MEMBER AUTUMN 2015 BRIEFING. For members of the Mitchells & Butlers Executive Pension Plan

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1 MEMBER AUTUMN 2015 BRIEFING For members of the Mitchells & Butlers Executive Pension Plan

2 CHAIRMAN S WELCOME I am delighted to send you the 2015 edition of Member Briefing, the annual newsletter for members of the Mitchells & Butlers Executive Pension Plan. This newsletter keeps you up to date with information about the Plan and news about the wider world of UK pensions. In his 2014 Budget speech, the Chancellor announced major changes to the rules that apply to pension savings. These changes, some of which came into effect from April 2015, will have a significant impact on your retirement options, particularly if you have defined contribution (DC) savings. See pages 4-7 for further details on how the changes affect Plan members. We would welcome any comments or suggestions you may have so that we can continue to improve our Member Briefings. You can contact us via the Pensions Department using the details on the back cover. Mike Bramley Chairman of the Trustee I hope that you find this report helpful and that it gives you a good understanding of the Plan, the security of your benefits and current pension matters. 2

3 We would welcome any comments or suggestions you may have so that we can continue to improve our Member Briefings. You can contact us via the Pensions Department using the details on the back cover. ON THE MENU 2015 PENSION CHANGES page 4 What it means for our DB and DC Section members PLAN NOTICEBOARD page 8 Finding lost pensions General updates Updating your beneficiary form MANAGING THE PLAN page 12 Your Trustee Board Important announcements DC page 14 Accounts, Membership, Investments, Managing your pension DB page 20 Accounts, Membership, Investments, DB news, Funding update KEEPING IN TOUCH back cover 3

4 DC DB PENSION FLEXIBILITIES 2015 PENSION CHANGES On 6 April 2015, major changes to the way that people can access their pension savings came into effect. The changes target DC members specifically (that is, people saving through a defined contribution arrangement). However, members in the DB Section who have paid AVCs would be able to access these flexibilities with their AVCs, or they might consider transferring their DB pension into a DC arrangement. Since 6 April 2015, certain flexible retirement payments can restrict the tax relief on any further pension contributions you make. If you are planning to access any of these flexibilities, you should consider taking independent financial advice. FURTHER INFORMATION With more choice comes more complexity and the need for more help and guidance on retirement. The Government is therefore offering members with DC pensions free and impartial financial guidance on their choices at the point of retirement. The Government has appointed the Citizens Advice Bureau and the Pensions Advisory Service to provide this service, which is called Pension Wise. More details can be found on the Pension Wise website: 4

5 WHAT OPTIONS ARE AVAILABLE FOR MEMBERS IN THE DC? If you have DC pension savings, the pension changes mean you now have a number of flexible options at retirement. While the Trustees have agreed that these options will not be offered directly through the Plan, you do have the option to transfer all of your benefits at retirement to an appropriate scheme or provider who does offer them. TAX-FREE LUMP SUM ANNUITY DRAWDOWN CASH LUMP SUMS You may still take up to 25% of the value of your pension, up to the Lifetime Allowance, as a tax-free cash lump sum. You pay a lump sum to an insurance company who promises to pay you a guaranteed income for life. Your pension savings remain invested and you can choose when and how much to withdraw. You can take all or any of your pension savings as a cash lump sum; once you have taken the first 25% tax-free the balance would be taxed at your marginal rate of income tax. Available through the Plan? continued on next page... 5

6 SO, WHAT HAS CHANGED FOR MEMBERS IN THE DB? TAX-FREE LUMP SUM You may still take up to 25% of the value of your pension, up to the Lifetime Allowance, as a tax-free cash lump sum. ANNUAL PENSION If you remain in the DB Section until retirement, you will still receive a Scheme pension and your spouse/partner will still receive a pension on your death (if eligible). TRIVIAL COMMUTATION If the value of your DB pension in the Plan is less than 10,000 or the value of your total pension savings from all registered pension schemes is less than 30,000, you may take your Plan DB benefits as a lump sum. The limits used to be a value of 2,000, or total pension savings of 18,000. The first 25% is tax-free, and the balance will be taxed at your marginal rate of income tax in that tax year. This is now available from age 55 (previously 60) although other conditions apply. FLEXIBLE RETIREMENT You may transfer the value of your DB benefits to an alternative DC arrangement, if you want to access the flexible options available to those with DC pension savings. However, if your DB benefits are valued at more than 30,000, you must obtain advice from an independent adviser authorised by the Financial Conduct Authority, before the transfer can go ahead. The Trustees will require confirmation from the adviser that this advice has been provided. 6

7 If you have paid AVCs You may wish to take advantage of the new pension flexibilities by taking your AVCs as a lump sum, or a series of lump sums. These options are not available directly through the Mitchells & Butlers Executive Pension Plan, so you would have to transfer your AVC benefits to an appropriate DC arrangement. Transfers can be made at any time up to the time you use your AVCs to secure a pension. THE JULY BUDGET AND WHAT IT MEANS FOR PENSIONS The Chancellor made a number of announcements during his July Budget speech that may affect people paying into a pension scheme. He confirmed that the lifetime allowance (LTA) will reduce from 1.25 million to 1 million from April 2016, although people who are affected by this change would be able to protect their benefits already built up. The Chancellor also said that from 6 April 2018 the LTA will be linked to changes in the Consumer Prices Index. In addition, the Government is looking into the issue of pensions tax relief. Tax relief makes it cheaper for you to save into a pension. Most people can get tax relief on their pension contributions (up to 40,000 a year) but the Government wants to restrict tax relief for people who earn 150,000 or more a year. There is more information on the GOV website: The Government has launched a consultation to find out if tax relief is the best way of encouraging people to save into a pension or if there is a better option. We will keep you updated on developments in next year s Member Briefing or on the member website. 7

8 DC DB PLAN NOTICEBOARD FINDING LOST PENSIONS Few people stay in one job their whole life, and if you move around a lot it can be hard keeping track of all the pensions you build up over the course of 40 or 50 years. The Government has a free pension tracing service that helps people find their lost pensions. As a result of April s groundbreaking pension changes (see page 4), the Pension Tracing Service (PTS) will triple its number of staff to help deal with a rise in calls from people seeking help to find lost pension pots. Last year the service was contacted a record 145,000 times and in 87% of cases, staff successfully managed to put customers back in touch with their lost pension provider. Independent research suggests that the most common reason for losing track of a pension is when a person leaves an employer and does not keep them informed of any future changes of address. That s why it s so important to tell our Plan administrators when you move house their contact details are on the back page. TAX ON DEATH BENEFITS The Chancellor announced in September 2014 that instead of paying the 55% rate of tax when passing on their pension, people who die under age 75 with DC pension savings that have not been used to provide a pension can, from April 2015, pass these on as a lump sum to a person of their choice, tax-free. People who die over the age of 75 with DC pension savings that have not been used to provide a pension can pass these on to a person of their choice who will be able to take it as a lump sum taxed at 45%, or as income and pay their normal rate of income tax. FIND IT ONLINE 8

9 PROTECT YOUR PENSION Pension scams are on the increase in the UK. Scammers will try to entice you with a free pension review, one-off investment opportunity or legal loophole. The only time you are normally able to draw money from a company pension before age 55 (or 50 for certain members) is if you have had to stop work because of ill health. Otherwise, if you draw money from a pension before 55, you have to pay a tax penalty of up to 55%. On top of this, a number of people who have been persuaded to cash in their pensions have not even received the money they were promised by a salesperson. PENSIONS TAX ALLOWANCES COULD YOU BE AFFECTED? A new money purchase annual allowance has been introduced for people who flexibly access their DC pension on or after 6 April If they do this, and depending on their personal circumstances, they face a reduction in their annual allowance, from its current level of 40,000 (for all types of pension savings in registered pension schemes) to 10,000 (for DC savings only). You should consider speaking to an independent financial adviser before withdrawing any DC savings. The lifetime allowance will drop from 1.25 million to 1 million, from April If you think you might be affected by these changes, please contact the Pensions Department. FIND IT ONLINE pension-scams.aspx There is more information about these pension scams here. FIND IT ONLINE about-pensions/saving-into-a-pension/ pensions-and-tax You can find out more about pensions tax allowances here. 9

10 DC DB PLAN NOTICEBOARD TELL US YOUR WISHES It s very important to keep your beneficiary and partner nomination forms up-to-date. These should be reviewed at least every three years or when your personal circumstances change, whichever is the sooner. (You do not need to complete a beneficiary form if you have been receiving your pension for more than five years but you still need to keep your partner nomination form up to date.) The Trustees have discretion to pay cash sums payable on the death of a member to such person(s) as they decide. Currently, this means that payment of cash sums is tax-free. The payment of benefits may be delayed if there is no beneficiary form or if the Trustees consider the form to be out of date. You may not be aware that you can nominate a partner to qualify for a pension on your death. If you do have a partner and you do not complete a partner nomination form, then it is unlikely that they will receive a pension on your death. (A registered civil partner will automatically receive a pension.) So that the Trustees are aware of your wishes, it is important that there is an up-to-date completed beneficiary form on file to which the Trustees can refer. The Trustees will decide to whom the payment of any cash sum due should be paid and will take into account your personal circumstances, which includes the information provided on the beneficiary form. The Trustees are not bound by the beneficiary form (partly to protect the tax-free status of the payment), but they do refer to it when making their decision. 10

11 WHO CAN I CHOOSE AS A BENEFICIARY? A beneficiary can include your spouse, children and other close relatives or dependants, anyone named as a beneficiary in your Will and even a registered charity. FIND IT ONLINE Beneficiary forms are available on the pensions website, or ask the relevant Plan administrator to send you a copy. MINIMUM PENSION AGE The Government has decided to increase the earliest age anyone can draw a company or private pension, from 55 to 57 in April Future increases will coincide with increases to State Pension Age, although this is not yet law and could change. 11

12 DC DB MANAGING THE PLAN YOUR TRUSTEE BOARD The Trustee Board is now made up of the following six Trustee Directors: INDEPENDENT Mike Bramley (Chairman) Paul Craven Law Debenture Pension Trust APPOINTED BY THE COMPANY Andrew Vaughan NOMINATED BY THE MEMBERS John Appleton Sue Maslen 12

13 DC DB IMPORTANT ANNOUNCEMENTS DC CODE The Pensions Regulator has produced a Code with a range of desirable quality features for DC pension schemes to follow. The Board has considered this code very carefully and has assessed the Plan s performance as good, while acknowledging there is always room for improvement. The formal Report & Accounts now includes (on page 5 of that document) a detailed statement on the Board s views in relation to this Code. UPDATES TO DC CHOICE HANDBOOK As a result of recent and forthcoming pension rule changes, several sections of the DC Choice handbook are or will become out of date. We are in the process of updating the handbook, but in the meantime, if you are an active member of DC Choice, please do look at the enclosed insert. It provides an updated page 8 (with effect on and from 1 October 2015) and updated sections for pages 11 and 12 of the handbook, for your reference. TRUSTEES PASS TRIVIAL COMMUTATION RESOLUTION Trivial commutation is where members with small DB benefits can exchange their pension for a one-off lump sum. In the 2014 Budget, the Government also raised the trivial commutation limits available to members with DB benefits. This means if your total pension savings from all registered pension schemes are valued (using factors agreed by the Trustees with advice from the Plan s Actuary) at less than 30,000 (was 18,000), you may exchange all of your DB benefits in the Plan for a lump sum payment. The Trustees have decided, by formal resolution, that they will allow any member to request a trivial commutation lump sum, and that it is the Trustee s current policy to grant such requests if the member meets the conditions under tax legislation at the time. (This policy may be changed or withdrawn in future.) 13

14 DC MONEY MATTERS THE YEAR IN BRIEF... Here is a summary of the payments into and out of the DC Section during the Plan s financial year (which runs from 1 April 2014 to 31 March 2015). These numbers come from the Trustees Annual Report & Accounts, which is an in-depth financial document that is audited by PricewaterhouseCoopers LLP. On 1 April 2014, the DC Section was worth Plus money in Less money out Plus the rise in value of our investments 11.6 million 1.7 million 0.5 million 1.4 million On 31 March 2015, the DC Section was worth 14.2 million FIND IT ON THE WEBSITE You can download the Plan s full Report & Accounts. 14

15 DC MEMBERSHIP MEMBERSHIP AS AT 31 MARCH active members 76 deferred members 8 opted-out members Total members:

16 DC INVESTMENTS The current default investment strategy (ie, what happens if you don t make an investment choice) is called LifeStyle. This means your account is invested according to a pre-determined strategy that has been set by the Trustees, with help from their professional advisers. LIFESTYLE FUNDS (FUND RETURN) 21.1% % 10.9% 10.8% 8.4% 10 The graph on this page shows the returns achieved by these investment funds over the last three years to 31 March These figures are no indication of future performance, and investment returns can go up or down in response to market changes % 0.5% 0.6% % DC Choice Growth Fund Index-Linked Gilt Fund Cash Fund 16

17 OTHER FUNDS A small number of our members make their own investment decisions, rather than leaving it to the LifeStyle option. These FreeStyle members can invest their account across any of the following core funds and on request can also choose from a range of additional funds: Fund return Core funds 2015 (%) 2014 (%) 2013 (%) DC Choice Growth Fund Global Equity Index Fund N/A Diversified Growth Fund Index-Linked Gilt Fund Long Gilt Fund Cash Fund Additional funds Overseas Consensus Index Fund UK Equity Index Fund North America Equity Index Fund Europe Equity Index Fund Asia Pacific Equity Index Fund Japan Equity Index Fund Property Fund Sterling Bond Fund FIND IT ON THE WEBSITE The tables on this page show the returns achieved by these investment funds over the last three years to 31 March These figures are no indication of future performance, and investment returns can go up or down in response to market changes. 17

18 DC CONTRIBUTIONS PLANNING FOR YOUR RETIREMENT A report released by the Department for Work and Pensions last year showed that middle and higher-income groups were among the worst financially prepared for retirement. The report looked at income replacement rates so, what percentage of current income you are likely to achieve in retirement based on your current contributions. Although there are problems with people across all income groups not saving enough for retirement, the report suggested it was people in the middle and higher income ranges who will face the biggest income hit when they give up work. The DWP s modelling shows that of the richest 20% of working age people, around 7% are expected to end up in the poorest 20% of people in retirement if they do not act to avoid such a shortfall in their income. 18

19 To work out if your retirement savings are on track, BlackRock has developed a number of online tools that can help you: TargetBuilder a tool you can use to work out how much you might need when you retire; and mytarget a tool that shows you how paying more money into your account, retiring later and changing your investment options could affect how much you get when you retire. These tools are available on BlackRock s TargetPlan website: You can use TargetBuilder and mytarget to help you identify if there is a gap between the pension you might get and the level of pension you want. If there is a gap, and if you are already paying at the maximum matching contribution rate, you may wish to consider paying Additional Voluntary Contributions (AVCs) or sacrificing bonus payments. BOOST YOUR RETIREMENT SAVINGS 1. Additional Voluntary Contributions (AVCs) AVCs are a flexible way of paying in more to the Plan and you can stop, start or change your payments whenever you like. AVCs provide a tax-efficient way of increasing your retirement savings. You can make a one-off payment, or set up regular payments into your account. Even though the Company does not match your AVCs, you still get tax relief on these contributions (subject to the annual allowance see page 9). You can set up AVCs by completing the AVC Application Form, which is available on the pensions website: and should be returned to BlackRock. 2. Bonus Sacrifice Scheme If a bonus is being paid, the Company operates a tax-efficient scheme that will allow you to sacrifice all or part of any bonus payment, in exchange for an equivalent company contribution to your Mitchells & Butlers pension plan AVC account. For further information please go to the Mitchells & Butlers intranet (My Benefits page). 19

20 DB MONEY MATTERS THE YEAR IN BRIEF... Here is a summary of the payments into and out of the DB Section during the Plan s financial year (which runs from 1 April 2014 to 31 March 2015). These numbers come from the Trustees Annual Report & Accounts, which is an in-depth financial document that is audited by PricewaterhouseCoopers LLP. On 31 March 2014, the DB Section was worth Plus money in Less money out Plus the rise in value of our investments million 11.6 million 17.7 million 78.2 million On 31 March 2015, the DB Section was worth million FIND IT ON THE WEBSITE You can download the Plan s full Report & Accounts. 20

21 DB MEMBERSHIP MEMBERSHIP AS AT 31 MARCH deferred in-service members (who still work for the Company) 369 deferred members (who no longer work for the Company) 409 pensioners Total members:

22 DB INVESTMENTS The DB Section s assets are invested in the Mitchells & Butlers Common Investment Fund (CIF), which is available to all the Company s Defined Benefit pension plans. The CIF invests in a range of traditional assets, including equities (both publicly traded companies and privately owned companies), bonds and property. Splitting the assets between different types of investments helps to smooth out some of the ups and downs. The way the assets are split ( asset allocation ) remained fairly stable during the year covered by this newsletter, with 65% invested in liability matching assets (Government and corporate bonds) and 35% in return seeking assets. PERFORMANCE The DB Section s assets generated an overall investment return of 18.1%. Low interest rates have encouraged a strong performance from the Plan s bond holdings supported by relatively favourable economic fundamentals. When the Plan s Government bond holdings are combined with its corporate bonds, an overall return for the bond portfolio of 19.2% was generated. The Plan s equity portfolio also had a good year and delivered a positive return of 14.6%. 22

23 YEAR-ON-YEAR PERFORMANCE 1 YEAR 18.1% 3 YEARS 10.4% p.a. 5 YEARS 10.3% p.a. SPLIT OF INVESTMENTS IN THE COMMON INVESTMENT FUND CIF Benchmark Inflation UK equities 2% 3 Overseas equities 31% 2 Gilts & Bonds 65% 1 0 Property & Cash 2% 23

24 DB DB NEWS VIEW YOUR BENEFIT STATEMENTS ONLINE The Trustees have decided to stop posting annual benefit statements to deferred members, so from December please login to Mercer OneView to view your annual statement PENSION PAYMENTS Pensions are typically paid in advance on the first working day of each month. For example, the pension you received on 1 October is to cover the period from 1 October to 31 October. When the first of the month falls on a bank holiday or weekend, pensions are paid on the first working day of the month. In 2016 pensions will be paid on the first of the month except for 2 May and 3 October. Your January 2016 pension instalment will be paid on Monday 21 December PENSION INCREASES Under the Rules of the Plan, your pension in excess of the Guaranteed Minimum Pension is increased in October in line with changes to the Retail Prices Index (RPI) in the year ending the previous 31 May, up to 5%. The RPI in May 2015 was 1.0%, so an increase of 1.0% will be applied to all pensions in payment and deferred pensions, with effect from 1 October MANAGE YOUR PENSION Remember that you can view details of your DB pension at any time through our secure member website, OneView. View, update or change your beneficiary form View your last benefit statement dated 12 March 2011 (if you are still working for the Company) View details of your pension payments, print out payslips and change your bank account details online (pensioners) Access a comprehensive library of pensions information, including newsletters and handbooks If you need help logging in, please call the OneView Contact Centre on (Monday-Friday, 9am-5pm). 24

25 DB FUNDING UPDATE This statement has been produced by the Plan s Trustee in order to: 1) Provide a summary of the results of the latest actuarial valuation 2) Set out the Trustee s funding objectives for the Plan 3) Outline the steps being taken to improve the funding of the Plan. WHAT IS AN ACTUARIAL VALUATION? HOW IS IT USED? Periodically the Plan s Actuary assesses the financial position of the Plan by carrying out an actuarial valuation. The main purpose of the valuation is to help determine the contributions payable into the Plan. It also helps the Trustee to set the investment strategy for the Plan s assets. An actuarial valuation must be carried out at least once every three years and an actuarial valuation was completed as at 31 March The next triennial valuation is planned for 31 March As part of the valuation, the Actuary estimates the cost of providing the benefits earned in the Plan, taking into account members life expectancy, the effects of future salary growth and price inflation. The Trustee s funding target (ie the value of assets which are needed to provide for all members benefits) partly depends upon the anticipated returns from the Plan s assets. The Trustee has decided to set the funding target prudently by assuming that the Plan makes investment returns in line with those achieved by investing in Government bonds (Gilts) plus a small extra amount (0.8% per annum) for the period to 31 March THE RESULTS OF THE PLAN S FUNDING UPDATE AS AT 31 MARCH 2015 ON THIS BASIS WERE: Funding update as at 31 March 2015 Funding update as at 31 March 2014 Assets 514m 441m Funding target 663m 535m Shortfall ( 149m) ( 94m) Funding level 77% 82% 25

26 DB FUNDING UPDATE HOW DOES THE PLAN WORK? The benefits of DB Section members are set out in the Plan s rules and are based on the member s final salary at retirement or earlier leaving, or on the member s salary at 12 March 2011, when the DB Section closed to future accrual. Benefits are paid to members from the Plan s assets. The Company pays contributions into the DB Section but member contributions ceased from March As part of this statement, we need to tell you if the Pensions Regulator has used its powers in relation to the Plan over the last year, for example by changing the way future benefits build up, or amending the employer contribution rate. We are pleased to confirm that the Regulator has not used its powers in relation to the Plan over the last year. We can also confirm that there have not been any payments to the Company from the Plan in the previous 12 months. HOW DOES THE TRUSTEE INTEND TO RECOVER THE FUNDING SHORTFALL? The Trustee takes the financial strength of the Company into account when agreeing the contributions and recovery plan with the Company. It has therefore been agreed with the Company that the funding shortfall as at 31 March 2013 would be recovered within 10 years of the valuation date (the recovery period ). This is planned to be achieved by a combination of additional contributions by the Company (see below) and achieving additional returns from the assets held. The Trustee and Company have agreed rates of Company contributions to the DB Section of the Plan of 887,833 per month, backdated to 1 April 2013, and increasing in line with the annual rate of RPI (up to a maximum of 5% each year) from 1 April The Company has also granted an additional package of enhanced contribution and security arrangements for the Plan, the details of which are available in the full Report & Accounts. 26

27 WHAT IS THE CURRENT SOLVENCY POSITION? The cost of an insurance company taking on the Plan s liabilities ( buying out the Plan) was calculated by the Plan s Actuary as 699 million as at 31 March 2013, leaving a shortfall of 252 million. HOW HAS THE FUNDING POSITION CHANGED DURING THE PERIOD TO 31 MARCH 2015? At 31 March 2015 the funding shortfall was calculated at 149 million, using assumptions consistent with the 2013 valuation. This deterioration over 2014/15 was largely due to a significant fall in Gilt yields, which increases the expected cost of providing members benefits, and more than offset strong investment returns and the contributions paid in by the Company. WHAT HAPPENS IF THE COMPANY IS UNABLE TO MEET ITS COMMITMENT TO THE PLAN? There is a safety net for members of occupational pension schemes that have to wind up in the form of the Pension Protection Fund (PPF). To benefit from the PPF the employers must generally be insolvent and the assets of the plan insufficient to secure the pensions covered by the PPF. Briefly, the PPF will provide DB members and pensioners below normal pension age with 90% of their accrued pension, subject to a cap. This cap currently limits compensation to around 28,295 per annum at normal pension age. Pensioners over normal pension age and incapacity pensioners will receive 100% of their uncapped pension. However, in all cases, future increases to pensions in payment will be lower than the rates applicable under the Plan and there are some other differences compared with Plan benefits. Further information and guidance is available on the PPF website at Alternatively you can write to the Pension Protection Fund at Renaissance, 12 Dingwall Road, Croydon, Surrey CR0 2NA. 27

28 KEEPING IN TOUCH DC If you have any questions about your benefits in the DC Section, please contact the administration team at BlackRock: BlackRock Employee Savings Service Centre, PO Box 704, Peterborough PE1 1WL Telephone: TargetPlan: DB If you have any questions about your deferred benefits in the DB Section, or your pension payments, please contact the administration team at Mercer: Mitchells & Butlers Pensions, Mercer, 4 Brindley Place, Birmingham B1 2JQ Telephone: mbplc@mercer.com Mercer OneView: The benefits provided by the Plan are governed by the Plan s Trust Deed and Rules (copies of which are available on request). Nothing in this Member Briefing confers any right to benefits save as provided by the Trust Deed and Rules and in the event of any inconsistency between this Member Briefing and the Trust Deed and Rules, the Trust Deed and Rules prevail. This Member Briefing does not constitute legal advice or financial advice and should not be relied upon as such. The description of legislation in this Member Briefing is intended as a basic guide only, not a comprehensive or exhaustive guide to the legislation