SUMMARY TRUSTEE REPORT AND ACCOUNTS

Transcription

1 SUMMARY TRUSTEE REPORT AND ACCOUNTS 1 SUMMARY TRUSTEE REPORT AND ACCOUNTS REPORT REPORT FINANCIAL POSITION OF THE SCHEME FUND ACCOUNT FOR THE YEAR ENDED 31 DECEMBER, 2013 AND 2012 ( million) CONTRIBUTIONS AND BENEFITS: INCOME: Company Contributions Company Contributions via Salary Sacrifice 8 8 Member Contributions (incl AVCs) 2 2 Other Income Total Income EXPENDITURE: Benefits 2 (51) (52) Other payments (1) (1) Administrative expenses (1) (1) Total expenditure (53) (54) RETURNS ON INVESTMENTS: Investment income Change in market value of investments Investment managers expenses (4) (4) Net return on investment NET INCREASE IN THE FUND DURING YEAR: NET ASSETS OF THE SCHEME: At 1 January 1,694 1,537 At 31 ember 1,868 1,694 1 Claims on death in service insurance policy 2 Total benefits including transfer outs CHAIRMAN S COMMENTS CHAIRMAN S REVIEW 2013 I am pleased to present the Annual Report and Accounts for the Willis Pension Scheme for the year ended 31 ember The investment world remained a challenging place during 2013, yet the Trustee has continued its hard work to ensure that the Scheme s investments are best placed and working to cover member benefits as they fall due. The Company (Willis Group Limited) has continued the agreed deficit funding as set out in the last Schedule of Contributions. As at 31 October 2013, the Scheme was 95% funded on a Technical Provisions basis, with an implied shortfall of 91 million, much reduced from 229 million as estimated at 31 ember As discussed below, we are currently reviewing the preliminary results of the latest triennial valuation as at 31 ember 2013, which has been shared with the Company ACTUARIAL VALUATION AND SCHEME FUNDING The Board re-established the Valuation Committee at the end of last year in preparation for the upcoming triennial actuarial valuation of the Scheme. The members of the Valuation Committee have reviewed the preliminary results of the actuarial valuation and have started discussions with the Company, with a view to recommending a suitable funding strategy to the Trustee Board. The current funding through the agreed Schedule of Contributions has meant that the Company has contributed 36 million towards the deficit in the Scheme in addition to the regular contributions of 15.9% of pensionable salary in the last year. The current Schedule of Contributions sets out two additional types of contribution: 10% of any exceptional returns made to shareholders, for example share buy-backs or special dividends; plus a profit-share contribution equal to 20% of consolidated EBITDA above $900 million for the Willis Group. No additional contributions were received in 2013, as no share buy-backs or special dividends were paid and despite solid performance in 2013, consolidated EBITDA levels were not such that additional contributions were triggered. However, in 2014, the Company has announced that it intends to buy-back up to $200 million of shares, which should result in additional contributions for the Scheme of up to $20 million, payable in early 2015.

2 2 SUMMARY TRUSTEE REPORT AND ACCOUNTS REPORT 2013 Chairman s Comments continued... FUND GROWTH The value of the assets over the past 10 years has been as follows: m 2,000 1,500 1, Year , , TOTAL 1,727m* , , , , , INVESTMENT PERFORMANCE % pa Period 1 year Total Fund 3 year 5 year 10 year INVESTMENT ALLOCATION 1, Benchmark Manager Allocation (%) Barclays Global Investors (U.K. bonds) 30 BlackRock (U.K. shares) 7.5 BlackRock Screened Fund 7.5 Legal & General (Index Tracker) 4 Ruane Cunniff & Goldfarb (U.S. Shares and Bonds) 9.5 TW Partners Fund LP (Diversity Fund) 6.5 Rogge (U.K. bonds) 6 DSM Capital Partners (U.S. shares) 6 DGAM (fund of hedge funds) 4 Carnegie (global shares) 4.5 CBRE Property 6 Rogge (Currency Fund) 1.5 Towers Watson (Hedge Fund) 7 Benchmark * Excludes AVCs, cash held in Scheme bank account, debtors and creditors but includes cash balances held by Investment Managers. INVESTMENT PERFORMANCE REVIEW In 2013, we have seen strong developed market equity performance. All major developed regions have exceeded 20% returns (with the exception of Asia Pacific). Emerging market equities showed poor performance but developed market government bonds were the worst performers last year, with German, US and UK bonds at all maturities suffering negative returns. However, the resultant increase in yields during the year will have benefited the Scheme as they will have resulted in a reduction in the value of the Scheme s liabilities. The Scheme achieved a positive return of 10.2% over the last year, 1% ahead of the benchmark return of 9.2%. In the medium term, the Scheme achieved positive returns of 11.0% and 12.3% over three and five years respectively; both outperforming that period s benchmark return by 2.4% per annum and 1.9% per annum respectively. In the longer term, the Scheme return over ten years was 8.2% per annum; 0.4% above the benchmark return. My fellow trustees and I regularly monitor the performance of all the investment managers against their agreed benchmarks and we regularly meet with the managers in order to monitor their performance and to assess future prospects. Ruane Cunniff & Goldfarb and DSM Capital Partners achieved strong performances last year, significantly outperforming their benchmarks and benefiting from good stock selection. However, we were not satisfied with asset returns and future prospects from two under performing investment managers, DGAM and Carnegie, and these managers have been terminated. The proceeds from DGAM will be received in mid and we are currently investigating various opportunities to reinvest these funds. Carnegie was terminated in early 2014 and their proceeds were reinvested into a portfolio of global equities managed by LGIM on an indexed basis. We are also continuing to focus on Scheme costs, particularly the balance between investment performance and manager fees paid. We are continuing our de-risking strategy, with an aim of reducing investment in high risk assets and increasing lower risk assets that will offer a better match to the Scheme s liabilities (such as gilts, indexlinked gilts and swaps). We are now targeting a 60% allocation to return-seeking assets as an interim stage to getting the Scheme to a 70:30 split between low-risk and return-seeking assets within the next eight years. We will continue to reduce risk within the Scheme s asset portfolio as and when market opportunities arise.

3 OUTLOOK The Trustee Board has started to engage with the Company with regard to the actuarial valuation as at 31 ember The Board is in discussions with its professional advisors on the options available to it and I would expect negotiations with the Company to begin in earnest in the near future with a view to reaching agreement in advance of the valuation deadline of 31 March ACKNOWLEDGEMENTS Sally Bramall will be stepping down from her position as Trustee appointed by the Pensions Advisory Committee in line with the Committee guidelines at the end of June. Accordingly, I would like to formally thank Sally for her dedication to the Scheme and the Trustee board over the last eight years. Richard Close-Smith s term of office also ends on 30 June 2014 but under the Committee guidelines, Richard is eligible to serve another term of four years if selected by the Trustee Selection Panel. As always, I would like to thank all the Trustee Board Directors and the members of the Willis Pension team for their continued hard work and commitment to the Scheme throughout the year and look forward to working closely with the Board in what is likely to prove to be a very busy G K Allen Chairman of the Trustee Board 3 June 2014 EXPRESSION OF WISHES FORM All members are reminded that they are able to indicate to the Trustees who they would like to receive any lump-sum benefit payable under the Scheme in the event of their death. However, although this applies to all active and deferred members it only applies to retired members during the first five years of a pension being paid to them. The Pensions Team can provide a copy of the Expression of Wishes form which the Trustees would encourage members to complete. Member are also reminded to complete a new form whenever their circumstances require a change to be made. More information about any lump-sum benefit payable in such circumstances can also be obtained from the Pensions Team. Current employees can print an Expression of Wishes form from the Willis Pension Scheme intranet site. WHERE CAN I GET MORE INFORMATION? If you have any questions please contact the Pensions Team either via the helpline , or by at pensions@willis.com or by writing to Group Pensions, Human Resources, Willis Group Services Ltd., Friars Street, Ipswich, Suffolk, IP1 1TA. lternatively current Associates can visit the Willis Pension Scheme intranet site for further information about the Scheme and to access interactive online modelling tools or forms. This Willis Pension Scheme intranet site can be accessed via the following route Good Morning Willis > HR & Benefits Info (under key links) > Services > Pension and Retirement Plans > U.K. Final Salary Scheme. The following additional Scheme documents are available on request and for current Associates are also available via the Willis Pension Scheme intranet site: The Statement of Investment Principles This explains how the Trustee invests the money paid into the Scheme. The Schedule of Contributions This shows how much money is being paid into the Scheme.* The Trustee Report and Accounts The full annual report and accounts for the Willis Pension Scheme. The Actuarial Valuation Report This contains the details of the Scheme Actuary s assessment of the financial position of the Pension Scheme at the last full actuarial valuation. The Pension Scheme Booklet A summary of the Trust Deed and Rules of the Willis Pension Scheme. An Annual Benefit Statement These are issued annually to active members of the Scheme but you can request a copy of your last statement at any time. Deferred members can request the current value of their deferred pension at any time but not more than once in a rolling 12 month period. The Trust Deed and Rules This is the definitive Trust Deed and Rules of the Willis Pension Scheme. * This document is incorporated into the Trustee Report and Accounts. 3 SUMMARY TRUSTEE REPORT AND ACCOUNTS REPORT 2013

4 SUMMARY FUNDING STATEMENT The Trustee is required by law to provide members (including deferred members and pensioners) with information on the Pension Scheme s funding position each year. HOW IS THE SCHEME S FINANCIAL SECURITY MEASURED? Every three years the Scheme s Actuary is required to perform an actuarial valuation. The latest triennial valuation as at 31 ember 2013 is currently being processed. The Trustee must complete the valuation process within 15 months (i.e. by 31 March 2015) and the full valuation results will be published in next year s Summary Funding Statement. During an actuarial valuation the actuary investigates the financial position of the Scheme in order to assess whether there is enough money in the Scheme to pay the pension benefits accrued to the date of valuation. If the assets are less than that required then deficit contributions may be needed to fund the shortfall. The assumptions used are set by the Trustee. Following each actuarial valuation the Trustee and the Company agree the level of contributions needed to pay for pensions being earned currently and to pay for any shortfall of assets to fund the pension benefits earned to date. This is then recorded in a Schedule of Contributions. In addition the Trustee requests quarterly estimates of the ongoing funding position as well as annual interim actuarial reports (except in valuation years). VALUATION RESULTS 4 SUMMARY TRUSTEE REPORT AND ACCOUNTS REPORT 2013 The results of the latest actuarial valuation as at 31 ember 2010 are as follows: m 2,200 2,000 1,800 1,600 1,400 1,200 1, ,546 1,344 1,344 67% Ongoing Buyout Funding Basis The Pension Protection Fund (PPF) figures illustrate the cost of securing the PPF benefits with an insurance company. On this basis the Scheme would be able to secure benefits for all members greater than the compensation provided by the PPF. The PPF require the audited assets to be adjusted and value the assets for PPF purposes at 1,338 million, not 1,344 million. On the PPF funding basis the Scheme was in surplus by 214 million as at 31 ember 2010 and would therefore likely to be able secure with insurance company 100% of the PPF compensation and, on average, 25% of the benefits above that level with insurance company. LATEST ONGOING FUNDING POSITION As mentioned above, the latest triennial valuation as at 31 ember 2013 is currently being processed and so the Trustee has not finalised the assumptions to use. However, based on assumptions consistent with those set by the Trustee for the 2010 valuation, an assessment of the Scheme s funding position as at 31 ember 2013 showed that the Ongoing funding level was 98% and the estimated deficit was 32 million. Once the 2013 triennial valuation has been finalised, the position may differ to that quoted above if different assumptions are ultimately used. This will be reported to you in next year s Summary Funding Statement. HOW DOES THE LATEST FUNDING POSITION COMPARE TO PREVIOUS FUNDING LEVELS? Ongoing Funding Level Shortfall 31 ember 2010 (actual valuation results) 87% 202m 31 ember 2011 (annual actuarial report) 78% 428m 31 ember 2012 (annual actuarial report) 88% 229m Preliminary figure at 31 ember % 32m 1,338 1,124 87% The Buyout figures illustrate the position if all the members were to leave service and their benefits were to be secured with an insurance company. The buyout funding level as at 31 ember 2010 was 67%. This is equivalent to a shortfall of 677 million. The recent funding levels in the Scheme are summarised in this table: Funding target Assets 2,021 The Ongoing figures illustrate the funds required to meet the benefits promised to date assuming that the Scheme continues in its current form going forward. The ongoing funding level as at 31 ember 2010 was 87% meaning a shortfall on the ongoing funding basis of 202 million as at 31 ember % PPF The main reasons for the improvement in the funding position between the annual actuarial report as at 31 ember 2012 and the preliminary figures as at 31 ember 2013 are: C ontributions higher than cost of accrual; I nvestment returns higher than interest on liabilities; L iability experience different to expected; and C hanges in financial assumptions.

5 BENEFITS FOR CURRENT EMPLOYEES In order to meet the cost of benefits being earned each year in the Scheme by current employees the Trustees and Employer have reached an agreement for the Employer to pay 15.9% of pensionable salaries from 2012 to WHAT IS BEING DONE TO REDUCE THE SHORTFALL? Following the completion of the 2010 valuation, the Trustee agreed a recovery plan with the Company to fund the 202 million shortfall over 7 years. As part of this agreement the Trustee and the Company took into account not only the valuation results as at 31 ember 2010 as required but also the deterioration of the funding level since the valuation date. The agreement reached was as follows: Deficit contributions of 25 million in 2011 plus 36 million for the next 6 years from 2012 to 2017 (this is in addition to the employer contributions required to meet future accrual). Profit sharing contributions of 20% of Group profit if EBITDA (earnings before interest, taxes, depreciations and amortization), exceeds $900 million in any of the 6 years starting from 1 January An exceptional return contribution of 10% of any share buy-backs and any special dividends. The total contributions over the 6 years from 2012 will be capped at 312 million (excluding the exceptional return contribution). The Employer contributions since the year of the last full actuarial valuation at ember 31, 2010 are as follows: Year For Pensions Being Earned Deficit Contributions Profit sharing contributions of 20% of Group profit if EBITDA exceeds $900m 10% of share buy-backs and special dividends Total Employers m 25m 14m 14m 25m 25m 36m 36m N/A N/A N/A N/A 7m 50m 50m 57m 50m We are required to communicate to you the position should the Scheme be wound up. It should be noted that the Trustee currently has no intention to wind up the Scheme whilst the Employer continues to pay contributions. If the Scheme were to wind up the Company is required to pay enough into the Scheme to ensure members benefits are fully secured with an insurance company. If this was not possible because of insolvency, the Pension Protection Fund might be able to take over the Scheme and pay compensation to members. Whilst the Scheme continues your benefits will continue to be paid in full even though the funding may be temporarily below target. It should be noted that the Pension Protection Fund guarantees lower benefits than the full member s expectation: Pensions in payment where the member has reached the scheme s normal retirement age will receive 100% of their pension however they will only receive pension increases on pension accrued post 5 April 1997 in line with inflation subject to a maximum of 2.5% pa. They will receive no pension increase on pension accrued pre 6 April Pensions in payment where the member has not reached the scheme s normal retirement age will receive 90% of their pension subject to an overall cap. The earlier you retired, the lower the annual cap is set, to compensate for the longer time you will be receiving payments. The cap at age 65 is 36, pa from April 1, 2014 (this equates to 32, when the 90% level is applied). Pension increases are restricted as above. Those who have not yet retired will receive 90% of their pension at the scheme s normal retirement age subject to the overall cap as above. Between the date the scheme enters the PPF and normal retirement age the value of your pension will increase annually in line with inflation subject to cap of 5% for pension accrued prior to 6 April 2009 and 2.5% for pension accrued after 5 April Once in payment pension increases will be restricted as above. The Secretary of State for Work & Pensions has the power to reduce these levels. Further information is available on the Pension Protection Fund s website at or you can write to the Pension Protection Fund at Renaissance, 12 Dingwall Road, Croydon, CR0 2NA. The Trustee can confirm that no payment has been made to the Employer out of a surplus in the pension fund and that no statutory funding directions imposed by the Pensions Regulator are in force in relation to the Scheme. 5 SUMMARY TRUSTEE REPORT AND ACCOUNTS REPORT 2013 WHAT WOULD HAPPEN IF THE SCHEME WAS WOUND UP?

6 BUDGET 2014 INFORMATION ABOUT CHANGES TO PENSIONS In the budget of 19 March 2014, the Chancellor announced significant changes to pension rules. Here we highlight the changes that may affect some members of the Willis Pension Scheme. TRIVIAL COMMUTATION - LUMP SUM LIMIT INCREASES TO 30,000 From 27 March 2014, the trivial commutation limit increased from 18,000 to 30,000. This means that a member can, from age 60, take all his/her pension benefit as a lump sum provided that his/her total savings in all registered pension schemes do not exceed 30,000. SMALL LUMP SUMS INCREASE IN LIMIT TO 10,000 Pre-budget legislation allowed lump sums of up to 2,000 to be paid as authorised payments, regardless of the value of other pension savings, in certain circumstances. The limit for all these payments increased to 10,000 on 27 March In addition to this, members of personal pension arrangements can take up to three 10,000 lump sum payments (as long as each payment extinguishes all benefits under the arrangement). Previously only two payments of 2,000 were authorised. CHANGES TO DEFINED CONTRIBUTION PENSIONS From April 2015, people with Defined Contribution ( DC ) pensions will have greater flexibility about how they take their pension benefits. The Government propose that from age 55, whatever the size of a person s defined contribution pension pot they will be able to take it how they want, subject to their marginal rate of income tax in that year. There will be more flexibility; people who continue to want the security of an annuity will be able to purchase one and people who want greater control over their finances can draw down their pension as they see fit. For example, as they will not have to purchase an annuity, people can take all their pension benefits from age 55 in one lump sum, or spread their pension money over a period of time with full flexibility subject to applicable income tax rules. HOW DOES THIS AFFECT WILLIS PENSION SCHEME MEMBERS? The Government is consulting on whether to allow members of private-sector defined benefit ( DB ) pension schemes, such as the Willis Pension Scheme, to transfer their benefits into a DC arrangement to access this greater flexibility. 6 SUMMARY TRUSTEE REPORT AND ACCOUNTS REPORT 2013 Some members might prefer greater flexibility, for example they may prefer more cash than can currently be taken, or more income earlier in their retirement, perhaps because of illhealth or paying off debts. It is recommended that members considering transferring their DB pension to a DC arrangement and delaying drawing their benefits until April 2015 seek independent financial advice. A decision to transfer pension benefits out of the Willis Pension Scheme is not reversible and may not be good value. More information about the changes to pension flexibility can be found on the HMRC website which is

7 WHO RUNS THE SCHEME? Trustee Willis Pension Trustees Limited 51 Lime Street, London, EC3M 7DQ Board of Directors Externally appointed by Willis Group Limited GK Allen (Chairman and Independent)* ^ K Abbott (Independent)~ ^ Internally appointed by Willis Group Limited I Warner* ^ P Thomson-Hall~ S Turvill* Nominated by the Pensions Advisory Committee Tina Walton R Close-Smith~ Nominated by the Pensioners Association P Knight* * Members of the Pension Investment Committee (the PIC ) ~ Members of the Benefits Committee (the Benco ) ^ Members of the Valuation Committee Secretary A Peel Principal Employer Willis Group Limited 51 Lime Street, London, EC3M 7DQ Administrator Willis Group Services Limited Group Pensions Human Resources Friars Street, Ipswich, IP1 1TA pensions@willis.com Actuary Auditor Banker Legal Advisor Investment Advisor Global Custodian and Performance Manager J Dell FIA Lane Clark & Peacock LLP 95 Wigmore Street, London, W1U 1DQ Baker Tilly U.K. Audit LLP St Philips Point, Temple Row Birmingham, B2 5AF Lloyds TSB Bank Plc 72 Lombard Street, London, EC3P 3BT Travers Smith LLP 10 Snow Hill, London, EC1A 2AL Towers Watson Limited Watson House, London Road, Reigate, Surrey, RH2 9PQ JP Morgan Chase Bank ( JP Morgan ) 125 London Wall, London, EC2 5AJ TRUSTEE DIRECTORS After nearly nine years as a Member Nominated Trustee Director, Sally Bramall stepped down in June 2014 on reaching the maximum of two terms service. We would like to thank Sally for her contribution to the Trustee board. We welcome Tina Walton as a new Member Nominated Trustee Director via the Pension Advisory Committee. Tina is an Executive Director of the Reinsurance Division and has been with the Company for over 37 years. Richard Close-Smith has been re-appointed as a Member Nominated Trustee Director for a second term. Willis Pension Trustees Limited 7 SUMMARY TRUSTEE REPORT AND ACCOUNTS REPORT 2013

8 YOUR FEEDBACK IS ALWAYS WELCOME We hope that you find this Summary Trustee Report and Accounts helpful and that it gives you a good understanding of the Scheme, the security of your benefits and pensions in general. We are always keen to hear your views on how we can better help you to understand your benefits and the Scheme. If you have any suggestions for improvements to this summary please the Pensions Team at pensions@willis.com. Willis Limited The Willis Building 51 Lime Street London, EC3M 7DQ United Kingdom Tel: +44 (0) Willis Limited, Registered number: England and Wales. Registered address: 51 Lime Street, London, EC3M 7DQ. A Lloyd s Broker. Authorised and regulated by the Financial Conduct Authority /07/14