Boots Pension Scheme Annual Update. November 2017

Transcription

1 Boots Pension Scheme Annual Update November 2017

2 2017 developments The Trustees have had a busy year finalising the results of the 2016 valuation and getting agreement from the Company on how to address the funding shortfall. More details are to follow. We had two vacancies on the Trustee Board for member-nominated Trustees (MNTs). The existing MNTs, David Thompson and Angela Farrell reapplied among many good candidates, and after careful consideration were subsequently reappointed for a further five-year term of office. 2

3 Recent 2016 valuation Every three years, the Trustees carry out an actuarial valuation. This is carried out by the Scheme Actuary (in our case, Robert Mellor from Aon Hewitt). The previous full valuation was carried out as at 1 April 2013, so a valuation was due at 1 April During the valuation, the Actuary compares the money already built up in the Scheme (its assets) with its liabilities (the benefits and costs it must pay). The Trustees work with the Company to agree suitable assumptions for the Actuary to use when calculating the liabilities. These assumptions cover a range of factors that we think could affect the Scheme over time, such as investment returns, life expectancy and inflation. The percentage of the liabilities made up by the Scheme s assets is the funding level. If it is more than 100%, the Scheme has surplus funding. If it is less, there is a shortfall. 3

4 What did the 2016 valuation show? The Scheme s funding level as at 1 April 2016 was calculated to be 98%, compared with 94% three years earlier. 1 April 2016 (valuation) 1 April 2013 (valuation) Assets 6,312 million 5,373 million Liabilities 6,460 million 5,687 million (Shortfall) / Surplus ( 148 million) ( 314 million) Funding level 98% 94% The Trustees covenant adviser confirmed the Company s covenant remained strong. The funding position has improved since the 2013 valuation. Returns on the Scheme s assets were higher than anticipated over the period. This was offset to some extent though by falls in government bond yields, which reduced the long-term outlook for future investment returns and so increased the amount of money the Scheme needs to hold to provide benefits. 4

5 Making good the deficit The Trustees and Company have agreed a plan to deal with the shortfall of 148 million at the 2016 valuation. The Company agreed to pay the following contributions: 13.7 million due on or before 31 March million due on or before 30 April million due on or before 21 August million due on or before 30 April 2018 These payments, along with the projected income from investment returns, are expected to remove the shortfall by 31 March If the investment returns assumed in the Recovery Plan aren t achieved, the Company will pay additional contributions. The next full valuation of the Scheme is due at 1 April

6 Funding update at 1 April 2017 Each year between valuations, the Trustees receive an update on the Scheme s funding position from the Scheme Actuary. The table below details the latest update as at 1 April 2017 compared to the position at the valuation date. 1 April 2016 (valuation) 1 April 2017 (update) Assets 6,312 million 7,149 million Liabilities 6,460 million 7,414 million Shortfall) / Surplus ( 148 million) ( 265 million) Funding level 98% 96% Although assets grew over the year, liabilities also increased. Further reductions in long-term interest rates and an increase in expected future inflation led to an increase in the amount of money the Scheme needs to hold to provide benefits. 6

7 2016/2017 Report & Accounts Highlights from the 2016/17 Report and Accounts In the accounts The overall value of the Scheme s assets at the start of the year (1 April 2016) was... During the year to 31 March 2016, the Company contributed The Scheme s investments generated an income of The change in value of the Scheme s investments (minus its administration costs) came to The Scheme paid out benefits worth So, overall the value of the Scheme s assets at 31 March 2017 was 6,329.4m* m m m m 7,168.4m* *The asset values detailed in the accounts also include the value of AVC investments which are held separately from the Scheme s assets. Membership Total 60,468 Pensioners (who are receiving Scheme benefits, including husbands, wives and dependants) 28,240 Preserved pensioners (who have benefits in the Scheme to draw at a later date) 32,228 7

8 Investments The Trustees hold around 85% of the Scheme s assets in assets that broadly match the characteristics of the Scheme s liabilities (the matching portfolio) with the remainder in a portfolio invested in return-seeking assets (the growth portfolio). As at 31 March 2017 the Scheme's assets could be broken down as follows: Property 4.9% Equity 10.0% PFPs* and cash 4.3% Absolute return 4.3% Investment performance to 31 March months (%) Three years (% p.a.) Total Scheme Matching portfolio UK bonds and swaps Overseas credit Absolute return -1.5 n/a Overseas credit 9.2% *Pension Funding Partnerships UK bonds and swaps 67.3% Source: Aon Growth portfolio Equities Property Source: Aon Overall Scheme investment performance has predominantly been driven by increases in the Scheme s matching assets which increase in value when long term interest rates fall and inflation expectations rise. The reduction in the value of the pound has increased the value of overseas investments in sterling terms, contributing to a significant increase in the value of the equity portfolio. 8

9 Recent changes to pensions Looking after your data In May 2018, a new European legal framework for data protection called the General Data Protection Regulation (GDPR) will come into effect. This will apply to the personal data that is held for Scheme members which we use to run the Scheme. The Trustees are working to ensure the Scheme is fully compliant with the new requirements ahead of this deadline. Change to State Pension Age the government has announced that it is to bring forward plans to raise the State Pension Age to 68, and the increase will now take place sooner. People born between 6 April 1970 and 5 April 1978 will be affected by this change. Beware of pension scams we would like to remind members to be alert to the dangers of pension scams. The Pensions Regulator has published a list of five warning signs to be aware of. See for more information. 9

10 Our pensions website: ahb-ukpensionportal.co.uk 10