Journey. Shipbuilding Industries Pension Scheme. Annual Review 2018 for in-service and deferred members

Transcription

1 Journey Shipbuilding Industries Pension Scheme Annual Review 2018 for in-service and deferred members

2 Welcome Welcome to Journey, the Trustee s 2018 annual review of the Shipbuilding Industries Pension Scheme ( the Scheme ). In the following pages you can read a summary of the Annual Report and Accounts for the year ended 31 March 2018, including the membership numbers and financials. The results of the annual update on the Scheme s funding, which is carried out using the assumptions from the 2017 actuarial valuation, can be found on page 6. On pages 8-10, Andrew Johnston, Investment Consultant at Hymans Robertson LLP, provides an update on the investment performance of the Scheme s assets over the last year, and comments on the economic background and market activity. Finally, we include the latest pensions news, covering topical issues and developments that may interest you. We hope that you find this newsletter useful and are keen to hear your thoughts. If you have any comments or suggestions about what we can include in the future, please get in touch using the contact details on page 16. Ian Hancock Chairman of the Trustee If you have any suggestions about what we can include in the future, please get in touch 2 Shipbuilding Industries Pension Scheme Annual Review 2018

3 What s inside 4 Who s in the Scheme? 5 Money in and money out 6 Funding update 8 Investment update 11 Pensions news 15 More information 16 Getting in touch Trustee Directors and Advisers The Scheme s Trustee Directors Tina Bailey Chris Baker (Resigned on 30 April 2018) Dave Cole* Calvin Leonard (Appointed on 30 April 2018) Ian Hancock (Chairman) James McMillan* Joseph O Gorman* Harold Samms* David Tindall * Member Nominated Director The Scheme s Advisers Actuary Richard Shackleton Hymans Robertson LLP Auditor Grant Thornton UK LLP Legal Advisers Linklaters LLP Investment Consultant Hymans Robertson LLP Trustee Director appointments Since the last edition of Journey, there has been one change to the Trustee Board. Chris Baker resigned from the Board as a Company Appointed Director at the end of April Calvin Leonard, HR Director for Maritime Services, has been appointed by the Company in his place. The Trustee would like to express its sincere gratitude to Chris for his dedicated service to the Scheme. Shipbuilding Industries Pension Scheme Annual Review

4 Who s in the Scheme? At the end of March 2018 the Scheme had a total of 14,529 members. This total was made up as follows: VSEL Portsmouth Segregated Fleet Support Total Membership In-service members 1,496 In-service members 145 In-service members 231 VSEL 12,833 Deferred members 4,276 Deferred members 135 Deferred members 229 Portsmouth Segregated 602 Pensioners 7,061 Pensioners 322 Pensioners 634 Fleet Support 1,094 Total 14,529 4 Shipbuilding Industries Pension Scheme Annual Review 2018

5 Money in and money out The table below is a summary of how the value of the Scheme s assets changed during the reporting year ended 31 March 2018: VSEL Portsmouth Segregated Fleet Support Fund at the beginning of the year 1,772,197 1,535, , , , ,979 Income Contributions 49,980 33,896 5,839 3,053 6,471 4,540 Other income 1,725 1, Total income 51,705 35,638 6,024 3,151 6,472 4,542 Expenditure Pension payments (46,237) (44,560) (3,029) (2,721) (2,259) (1,921) Commutation and lump sum benefits (8,928) (11,152) (1,067) (1,426) (1,280) (1,321) Death benefits (235) (930) (229) (0) (198) (0) Transfers to other schemes (50,465) (6,734) (4,293) (406) 63 (12,067) Employees AVCs invested (675) (628) (0) (0) (361) (235) Administrative expenses (2,213) (2,178) (160) (156) (184) (229) Total expenditure (108,753) (66,182) (8,778) (4,709) (4,219) (15,773) Income minus expenditure (57,048) (30,544) (2,754) (1,558) 2,253 (11,231) Investments Change in market value of investments (8,966) 259, , ,910 Net investment income 9,814 7, Total investment return ,568 1,006 23, ,426 Fund at the end of the year Net assets of the at 31 March ,715,997 1,772, , , , ,174 Shipbuilding Industries Pension Scheme Annual Review

6 Funding update The 31 March 2017 triennial actuarial valuation was completed in December The Trustee Board agreed updated Recovery Plans with BAE Systems which seek to remove the deficit in the VSEL of the Scheme by 2024, and in the Portsmouth Segregated and Fleet Support s of the Scheme by the end of March The Chairman of the Trustee shared the results of the valuations in the communication issued to members in the spring of On each anniversary of the valuation date, I carry out an update of the Scheme s funding position. Richard Shackleton Hymans Robertson LLP What happened to the funding level in the year to March 2018? At 31 March 2018 the update indicated that the funding levels of the Portsmouth Segregated and Fleet Support s were slightly higher than at the 31 March 2017 valuation, whilst the VSEL funding level decreased marginally over the year. The changes are due to a variety of factors, but the biggest impact has been changes in investment market conditions which have led to an increase in the assessed cost of providing benefits. Lump sum contributions from BAE Systems under the new Recovery Plans have acted to neutralise some of this impact. 31 March 2018 m** 31 March 2017 m* 31 March 2018 m** 31 March 2017 m* 31 March 2018 m** 31 March 2017 m* Assets 1,732 1, Amount needed to provide benefits 1,992 2, Surplus / (shortfall) (260) (252) (3.4) (4.0) 0.1 (3.2) Funding level 87% 87% 97.9% 97.5% 100.0% 97.8% * Based on audited accounts adjusted for the longevity swap. ** Based on unaudited accounts adjusted for the longevity swap. VSEL Portsmouth Segregated Fleet Support As part of the Recovery Plans agreed under the 31 March 2017 valuation, a framework has been put in place that gradually moves the Scheme s assets from growth-seeking investment classes to ones that provide an income and whose value is more correlated with the Scheme s benefit promises. Over time, this will reduce the potential for future adverse changes in investment markets to negatively impact the Scheme s finances. 6 Shipbuilding Industries Pension Scheme Annual Review 2018

7 What would happen if the Scheme had to be wound up? Whilst there is no intention to wind up the Scheme, it is a statutory requirement to provide members with information on the Scheme s position if that were to happen. VSEL As part of the 31 March 2017 valuation, the Scheme Actuary estimated the cost of securing all of this s members benefits with an insurance company to be around 3,580m. The s assets at that time were valued at 1,725m*, resulting in a shortfall (after allowing for expenses) of 1,855m**. This is approximately the amount BAE Systems would need to pay in respect of this of the Scheme if it had been wound up on 31 March Portsmouth Segregated As part of the 31 March 2017 valuation, the Scheme Actuary estimated the cost of securing all of this s members benefits with an insurance company to be around 285m. The s assets at that time were valued at 152m*, resulting in a shortfall (after allowing for expenses) of 133m. This is approximately the amount BAE Systems would need to pay in respect of this of the Scheme if it had been wound up on 31 March Fleet Support As part of the 31 March 2017 valuation, the Scheme Actuary estimated the cost of securing all of this s members benefits with an insurance company to be around 300m. The s assets at that time were valued at 137m*, resulting in a shortfall (after allowing for expenses) of 163m. This is approximately the amount BAE Systems would need to pay in respect of this of the Scheme if it had been wound up on 31 March VSEL m Portsmouth Segregated m Fleet Support m Assets* 1, Estimated cost of securing all members benefits with an insurance company 3, Shortfall (1,855)** (133) (163) Funding level 48% 53% 46% * These figures differ from the asset values shown on the previous page as the longevity swap is valued in a different way if the Scheme was to be wound up. ** Rounding is slightly different to the Funding Update In the event of the Scheme having to be wound up because BAE Systems became insolvent and the Scheme having insufficient assets to provide a certain minimum level of benefits for members, compensation might be provided by the Pension Protection Fund (PPF). Further information and guidance is available on the PPF s website at: > or you can write to: > PPF, Renaissance, 12 Dingwall Road, Croydon, Surrey, CR0 2NA There have been no payments to BAE Systems out of Scheme funds during the year, except to reimburse administration and investment expenses, and the Pensions Regulator has not had to exercise any of its statutory powers in relation to the Scheme. Shipbuilding Industries Pension Scheme Annual Review

8 Investment update Andrew Johnston Hymans Robertson LLP Investment performance Investment background the year to 31 March 2018 Despite a set back at the start of 2018, equity markets performed strongly over the period, driven for the most part by growing economic optimism. While there was some concern about the high price of equities, it was held at bay by the building momentum of corporate earnings and a cautious approach to monetary policy taken by governments across the developed world. The FTSE All-World Index returned 12% over the period in local currency terms. The Eurozone, US, Japan and China all reported year-on-year economic growth; this helped to underpin investors economic optimism. The UK was a notable underperformer. Global inflation remained relatively subdued throughout the year, with the UK again being an exception. Despite the lack of inflationary pressure, there were signs that the lower for longer interest rate regime was reaching its end as the Federal Reserve and Bank of England both raised interest rates. A summary of the Scheme s investment performance to 31 March 2018 for the main investment vehicles in the Scheme as at that date is set out below: 1 Year 3 Years 5 Years Asset class Actual return % Benchmark return % Actual return %pa Benchmark return %pa Actual return %pa Benchmark return %pa Total Scheme UK Equity Global Equity Diversified Growth (LGT portfolio) Property Private Equity Credit / Debt Corporate Bonds Liability Driven Investment (LDI) Index-Linked Gilts Excluding investment in API. 2. Investments include AgFe, Partners and York which were funded over a period of time when managers issued capital calls. The performance figures shown have taken account of this but should be viewed as best estimate figures, given the changing asset allocations of each underlying mandate over time. 8 Shipbuilding Industries Pension Scheme Annual Review 2018

9 Investment managers The investment managers engaged by the Trustee across the various asset classes are now as follows: Managers/ vehicles Manager % of Asset class at 31 March 2018 Manager % of Asset class at 31 March 2017 Asset class UK Equities Invesco Asset Management Majedie Asset Management Legal & General Global Equities Longview Partners Somerset (emerging markets) Diversified Growth LGT Capital Partners First Property (partnership) Property (1) First Property (new mandate) (2) Abercromby Property International 2 3 CBRE 2 4 Private Equity Capital Dynamics Parallel (3) AgFe Debt / Credit Partners Group York Credit Opportunities Corporate Bonds Legal & General Index-Linked Gilts (4) Northern Trust Liability Driven Investment (LDI) Legal & General Cash Legal & General Trustee Bank Account Funded on a gradual basis; total commitment 170m. Mandate now fully funded. 2. The Trustee is a partner in Abercromby Property International for investment in US real estate. 3. Funded on a gradual basis; total commitment 45m. Mandate now fully funded. 4. Index-Linked Gilt holdings are held at Northern Trust. Shipbuilding Industries Pension Scheme Annual Review

10 Looking forwards Following completion of the 2017 actuarial valuation, the Trustee has considered its ongoing investment strategy and asset allocation in conjunction with its investment adviser and the Company. The existing allocation is shown below: Asset Class Target % Equities 33 Diversified Growth 8 Property 10 Debt 14 Growth Assets Total 65 Corporate Bonds / Gilts / LDI 35 Matching Assets Total 35 Total 100 An updated investment framework has been agreed, and implemented in the summer of The Scheme s strategic allocation will continue to evolve during the next Scheme year. Asset split at 31 March 2018 The net assets split for the different sections of the Scheme at 31 March 2018 were as follows: VSEL Equities 33.8% Diversified Growth 6.7% Debt 11.6% Property 10.2% Private Equity 0.4% LDI 11.5% Cash 0.3% Corporate Bonds 16.0% Index-Linked Gilts 9.5% Total 100% Portsmouth Segregated Equities 36.5% Diversified Growth 6.6% Debt 9.1% Property 8.9% Private Equity 0.4% LDI 12.2% Cash 3.5% Corporate Bonds 15.8% Index-Linked Gilts 7.0% Total 100% Fleet Support Equities 32.5% Diversified Growth 6.3% Debt 8.4% Property 8.7% Private Equity 0.0% LDI 11.6% Cash 10.4% Corporate Bonds 15.3% Index-Linked Gilts 6.8% Total 100% 10 Shipbuilding Industries Pension Scheme Annual Review 2018

11 Pensions news What does it mean to be a pension scheme trustee in the 21st century? That is a question that the Pensions Regulator (TPR) has been considering closely, as it looks to ensure pension scheme trustees clearly understand what it expects of them in the delivery of effective scheme governance, as the bed-rock to safeguarding members benefits and delivering positive member outcomes. Following engagement with the industry, TPR is embarking on a communication programme, which sets clear standards for key areas of scheme governance. The programme includes approaches to managing risks and conflicts of interest as well as thought-provoking ways to assess skills, knowledge and experience of the individual trustees contribution to the effectiveness of their board. The Trustee of the Scheme reviews the effectiveness of its existing robust governance every year. It will be taking TPR s guidance into account during its next review to see how it can further strengthen its approach in line with its ethos of continuous improvement. Pension scams be aware! Don t let a scammer enjoy your retirement. Learn how to spot the signs and check who you are dealing with on the ScamSmart website to give yourself the best protection against fraudsters. > Coming up to your Normal Retirement Date? If you are coming up to your Normal Retirement Date (NRD), it s important to think about your options and let us know about any decisions you make regarding when you d like to start drawing your pension, as this may affect the level of benefits paid. In-service members If you remain employed after your NRD, you can continue to contribute to the Scheme you would continue to accrue benefits. Any death in service benefits would also continue to be provided. Your pension will then be calculated at your actual retirement date based on your salary and service up until that date. However, you have the option to leave the Scheme at your NRD and stop paying contributions. Any death in service benefits would cease to be provided and you would become a deferred member. If you are interested in exploring this option, please contact the SIPS team using the contact details on page 16. Deferred members If you have already left the Scheme and your NRD is approaching, the pension scheme administrators will write to you around six months before your NRD to let you know your options and ask you to confirm your decision on the form provided. Please do take the time to respond to this letter. > If you elect to receive your pension starting later than your NRD, but earlier than age 75, and if the Trustee agrees to this deferral, your pension will be increased by a Late Retirement Factor between your NRD and your actual retirement date. > If you do not confirm your decision at your NRD, and provide certain information, we will be unable to make payments to you. If we receive this information after NRD, the Scheme will pay your pension backdated to NRD with arrears. Shipbuilding Industries Pension Scheme Annual Review

12 Reviewing the Scheme s Guaranteed Minimum Pension (GMP) records Read this article if you had pensionable service with the Scheme between 6 April 1978 and 5 April 1997 or have a GMP entitlement transferred into the Scheme from another pension arrangement. What is GMP? Between 6 April 1978 and 5 April 1997, the Scheme was contracted-out of the State Earnings Related Pension Scheme (SERPS)*. As a result, you and your employer paid less in National Insurance contributions and the Scheme must provide you with a pension at least equal to your GMP. The amount of your GMP is broadly equivalent to the amount of the SERPS pension you would have received had you not been contracted-out and depends on how long you were in the Scheme and your earnings. The GMP forms part of your total Scheme pension but it is treated differently to other elements of your pension. It is not payable before GMP age (60 for women and 65 for men). Once in payment, the GMP earned before 6 April 1988 is not increased by the Scheme, while the GMP earned after 5 April 1988 increases in line with the Consumer Prices Index, subject to a maximum of 3% a year. There are also special rules for any GMP payable to a legal spouse or civil partner after your death. * Also known as the additional State Pension. GMP review HM Revenue and Customs (HMRC) has advised that it will no longer track contracted-out rights after the end of Therefore, pension schemes are checking whether the information they hold about the GMP for their members is consistent with HMRC records. So, we are undertaking a review to compare the Scheme s GMP records with those held by HMRC. This review is underway it is anticipated that the first tranche will be completed by the end of the year with the remaining tranche being completed in Does this affect me? All categories of members are included in the review. In relation to in-service and deferred members, the position is as follows: > In-service members If the review determines that your GMP entitlement should change then the reconciled amount will be reflected on your Scheme record. There will be no change in the overall pension recorded or payable to you it is just the split between the GMP and non-gmp elements that will change. > Deferred members If the review determines that there needs to be a change to your GMP, then this will be reflected on your annual deferred benefit statement. In the vast majority of cases, this will not cause a change in the overall pension recorded it is just the split between the GMP and non-gmp elements that will change. 12 Shipbuilding Industries Pension Scheme Annual Review 2018

13 The new single-tier State Pension A new single-tier State Pension was introduced in April 2016 for people who reach State Pension Age after that date. What is a Contracted-out Pension Equivalent? The Department for Work and Pensions (DWP) will compare entitlement under the old and new State Pension arrangements with the higher of these two amounts being used to determine a starting amount for the single-tier State Pension. For members who have been contracted-out of the additional State Pension (through the Scheme), a deduction will be made to your starting amount to take account of all periods of contracted-out employment. This amount is known as a Contracted-out Pension Equivalent or COPE which will be broadly equivalent to the amount of additional State Pension you would have received, if you had not been contracted-out. For the period of contracted-out service up to 5 April 1997, this will be similar to the GMP*. If you are over age 55 you can request a State Pension Statement from the DWP at the following website: > This statement will include an estimate of your starting amount under the single-tier State Pension and will also show the COPE deduction. * To find out more information about the GMP, please refer to the article on page 12. Shipbuilding Industries Pension Scheme Annual Review

14 Defined contribution make sure your investment choices reflect your future plans for retirement Read this if you have made Additional Voluntary Contributions (AVCs) to the Scheme. It is important that members who have made AVCs undertake regular reviews to ensure that their fund selections continue to meet their investment and retirement objectives. Up until age 40, it is suggested that you review progress every three years or so. After that age, a more frequent review should be considered. With this in mind, here are some questions which you may wish to consider when carrying out this review: Q1. Are you clear about the differences between the Lifestyle Profiles and Self Select Funds choices? The Lifestyle Profiles automatically transition higher risk investments to lower risk investments as you approach your Target Retirement Age (TRA), whereas monies invested in the Self Select Funds remain in those funds until you make an alternative choice. A Self Select Fund which was appropriate for you in the past might not be as appropriate for you now or as you approach your TRA. Q2. Should you review your choice if you are close to retirement? Definitely. On retirement, your AVC fund may be taken as a tax free cash sum and/or income stream. You may therefore wish to align your investment choice into fund(s) that are compatible with your plans for retirement. To help with the review process, the BAE Systems pensions website ( has a link to the SIPS pensions website which gives information on how to obtain further AVC investment information. You can also contact the SIPS team, who will be happy to answer any queries you may have about the process for making changes. Q3. Has your risk tolerance changed over the years? Quite apart from proximity to retirement, your risk tolerance may have changed over time reflecting your personal and financial circumstances. This might therefore warrant a review of the risk profile of the fund(s) you are currently investing in. Q4. If you selected a Lifestyle Profile, does this remain appropriate? There are two issues to consider here: i. The automatic fund transitioning to lower risk funds is based on the time left until your TRA, normally set at the default age of 65. This means that, if you are now thinking of taking your pension benefits at, say, age 60, then the Lifestyle Profile won t necessarily be managing the asset transition appropriately. So, you may have a higher exposure to investment risk than you would now want. This risk can be managed by monitoring your plans for retirement and, where appropriate, advising the SIPS team of any change to your TRA. ii. The Lifestyle Profile is designed to transition your AVC fund towards lower risk investments. However, following the introduction of Pension Freedoms in 2015, you can now use your AVC fund in new ways (via a transfer out to a Personal Pension Plan). Note that this would involve a partial transfer out of your AVCs only your defined benefit pension would stay in situ. It is important to note that the Trustee cannot advise you on the best investment choice for you. However, if after considering these questions you decide that professional advice is required, you can find independent financial advisers on this website: > 14 Shipbuilding Industries Pension Scheme Annual Review 2018

15 More information Hartlink Online You can access your pension record by logging into the Hartlink Online service at: > Read more information on the pensions websites: This newsletter provides some information on the Scheme. However, it is the Rules of the Scheme that set out the legal basis for the Trustee s administration of the Scheme and which override any provisions of this newsletter with which they are inconsistent. Copies of the Rules are available from the SIPS team. References to external websites are given for information only. No responsibility is accepted for the content or accuracy of the information provided through these sites. Useful documents Below is the list of documents that provide further information about the Scheme. If you would like a copy of any of these, or have any other questions, please get in touch with the SIPS team. Statement of Investment Principles Explains the investment strategy of the Scheme. Statement of Funding Principles Explains how the Scheme will be funded. Schedule of Contributions Shows how much money is being paid into the Scheme to cover the cost of the benefits. Annual Report and Accounts of the Scheme Shows the Scheme s income and expenditure in the year to 31 March Actuarial Valuation Report Includes details of the Scheme s funding position at 31 March Recovery Plan Outlines the plan to eliminate the funding shortfall declared at the 31 March 2017 valuation. Annual Funding Update Includes an estimate of the Scheme s funding position at 31 March Shipbuilding Industries Pension Scheme Annual Review

16 Getting in touch Need some help with understanding pensions? Those involved in the Scheme can give you information about your benefits in the Scheme, but they cannot advise you about the best option for you; they cannot give you financial advice. However, there are many independent sources of information that you can draw upon. If you need help with your pension options, the Pensions Advisory Service provides independent and impartial information and guidance about pensions, free of charge, to members of the public: > They can also help with any unresolved complaints, as can the Pensions Ombudsman: > If you would like to find out more about pensions and how to make the most of your retirement planning, visit the Money Advice Service website: > You can also go to Pension Wise, a free and impartial guidance service set up by the Government to help people understand their defined contribution pension options: > If you are not sure what to do, you can speak to an independent financial adviser. You can find one in your area on this website: > If you want to make a formal complaint about the Scheme, please contact the Scheme Secretary at: > Hadrian Trustees Limited, 65 Gresham Street, London, EC2V 7NQ If your complaint remains unresolved you can contact the Pensions Ombudsman, via the contact details opposite. Contact us The SIPS team is available if you ve got any questions or you need to update your contact details: > UK Telephone: > If calling from overseas: > member.enquiries@sips-pensions.co.uk > Websites: > Hartlink Online: If you want to write to us our address is: > Private Sector Pensions (SIPS), Capita, 2 Cutlers Gate, Sheffield, S4 7TL For more information visit BAE Systems pensions websites w: Copyright 2018 BAE SYSTEMS. All Rights Reserved. BAE SYSTEMS is a registered trade mark of BAE Systems plc TC3302g.123