BAE Systems Pension Scheme

Transcription

1 BAE Systems Pension Scheme Annual Review for Pensioners 2017 Welcome to the Trustee s 2017 annual review of the BAE Systems Pension Scheme ( the Scheme ). You will recall that in April 2016, the Scheme was restructured to form separate BAE Systems and Airbus sections. This annual review is being sent to all members, but we show the relevant statistical information separately for each section of the Scheme. In the following pages you can read a summary of the 2017 Report and Accounts and obtain an overview of the past year. This is an important year for the Scheme with the 2017 valuation now under way. Mike Parker, the Scheme Actuary from Hymans Robertson, comments further on page 3. On pages 4-6, David Adam, Chief Investment Officer at BAPFIM, who heads up the team that manages the Scheme s investments, provides an update on how well the Scheme s investments have been performing over the last year, and comments on the economic background and market activity. Guy Griffiths CBE Chairman of the Trustee

2 Who s in the Scheme? At the Scheme had a total of 121,113 members. In-service Members Deferred Members Pensioners 25,638 39,896 55,579 Membership numbers exclude DC Retirement Plan members BAE Systems section Airbus section In-service Members 20,123 5,515 Deferred Pensioners 36,253 3,643 Pensioners 51,910 3,669 Total 108,286 12,827 Trustee Directors and Advisers The Scheme s Trustee Directors Mike Byfield* Pat Cauldwell* David A Cole Andy Dean* Andreas Drabert Andrew Gallagher Guy Griffiths CBE (Chairman) Trevor King (Resigned on 31 December 2016) Craig Murray (Appointed on 20 March 2017) Steve Olsson* Carol Paul* Mark Stewart Louise Wallwork Chris Williams* Andy Wishart* *Member Nominated Director The Scheme s Advisers Actuary Mike Parker Hymans Robertson LLP Auditor Grant Thornton UK LLP Legal Advisers Travers Smith LLP For a copy of the full Annual Report and Accounts, please contact the Pensions Service Centre (see page 20 of the autumn 2017 pensioners' newsletter) 2 BAE Systems Pension Scheme Annual Review for Pensioners 2017

3 Money in and money out Funding update Income and expenditure BAE Systems section m Airbus section m Fund at the beginning of the year 12, ,732 Total income Total outgoings (583) (76) (659) Difference between income and outgoings (43) Change in the market value of assets 2, ,556 Transfer between sections (1,850) 1,850 0 Fund at the end of the year 13,013 2,364 15,377 Net investments 13,005 2,360 15,365 Net current assets Net assets of the Scheme at year end 13,013 2,364 15,377 Notes: (i) These figures exclude the DC Retirement Plan, but include AVCs and Level 100+ Retirement Accounts. (ii) The Airbus section shows a zero fund balance at the beginning of the year because this was prior to the date that assets were transferred from the BAE Systems section. Total m The actuarial valuation is now well under way. This is a triennial exercise to assess the state of the Scheme s funding and to agree the level of contributions that should be paid, both towards the build up of future benefits, and to make good the existing funding shortfall. This will be the first such valuation for the Scheme that considers the Airbus section and BAE Systems section separately. As well as contribution levels, the valuation will also review the Scheme s investment strategy and long-term plans for how this should evolve as the Scheme matures. Maximising the chances of successfully delivering your pensions, while keeping risk suitably contained, is the ultimate purpose. I m looking forward to working closely with the Trustee, BAE Systems and Airbus as we identify the best mix of investments and contributions to meet this objective. Mike Parker Hymans Robertson LLP BAE Systems Pension Scheme Annual Review for Pensioners

4 Investment update David Adam Chief Investment Officer BAE Systems Pension Funds Investment Management (BAPFIM) Economic background and market activity Despite some surprising political developments in the UK and elsewhere, the year to the end of March 2017 saw strong returns from the Scheme s assets. Scheme assets increased by more than 20% during the period under review. This strong performance means that the Scheme s asset performance has far exceeded the actuarial return assumptions made at the last triennial review in Global economic and corporate earnings growth were subdued for most of the period, but started to pick up towards the end of 2016 on the back of massive credit and spending growth in China in the previous year, increased consumer and business optimism in the US (partly as a result of President Trump s tax reform plans) and a recovery in European economic growth as domestic demand started to revive. Asset returns were buoyed by continued support from global central banks printing money and low interest rates. The weakness of sterling, as a result of the uncertainties surrounding Britain s ongoing Brexit negotiations, enhanced the sterling returns from overseas assets. In terms of the broad asset types, overseas equities performed strongly rising by over 32% in sterling terms. UK equities rose by over 21%. UK corporate bonds and property produced more subdued, high single figure returns. The Scheme s alternative assets that include infrastructure, private equity and financing for a variety of small and medium-sized companies performed strongly. Against an environment of rapidly appreciating asset prices, the Scheme marginally underperformed the benchmark set by the Trustee. The Scheme s asset allocation, being more weighted in equities than bonds, had a positive impact on performance but the Scheme s equity managers struggled to keep pace with their markets. The UK, US and European managers underperformed their benchmarks. The Asian ex-japan, Japanese and Emerging Markets managers outperformed. The bond and property managers also outperformed their benchmarks. The Scheme s long-term performance compares favourably with its benchmark. Looking at the year ahead, it is unlikely that the sorts of returns achieved last year will be repeated. The price appreciation experienced by most traditional assets over recent years has left them looking more expensive, which in turn suggests future asset returns will be lower. Although global economic and corporate earnings growth should be robust, monetary policy is likely to be less supportive for asset prices as the Chinese and US central banks tighten policy through higher interest rates. Political and geopolitical uncertainty, particularly the heightened tensions between the US and North Korea, could also impact on asset performance. 4 BAE Systems Pension Scheme Annual Review for Pensioners 2017

5 Though uncertainty in Europe has been reduced following the French, and, to a lesser extent, the German elections, there are open questions in the US around the extent to which President Trump will be able to enact his regulation and tax reform policies. In the UK, the recent election result added further layers of uncertainty to the economic and political outlook. The focus has now moved onto the Brexit talks where the increasingly complex process is likely to impact negatively on business and consumer confidence. In this uncertain environment the Scheme is increasingly looking to diversify the sorts of assets it holds. The historic focus on listed equities and bonds which has served the Scheme well in the past looks unlikely to deliver the same sorts of returns. In the matched portfolio the Scheme has increased its exposure to privately negotiated and tailored loans with strong covenants to secure institutions and companies including Oxford colleges, housing associations, established investment trusts and infrastructure companies. In order to enhance the Scheme s returns it is also increasing its commitment to alternative assets. These include wind and solar farms, water treatment facilities, energy, utility and transportation infrastructure, European student housing, private equity and financing for a variety of small and medium sized companies in the US and Europe. Overall, these alternative assets continue to generate strong, positive returns for the Scheme. Asset allocation The net asset allocation of the Scheme is shown below: Spread of investments at BAE Systems section Airbus section UK Equities 23.1% 22.8% Overseas Equities 17.6% 17.7% Corporate Bonds 6.3% 6.3% High Yield Bonds 2.0% 2.0% Best Ideas Fund* 3.1% 3.0% Unquoted 10.2% 8.9% Property 7.7% 7.1% Cash and Other Assets 1.2% 3.6% Matching Assets** 28.8% 28.6% Total 100% 100% * The Best Ideas Fund is a concentrated portfolio, consisting of UK, North American and European equities, offering a higher return equity vehicle. ** Matching Assets consists of long dated Government bonds, index linked bonds and inflation and interest rate swaps. Matching assets are designed to generate a return based on estimated future pension payments. The variance in asset allocation between the BAE Systems and Airbus sections can be attributed to Airbus having paid additional deficit funding contributions during the scheme year and the timing of investment of those contributions. BAE Systems Pension Scheme Annual Review for Pensioners

6 Investment performance BAE Systems section 1 Year 3 Years to 5 Years to 10 Years to Scheme total performance (see note 1) 20.01% 10.50% 9.92% 7.39% Scheme performance excluding unquoted and matching assets 22.83% 10.41% 10.56% 7.35% Performance benchmark (see note 2) 23.34% 11.04% 10.43% 7.11% Airbus section 1 Year 3 Years to 5 Years to 10 Years to Scheme total performance (see note 1) 19.96% 10.48% 9.91% 7.38% Scheme performance excluding unquoted and matching assets 22.71% 10.37% 10.54% 7.34% Performance benchmark (see note 2) 23.34% 11.04% 10.43% 7.11% Notes: 1. The Scheme total performance figures shown include unquoted and matching assets. There is no benchmark comparison shown against these figures. This is because: (i) unquoted assets are highly illiquid and do not have an active market against which a benchmark performance can be assessed; (ii) matching assets are designed to generate a return based specifically on the Scheme s estimated future pension payment profile. Consequently, there is no benchmark performance against which these matching assets can be assessed. 2. The performance benchmark shown should be compared to the figures shown under Scheme performance excluding unquoted and matching assets. The reasons that unquoted and matching assets are not included in the benchmark are shown under Note 1 above. 3. The figures on this page exclude AVCs, Level 100+ Retirement Accounts, and DC Retirement Plan investments. 4. The variance in investment performance between the BAE Systems and Airbus sections reflects the asset allocation shown on page 5. Scheme assets increased by more than 20% during the period under review. 6 BAE Systems Pension Scheme Annual Review for Pensioners 2017

7 Useful information 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 Pensions Service Centre. 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. Actuarial Valuation Report Includes details of the Scheme s financial situation at 31 March Annual Funding Update Includes an estimate of the Scheme s financial position at 31 March Pensions Service Centre update ID security checks When contacting the Pensions Service Centre by telephone or , you will need to satisfy an ID security check before any personal information is released. You will need to provide three pieces of personal information from the list below: At least one of the following mandatory pieces of information: > Member number > Payroll number > National Insurance number The remaining pieces of information must be from the following: > Password (if set up) > Date of birth > Full name > Full address, including postcode > Full scheme name BAE Systems Pension Scheme Annual Review for Pensioners

8 For more information visit BAE Systems Pensions website w: Copyright 2017 BAE SYSTEMS. All Rights Reserved. BAE SYSTEMS is a registered trade mark of BAE Systems plc TC3109aa.123