For members of the mothercare executive pension scheme. trustee report

Transcription

1 For members of the mothercare executive pension scheme trustee report January 2018

2 welcome to this year s report from the trustees of the mothercare executive pension scheme In last year s report, I told you about a further deterioration in the funding level of the scheme. The latest scheme valuation looks at the position as at 31 March 2017 and confirms that the funding level has significantly worsened since the last scheme valuation as at 31 March 2014, despite the additional contributions paid in by mothercare and the scheme s betterthan-expected investment returns. Over the year to 31 March 2017 (the period covered by this report), our investments achieved a return of almost 17% and the assets grew by over 15m. However, at the same time as the assets have grown, so too have the value of the liabilities. Following negotiations, I am delighted to announce that the trustees and the company have agreed a recovery plan to remove the shortfall. The details are provided in the summary funding statement on pages We ve seen an increase in the number of people asking to transfer their pension out of the scheme, or wanting to take their pension as a taxable cash lump sum. The article on pages 7-9 looks at these two options in more detail including a list of what to watch out for. It s worth a read! Other news from the scheme is that Lynne Medini and Graham Johnston are standing down as member-nominated trustee directors, having both completed two five-year terms. We need members to put themselves forward for this interesting and important role. We have enclosed some information with this newsletter about the role and the process please do read it and get in touch if you have any questions. Finally, I would like to welcome Julian Rose to the pensions team as our new Head of Group Pensions, following the resignation of Mark Engelbretson in February. Julian joins us from Diageo and has also taken on the role of secretary to the trustees. I hope you find this report useful. If you have any comments or suggestions for improvements, please get in touch with me via the mothercare pensions department, whose contact details are on the back page. Andrew Evans chair of trustees 2

3 financial information The table below summarises the scheme s accounts during the year. income s s contributions, including additional voluntary contributions and other income 1,873 1,870 expenditure benefits payable (3,066) (3,161) payments to and on account of leavers (1,925) (355) administration and other expenses (233) (223) income less expenditure (3,351) (1,869) investments investment income changes in market value of investments 15,068 2,272 investment management expenses (231) (701) net returns on investments 15,139 1,573 increase in net assets during the year 11,788 (296) net scheme assets at the beginning of the financial year 92,304 92,600 net scheme assets at the end of the financial year 104,092 92,304 3

4 membership The scheme no longer accepts new members, so over time we will expect to see the scheme s membership continue to reduce as people transfer out their benefits or die pensioners 165 deferred members pensioners 159 deferred members : total : total 300 4

5 actual asset allocation as at 31 March 2017 scheme investments 103.2m AVC investments 0.7m Legal & General Investment Management index-linked gilts 28.2m Legal & General Investment Management cash 0.6m Legal & General Investment Management global equities 6.1m Ruffer LLP diversified growth 22.1m Henderson Global Investors Ltd multi-asset credit 16.5m Baillie Gifford Life Ltd global equities 17.2m Lansdowne Developed Markets Fund global long/short equities 11.8m Since the year-end, the trustees have decided to appoint a new fund manager, Insight Investment Management, to manage a liability-driven investment (LDI) portfolio which will be funded from L&G s index-linked gilts portfolio. LDI is a strategy that aims to protect the scheme s funding position from the effects of changes in interest and inflation rates. So, for example, the scheme s liabilities will increase if long-term interest rates fall, or if inflation rises, but in these circumstances the LDI portfolio will also increase in value, thereby lessening some of the adverse impact on the scheme s funding position. 5

6 introduction to the valuation The scheme s most recent full valuation, which looked at the funding position as at 31 March 2017, has been completed and agreed well within the 15 months allowed by the Pensions Regulator. The details are given in the summary funding statement on pages 12 to 15 of this report. The results showed that the shortfall has increased over the three years since the last full valuation. As part of the process, the trustees and the company have had to agree the best way to remove the shortfall. The trustees aim is to protect the interests of the membership, but they also recognise that any recovery plan must be financially viable for the company. Likewise, the company respects its commitment to supporting the scheme and ensuring that members get the benefits they are due. The trustees have been assisted in their discussions by PricewaterhouseCoopers (PwC), appointed as the new covenant adviser in April The covenant adviser provides specialist advice to help the trustees assess the strength of the employer covenant, which is the company s ability to support the scheme. After a period of negotiations, carried out in a spirit of cooperation and mutual understanding, the trustees and the company reached agreement on the recovery plan, the details of which are given on page 13. 6

7 flexibility at retirement two years on It has been two-and-a-half years since the government relaxed the rules on how pension savers can take benefits from a defined contribution (DC) pension scheme. Although our scheme is a defined benefit (DB) scheme, deferred members can take advantage of these new flexibilities by transferring their benefits in the scheme to an approved DC pension scheme. However, the decision to transfer is not one that should be taken lightly, as there could be many tax and financial implications, depending on your individual circumstances. And of course, you need to make sure that you don t run out of money during your retirement by managing your withdrawals and continued investment of your pension savings. The Office for National Statistics has a useful tool on its website which you can use to work out how long you are likely to need your pension savings to last: visual.ons.gov.uk/how-long-will-my-pension-need-to-last If your deferred pension in the scheme is valued at more than 30,000, you are required by law to obtain regulated financial advice; the trustees will not allow a transfer to take place without seeing evidence of this. However, even if the amount is less than 30,000, you should still consider taking advice. You can find qualified financial advisers at and If you re interested in transferring your deferred pension out of the scheme, you should ask your adviser to obtain a cash equivalent transfer value (CETV) by writing to the mothercare pensions department, whose details can be found on the back page. If you re more than 12 months away from your normal retirement date, you are entitled to one free CETV a year. The CETV quote will be valid for three months. If you require a second CETV, there will be a charge which you will have to pay before the CETV is released. You will be told the cost of providing the second calculation at the time. 7

8 flexibility at retirement two years on continued small pots Some members with short service and very small pensions can also exchange their pension for a one-off lump sum. By doing this you give up all your rights, and those of any dependants, to a pension from the scheme. Part of this lump sum is tax-free and the rest is taxed as part of your income. The amount less any tax due is then yours to invest or spend. If you qualify we will provide details when we write to you six months before your pension is due to be paid. 8

9 points to consider If you re thinking about moving your scheme pension into a DC arrangement, so that you can access the new flexibilities, there are some important things you should consider before making a decision. 1. The scheme is a defined benefit (DB) pension scheme. This means you will receive a pension, generally payable for life, based on the years and months you were contributing to the scheme and your final salary. 2. If you transfer your deferred pension to a defined contribution (DC) arrangement, the money you would have available in retirement would depend on investment returns. This means you could get more or less than you received from the scheme. 3. You can use the money in a DC pension pot to secure an income for life by buying an annuity policy, usually from an insurance company. The amount of income the annuity policy pays out will depend on annuity rates at that date. Different insurers will have different annuity rates so this means your DC pension pot could buy you more or less pension, depending on who you buy it from. However, DC schemes allow more flexibility, so you don t have to buy an annuity if you don t want to, or you could delay buying one until annuity rates were more favourable. You could also drawdown cash payments in a tax-efficient way while leaving the remainder of your pension pot invested. 4. You may have read in newspapers that the benefits from a DB scheme are guaranteed. This is not correct. If the company that supported a scheme were to become insolvent, and the scheme did not have enough assets to cover all its pension promises, the benefits would need to be scaled back, reducing the benefits payable to all members. The Pension Protection Fund (PPF), a lifeboat in such circumstances, might step in and take over the scheme s assets. If that were to happen, you might not get the full amount of your pension especially if you have built up a large pension. In that case, you may wish to seek independent financial advice on the pros and cons of taking a transfer value out of the scheme. 5. Under current legislation, the money in a DC pension pot can be passed on to others on your death. Your DB pension value cannot be passed on to others, although a spouse s pension may be payable until their death. 6. If the capital value of your deferred pension in the scheme is worth 30,000 or more, you will need to speak to an impartial financial adviser before the trustees will allow a transfer to take place. The 30,000 limit could easily be reached with a pension valued at less than 1,000 a year. 7. Once you have started to receive a pension from the scheme, you cannot transfer your benefits to another arrangement. 9

10 pension scams don t get stung! The number of people being scammed out of their hard-earned pension benefits continues to cause concern. In fact, in a report released in March last year, Citizens Advice found that 10.9m consumers had received unsolicited contact about their pension since the introduction of pension freedoms in April * And, police data shows that over 43 million of people s retirement savings have been lost to fraud since the policy was announced. These scams are most often initiated by cold callers. The government is currently looking at legislation to ban pensions cold calling from 2020 (as well as the sending of unsolicited s and texts), in a bid to protect pension savers. Remember: a qualified, professional financial adviser will not cold call you. * Source: Pensions Expert article by Sophia Imeson Source: Pension freedoms inquiry launched Here is a reminder of how you can protect yourself against scammers. Never give out financial or personal information to a cold caller. Find out about the company s background online using trusted sources. Any financial adviser should be registered with the Financial Conduct Authority: Ask for a statement showing how your pension will be paid at retirement or when you want to begin taking it, and question who will be looking after your money until then. Speak to an independent financial adviser who is not associated with the proposal you ve received for unbiased advice. Never be rushed into agreeing to a pension transfer. And finally, if it sounds too good to be true, it probably is! You can read more about pension scams, and how to report suspicious activity, on the Pensions Regulator s website at: 10

11 the trustees and their advisers The scheme is managed by two independent trustees and a corporate trustee called Mothercare Pension Trustees Limited (MPTL). MPTL has four directors one is appointed by the company and three are nominated by the members. The trustees have appointed specialist pensions professionals to help them run the scheme. These include: Actuary: Gary Peterson, FIA, Mercer Auditor: Deloitte LLP Investment adviser: Mercer Investment Consulting Solicitors: Mayer Brown International LLP Covenant adviser: PricewaterhouseCoopers (from April 2017) Bankers: HSBC plc the trustees Andrew Evans (independent trustee & chairman) BESTrustees, represented by Penny Green (independent trustee) directors of the trustee company Graham Johnston (member-nominated)* Lynne Medini (member-nominated)* Emma Paterson (employer-appointed) Ian Sumner (member-nominated) pensions department Julian Rose Head of Group Pensions Shellie Young Senior Pensions Administrator Matthew Williams Pensions Administrator * Standing down in 2018; a leaflet setting out the process for nominating replacements is enclosed for eligible scheme members 11

12 2017 summary funding statement Every three years, the trustees are required by law to carry out an actuarial valuation on the scheme. This is carried out by the scheme actuary. The actuary also carries out less detailed but more regular annual check-ups on the scheme. The valuation as at 31 March 2017 has recently been concluded, as mentioned on page 6. In a 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 percentage of the liabilities made up by the scheme s assets is the funding level. If it is more than 100%, the scheme has a funding surplus if it is less, there is a shortfall. The latest actuarial valuation of the scheme as at 31 March 2017 showed that: The value of the liabilities was: The value of the assets were valued at: This means that there was a shortfall of: 134.1m 103.4m 30.7m This means that the funding level was: 77% When we last sent you a summary funding statement we reported that the scheme was estimated to have a funding level of 72% at 31 March Both the valuation and the annual check-ups look at the position of the scheme on a particular day in our case, 31 March. A shortfall does not mean that the scheme won t be able to pay members benefits. 12

13 why has the funding level changed since the last summary funding statement? The increase in the scheme s funding position is primarily due to the impact of deficit reduction contributions paid by the company and better than expected asset returns. The change also reflects that the 31 March 2017 figure is derived from the formal triennial valuation, which allows for updated membership data and a full review of the funding assumptions adopted. how will the deficit be removed? Actuarial valuations allow the trustees and the company to monitor the scheme and review whether there is enough money building up to pay benefits in the future. As a result of the 2017 valuation, a schedule of contributions payable to the scheme by mothercare plc has been agreed. This arrangement was reached following careful consideration of all the factors that may affect the scheme s funding in the future. A new recovery plan was put in place in identifying these planned contributions. The company has agreed a deficit payment of 30.5m in total, to be spread over the period to January 2027, when it is expected that the shortfall will be eliminated. To calculate the amount of the shortfall, assumptions have to be made about what will happen in the future, for example, the rate at which the scheme s assets will grow. If the assumptions do not all turn out to be exactly in line with what happens in future, it may be necessary to change the level of contributions to the scheme or the period over which the shortfall is paid off. If you would like further information, you can request a copy of the recovery plan from the mothercare pensions department, using the contact details on the back page. 13

14 2017 summary funding statement continued solvency position The figures shown so far are based on the assumption that the scheme will continue into the future, in its current form (the ongoing situation). We are also required to provide the solvency position, which shows the position if the scheme were to wind up that is, if it closes completely and transfers all the assets to an insurance company to pay benefits. (We are legally required to show this please note, it does not mean the company has any plans to end the scheme.) At the 31 March 2017 valuation, the solvency funding shortfall was 71.2m, giving a funding level of 59%. The solvency position is lower because an insurance company would charge to take the scheme on, and then invest in very secure funds with lower returns these differences make the liabilities, and as a result the funding target, higher. We are required to tell you whether the Pensions Regulator has used its legal powers to make directions as to any of: the level of benefits available from the scheme going forward the method or assumptions used to calculate the liabilities or the length and structure of the recovery plan the contributions that should be paid under the schedule of contributions. The Regulator has not used its powers in relation to the scheme and therefore the scheme is not subject to any directions from the Regulator. 14

15 Finally, we confirm that since the last statement, the scheme has not made any payments to the company and the Pensions Regulator has not had to intervene in the running of the scheme. In particular, the Pensions Regulator has not modified the scheme, given any directions relating to scheme funding, or imposed any payment obligations under the Pensions Act Pension Protection Fund (PPF) The PPF was set up in 2005 as a lifeboat scheme for pension schemes whose employers go bust and cannot afford to meet their financial obligations to the scheme. You can find out more at: more information If you have any questions, or would like any more information, please contact the mothercare pensions department, using the contact details on the back page. You can also ask to see any of the scheme s formal documents, including the statement of funding principles, the recovery plan, the statement of investment principles and the latest financial and actuarial reports. 15

16 get in touch You can contact the mothercare pensions department as follows: Julian Rose, Shellie Young or Matthew Williams Pensions Department Mothercare plc Cherry Tree Road Watford WD24 6SH Freephone: your pension and data protection The General Data Protection Regulation (GDPR) is a new law that comes into effect from 25 May Although the GDPR is drafted on the basis that it only applies to EU Member States, the UK is likely to have a new Data Protection Act which is likely to both implement the GDPR and enshrine it in UK law. To comply with the new law, we must provide you with information about how we will use your personal data. The enclosed privacy notice explains what data the scheme holds about you, how it is processed and what your rights are.