Pension & Life Assurance Scheme. Pensions update

Transcription

1 Pension & Life Assurance Scheme Pensions update November 2015

2 Chairman s welcome message Welcome to the latest edition of Pensions Update, the 2014/15 abbreviated Trustees Report on the Scottish Enterprise Pension & Life Assurance Scheme (the Scheme ). Full details of the Scheme s finances are available in the formal Trustees Report & Accounts as at 31 March 2015, and this summary aims to highlight the main points. 2014/15 was yet another busy year for the Scheme with the actuarial valuation as at 31 March 2014, continuation of the Scheme s de-risking strategy, and legislative changes impacting the day-to-day running of the Scheme. The formal actuarial valuation of the Scheme as at 31 March 2014 was finalised towards the end of The valuation revealed that the Scheme s assets exceeded the liabilities by 9%. Over the last 12 months pension schemes have continued to be presented with the challenges of an environment of very low gilts yields, and we ve seen continuing pressure on schemes funding levels. The Scheme has been better insulated from this volatility than many, although the updated position at 31 March 2015 shows that this excess of assets has fallen from 9% to 4%. We do expect the funding position to fluctuate over time. Further details of the Scheme s current funding position are available on page 6. Details of the investment position are given on pages 4 and 5. The investment changes over 2014/15 included the further de-risking of Scheme assets (to give greater protection from changes in interest rate and inflation) and adding an allocation to multi-asset credit for greater diversification. The aim of the de-risking programme is simply to reduce the volatility or variation in the Scheme s funding position. A crucial element in this de-risking is the continued support and strength of Scottish Enterprise allowing the Scheme to take a long term investment and funding perspective. The Trustees continue to review the Scheme s investments structure and risk profile on a regular basis. Over the last year the Chancellor has announced several changes to pension legislation. These are covered in more detail on page 3. Some of these changes now give Scheme members increased flexibility to choose a retirement package that suits their individual needs, but as a result there are added responsibilities for the Trustees to ensure that members make informed choices when they retire. We are working on expanding the information available to members to assist with decision making. Finally, please note we have included a nomination form with your copy of Pensions Update. If you have not already done so, or if your circumstances have changed, it is important to complete this form and return this to us to record your wishes in the event that any death benefits become payable. Pensioners who have been receiving their pension for over five years do not have to submit this form. Active members can access an electronic copy on the Scottish Enterprise intranet site. Sincerely, Allan Martin Chairman INSIDE THIS REPORT: Chairman s welcome message Update on pension issues Scheme finances HAVE YOUR SAY If you have any feedback on the content of this report, we d like to hear from you. Please get in touch with the Administrator. Update on the Scheme s funding position Who looks after the Scheme? Useful information 2

3 Update on pension issues The following is a summary of changes in legislation impacting pension provision in the UK which have all been announced over the year. BUDGET 2014 PENSIONS REFORM In the 2014 Budget the Chancellor announced changes that took effect from April The majority of the changes affect members of defined contribution (DC) pension schemes, however, there is some additional flexibility in the way that you can access your pension. For those still to retire you have the option to: take your pension as you would have before these reforms (that is, a pension plus a tax-free lump sum). take all your benefits as a cash lump sum if you have earned only a small annual pension during your membership. The rules around this have been relaxed and we ll tell you if you qualify for this option when we send you your retirement pack. transfer your benefits to a DC pension scheme. In the past it has rarely been beneficial to transfer benefits from the scheme. However, you may now feel that you might benefit from the new flexibility that DC pension schemes could offer. This will be a major financial decision as you will lose the certainty that is provided by a DB scheme. Transferring pension benefits between schemes is highly complex. We always recommend that members seek financial advice before transferring benefits out of the Scheme, but the Government now requires that anyone transferring from the Scheme to a DC arrangement must take impartial advice from a qualified financial adviser, and the Trustees need to collect and retain evidence of this. You will be able to find a qualified adviser in your area at you will be responsible for the cost of this advice. PENSION LIBERATION SCAMS The Pensions Regulator and others are concerned that some people are being misled into transferring pension rights into private arrangements that claim to liberate funds (such as by providing loans, upfront cash or other promotions). The tactics used by pension scammers to encourage people to transfer their savings to them is constantly changing. Be on the lookout and always obtain financial advice before deciding to transfer. CHANGES TO PENSIONS TAX ALLOWANCES The amount of tax relief that can be claimed on pension savings is to be further restricted from April Whilst we don t expect the majority of our members to be affected, if you have any pension arrangements outwith the Scheme, or meet the criteria below, you should speak to a financial adviser. The changes, in the main, are likely to either affect members with long service and high salaries (e.g. long-service members being promoted) or high earners. For example where: your earnings (including the value of pension contributions) are more than 150,000 per year the Annual Allowance for tax relief on pension savings will be reduced for those earning over 150,000 from the current 40,000 down to a minimum of 10,000 for those earning over 210,000. Benefit statements show current members how your Scottish Enterprise benefits compare against the Annual Allowance limit; the value of your retirement income from Scottish Enterprise and any other pension arrangement you are a member of exceeds the new reduced Lifetime Allowance of 1 million. This broadly equates to a total pension of 43,000 a year and a corresponding cash lump sum of around 129,000. In other tax news, a consultation has been launched to review the future pensions tax-relief structure. This opens up the possibility of moving to a system where no tax relief is given on contributions and no tax is paid when benefits come into payment and would be a fundamental change. SCHEME WEBSITE Our new website is up and running for pensioner members to access basic Scheme information, forms and important documents, as well as keep personal details up to date and much more. Payslips are now accessed via the website rather than receiving a paper copy by post. For active members Scheme information can be found on the Scottish Enterprise intranet. MEMBER BOOKLETS With all the changes in the last few years the Scheme s member booklets are currently being refreshed. We expect the new booklets will be available for members in late

4 Scheme finances MONEY IN AND OUT OF THE SCHEME Amount of money in the Scheme at 31 March 2014: ( 000s) 562,682 What came in (total): 19,961 Other investment income received 9,518 Contributions from employer and employees and other income 10,443 What went out (total): 17,939 Benefits payable to pensioners and payments to leavers 16,163 Investment Management expenses 792 Administration and consulting fees 984 Increase in value of investments 87,658 Amount of money in the Scheme at 31 March 2015: Note: the figures may not total exactly due to rounding. SCHEME ASSETS 652,363 As at 31 March 2015, the Scheme s asset allocation was as follows: WHAT DO WE MEAN? INVESTMENT TERMS EXPLAINED... Benchmark A benchmark is a target or measure that the Trustees expect their investment manager to achieve. For example, they may specify that the investment returns on the Scheme s UK equities should be at least as much as the return on the FTSE All Share Index. The investment manager s performance is then judged against this benchmark. Bonds Bonds are loans issued by governments, companies, banks, public utilities, and other large entities. Bonds pay the bearer (or owner) a fixed amount at a specified end date. Cash Cash is a short-term investment that provides a return in the form of interest payments. Diversified growth funds These are a type of actively managed fund designed to generate investment returns by investing in a range of growth-seeking asset classes, including equities, property, commodities, private equity, bonds, hedge funds and currency. 2.5% 5.0% 5.0% 5.0% Emerging market equities These are funds that invest the majority of their assets in the financial markets of developing countries. 45.0% 7.5% 10.0% Global equities These are stocks and shares of companies in countries around the world. These markets are influenced by their local economies and involve exposure to different currencies, which can affect their value. Private equity 20.0% Emerging market equities Multi-asset credit Property UK equities Private equities Global equities Diversified growth funds Government bonds and liability driven investments Private equity consists of equities in companies that are not publicly traded on a stock exchange. Property Pension property funds usually invest in commercial property such as offices, shops and industrial units. Any return on capital is dependent on capital growth and rental incomes. Therefore returns on property funds are subject to fluctuation. UK equities Also known as shares or stock, UK equities are a type of security that indicates ownership in a company based in the UK. 4

5 INVESTMENT UPDATE The year to 31 March 2015 saw positive returns on both growth (equity and property) and defensive assets (bonds). In the UK economic growth remained strong throughout the year, however whilst growth in the UK has been strong, it was strongest in the US and the dollar rose against other currencies. The rising US dollar plus falling commodity prices led to underperformance of emerging markets. Developed and emerging equity markets returned 18.8% and 16.3% respectively. UK property investors continued to benefit from the improving property market. Over the 12 month period to 31 March 2015, UK Property Index returned 18.3% in Sterling terms. Long dated government bonds outperformed the equity market with growth of 27.0%, with yields historically low. However, for pension schemes this meant a corresponding increase in liabilities, which offset much of the asset gains. REMEMBER As a member of a defined benefit pension arrangement, your pension is linked directly to your salary and years of service rather than performance of funds. So you shouldn t be too concerned if the markets are volatile as it doesn t change the amount of pension you will get. Scottish Enterprise is also fully committed to supporting the Scheme and is working with us to monitor the Scheme s investments and funding position. We are satisfied that Scottish Enterprise is able to continue making contributions to the Scheme. The Trustees believe there is continued support for the Scheme and on this basis feel that the likelihood of the Scheme not being able to continue is small. The Scheme (excluding private equity assets) outperformed its benchmark over the year to 31 March 2015 by 1.4%, returning 17.1% in absolute terms (net of fees). INVESTMENT PERFORMANCE Year ending 31 March Years ending 31 March 2015 Scheme return % p.a. Benchmark return % p.a. Scheme return % p.a. Benchmark return % p.a MEMBERS IN THE SCHEME March ,098 1,270 1,096 March ,136 1,242 1,144 Active members Members with deferred benefits Pensioners 5

6 Update on the Scheme s funding position WHAT IS AN ACTUARIAL VALUATION? Every three years, the Scheme Actuary carries out a financial review of the Scheme known as an actuarial valuation. This shows the Trustees if the Scheme has enough money to pay the benefits that members have built up. If there is not enough money, the actuarial valuation will show how much money Scottish Enterprise will need to pay into the Scheme over a certain period of time. The amount of money in the Scheme and the money needed in the future is known as the funding position. WHAT WAS THE SCHEME S FUNDING POSITION AT THE MOST RECENT VALUATION? At the time of the last full valuation which was carried out as at 31 March 2014, the funding position was approximately 109%. This means that the Scheme had more money than it needed at that time to pay members benefits. LATEST INFORMATION The Scheme Actuary has estimated the funding position of the Scheme as at 31 March 2015 (based on the Scheme s 2014 valuation assumptions). The funding position of the Scheme was approximately 104% and means that as at 31 March 2015 the Scheme had more money than it needed to pay benefits. The main reason for the change is the experience in financial markets since the valuation in 2014 being worse than expected, with falling bond yields increasing liabilities significantly. It is expected that the funding position will go up and down in the short term with changing market conditions. REGULATORY NOTE We are required to confirm that no payments have been made to Scottish Enterprise from the Scheme and can also confirm that the Pensions Regulator has not intervened in the Scheme s affairs. FREQUENTLY ASKED QUESTIONS How is my pension paid for? Every four weeks you pay 6% of your salary into the Scheme. Scottish Enterprise also makes a contribution of 18% (20% from 1 April 2015) of your pensionable pay into the Scheme. All of this money is held in a single Trust which is managed by the Trustees. The Trustees work with their appointed Investment Managers to invest the money with the aim of getting the best possible return. This money is then used to pay your pension. Will I receive funding information regularly? The Trustees will send an update on the Scheme s funding once a year. Please help us to keep in touch with you by telling the Administrator if you change address. Contact details can be found on page 8. What would happen if Scottish Enterprise decided to stop supporting the Scheme? Scottish Enterprise is fully committed to supporting the Scheme so that members benefits are paid in full. Although we have no reason to believe that this support will not continue, we are required to provide details of the funding position if the Scheme ceased to exist and was wound up. When a scheme is wound up, members benefits are usually secured with an insurance company. The cost of providing benefits in this way is much higher than paying benefits directly from the Scheme. The Scheme Actuary estimated that the amount needed to buy all of the members benefits from an insurance company was 848 million as at 31 March If the Scheme was wound up and could not pay members benefits that were due, Scottish Enterprise would be required to pay any shortfall to the Scheme. In the unlikely event that this was not possible, the Pension Protection Fund (PPF) may be able to take over the Scheme and pay a certain amount of benefits to its members. If such a situation were to arise, we would inform you of your rights and the next course of action. Visit the PPF s website at for more information. Or you can write to the PPF at: Renaissance, 12 Dingwall Road, Croydon, Surrey, CR0 2NA. 6

7 Who looks after the Scheme? THE SCHEME TRUSTEES The Scheme is managed by a group of Trustees: some are appointed by Scottish Enterprise and some are elected by you. Our main duties are to make sure contributions are paid on time, the assets are invested appropriately, and the Scheme is well managed to provide members with their pension benefits. In order to do this we meet regularly throughout the year. This includes meetings and training with specialist advisers that we have appointed to help assist us in the management of the Scheme. The current Trustees are listed below: Scottish Enterprise appointed Allan Martin (Chairman) Alan Browne Allan McQuade David Smith Derek Ballantyne Douglas Colquhoun Jan Robertson Member nominated Alan McLeod Bryan Stewart Linda Ellison Stuart Andrew Clarke Over the year we welcomed Allan McQuade, Jan Robertson and David Smith to the board. Our main duties are to make sure contributions are paid on time, the assets are invested appropriately, and the Scheme is well managed to provide members with their pension benefits. PROFESSIONAL ADVISERS The Trustees have appointed the following professional advisers and service providers: Administrator Hymans Robertson LLP Auditors BDO LLP AVC Providers Equitable Life Assurance Society Standard Life Bankers Bank of Scotland Insurers Unum Investment Consultant Mercer Limited Investment Managers Baillie Gifford and Co Standard Life First State Investments BlackRock Investment Management Pantheon Ventures M&G Prudential CQS Legal Advisers Burness Paull LLP Quoted Private Equity Trusts Pantheon International Participations PLC Standard Life M&G UK Companies Financing Fund Scheme Actuary Calum Cooper of Hymans Robertson LLP Secretary to the Trustees Hymans Robertson LLP 7

8 Useful information SCHEME DOCUMENTS The following documents which provide more detailed information on the Scheme are available on the Scottish Enterprise intranet. If you do not have access to the intranet, please contact the Administrator. The Scheme booklet giving an overview of the Scheme. Partial retirement explanatory booklet. An annual benefit statement - if you are not receiving a pension from the Scheme (and have not received a benefit statement in the previous 12 months), you can ask for a statement that provides an illustration of your likely pension. The Annual Report and Accounts of the Scheme giving a detailed breakdown of the Scheme s finances. The Scheme Actuary s full report on the actuarial valuation of the Scheme as at 31 March Annual Actuarial Report to 31 March The Schedule of Contributions showing how much money is being paid into the Scheme. The Statement of Investment Principles explaining how the Trustees invest the money paid into the Scheme. This report covers the requirements for the Scheme s annual Summary Funding Statement. USEFUL ONLINE RESOURCES There are plenty of online resources available to you. Here are just a few: Neither the Trustees nor their advisers can give you financial advice, but a financial adviser will be able to do so. If you are thinking of leaving the Scheme, or making any changes to your pension arrangement you may wish to contact such an adviser. You can find one local to you by visiting this site. This Government website has gathered all public information sites into one place. You can find out how much State Pension you might receive and see general information about planning for retirement. There is also a host of other helpful non-pension related information too. The Pensions Advisory Service (TPAS) is an independent non-profit organisation that provides free information, advice and guidance on the whole spectrum of pensions, including State, company, personal and stakeholder schemes. This website has plenty of information about retirement planning. TRACKING DOWN LOST PENSIONS Nowadays, it would not be uncommon if you changed your job several times throughout your career and this is likely to mean that you have more than one pension when you come to retire. As a result, it is easy to lose track of your company pension plans, especially if the company has relocated, changed its name or been taken over. If you would like to track down a lost pension, the Pension Tracing Service may be able to help you free of charge. Simply go to to complete an online application form or call for a hard copy application. You can also write to them at: Pension Tracing Service, The Pension Service 9, Mail Handling Site A, Wolverhampton WV98 1LU When you call it is a good idea to have some information to hand such as your National Insurance number, the name of the company you worked for and the dates you were there. WHERE CAN I GET MORE INFORMATION? Please get in touch with the administrator: Scottish Enterprise Pension & Life Assurance Scheme Administration, Hymans Robertson LLP, 20 Waterloo Street, Glasgow, G2 6DB Tel: scenadmin@hymans.co.uk 8