PENSION MATTERS. For DB Members of the Bayer Group Pension Plan SHCL Section JANUARY 2017

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1 PENSION MATTERS For DB Members of the Bayer Group Pension Plan SHCL Section JANUARY 2017

2 2 NEWSLETTER Welcome to Pension Matters... Our aim for this newsletter is to bring you up to date with recent events such as changes to the Trustee Board, the impact of Brexit on the financial markets, and the results of the 2016 Summary Funding Statement.

3 NEWSLETTER 3 TRUSTEE BOARD With the DC Section of the Plan having now moved to a Master Trust, we have reduced the board of Trustee Directors from nine to six SUMMARY FUNDING STATEMENT This year, Pension Matters includes the 2016 Summary Funding Statement which starts on page 7. Legal requirements demand that we provide this information in a certain way, so as well as complying with these requirements, we also aim to present the information in a helpful and understandable format for our Members. If you have any questions about the Plan in general, about your benefits, or have experienced a change in circumstances, the administration team is available to help you. The team can be contacted using the details on the back page. We would like to take this opportunity to wish you and your family a happy New Year. Chairman of the Trustee

4 6 NEWSLETTER INVESTMENT UPDATE Some of the political events we have experienced in the second half of 2016 have had an impact on investors and markets worldwide. Firstly, the news that the UK had voted to leave the EU took markets and investors by surprise. Then, the US went against markets and pollsters predictions by electing Donald Trump as its next president. The market response in each case was broadly negative at first, before many returned to more neutral levels shortly afterwards. Immediately after Brexit, Sterling and a number of equity markets fell sharply, while bond prices rose. After some reassuring words from governments and central banks, markets recovered. At the time of writing this in the days after the US election, there has been a mixed response. While some equity markets have sold off as much as 5%, the Euro and UK equity markets have remained broadly unchanged (and UK gilt yields have actually risen). The work to understand the full consequences and impact of these political events will continue for the medium and longer term. We expect the investment outlook to remain uncertain and potentially volatile for some time, especially as a number of European elections take place during 2017, which may only add to the unique political climate. The Trustee, as always, is monitoring the performance of the Plan s investments and the overall impact this uncertainty has on the funding level (the assets compared with the liabilities). It will continue to work closely with its advisers to ensure, as far as possible, that the Plan is well positioned to meet the challenges it faces as a result of these events.

5 NEWSLETTER SUMMARY FUNDING STATEMENT This is the 2016 Summary Funding Statement for the SHCL Section of the Bayer Group Pension Plan. Its purpose is to give information about the latest review of the Plan s funding position and the steps being taken by the Trustee and Bayer to protect your benefits. You do not need to take any action but we hope you will find the information useful and feel reassured about the security of your benefits.

6 8 NEWSLETTER VALUATION RESULTS The Trustee carries out an in-depth look at the Plan s finances every three years (as a minimum). This is known as a valuation. In years where a formal valuation is not carried out, an approximate review is conducted (which is called an interim assessment). This Statement summarises the results of the interim assessment carried out as at 31 March To check the Plan s funding position, the Actuary compares the amount needed to provide benefits due (the technical provisions) against the assets (e.g. shares, bonds, property) the Plan holds to pay them. If the value of the assets is less than the value of the technical provisions, the Plan is in deficit. If the value of the assets is more than the value of the technical provisions, the Plan is in surplus. The latest assessment of the Plan showed that, on 31 March 2016, the funding positions of the SHCL Section, and the Plan as a whole, were as follows: SHCL Section Plan Assets to meet benefits due 108m 112m 94m 1,313m 1,364m 1,152m Amount needed to provide benefits (technical provisions) 112m 111m 90m 1,488m 1,482m 1,246m Deficit / (Surplus) 4m ( 1m) ( 4m) 175m 118m 94m Funding level 96% 101% 104% 88% 92% 92%

7 NEWSLETTER 9 CHANGE IN THE FUNDING POSITION Since 31 March 2015 (the date of the last Summary Funding Statement), the surplus in the SHCL Section of 1m has turned into a deficit of 4m. This means the funding level has worsened from 101% to 96%. This reflects falls in the returns available on government bonds, (which serves to increase the technical provisions) as well as falls in equity markets over the year. Taken together, these factors have more than offset the contributions paid by Bayer into the Plan. WHAT ACTION IS BEING TAKEN TO TACKLE THE DEFICIT? The Trustee and Bayer are required to review and agree the contributions payable to the Plan at each formal valuation. As part of the 2014 valuation, the Trustee agreed a revised Recovery Plan with Bayer to make up the deficit. However, as there was a surplus in the SHCL Section at the time of the 2014 valuation, no such contributions are currently being paid into the SHCL section. The Trustee and Bayer will agree a suitable contribution plan for the SHCL section to make up the deficit if there is still a deficit at the next actuarial valuation due at 31 March m Technical provisions Assets 112m 110m 100m 94m 90m 111m 112m 108m The change to a deficit reflects falls in the returns available on government bonds and falls in equity markets. 90m March 2014 March 2015 March 2016

8 10 NEWSLETTER HOW IS THIS VALUATION CALCULATED? To establish the value of the technical provisions, and in turn the assets and contributions the Plan will need, our Actuary (Lane Clark & Peacock) has to make a number of assumptions about the future. These include: Future investment returns; Life expectancy rates; Future inflation expectations; and The demographics of the Membership. HOW IS THE AMOUNT THE PLAN NEEDS WORKED OUT? The Trustee has agreed a funding policy with Bayer which is intended to provide enough money to pay benefits as they are due. The amount of money which Bayer pays into the SHCL Section may go up or down following the regular valuations by the Plan s Actuary. So long as the Plan continues and Bayer is willing and able to pay the necessary contributions, we expect to be able to pay benefits in full, even though we currently have a deficit. WHAT WOULD HAPPEN IF THE PLAN WERE TO CEASE? However unlikely, we are legally obliged to inform you what would happen if Bayer (or its Parent Company, Bayer AG) was unable to pay further contributions and the Plan was to wind up. In this situation, you might not get the full amount of pension you have built up. This is because benefits would need to be secured by buying insurance policies. Insurers would take a very cautious view of the future and need to make a profit, which means they require more money to provide benefits than if the Plan were continuing on an on-going basis. As of 31 March 2014, it was estimated the assets of the SHCL Section of the Plan would cover 66% of the cost of securing benefit with an insurance company. If the Plan were to wind up, Bayer (and under the Parent Company guarantee, Bayer AG) would be required to pay enough money into the Plan for benefits to be secured in this way. If Bayer or Bayer AG were not able to pay this amount in full, the Pension Protection Fund (PPF) might be able to take over the Plan and pay compensation to Members. Information about the PPF is available on their website at

9 NEWSLETTER 11 HOW IS YOUR PENSION PAID FOR? As well as contributions paid by you, the Company also pays contributions into the Plan with the aim that there is enough money available to pay pensions to Members when they retire. The money to pay for Members pensions is held in a common fund for Members of the SHCL Section and not in separate funds for each individual. WHAT ELSE DO WE HAVE TO TELL YOU? We are required to notify you that Bayer has not taken any money out of the Plan in the last 12 months. We are happy to confirm this. WANT TO KNOW MORE? If you have any questions, or would like information on anything covered in this Statement, please contact the Plan administrators using the details on the back page TRUSTEE REPORT AND ACCOUNTS ARE NOW AVAILABLE The PDF summary of the latest Trustee Report and Accounts is now available to view online at

10 We hope you have found this edition of Pension Matters useful. Please do take the time to leave us feedback through the pension website where you can also find useful information about the Plan. If you have any questions about the Plan in general or about your benefits, the Capita administration team are available to help you. You should also keep them informed of any changes in your circumstances, such as a change of address or a change in your marital status. Bayer Group Pension Plan (BGPP) Capita Hartshead House 2 Cutlers Gate Sheffield S4 7TL bayergroup@capita.co.uk Phone Website