PENSION NEWS. Airbus Group UK Pension Scheme. Newsletter for members in receipt of a pension. Issued October

Transcription

1 PENSION NEWS Airbus Group UK Pension Scheme Newsletter for members in receipt of a pension. Issued October

2 Chairman s Introduction Welcome to this edition of Pension News which includes a summary of the Trustee Report and Accounts as at 5th April 2018 and an update on the valuation of the Scheme that was completed as at 5th April In this newsletter you will also see how the Scheme funds have performed, an update on the Cassidian merger and information about changes to the Trustee Board, Pensions Team and Pensions Consultative Committee. The Trustees have also been working on amending the legal entity that covers the Scheme and work has been carried out on the General Data Protection Regulations. If you have any feedback on Pension News we welcome your comments along with any ideas for future topics that you would like to see covered. Bill Newman, Chairman of Trustees 2

3 Scheme Report Contributions by 5 April 2018 Airbus Defence and Space Scheme Finances SSTL 6.18% The Scheme s auditor Ernst and Young LLP, has given an unqualified audit opinion on the financial statements for year ending 5 April 2018, confirming that the financial statements give a true and fair view of the Scheme s financial transactions during the year and the net assets at the year end. The auditor has also given an unqualified statement on the contributions, confirming that the contributions payable to the Scheme for the year ended 5 April 2018 have been paid in accordance with the Schedule of Contributions. You can request a copy of the full Annual Report and Accounts from the Secretary to the Trustee % Airbus Airbus Operations 32.08% Airbus Group 2.13% Helicopters 2.69% Value of the Scheme Assets ( m) Value Membership by Type (not including Schedules 4 and 5) Active 5 April 2018 Schedule Schedule Schedule Total 4432 Deferred Pensioners 1945 Pensioners & Dependants 777 Total Membership 7154 Income and Expenditure Net assets of the Scheme at 6 April m + Total Income 84m Total Outgoings 18m + Change in market value of investments 24m = Net assets of the Scheme at 5 April m

4 Defined Benefit Investments Over the twelve-month period to 5 April 2018, the Scheme assets largely performed well. In 2017 most asset classes delivered strong returns. However, in the first quarter of 2018 volatility returned and global equity markets declined with investors unnerved by concerns about US interest rate rises and trade wars between US and China. This volatility partially offset the gains made in 2017 but the Scheme assets managed to produce a positive return overall. Comprehensive details of the Trustee Board s investment strategy are set out in the Defined Benefit Statement of Investment Principles (SIP) a copy of which can be obtained from the Scheme s mailbox at ukpensions@airbus.com The Trustees of the Scheme have made a commitment to invest in the IFM Global Infrastructure Fund. The process requires a suitable investments to be found by the Infrastructure Fund. It can take months for the investment to be completed from the date of commitment. The Scheme is expecting the commitment to be called shortly. Asset 5 April % 11.1% 10.7% UK Index Linked Gilts over 5 Years (30.7%) Aviva Property Fund (9.3%) Emerging Market Equities (3.6%) 6 4 International Equities (50% hedged) (19.5%) year return (%) 3 year annualised return (%) 5 year annualised return (%) UK Equities (23.5%) Inflation Opportunities (9.2%) Private Credit (4.3%) 4

5 Actuarial Valuation at 5 April 2017 In January 2018, the Company and the Trustees agreed a new valuation as at 5 April This was an out of cycle valuation (as the previous one was as at 5 April 2016) but it has allowed the Airbus Section of the BAE Scheme and the Airbus Group UK Pension Scheme to have their valuation dates aligned. The results of the actuarial valuation at 5 April 2017 are summarised here. What is an Actuarial Valuation It is important to remember that the Scheme s aim is to deliver the employer s promise to pay certain benefits on retirement or earlier death, as set out in the Scheme rules. An indication of these benefits is provided in either the benefit statement that members receive each year or notified to them when they leave the Scheme or retire. The cost of these benefits is met through contributions paid by the employers and the members spread over working lives. These contributions are held in a Trust Fund which is separate from the Employer. The Trust Fund is looked after by the Trustees, who are responsible for deciding on the investment policy, after consulting with the Principal Employer. What happens during a Valuation The Actuary cannot predict in detail what will happen to each member in the future and so a set of assumptions is recommended to the Trustee. They cover matters such as members life expectancy, future salary increases, future price inflation and the expected future return on the Scheme s investments. Through the valuation process the Trustee hold discussions with the Principal Employer about the assumptions made and the impact on the rate of contributions required, which are set by the employers in agreement with the Trustees. The main objective of the Trustees is to have enough money in the Scheme to be able to pay the pensions and other benefits due to members as they fall due, based on benefits promised up to the date of the valuation. In addition they need to agree the rate of ongoing contributions required and any deficit contributions required (if applicable). The funding of the Scheme does rely on the continuing support of the employers. Also important is the investment strategy set by the Trustees, after taking professional advice and consulting with the Principal Employer. At least every three years an actuarial valuation of the Scheme is required to be carried out by the Scheme s Actuary. The aim of the valuation is to measure the assets of the Scheme compared to its liabilities the expected cost of meeting all the benefits promised to check whether the assets are sufficient to pay pensions as they become due. If the assets in a scheme are greater than the liabilities then the scheme is said to have a surplus. If the liabilities are greater than the assets then the scheme is said to have a deficit. If the valuation identifies that there is a deficit, additional contributions will be required to correct it. These deficit contributions are in addition to ongoing contributions made by members and the employers to continue earning future benefits. 5

6 Results of the 2017 Valuation The headline result is that the valuation now shows a decrease in the deficit, as the following table indicates: 2016 Valuation 2017 Valuation Assets 663.3m 837.6m Amount needed to provide Scheme benefits 720.3m 874.1m Shortfall 57.0m 36.5m Funding level 92.1% 95.8% Although the deficit has been reduced, there was still a funding shortfall. There were a number of factors that contributed towards this, including the rate of salary increases and the fact that membership is getting older but the main reason for the deficit is the low expected future return on the Scheme s investments. The rate of salary increases is important because the Scheme s benefits are based on members future rates of salary when benefits are calculated. As the Scheme has no new members joining the average age of membership is always increasing; this makes the cost of meeting each year s benefit higher too. The Trustees also used additional analysis provided by the Scheme Actuary to help them make assumptions about how long members will live, as this of course has an impact on how long pensions will need to be paid. What is the Outcome? To eliminate the funding deficit and meet the ongoing costs of the Scheme, the Trustee and Company have agreed that the Company and Employee contributions would continue to be paid at the rates agreed in the 2016 valuation which included a lump sum of 20 million which was paid in October It has been agreed that no changes are required to employee contribution rates as a result of this extra valuation. Doing this valuation has also aligned the dates of the Airbus Group UK Pension Scheme and the Airbus Section of the BAE Systems Pension Scheme. Going forwards, the Schemes may face different outcomes and challenges but the Company feels that this is a more sensible approach than having different valuation dates for each scheme. The next valuation will be held as at 5 April 2020, and if the outcome has not been agreed by January 2021, then the Company has agreed to pay a further 10 million lump sum into the Scheme. Most importantly, if the Scheme s investments during members working lives do not match the rate of benefit increase then a deficit could arise. Also the type of investments the Trustees hold to match pensions in payment are typically related to the return on Government bonds. The return on these investments is linked to interest rates and inflation. The expected return on investments reflects recent experience and long term assumptions on the assets held by the Scheme. 6

7 The Importance of the Employers Support The funding of the Scheme does rely on the continuing support of the employers. If an employer goes out of business any shortfall in its share of a pension scheme would become a debt on that employer. The employer would be required to pay a sum to the pension scheme that represents the cost of securing the employer s share of the benefits promised with insurance policies. The cost of buying insurance policies is very expensive, especially for younger members. For example, if the Airbus Group UK Pension Scheme had wound up and insurance policies had been purchased on 5 April 2017 it has been estimated that the Scheme s assets would have met 50% of the cost. Under normal circumstances it is unlikely that a pension scheme would be forced to wind up immediately and so the trustee could continue to keep the scheme open and pay the benefits as they became due, although further benefits would not accrue. The Pensions Regulator In certain circumstances the Pensions Regulator can direct how a Scheme s technical provisions must be calculated, set the period for eliminating any funding shortfall, specify the level of company contributions to be paid (rather than leaving these issues to be determined by the trustee) and has the power to modify the scheme s future accrual of benefits. No such circumstances have arisen for our Scheme. How can I get more Information? A member s pension is an important benefit. More information may be obtained about the Scheme and how it is managed by contacting the Secretary to the Trustee. A copy of the Trustee Report and a copy of the Statement of Investment Principles can also be obtained. The worst that could happen would be that the employer became insolvent whilst a scheme had a shortfall and there was not sufficient proceeds from the insolvency to meet the cost of buy-out policies. The Government has set up the Pension Protection Fund to cover such eventualities, subject to certain limits and conditions. Details can be found at: 7

8 News in 2018 Cassidian Scheme Transfer The Cassidian Scheme Transfer is progressing. In April 2018, all active members became part of the Airbus Group UK Retirement Plan. Their previous funds were transferred over in July Work is ongoing to move the deferred members of the Cassidian Scheme to the Airbus Group UK Pension Scheme and it is anticipated that this will be completed by the end of Brexit The Trustees have received some enquiries about how Brexit may affect the Pension Scheme. The Trustees are monitoring the situation but until we know the final outcome of the various Brexit negotiations, we cannot make any definitive comments about its impact on pensions. Our working assumptions on the basis of what we know so far is that there will be no change to pensions legislation on Brexit (including in relation to cross border pensions) as EU legislation is to be incorporated into UK Law. Subsequent changes or repeals to that legislation will be in the hands of the Government at that time. Change to the Trustee Company Under the we are one initiative in Airbus, there has been an ongoing project to rationalise some of the legal entities. As a result of this, we have had to make some small amendments to the Trustee Company that runs the Scheme. The key change for members is to know that the Trustee Company used to be called Airbus UK Pension Trustees Limited and is now Airbus UK Pension Trustee. None of the changes will affect how the Scheme is run or any of your benefits. 8

9 Trustees and Pensions Consultative Committee Changes to the Trustee Board Due to the Cassidian transfer in April 2018, two new Trustees were added to the Board with effect from 25th June Karen Thomas was appointed as a Company Nominated Trustee and Paddy Francis was appointed as a Member Nominated Trustee. Clive Bugeja stepped down as Secretary to the Trustee to concentrate on his role as Head of Pensions. Laura Millard was approved as the new Secretary to the Trustee with effect from 25th June Ian Westall will be standing down as a Member Nominated Trustee and as a member of the PCC at the end of Elections will take place in October 2018 from the PCC for his replacement. Changes to MNT and PCC Terms of Office Historically all members of the PCC and MNT roles have been elected for a period of 3 years. After looking at other Schemes and realising the need for consistency and stability for the Airbus Group UK Pension Scheme, all MNT and PCC terms of office have been extended to 4 years. In addition, specific dates for elections have been set to phase new PCC member coming on board. Transitional arrangements are currently in place for existing MNTs and members of the PCC. Pensions Team Airbus has an experienced in-house pensions team. Members of the team are not authorised to give financial advice but they can help you to understand your pension and answer general queries on any aspect of your pension and information about the Scheme. If you would like to make an appointment to speak to a team member, please contact ukpensions@airbus.com Trustee and Advisers Trustee Trustee Board of Directors Principal Employer Head of Pensions Pensions Manager and Secretary to the Trustee Scheme Actuary Administrator Auditor Banker Investment Consultant Defined Contributions/AVC/Retirement Account Provider Solicitors and Legal Adviser Airbus UK Pension Trustee Bill Newman (Chairman) Independent Steve Chafer Member Nominated Nigel Ede Airbus Defence and Space Paddy Francis Member Nominated Steve Parker Member Nominated Ed Rackham Airbus Operations Karen Thomas Airbus Defence and Space Ian Westall Member Nominated Marcus Wilhelm Airbus Group Airbus Defence and Space Limited Clive Bugeja Laura Millard Adam Boyes Willis Towers Watson Limited Willis Towers Watson Limited Ernst & Young LLP HSBC Bank Lane Clark & Peacock Legal & General Assurance Society Limited Sacker & Partners LLP 9

10 Pensions Consultative Committee The Pensions Consultative Committee (PCC) is made up of elected members of the Scheme to represent the views of the wider membership. The Company and Trustees often use the PCC to discuss potential changes to the Scheme and likewise, the PCC uses the forum as an opportunity to feed back any ideas that have been raised by Scheme members. The PCC meets regularly to discuss topical issues both within the Scheme and on wider pension industry issues. There have been recent elections in Stevenage, Corsham, Hawthorn, Oakhanger, Oxford and for the Pensioner population. The election for Broughton is ongoing but will be completed by the end of All new appointed PCC members will take up their posts with effect from 1st January Below is a list of PCC members and the constituencies they represent as at September 2018: From 1 st January 2019, the following members will be taking up posts in the PCC: Phil Wadey, Corsham, Hawthorn, Oakhanger (re-elected) Chris Beard Pensioners (replacing Ian Westall) Dave Sutton Pensioners (additional post) Valerie Valentin Stevenage (replacing Denise Chappell) No candidates stood for election at the Oxford/Aberdeen/Shawbury Valley elections and will therefore remain as a vacancy until such time that the post is advertised. The PCC welcomes contact from members across the Scheme and encourages you to get in touch with any feedback, questions or comments that you may have. Name Constituency Status David Hobbs Aberdeen, Oxford, Shawbury Valley PCC Member Matthew Johnson Broughton PCC Member Phil Wadey Corsham, Hawthorn, Poynton, Oakhanger Chairman of the PCC Tracey Blythe Filton PCC Member Richard Ware Filton PCC Member Tim Gilbert Guildford SSTL PCC Member Steve Chafer Guildford, Hook, Leicester, Newcastle, Strand Trustee Craig Musker Newport PCC Member Paddy Francis Newport PCC Member Ian Westall Pensioners Trustee Guy Newham Portsmouth PCC Member Steve Parker Portsmouth Trustee Denise Chappell Stevenage PCC Member Mick Sheahan Stevenage PCC Member 10

11 Scheme Contacts Scheme Website Scheme Information If you have queries about the management of the Scheme or you require details of the dispute resolution procedure, please contact the Secretary to the Trustee at: Airbus UK Pension Trustee Gunnels Wood Road, Stevenage, SG1 2AS Tel: The Department for Work and Pensions Details or a personal quotation of your State pension can be obtained from or by phoning Independent Financial Advice The Airbus Group pensions team, the Trustee Directors, the PCC members and Legal & General are not authorised to give you financial or investment advice. To obtain impartial financial advice, members are advised to contact an Independent Financial Adviser (IFA). You can find a list of the IFAs in your postal area by contacting IFA Promotion on or visiting If you have difficulty reading this document you can obtain an audio copy by contacting the Pensions Manager. 11

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