Talking DB Pensions 2015 The newsletter for pensioner members of the Gallaher A and M Pension Schemes

Transcription

1 Talking DB Pensions 2015 The newsletter for pensioner members of the Gallaher A and M Pension Schemes Annual Report & Accounts 6 Investments 9 Summary Funding Statement 13 Trustee & advisers 26

2 Scheme membership 5 Contents Annual Report & Accounts 6 Investment update 9 Summary Funding Statement 13 Freedom & choice in pensions 22 Trustee and Advisers 26 Getting in touch 27 2

3 Welcome from the Chairman... Another year has flown by. We have a new government, more pensions legislation, newlydiscovered mountains on Pluto and a new picture of me for my welcome statement. You may also notice that this year your edition of Talking DB Pensions is a bespoke pensioner version so that we can separate out what does and doesn t affect you. However, what hasn t changed over the last 12 months is our Trustee Board which is just as well, as we have been very busy keeping up with all the changes. First of all, we completed our triennial valuation of the Schemes that demonstrated an improvement on our funding levels which you can read more about in our Summary Funding Statement on pages I mentioned to you last year that we were putting a flight plan in place, setting de-risking targets. On page 20, you can read about how this is going and what happened when we hit our first trigger for the A Scheme back in March. Last year, we had an article on the Chancellor s 2014 budget known as Freedom & Choice. The main impact of Freedom & Choice is centred around members of Defined Contribution schemes and additional choices available when retiring from and leaving DB schemes. There is nothing that really affects retirees but we have a short article which can be found on page 22 to keep you up to date. 3

4 Welcome continued... At the beginning, I talked about change and one of the biggest changes in progress is the closing of the Lisnafillan factory, where, across the A and M Schemes, we currently have over 450 active members. Billy Millar is one of our Member Nominated Directors (MND) based in Lisnafillan and he has written an article of his experience as an MND which is well worth a read. Finally, I would like to wish you and your families well, particularly around any changes affecting you now or in the future. Nigel Bulpitt Chairman, Gallaher Pensions Limited 4

5 Scheme membership Active splits 2015 Active splits A M Weybridge Lisnafillan Crewe Field Sales Active splits A Scheme Active members Pensioners 5,908 5,956 Deferred members 1,517 1,633 Total 8,079 8,264 M Scheme Active members Pensioners Deferred members Total 1,047 1,061 5

6 Annual Report & Accounts of the Gallaher A and M Schemes Pensions increases A pension increase of 1.6% was made to our pensioners from 1 April This was in line with inflation for the 12-month period to 31 December Pensioners who have been retired for less than 12 months receive a proportionate increase. The increase is applied to the portion in excess of the Guaranteed Minimum Pension (GMP) for those who have reached State Pension Age. This increase reflects the rise in the cost of living over the period and so continues to protect pensions from the effects of inflation. Pensions continue to be increased each April in accordance with the Trust Deed and Rules, at the rate of the December Retail Prices Index (RPI) value to a maximum of 5%. Accounts approved by auditors The Schemes accounts for the year ended 31 March 2015 have been audited and signed by Deloitte LLP (the external auditors) and signed by the directors of Gallaher Pensions Limited (the Trustee). The highlights included here are extracted from the full statutory accounts. If you would like to receive a full copy of the Trustee s Annual Report and Accounts, please contact the Pensions Department, using the details on page 27. For members with deferred pensions, their pension is increased in line with the Consumer Price Index (CPI) to a maximum of 5% for pension accrued before April 2009 and a maximum of 2.5% for pension accrued post April

7 Income and expenditure A Scheme 31 March March 2014 M Scheme 31 March March 2014 Income 000s 000s 000s 000s Contributions 9,992 10,065 13,495 13,006 Investment and other income 10,943 10,768 6,153 6,258 Total 20,935 20,833 19,648 19,264 Expenditure Pensions 26,850 26,514 19,918 19,360 Commutations and lump sum retirements 2,702 3,255 1,979 3,264 Death benefits Leavers ,057 Total 30,278 30,128 22,081 29,681 Difference between income and expenditure (9,343) (9,295) (2,433) (10,417) Change in market value 129,514 29,774 71,977 8,865 Fund at start of year 861, , , ,092 Fund at end of year 981, , , ,540 7

8 The financial development of the Schemes The chart below shows how the value of the assets for the A and M Pension Schemes has moved over the last 10 years m m m m ,047m ,100m ,196m ,326m ,345m ,535m 0 250m 500m 750m 1000m 1250m 1500m 1750m 8

9 What are our investment objectives? The Trustee is responsible for the investment of the Schemes assets. After looking at the liabilities and ongoing funding of the Schemes, the Trustee puts in place a long term investment strategy that aims to pay every last pension payment due from the Schemes when they arise. As you have already seen from the membership figures on page 5, the Gallaher A and M Pension Schemes are mature pension schemes. They have been closed to new entrants since June As a result, the Trustee has split the investment objectives to recognise the different categories of membership. The risk reducing portfolio is invested in a way that aims to match a large portion of the pensions currently in payment and deliver returns equal to the annual pension increases. These investments are mainly in bonds. For the risk reducing portfolio the Trustee has appointed State Street Global Advisors as the investment manager, with separate bond portfolios for the A and M Schemes. The return seeking portfolio has a longer term horizon and seeks to generate higher returns for those benefits not yet in payment those of active and deferred members. These investments are mainly in equities. The Trustee has appointed the following investment managers for the return seeking portfolio: Baillie Gifford & Co Majedie Asset Management Mesirow Advanced Strategies Inc Walter Scott Global Investment Management State Street Global Advisors Global Equities UK Equities and Hedge Funds Hedge Fund Global Equities Passive UK Equities These funds are collectively invested in a Common Investment Fund. In March 2015, a disinvestment of 93.9m from the Gallaher Common Investment Fund took place with the proceeds transferred to the Gallaher A Pension Scheme bond portfolio as a result of meeting a trigger point in the investment strategy of the Gallaher A Pension Scheme, and explained in more detail in our Flight Plan article on page 20. The Trustee also appoints a custodian, who looks after the safekeeping of the Schemes assets, collects income, deals with corporate actions and provides performance measurement and accounting services. Along with their advisers, the Trustee continually monitors the performance of the investments and the investment managers and ensures that the strategy remains appropriate. 9

10 What is a Common Investment Fund? The Common Investment Fund (CIF) operates under the terms of a Trust Deed between the two participating Schemes. The A and M Schemes interest in the CIF is expressed as units which are valued on a monthly basis, so any cash transferred from the Schemes to the CIF, or any withdrawals from the CIF, will either create or redeem units. This unitised CIF holds the return seeking assets, while each Scheme holds its separate bond portfolio, i.e. the risk reducing portfolio. The Schemes apportionment of assets at the start of the Scheme year was A Scheme 71.94% and M Scheme 28.06%. At the end of the Scheme year the apportionment was A Scheme 67.30% and M Scheme 32.70%. The change in apportionment was due to the investment activity during the year. A separate CIF Annual Report and Accounts is produced in addition to the A and M Schemes Annual Report and Accounts. The movements in the CIF during the year were as follows: 'A' Scheme 'M' Scheme Allocation by value 000s 000s Balance at 1 April , ,467 Units redeemed (97,461) (1,387) Share of returns on investments 54,172 21,777 Balance at 31 March , ,857 Allocation by units Balance at 1 April , , Units redeemed (65, ) ( ) Balance at 31 March , , The spread of investments held in the CIF at the year end was: UK Equities 39.24% Overseas Equities 59.40% Cash 1.36% 10

11 How did the investment managers perform? One year Three years (pa) Return % Benchmark % Return % Benchmark % Baillie Gifford Global Equity* Majedie UK Equity Majedie Hedge Fund Mesirow Hedge Fund SSgA Passive Equities Walter Scott Global Equity SSgA A Bonds SSgA M Bonds Source: Northern Trust * Baillie Gifford was appointed on 21 January 2014, so no three-year figures are available 11

12 How did the AVC funds perform? Zurich Fund Benchmark % % Aquila 70/30 Global Equity Index Fund Aquila Consensus Fund Aquila Over 15 Year UK Gilt Index Fund Aquila Over 5 Year Index Linked Gilt Fund Aquila UK Equity Index Fund Aquila World ex-uk Equity Index Fund BlackRock All Stock Corporate Bond Fund Deutsche Managed Sterling Fund Newton Real Return Fund Schroder Global Active Value Fund Lifestyle M Fund Lifestyle P Fund Lifestyle Q Fund

13 Summary Funding Statement 2015 for the Gallaher A and M Schemes As a member of either the Gallaher A or M Pension Scheme (the Schemes ), you have built up, and may be continuing to build up, valuable benefits for the future. Knowing how your Scheme is doing financially, and whether your benefits are secure, is obviously important. To keep you up to date with the Schemes finances, which are monitored by the Trustee, we provide you with a Summary Funding Statement each year, as required by legislation. This Statement is for information only. You do not need to take any action but we recommend that you take a few minutes to read through it. How do the Schemes work? If you are an active member, each year you will accrue benefits in your Scheme, linked to your salary. If you have left the Scheme, you will have earned benefits during your Scheme membership which will be payable on retirement. If you have retired, then in general you will be receiving a pension from your Scheme. Each Scheme s assets are held in a common fund from which we pay benefits. Members do not have their own individual pension accounts. The Company pays contributions to the Schemes at levels that are agreed with the Trustee from time to time. Together with the existing assets, these contributions are intended to cover the amount of money needed to pay the benefits. 13

14 How are the Schemes financial positions measured? We carry out in-depth investigations of the Schemes finances at least every three years. This is called an actuarial valuation. We ask a qualified, independent professional, known as an Actuary, to do this. The most recent actuarial valuation was carried out as at 31 March We also carry out less formal checks on the financial security of the Schemes more regularly. There are different ways of calculating the financial position. One approach is to estimate how much money is needed to pay the benefits as they fall due. This is called an ongoing valuation. It involves making a number of assumptions about what will happen in the future, in particular: how long people will live; what inflation will be (as pension increases are linked to inflation); how the Schemes assets will be invested; and what returns will be earned on those investments. If the Schemes assets are less than the amount needed to pay the benefits, the Company may need to pay additional contributions to meet the shortfall. Another valuation approach is to estimate how much it would cost to buy policies from an insurance company to pay all the benefits earned to date. This is a more conservative approach and is known as a solvency valuation. 14

15 What were the Schemes financial positions as at 31 March 2014? A summary of the financial positions of the Schemes at the last full valuation date, 31 March 2014 on an ongoing basis is shown on the right together with the position shown in the previous Summary Funding Statement for comparison. The valuation for both Schemes showed an improvement in the funding levels from the year before, which was due mainly to an increase in assumed future investment returns, following an increase in government bond yields. Under the solvency valuation, where the Schemes assets are compared to the cost of buying insurance policies to cover all the benefits, there was an estimated shortfall as at 31 March 2014 of 134m in the A Scheme and 128m in the M Scheme. The Company would need to pay off this shortfall in full if it wished to wind up the Schemes. The fact that we have shown the solvency position does not mean that the Company is thinking of winding up the Schemes. It is just another piece of information we hope will help you understand the financial security of your benefits. The Company has confirmed to the Trustee its commitment to the ongoing funding of the Schemes. A Scheme Assets 859m 839m Amount needed to pay benefits 807m 887m Surplus/(Shortfall) 52m ( 48m) Funding level 106% 95% M Scheme Assets 482m 484m Amount needed to pay benefits 513m 546m Surplus/(Shortfall) ( 31m) ( 62m) Funding level 94% 89% 15

16 How much money is being paid into the Scheme? From 1 February 2015, the Company has been paying 45.6% of Pensionable Pay for both A Scheme members and M Scheme members, to cover the cost of benefits being earned each year. In addition, the Trustee and the Company have agreed a recovery plan to remove the shortfall revealed as at 31 March 2014 in the M Scheme. Under this recovery plan, the Company is paying an additional 11.47m a year until March 2016, reducing to 2.3m a year up to March 2019 and reducing further to 1.8m a year to March 2022, by which time, the shortfall is projected to be eliminated. The level of contributions will be reviewed following future valuations. Although there was a surplus in the A Scheme at the valuation date of 31 March 2014 on an ongoing basis, the Company is continuing to pay contributions to cover the cost of new benefits being earned. Note that once contributions have been paid into the Scheme, they can only be paid back to the Company in very limited circumstances, such as once the Scheme has been wound up and the benefits of all members secured in full with an insurance company. There have therefore been no payments from the Scheme to the Company over the period since the last Summary Funding Statement was issued, and the Trustee does not expect to make any such payment in the future. 16

17 How have the Schemes financial positions changed since March 2014? Since the valuation as at 31 March 2014, we have received funding updates for the Schemes as at 31 March 2015 which are shown on the right. Although the Schemes assets performed well over the year, the funding levels of both Schemes have fallen due to a reduction in the yield on government bonds. With lower yields, future investment returns are assumed to be lower and the target amount of assets we need to hold to meet future benefit payments is higher. This is something that continues to affect most UK Defined Benefit pension schemes at the current time. The Trustee keeps the funding position under review and a new recovery plan will need to be agreed following the next valuation, which will have an effective date no later than 31 March 2017, if there is a deficit at that time. A Scheme 2015 Assets 979m Amount needed to pay benefits 969m Surplus/(Shortfall) 10m Funding level 101% M Scheme 2015 Assets 551m Amount needed to pay benefits 595m Surplus/(Shortfall) ( 44m) Funding level 93%

18 How are the Scheme s assets invested? Our current investment strategy is for the A Scheme s assets to be invested broadly 40% in return-seeking assets (mainly equities) and 60% in bonds, and for the M Scheme s assets to be invested broadly 35% in return-seeking assets and 65% in bonds. These weightings fluctuate with market conditions, although we monitor the asset allocation every quarter. The different strategies for the two Schemes reflect the fact that the M Scheme has a higher proportion of pensioners, for whom it is appropriate to hold a higher weighting in bonds rather than equities. What happens if the Scheme is wound up and there is not enough money to pay for all my benefits? The government has set up the Pension Protection Fund (PPF) to provide a minimum level of benefits to members if a scheme is wound-up when the scheme and sponsoring company do not have enough money to cover the cost of buying insurance policies to pay all members benefits. The pension you would receive from the PPF may be less than the full benefit you have earned in the Schemes, depending on your age and when your benefits are earned. Further information and guidance are available on the PPF website at Or you can write to the Pension Protection Fund at Renaissance, 12 Dingwall Road, Croydon CR0 2NA. Can I leave the Scheme before I am due to retire? If you are an active member, you can leave the Scheme before you reach retirement and your pension will be based on your service and salary at your date of leaving. Your accrued pension benefits at that time may be left in the Scheme to be paid at retirement or transferred to another pension arrangement. Similarly, if you have already left the Scheme and have paid up benefits, you can, if you wish, transfer your benefits to another pension arrangement prior to retirement. Your membership of the Scheme is a valuable and important benefit for you and your family. Therefore, if you are thinking of leaving the Scheme or transferring your benefits for any reason, please make sure that you speak to an independent financial adviser before taking any action. The law prevents us from providing you with financial advice. Where can I get more information? If you have any other questions or would like any more information, please contact the Pensions Department. A list of documents which provide further information is given opposite. If you want us to send you a copy of any of these documents, please let us know. The Trustee hopes that you found this statement useful and that it gives you a clear picture of the Schemes funding. We will be providing you with a Summary Funding Statement each year, so please help us to keep in touch with you by telling the Pensions Department if you change address. 18

19 Additional documents available on request: The Statement of Investment Principles explains how we (the Trustee) invest the money paid into the Schemes. The Schedules of Contributions show how much money is being paid into the Schemes and include certificates from the Actuary showing that the contributions are sufficient. The Annual Report and Accounts of the Gallaher A Pension Scheme and the Gallaher M Pension Scheme show the Schemes income and expenditure in the year ended 31 March The Formal Actuarial Valuation Reports as at 31 March 2014 contain details of the Actuary s review of the Schemes financial positions as at 31 March The Actuarial Reports as at 31 March 2015 contain details of the Actuary s update of the Schemes financial positions as at 31 March The Statements of Funding Principles set out our policy for making sure the Schemes have enough money to pay the pensions as they fall due. The Recovery Plan sets out the plan that we have agreed with the Company for making good the shortfall of the M Scheme. The Gallaher Pension Scheme Information Booklet is the members handbook for the Scheme. You should have been given a copy when you joined the Scheme, however you can find it on the Talking Pensions website at 19

20 Flight Plan De-risking - a change in investment strategy The purpose of the Schemes is to pay the benefits promised to members from a combination of the following three sources: the assets already belonging to the Schemes, the future investment return on these assets and contributions into the Schemes from the employer. With this in mind the Trustee has agreed a new investment strategy called de-risking, with the process called a flight plan. Where the Schemes funds are currently invested in risk reducing assets (bonds) and return seeking assets (equities), the flight plan has determined that over time, assets will be moved from equities to bonds; this is de-risking. To enable this process, the Trustee has put in place a framework to monitor and act on investment performance by using trigger points to ensure that any exceptional gains in asset values are transferred into less volatile assets at an appropriate point. So, if the funding level moves above a certain point, the surplus can be placed into a lower risk strategy to lock in the gains. Similarly, if the funding level falls below a certain point, the Schemes asset allocation strategy can be reviewed. 20

21 The Schemes switching mechanisms are monitored by the Trustee using an online tool provided by LCP, the Schemes Actuary, called LCPVisualise. LCPVisualise monitors the mechanisms on a daily basis and will automatically the Trustee in the event that a trigger level is reached. In March 2015, a disinvestment of 93.9m took place from the Gallaher Common Investment Fund with the proceeds transferred to the Gallaher A Pension Scheme bond portfolio as a result of meeting a trigger point in the investment strategy of the Gallaher A Pension Scheme. 21

22 Freedom & Choice in pensions In April this year, sweeping changes to the rules governing pensions came into effect. Representing the most fundamental reform to pensions for decades, the changes mainly affect individuals with Defined Contribution (DC) retirement savings, although there may be some relevance for members of Defined Benefit (DB) schemes, like ours. If you are already in receipt of your A and M Scheme pension, the changes will not affect you. However, if you have DC savings or other benefits not yet in payment, it is possible the changes could affect you. Here is a brief summary of what s changed: New retirement options for DC schemes There is no longer a requirement to buy an annuity with pension savings, although this still remains an option. Alternatively, individuals can take their entire pension pot as cash, either as a lump sum or gradually over time as income, known as drawdown. 22

23 Taxation on death benefits Individuals can now pass on their DC savings to others without deductions for tax. Previously subject to a 55% rate of tax, since April 2015 people who die before the age of 75 can now pass their DC pension savings on to anyone they choose as a tax-free lump sum up to the Lifetime Allowance. If they die over the age of 75, the pension can still be passed on but lump sums will be taxed at 45% or, if taken as income, will be taxed at the beneficiary s marginal tax rate. Selling your annuity If you have other pensions via an annuity from an insurer, the government has proposed plans to create a secondary annuity market where you can sell your annuity for a lump sum (which will be taxed). This proposal has been pushed back to This option is not available for the A and M Scheme pensions in payment. 23

24 Member Nominated Director (MND) Hello, my name is William (Billy) Millar and it has been my pleasure and privilege to be a Member Nominated Director (MND) on the Board of Gallaher Pensions Limited since December Like life in general, these last seven and a half years seem to have passed by very quickly and MND elections are, once again, being reviewed by the Board. As I reflect on my time as an MND for our pension schemes, which was a major leap from my previous experience as a committee member on the old Pensions Advisory Committee (PAC), I recall a tremendous learning curve. I have come across and considered many issues from a very different perspective. I have acquainted myself with many new colleagues and been reacquainted with some old ones. I have also met with external advisers, consultants and investment managers on a variety of subjects and issues, all of which have served me well for both my life inside JTI and also for the voluntary community work that I participate in outside of JTI. During my seven years, I have also seen major legislative changes to the regulations governing pension schemes, including just in the last year, significant changes around DC schemes. The next major change is, of course, the closure of our Lisnafillan factory in Ballymena, which sees my time as an MND coming to a close. I will miss being an MND, however I leave it in the firm knowledge that both the Trustee and the Company will continue to manage our pensions in the same way as they always have. Regards, Billy Millar 24

25 Data Controller Aaron Punwani, the Scheme Actuary, is now also a joint data controller in relation to the Scheme member personal data. Previously it was just the Trustees who were considered to be the data controllers and the Scheme Actuary was considered the data processor. If you want to know more about this, please see the ICO s website for more information at Don t lose touch! Once you leave JTI UK, it is important to keep the Pensions Department informed of any changes to your own or your immediate family s circumstances, including changes of address. This ensures that you continue to receive important notices about the Scheme from the Trustee. It also enables the Pensions Department to make sure that you and your family obtain the benefits you are entitled to under the Scheme without delay. Contact details are on page

26 Trustee and Advisers Gallaher Pensions Limited is the Trustee of the Gallaher A and M Pension Schemes and the JTI UK Retirement Savings Scheme. The current Trustee Directors are: Nigel Bulpitt (Chairman) Tracy Blacker (MND) Simon Boyle David Gray (MND) Jean-Francois Leroux Jason Melling William Millar (MND) Martin Southgate Sharon Brittain (Secretary to the Trustee) The main advisers and specialists retained by the Trustee during the year were: Actuary Mr Aaron Punwani Lane Clark & Peacock Investment Adviser Legal Advisers Auditors Bankers Investment Managers Aon Hewitt AVC Investment Manager Zurich Custodians Simmons & Simmons Deloitte LLP Royal Bank of Scotland Plc Baillie Gifford & Co Majedie Investment Management Ltd Mesirow Advanced Strategies Inc State Street Global Advisors UK Ltd Walter Scott Global Investment Management The Northern Trust Company State Street Bank & Trust Ltd 26

27 Getting in touch If you have any queries concerning your benefits, please contact the Scheme Administrator: Pensions Department JTI UK Members Hill Brooklands Road Weybridge Surrey KT13 0QU Telephone: For payroll and tax queries: HR Service Centre JTI UK Members Hill Brooklands Road Weybridge Surrey KT13 0QU Telephone: For lots more information about your pension scheme, don t forget to visit the Talking Pensions website: 27

28 JTI s UK trading company is Gallaher Limited jti.com/uk