging

markets with an outturn of 9% against

a targeted 7%.

The Fund’s fixed income investments

(bonds) performed broadly in line with

their benchmarks and property enjoyed

another solid period of growth returning

12.4% against benchmark return of

15.6%.

Cash and other alternative investments

(including hedge funds) continued to

perform strongly returning 7.5% against

a benchmark return of 4.9%.

Over the longer term, the Fund’s returns

have consistently outperformed retail

price and average earnings indices as

illustrated in the table below.

InvestmentReportYear ended 31 March 2007

Comparative Returns for the Fund1 Year 3 Years 5 Years 10 Years

% % % % Merseyside Pension Fund 6.2 13.6 8.4 8.0 Benchmark 7.3 13.3 7.7 7.2 Inflation 4.8 3.5 3.2 2.8 Average Earnings 4.1 4.2 4.0 4.3

Review of InvestmentPerformanceInvestment returns over the last year were

characterised by the continued strong

performance of equity markets driven by

robust economic growth, solid company

earnings and increased activity on the

mergers and acquisitions front.

The Fund returned 6.2% in the financial year

to the end of March 2007 compared to its

bespoke benchmark return of 7.3%, marking

an increase in value of around £250m to over

£4,301m. Over the comparable period, the

average return of all Local Authority Pension

Funds based on the WM Local Authority

universe of 90 funds was 7%.

10

FinancialStatementsFUND ACCOUNT for the year ended 31 March 2007

Note 2007 2006£’000 £’000

Contributions and BenefitsContributions receivable 3 200,837 184,304

Transfers in 16,353 20,131

217,190 204,435

Benefits payable 4 185,051 174,933

Leavers 5 11,754 17,682

Administration Expenses 3,740 3,253

200,545 195,868

Net additions from dealings with members 16,645 8,567

Return on InvestmentsInvestment income 6 61,718 70,181

Change in market value of investments 7 187,559 679,507

Exchange -1,874 330

Investment Management Expenses 8 -4,604 -4,058

Net return on Investments 00242,799 745,960

Net increase in the Fund during the year 259,444 754,527

Net Assets of the Fund at start of year 4,041,533 3,287,006

Net Assets of the Fund at end of year 4,300,977 4,041,533

NET ASSETS STATEMENT AS AT 31 MARCH 2007Note 2007 2006

£’000 £’000

InvestmentsFixed Interest Securities 7 0 0

Index-linked Securities 0 0

Other Investments 137,150 120,743

Equities 1,077,743 1,065,982

Managed or Unitised Funds 2,589,491 2,409,519

Properties 355,475 307,225

Short Term Deposits 116,573 103,974

4,276,432 4,007,443

Other Assets and Liabilities 9 24,545 34,090

Net Assets of the Fund as at 31 March 2007 4,300,977 4,041,533

11

FinancialStatementsNotes to the Accounts

1 GENERALAlthough the Scheme is exempt from the

requirements of the Occupational

Pension Schemes (Requirement to obtain

Audited Accounts and a Statement from

the Auditor) Regulations 1996, the

financial statements have been prepared

in accordance with these regulations and

with the guidelines set out in the

Statement of Recommended Practice,

Financial Reports of Pension Schemes

(the SORP).

The financial statements record the

transactions of the Scheme during the

year and summarise the net assets at the

disposal of the Managers at the end of

the financial year. They do not take

account of obligations to pay pensions

and benefits which fall due after the end

of Scheme year. The actuarial position of

the Scheme, which does take account of

such obligations, is dealt with in the

statement by the Actuary on pages 21 to

23 and these financial statements should

be read in conjunction with it.

2 ACCOUNTING POLICIESBasis of preparationThe financial statements are prepared in

accordance with applicable UK

accounting standards and with the

guidelines set out in the Statement of

Recommended Practice, Financial

Reports of Pension Schemes.

Valuation of investmentsInvestments are stated at market value.

For this purpose unlisted investments are

included at manager's valuation and

properties at professional valuation. For

listed securities the stock exchange

values are used. Properties have been

valued independently by Colliers Erdman

Lewis, Chartered Surveyors, as at

31 March 2007.

Translation of foreign currenciesAssets and liabilities in foreign currencies

are translated into sterling at rates ruling

at the year end. Foreign income received

during the year is translated at the rate

ruling at the date of receipt. All resulting

exchange adjustments are included in the

revenue account.

Investment incomeInterest on fixed interest stocks and on

short term deposits has been accounted

for on an accruals basis. Income from

equities is accounted for when the

related investment is quoted

"ex-dividend".

2 ACCOUNTING POLICIESRental incomeRental income from properties is taken

into account by reference to the periods

to which the rents relate and is shown

net of related expenses. The Fund accrues

rent up to 24 March each year. Rent

received on the Quarter Day, 25 March,

is accounted for in full in the following

year.

Contributions and benefitsContributions are accounted for on an

accruals basis. Benefits payable represent

the benefits paid during the financial

year and include an estimated accrual for

lump-sum benefits outstanding as at the

year end.

Transfers to other schemesTransfer payments relate to those early

leavers whose transfers have been paid

during the year plus an accrual for future

payments in respect of members moving

their service to other schemes under bulk

transfer arrangements.

Investment management expensesIn accordance with the SORP, costs in

respect of the internal investment team are

classified as investment management

expenses rather than as administrative

expenses.

Gerard Moore, Financial Controller

12

2007 2006£’000 £’000

3 CONTRIBUTIONS RECEIVABLEEmployersNormal 137,630 125,920

Early retirement funding 12,745 11,523

EmployeesNormal 50,462 46,861

200,837 184,304

relating to: Administering Authority 28,664 27,394

relating to: Statutory Bodies 149,223 135,755

relating to: Admission Bodies 22,950 21,155

200,837 184,304

4 BENEFITS PAYABLE Pensions 157,286 150,533

Lump sum retiring allowances 25,388 21,810

Lump sum death benefits 2,377 2,590

185,051 174,933

relating to: Administering Authority 26,715 26,394

relating to: Statutory Bodies 140,205 132,401

relating to: Admission Bodies 18,131 16,138

185,051 174,933

5 PAYMENTS TO AND ON ACCOUNT OF LEAVERSRefunds to members leaving service 62 255

Payment for members joining state scheme -23 111

Individual transfers to other schemes 11,715 17,316

11,754 17,682

The figure of individual transfers to other schemes includes £95,000 in respect of

one bulk transfer.

6 INVESTMENT INCOMEFixed interest securities 23 11,555

Index-linked securities 0 1,194

Dividends from equities, managed and unitised funds 38,453 35,298

Net rents from properties 17,261 16,242

Interest on deposits 5,799 5,814

Other 182 78

61,718 70,181

After 1 June 2006 all the Fund's holdings of bonds were in unitised vehicles. Theinvestment income shown in 2005/2006 in respect of fixed interest and indexlinked securities covers interest on the previous segregated (directly held) holdings.

As at 31 March 2007, £78.9 million of stock was on loan to market makers, whichwas covered by non-cash collateral totalling £83.2 million. Income from stocklending is included within "Other".

The figure of "Dividends from Equities, managed and unitised funds" includesrecoverable taxation of £0.179m, plus income from profits from associate andjoint ventures of £6.114m.

13

7 INVESTMENTSMarket Purchases Sale Change in Market

Value @ at cost Proceeds Market* Value @31.3.06 value 31.3.07

£'000 £'000 £'000 £'000 £'000Fixed Interest Securities 0 0 0 0 0Index-Linked Securities 0 0 0 0 0Equities 1,065,982 464,884 521,732 68,609 1,077,743Managed & Unitised Funds 2,409,519 451,940 367,950 95,982 2,589,491Other 120,743 28,780 15,651 3,278 137,150Properties 307,225 53,119 24,559 19,690 355,475Short term deposits 103,974 12,599 0 0 116,573

4,007,443 1,011,322 929,892 187,559 4,276,432

*Note: The change in market value of investments during the year comprises all realised and unrealised appreciation and depreciation.The high volume ofsales and purchases reflects changes of external managers during the year, covering portfolios valued at £267m.

2007 2006£’000 £’000

Fixed Interest Securities (segregated holdings)*UK Fixed Interest 0 0UK Corporate Bonds 0 0Overseas Fixed Interest 0 0

0 0

*Other than Corporate Bonds, all are public sector securities.

Index-Linked Securities (segregated holdings) 0 0

Equities (segregated holdings)UK Quoted 461,412 438,542Overseas Quoted 616,331 627,440

1,077,743 1,065,982

Managed* and Unitised FundsUK Fixed Interest 188,228 241,444UK Corporate Bonds 296,927 192,970Overseas Fixed Interest 27,043 26,181Index-Linked Securities 450,516 425,995UK Equities 938,721 883,391Overseas Equities 533,038 517,035Unlisted Securities (Private Equity) 100,153 83,003Property Unit trusts 54,865 39,500

2,589,491 2,409,519

Other Investments 137,150 120,743

UK PropertiesFreehold 299,225 245,700Leasehold 56,250 61,525

355,475 307,225

Short Term Deposits 116,573 103,974

8 INVESTMENT MANAGEMENT EXPENSESFees paid to the 6 major investmentmanagers amount to £3.914m andconstitute the bulk of the figure of£4.604m investment management fees.Charges vary between fund managers

and between markets and types ofsecurity. Charges are calculated as apercentage of the value of theinvestments.

14

9 CURRENT ASSETS AND LIABILITIES2007 2006

Assets £’000 £’000 Contributions due 14,889 16,840Accrued and outstanding investment income 7,290 7,067Due from stockbrokers 3,768 12,274Cash at Bank 4,670 8,179Sundries 5,792 4,457

36,409 48,817

LiabilitiesDue to stockbrokers 3,917 1,305Transfer values payable 95 5,000Provisions 304 935Miscellaneous 7,548 7,487

11,864 14,727

Total Other Assets and Liabilities 24,545 34,090

13 ADDITIONAL VOLUNTARY CONTRIBUTIONS

2007 2006£’000 £’000

Equitable Life 3,633 3,893Standard Life 6,859 6,316Prudential 3,089 2,264

13,581 12,473

Externally Managed £m %Barclays Global Investors 549 12.8J P Morgan 122 2.9Nomura 364 8.5Schroders 304 7.1Legal & General (Pooled Assets) 1,212 28.3Legal & General (Bonds) 303 7.1

2,854 66.7

Internally Managed 1,422 33.34,276 100.0

12 SUMMARY OF MANAGERS' PORTFOLIO VALUES12 AS AT 31 MARCH 2007

11 RELATED PARTY TRANSACTIONS

The figure of debtors does not includefuture payments from employers who aremaking special additional payments inrespect of early retirement costs over anagreed number of years. The reduction in"transfer values payable" figure reflects arecent decision that the Fund retains

responsibility for a group of pensionersand deferred members whose formeremployer, having left the Fund, will nowconsequently pay the Fund in respect of such liabilities. Included in the "Miscellaneous Liabilities"figure is £1.838m of unpaid benefits.

Administration and investmentmanagement costs include charges byWirral Council in providing services in itsrole as administering authority to theFund, which amount to £3.291m (2006£3.087m). Such charges principally relateto staffing required to maintain thepension service. A specific declaration has

been obtained from principal officers andPensions Committee members regardingmembership of and transactions withsuch persons or their related parties. OneDirectorship of an admitted body has beendisclosed under this procedure. Nodeclarable related party transactions havebeen reported.

The Committee holds assets investedseparately from the main fund. Inaccordance with Regulation 5 (2) (c) of thePensions Schemes (Management andInvestment of Funds) Regulations 1998,these assets are excluded from the PensionFund accounts.The Scheme providers are Equitable Life,Standard Life and Prudential. Individualmembers participating in this arrangement

each receive an annual statementconfirming the amounts held on theiraccount and the movements in the year. As requested in the Local AuthorityStatement of Recommended Practice (2006-2007) an aggregate breakdown betweencontributions, repayments and change inmarket value is not readily available.The aggregate amount of AVC investmentsis as follows:

10 COMMITMENTSCommitments for investments amounted to £100.388m as at 31 March 2007.

15

The Authority's ResponsibilitiesThe Council as Administering Authorityof Merseyside Pension Fund is required:

To make arrangements for the properadministration of the financial affairsof the Fund and to secure that one ofits officers has the responsibility forthe administration of those affairs. Inthis authority, that officer is theDirector of Finance.

To manage the affairs of the Fund tosecure economic, efficient use ofresources and safeguard its assets.

The Director of Finance'sResponsibilitiesThe Director of Finance is responsible forthe preparation of the Fund's Statementof Accounts which, in terms of theChartered Institute of Public Finance

and Accountancy Code of Practice onLocal Authority Accounting in GreatBritain (the Code), is required to presentfairly the financial position of the Fundat the accounting date and its incomeand expenditure for the year ended 31 March 2007.

In preparing this statement of accounts,the Director of Finance has:

Selected suitable accounting policiesand then applied them consistently

Made judgements and estimates thatwere reasonable and prudent

Complied with the Code

The Director of Finance has also:Kept proper accounting records whichwere up to date

Taken reasonable steps for theprevention and detection of fraud andother irregularities

The Director of Finance'sCertificateI certify that the Statement of Accountspresents fairly the financial position ofthe Fund at 31 March 2007, and itsincome and expenditure for the yearthen ended.

Director of Finance

Date: 25 September 2007 25 September2006

Statement ofResponsibilites

Ian Coleman, Director of Finance

16

Independent auditors' reportto the Members of MerseysidePension Fund on the PensionFund Annual Report I have examined the financialstatements included in the PensionFund Annual Report which comprise theFund Account, the Net AssetsStatement and the related notes.

This report is made solely to MerseysidePension Fund in accordance with Part IIof the Audit Commission Act 1998 andfor no other purpose, as set out inparagraph 36 of the Statement ofResponsibilities of Auditors and ofAudited Bodies prepared by the AuditCommission .

Respective responsibilities ofChief Finance Officer andauditorsThe Director of Finance is responsiblefor preparing the Annual Report inaccordance with the Statement ofRecommended Practice 'FinancialReports of Pension Schemes 2002'. Myresponsibility is to report to you myopinion on the consistency of thefinancial statements within the AnnualReport with the statutory financialstatements. I also read the otherinformation contained in the Annual

Report and consider the implications formy report if I become aware of anymisstatements or materialinconsistencies with the statutoryfinancial statements.

Basis of opinionI conducted my work in accordancewith paragraphs 15-18 of Bulletin1999/6 'The auditors' statement on thesummary financial statement' issued bythe Auditing Practices Board. OpinionIn my opinion the financial statementsincluded in the Annual Report areconsistent with the statutory financialstatements of Wirral Council for theyear ended 31 March 2007.

District Auditor.Name Judith TenchSignature:

Address:Audit CommissionThe HeathRuncornCheshire WA7 4QX

Date:228 September 20079 September2006

Audit Report toMerseysidePension FundIndependent Auditors’ Report to theMembers of the Merseyside Pension Fundon the Pension Fund Annual Report

17

Development of the SchemeSince 1922 the Local Government PensionScheme has developed from a schemewhich just provided pensions for officersonly, to today’s Scheme which providespensions and lump sums for all members;spouses, civil partners and children’spensions, ill health, redundancy and deathcover. Quite clearly it is a comprehensivescheme and yet, through the co-operation of the Government, employerand employee representatives, theScheme is constantly changing andadapting to modern day needs anddemands.

Amendments were made to the LGPSregulations from 6 April 2006 to reflectchanges made by HM Revenue &

Customs to the tax treatment of pensionsand to remove the “85 year” rule onretirement before the normal retirementage of 65 with effect from 1 October2006 in order to ensure the long termsustainability of the Scheme.

Discussions are also still continuing onthe extent of transitional protection to begiven to members affected by the removalof the 85 year rule.

During the course of 2006 a majorconsultation exercise was undertakenboth nationally and locally to agree thebasis for a new Scheme to be introducedfrom 1 April 2008. The new LGPS(Benefits, Membership and Contributions)Regulations 2007 were issued in April2007 and further regulations andguidance is currently still awaited fromthe DCLG.

The Fund will be carrying out a furthermajor communication project to publicise the provisions of the newScheme in the run up to itsimplementation on 1 April 2008.

LegislationThe principal regulations were amendedduring the year by the followingstatutory instruments: -

The Local Government Pension Scheme(Amendment) Regulations 2006(Into force from 1 and 6 April and 1 October 2006) The regulations made changes linked tothe introduction of the new simplified taxregime including increasing themaximum tax free lump sum available bycommutation and introducing “flexible

SchemeAdministration

Merseyside Pension Fund operates theLocal Government Pension Scheme(LGPS), which provides for theoccupational pensions of employees,other than teachers, police officers andfire fighters, of the local authoritieswithin the Merseyside area. It alsooperates the Scheme for members ofother organisations, which have madeadmission agreements with the Fund.

A list of the participating employers isshown at Appendix A. The Scheme is apublic service pension scheme regulatedby statute through the Department forCommunities and Local Government(DCLG). It is a contributory final salaryscheme, which is contracted out of theSecond State Pension and is exemptapproved for tax purposes.

Membership 31 March 2007 31 March 2006Contributors 51,163 49,307

Pensioners 38,149 37,535

Deferred beneficiaries 22,810 20,572

Peter Mawdsley, Principal Pensions Officer

18

retirement” arrangements to the Scheme.They also make provision for the abolitionof the 85 year rule from 1 October 2006,subject to further discussions ontransitional protection.

The Local Government Pension Scheme(Amendment) (No 2) Regulations 2006(Into force from 1 October 2006)The regulations extended the transitionalprotection in respect of the changes tothe 85 year rule to:

Permit all those who were activemembers before 1 October 2006 tocontinue to count membership up to 31 March 2008.

Extend full protection for post 1 April2008 membership for those whoattained age 60 and satisfied the 85year rule before 1 April 2016, ratherthan 2013.

Introduce tapered protection for thosewho retire having attained age 60 on orafter 1 April 2016 and before 1 April2020, who would have satisfied the 85year rule before the latter date.

The Local Government (Early Terminationof Employment) (DiscretionaryCompensation) Regulations 2006(Into force 29 November 2006retrospective to 1 October 2006)

The regulations revised the compensationarrangements available to localauthorities to comply with new agediscrimination legislation and introducednew lump sum compensationarrangements to replace compensatoryadded years.

The Local Government Pension Scheme(Benefits, Membership andContributions) Regulations 2007(Into force 1 April 2008)

The regulations introduce the NEW LOOKScheme from 1 April 2008 based on ahigher 1/60th accrual rate for futuremembership and introduce tieredemployee contributions and a range ofbenefit changes and improvementsincluding partners pensions.

Membership earned prior to 1 April 2008will continue to be calculated based onthe old 1/80th pension and 3/80ths lumpsum basis.

Separate regulations dealing withAdministration and TransitionalProvisions are still awaited.

Performance Targets Target Within Target %Payment of retirement benefits 7 days 94

Payment of monthly pensions 100% 100

Payment of Transfer Values 7 days 99

Provision of inward transfer quotes 10 days 97

Payment of refunds 7 days 99

Provide mis-selling costs 10 days 99

Provide valuation in divorce cases 10 days 99

Respond to members enquiries 10 days 93

(Details given in respect of 12 month period to 31 March 2007)

Service Standards CharterResults of performance against target are shown below: -

19

Key Improvement AreasThe key improvement areas identifiedfor the pension administration unit areas follows: -

1. Improved efficiency throughdevelopment of informationtechnology capability and application.Scheme members are now able togain online access to their ownpension details and to perform benefitprojections, to enable them to see thevalue of their benefits through theinternet. Further development andenhancement of these facilities is totake place.

2. Enhanced communications, consultationand marketing of the benefits of theScheme to employers, employees andbeneficiaries. Further improvements tothe range of scheme literature and theFund website are planned as part of thecommunication required of the futurescheme changes as modernisationcontinues in the run up to April 2008.

3. Development of training policies andprocedures to ensure the quality of

service provision to Scheme members.Further work is underway both withinthe Fund and with partners to extendthe training opportunities availablefor scheme members, employers andelected members.

4. Efforts to increase take up of Schememembership.A major review of the currentarrangements for promotion of theScheme is underway in conjunctionwith employers, in an effort toidentify any improvements required toensure Scheme members maximisetheir pension opportunities.

Comparisons/BenchmarkingThe Fund continues to participate in theChartered Institute of Public Financeand Accountancy (CIPFA) annualbenchmarking survey.

The results of unit cost comparison forthe most recent report published(2005/2006) were as follows:

SchemeAdministration

Membership 2005/06 2004/05Merseyside Pension Fund £19.06 £19.61

CIPFA Average £22.80 £22.23Private Sector in–House £42.55 £37.81Private Sector Outsourced £32.61 £29.05

20

The individual totals within the surveyshowed that the Fund had a lower costfor staff and pensions payroll than theCIPFA average, but had a higherexpenditure on Communications, whichincludes postage of relevantinformation to members’ homeaddresses.

The Fund is also continuing toparticipate in a benchmarking forumconsisting of representatives of five ofthe largest Metropolitan AdministeringAuthorities in an effort to seek out best practice.

Internal Dispute Resolution CasesSince 1 June 2004, individual employersare responsible for considering stage 1appeals against decisions made by them,with the Fund responsible forconsidering stage 1 appeals against itsown decisions and all stage 2 appeals,instead of the Department for

Communities and Local Government.During the year to 31 March 2007, therewere two new cases dealt with by thepanel of Appointed Persons responsiblefor complaints against decisions madeby the Fund which upheld the decisionsmade by the Fund.A total of 8 new cases were dealt withby the panel of Appointed Personsresponsible for considering Stage 2appeals against employer decisions.As in previous years the majority ofcases have concerned either refusal togrant ill health retirement (4) or to bringpreserved benefits into payment early onill health grounds (3). Of these appealsagainst employer decisions two ill healthretirement appeals were successful, oneappeal was withdrawn, one was stillongoing and in the remaining four casesthe employer decision was upheld.

0

1

2

3

Breakdown of Appeals against Employer Decisions4

Refused early retirementRefused deferred benefit on ill health grounds

Refused ill health retirement

21

Consulting Actuary’sStatement

22

23

SupplementaryNote

24

Appendix AEmployer MembershipCURRENT SCHEDULED BODIESAcademy of St Francis Merseyside Passenger Transport ExecutiveBirkenhead School (2002) Merseyside Police AuthorityBirkenhead Sixth Form College Merseyside Valuation and Community Charge TribunalBurton Manor Residential Home Merseyside Waste Disposal AuthorityCarmel College National Probation Service (Merseyside)Halewood Parish Council North Liverpool AcademyHugh Baird College Prescot Town CouncilKing George V College Rainford Parish CouncilKnowsley Community College Rainhill Parish CouncilKnowsley MBC Sefton MBCKnowsley Parish Council Southport CollegeLiverpool City Council St. Helens Community CollegeLiverpool Community College St. Helens MBCLiverpool John Moores University Whiston Parish CouncilMersey Waste Holdings Limited Wirral Metropolitan CollegeMerseyside Fire & Rescue Authority Wirral MBCMerseyside Passenger Transport Authority Woodchurch High School

CURRENT ADMISSION BODIES2020 Knowsley Parkman Liverpool Council for Social Aid2020 Liverpool Parkman Liverpool Hope University CollegeAge Concern - Liverpool Liverpool Housing TrustArriva North West Liverpool John Lennon Airport PLCAssociation of Police Authorities Liverpool VisionBeechwood & Ballantyne Housing Association Local Government AssociationBeechwood Educare Centre Local Government International BureauBerrybridge Housing Ltd. Mellors Catering Services LtdBirkenhead Citizens Advice Bureau Merseyside LieutenancyBirkenhead Market Services Merseyside Society for the DeafC.I.C. Drug Services Merseyside Welfare RightsCatholic Childrens’ Society Merseyside Youth AssociationCDS Housing Mott McDonald (M.I.S.)Cobalt Housing Ltd. Netherley Citizens Advice BureauCommission for Social Care Inspection North Huyton New Deal New FutureCommunity Technical Services Agency North Liverpool Citizens Advice BureauEnterprise (Liverpool Cleansing) Novas GroupEnterprise (Liverpool Grounds) Nugent CareEnterprise (Liverpool Housing) OH SolutionsEnterprise (Liverpool Highways) Ltd One Vision HousingEnterprise (St. Helens) Partners Credit UnionGeraud Markets (Liverpool) Ltd. Sefton Education Business PartnershipGlendale Managed Services Sir Robert Jones Memorial WorkshopsGlenvale Transport Ltd. South Liverpool Housing Ltd.Greater Hornby Homes Southern Neighbourhood CouncilGreater Merseyside Connexions St. Gabriel’s Community HomeGreen Apprentices Ltd Taylor Shaw Catering Ltd. (St Wilfred’s)Groundwork Trust Ltd. Taylor Shaw (New Heys School)Helena Housing The Peoples CentreHopkinson Catering (Sacred Heart School) The Port Sunlight Village TrustJarvis Workplace FM Ltd (Liverpool Schools) University of LiverpoolJarvis Workplace FM Ltd. (Wirral Schools) Upton Hall ConventKnowsley Housing Trust Vauxhall Neighbourhood CouncilLACORS/LACOTS Village Housing Association Ltd.Lairdside Communities Trust Vinci Services Ltd. (Holst FM)Lee Valley Housing Association Ltd. Vinci Services Ltd. (Lorne Stewart)Libraries North West Wavertree Citizens Advice BureauLiverpool 8 Law Centre Wirral Autistic SocietyLiverpool Association for the Disabled Wirral Council for Voluntary ServicesLiverpool Citizens Advice Bureau Wirral Partnership Homes (Building Services) Ltd.Liverpool Community Rights Wirral Partnership Homes Ltd.

25

Appendix BPensions Committee Items

WIRRAL MBC PENSIONS COMMITTEE

Audit Plan 2006/07

Merseyside Special Investment Fund

Standard Life Assurance Company ProposedDemutualisation

Private Equity Three Year AllocationProgramme

Private Equity - Investment In Blackstone V

Management of European Equities

25 September 2006 Merseyside Pension Fund: Audited Accountsfor the Year Ended 31 March 2006

Audit Commission - Audit Opinion for MerseysidePension Fund

Management Representation Letter

Abatement of Pension on Re-Employment

Local Government Pension SchemeGovernance Arrangements

The LGPS (Amendment) (No 2) Regulations 2006Changes to the 85 Year Rule Funding Strategy Statement

Review of Statement of Investment Principles (SIP) Consultation on New Look Local GovernmentPension Scheme

Member Training Programme 2007

Local Government Chronicle (LGC) Awards 2006 LGPS Trustees Conference Leeds

LGPS Trustee Training

LGC Seminar Local Government Pension Scheme Annual Employers Conference

LAPFF Conference

The IIGCC European Conference; ManagingInvestments in a Changing Climate.

Interim Actuarial Review as at 31 March 2006

Admission Body Application – One VisionHousing Limited

Closure of Admission Body – Liverpool &Knowsley Family Service Unit

Closure of Admission Body – Groundwork Trust Greater Merseyside Connexions - Request forReduction in Amount of Bond Required

Review of Potential Unfunded Liabilities forAdmission Bodies

Management of European Equities:Appointment of JP Morgan Asset Management

27 November 2006 Consultation on the Local GovernmentPension Scheme

Consultation on Changes to Trivial Pensionsand AVC Contribution Arrangements

The Local Government (Early Termination ofEmployment)- (Discretionary Compensation)Regulations 2006

Proposed National Pensions Savings Scheme

Staffing Review - Pensions Investments and Operations Climate Change

LGC Pension Fund Investment Seminar

The Committee met on 5 occasions during 2006/07to discuss the following items.Reports from the Investment Monitoring WorkingParty are also considered at Committee.

27 June 2006 Merseyside Pension Fund Accounts: Year Ended 31 March 2006 Review of Scheme AVC Investment FundsOffered Investment Performance 2005 - 2006

Pensions White Paper

Early Termination of Employment DiscretionaryCompensation Regulations 2006: Consultation Draft

The LGPS (Amendment) Regulations 2006 and theDraft LGPS (Amendment) (No 2) Regulations 2006 Pension Commission - Third and Final ReportApril 2006

Representation on Committee Admission Body Application – Taylor Shaw Catering- Outsourcing Contract with Liverpool City Council– New Heys School

Admission Body Application – OH Solutions Ltd- Outsourcing Contract with Liverpool City Council –Liverpool Occupational Health ServicesPublic Sector Pension Fund Investment Conference Merseyside Community Youth Games

Administration of the Firefighters Pension Scheme

External Investment Mandates

Keel Row Blyth, Acceptance of Tender

Alternative Investments: Work of Art

Write Off of Rental Income

Representation on Outside Bodies

Alternative Investments

Debt Write Offs

Liverpool & Knowsley Family Service Unit

Sir Robert Jones Workshops

Groundwork Trust

Admission Body Application - Glendale (Liverpool) -Liverpool City Council - Parks Grounds Contract

Admission Body Application Enterprise (Liverpool)Liverpool City Council - Neighbourhood GroundsMaintenance Contract

Minutes of the Investment Monitoring Working Party

29 January 2007 Annual Audit Letter 2005-06

Pension Fund Budget 2007-2008

Pensions White Paper

The Draft Local Government Pension Scheme -(Benefits, Membership And Contributions)Regulations 2007

Treasury Management Plan and Strategy 2007-08

Draft Local Government Pension SchemeAdministration Regulations 2007

Draft Local Government Pension Scheme(Amendment) Regulations 2007

Climate Change Conference Held October 2006 -Summary of Costs

26 March 2007 Finance Department Plan

NAPF Review of Compliance With Myners Principles

Local Government Pension Scheme Reform The Draft Local Government Pension Scheme(Amendment) (No 2) Regulations 2007

Authorised Signatories For Investments

Pension Fund Investment Accounting System

Replacement of Server For Pensions 4 - ElectronicDocument Workflow System Members Training 2007

CIPFA Annual Conference

National Association of Pension Funds Conference

United Nations Principles for ResponsibleInvestment (UNPRI)

Investment Monitoring Working Party Minutes - 28 February 2007

Management of U.S. Equities

3 Admission Body Applications - Taylor ShawCatering - Outsourcing Contracts with SeftonBorough Council

INVESTMENT MONITORINGWORKING PARTYMeetings were held on:- 31 May 2006,12 September 2006, 22 November 2006 and 28 February 2007.

Appendix CInformation ContactsMERSEYSIDE PENSION FUNDInternet Website Address: www.merseysidepensionfund.org.ukArea Name Telephone number

Head of Pension Fund Peter Wallach 0151 242 1309

Principal Pension Officer Peter Mawdsley 0151 242 1333

Accounts Gerard Moore 0151 242 1307

Investments Leyland Otter 0151 242 1316

Members Services Margaret Rourke 0151 242 1369

Benefits/Payroll Kevin Greenough 0151 242 1354

Operations (IT/Communications) Guy Hayton 0151 242 1361

RESOLUTION OF DISPUTESEmployer Decisions Principal Pensions Officer 0151 242 1333

Fund Decisions Director of Finance 0151 666 3056

SCHEME EMPLOYERS CONTACTSArriva North West Angela Irwin 0151 522 2807

Merseyside Fire & Rescue Service Helen Jones 0151 296 4219

Knowsley MBC Mary McDonald 0151 443 4177

Liverpool City Council Vanessa Duncan 0151 225 4128

Liverpool John Moores University Jayne Brown 0151 231 3401

Merseytravel Linda Gedman 0151 330 1191

National Probation Service (Merseyside) Kevin Stamper 0151 920 9201

Merseyside Police Authority Joan Dullahan 0151 777 8252

Sefton MBC Mike Nelson 0151 934 4127

St. Helens MBC Jane Wilson 01744 456038

Waste Disposal Authority Paula Pocock 0151 255 1444

Wirral BC Helen Watkins 0151 666 3524

26

MPF

R&

A/60

0/09

.07

Merseyside Pension Fund

PO Box 120, Castle Chambers, 43 Castle Street, Liverpool L69 2NW.

Email: mpfadmin@wirral.gov.uk www.merseysidepensionfund.org.uk