November Members Annual Report 2012

Transcription

1 November 2012 Members Annual Report 2012

2 2 Members Annual Report For members of Pace Inside Welcome 3 Running Pace 4-5 Introducing the new Pace 6-7 Automatic enrolment 8 Pensions update 9 Introducing our new website Looking after your pension Our accounts 14 Who s in Pace? 15 Our investments Summary Funding Statement Get in touch 24 Help for visually impaired members A large print version of this report is available on the Group s pensions website, An audio recording is available on request from the Group Pensions team on

3 Members Annual Report For members of Pace 3 Welcome Welcome to the members annual report 2012 from the Trustees of Pace. This report is sent to all contributing and pensioner members of Pace, the Co-operative Group s career average earnings pension scheme. Pace is now the Group s only open pension vehicle, as following a period of consultation, the Group s smaller pension schemes have been closed and their members have been invited to join Pace. The new Pace pension scheme is explained in more detail on pages 6 and 7. If you are a contributing member of Pace, your annual pension estimate is enclosed with this report. The annual pension estimate tells you what you have built up and gives you an idea of the pension you could have in Pace. This members report provides a broader picture about the scheme in general: showing how Pace intends to be able to pay for your and every other member s pension over the next 40, 50 or even 60 years! The Trustees continue to focus on investments, in what remains a very difficult economic period. You can find out more about our investments on page 16. Every three years, our actuary completes an actuarial valuation, which is a way of measuring the financial strength of Pace. The summary funding statement starting on page 18 gives you the latest update from the actuary. Pace was nominated for several awards this year, including the Awards for Excellence in Institutional Pensions UK 2012, where the Group was named Scheme Sponsor of the Year. This award recognises the company that has shown the most support and commitment to good pension provision for its workforce. Pace was also shortlisted in the Professional Pensions Awards in four categories, winning the award for Best Defined Benefit Scheme Communications. On page 9, you ll find a round-up of some of the pension topics that have been making the headlines during the year, and how they may affect your retirement plans. The Trustees of Pace

4 4 Members Annual Report For members of Pace Running Pace Introducing our Trustees Pace is looked after by a Trustee Board made up of 14 directors. The Trustees are responsible for making sure that Pace is managed well, that it complies with pensions law, and that it is able to pay members benefits as they fall due. Each Trustee has a legal responsibility to act in the best interests of all members at all times, and not to favour one group of members over another. The Trustee Board is made up of seven Trustees appointed by the Co-operative Group, four Trustees appointed by contributing members of Pace, two appointed by pensioners, and one independent Trustee who is appointed by the other Trustees. Back row left to right: Wayne Lee - Interim Group HR Director (appointed by the Group) Len Wardle - Chair, Co-operative Group (appointed by the Group) Andrew Shepherd - Employee Relations Manager, Co-operative Banking Group (elected by our contributing members) Paul Flowers - Chair, Co-operative Banking Group (appointed by the Group) Clive Gilchrist - BESTrustees plc (Independent Trustee)

5 Members Annual Report For members of Pace 5 John Buckingham - appointed 21 September 2012 (elected by our pensioner members) John Corcoran (elected by our pensioner members) William Turton - Delivery Driver, Co-operative Group (elected by our contributing members) Andrew Lang - Director of Financial Planning & Analysis (appointed by the Group) Front row left to right: Martyn Hulme - Managing Director Co-operative Estates (appointed by the Group) Liz Bramley - Head of Employee Engagement & Diversity (appointed by the Group) David Davies (Chair) - Board Director, Co-operative Banking Group (appointed by the Group) Linda Edwards - Function Leader, Change Delivery, Co-operative Banking Group (elected by our contributing members) Kevin Sullivan - HGV Driver, Co-operative Group (elected by our contributing members) Neil Braithwaite - left the Board 30 June 2011 Andrew Russell - left the Board 30 November 2011 Frank Nelson - left the Board 21 September 2012 Changes to the Trustees Neil Braithwaite and Andrew Russell, both Employer Nominated Trustees, left the Board in We thank Andrew and Neil for their contribution to the Board and welcome Martyn Hulme and Andrew Lang as their respective replacements. Following a ballot of pensioner members, John Buckingham was elected to the Pensioner Member Nominated Trustee Director position on 21 September 2012 when Frank Nelson s term of office ended. We thank Frank for his dedication and contribution to the Board. Compliance statement The Trustees have reviewed the effectiveness of the controls in place to manage risk. A wide range of controls are in place to make sure that Pace meets legal requirements and best practice standards, while providing a high quality service to all members. The controls were also reviewed as part of the annual audit of Pace by our independent auditor, Deloitte (see page 14 for details).

6 6 Members Annual Report For members of Pace Introducing the new Pace : flexible and fair In last year s report, we told you that the Group was proposing to make some changes to the pensions available to its employees, so that it could offer a flexible and fair pension to all staff. After consulting with employees in 2011, the Group decided to go ahead with the proposed changes, which happened in October Getting to that point was a mammoth task for the Group Pensions Department and the Trustee Board. A special Trustee sub-committee was set up to oversee the project, which included the following elements: PACE was renamed Pace Complete and this is the defined benefit section of the Group s pension arrangement. Member contribution rates increased. For contributing members of Pace as at 31 December 2011, their contributions will increase to 7% of Pay from October 2012 and to 8% of Pay from October For all other contributing members of Pace, their contributions will increase to 8% of Pay from October Two defined contribution sections (Pace Essential and Pace Extra) were set up. Pace Essential is the low cost option that the Group will use to fulfil its automatic enrolment responsibilities from October 2012 (see page 8); eligible employees will be enrolled in this section if they meet certain conditions set by the Government. Employees can switch to Pace Extra if they want improved benefits. They will also be able to join Pace Complete once they have completed two years of continuous service with the Group.

7 Members Annual Report For members of Pace 7 Legal & General was appointed to administer the defined contribution sections of Pace. This followed a lengthy review by the Trustees. Around 6,500 members of the Co-operative Group s other pension schemes joined Pace from October At the same time as all this was happening, the Group and Trustees also had to plan ahead for automatic enrolment, which makes it a legal requirement for employers to put their workers into a pension scheme if they meet certain conditions. The Group has had to tell existing pension scheme members about the changes, and also the employees who are not currently in a Group pension scheme. You can read more about automatic enrolment, and what it means for you as a Pace member, on the next page. The planning and preparation for all these changes has been about two years in the making. The Trustees would like to thank everyone who has been involved from the Group, Group Pensions Department and the Trustee Board for their hard work over this time, and for the successful way that these changes have been implemented. What does defined contribution and defined benefit mean? Defined contribution: Your pension is based on the contributions paid into your account, investment returns and the amount of pension you can buy with your account when you come to retire. Defined benefit: Your pension is linked to your Pay and the length of time you have been in the scheme. Your contributions are pooled with those paid by other members, and the Group and Trustees are responsible for making sure there is enough money to pay all the benefits promised. If you are a pensioner, these changes will not affect you but you may well find yourself receiving newsletters in the future that look a little different, and will refer to Pace Complete rather than just PACE.

8 8 Members Annual Report For members of Pace Automatic enrolment what does it mean? As you are already a member of Pace, you will not be affected by the introduction of automatic enrolment, but here is a quick summary. The Government has introduced a new law that says all employers must automatically enrol eligible employees into a workplace pension scheme. We will shortly be enrolling employees into Pace if they: are not already members of Pace; earn over 8,105 a year; and are between age 22 and State Pension Age. The Government has set minimum standards and contribution levels which all employers must meet. The Pensions Regulator is responsible for ensuring employers meet these requirements ( The Group is committed to providing a high quality workplace pension for all our employees, and makes contributions that are higher than the minimum amounts required by the new law. If, in the future, the Group changes the way that it fulfils its automatic enrolment requirements, and you stop being a member of Pace as a result, the Group must at the very least continue to use a workplace pension scheme that meets the Government s criteria. Want to know more? You can find out more about Pace and the options available to you on the pensions website for Group employees: More general information on pensions, automatic enrolment and saving for retirement can also be found on the Directgov website: Important Remember, if you re a contributing member of Pace Complete and you decide to leave Pace Complete (stop paying contributions), you will not be allowed to rejoin Pace Complete in the future. Instead, you will be able to join Pace Essential or Pace Extra. Furthermore, if you meet the Government s conditions for automatic enrolment, the Group will automatically enrol you into Pace Essential, approximately three years after you leave Pace Complete. You will be able to opt out again.

9 Members Annual Report For members of Pace 9 Pensions update Protect your pension don t be scammed Pension scheme members are being warned to steer clear of offers that claim to be able to provide loans or release tax-free cash from people s pension pots before they reach age 55. The Pensions Regulator has recently detected an increase in these offers, and urges members to not be taken in by website promotions, cold-calls or adverts encouraging them to transfer their existing occupational or private pension to a new arrangement in order to access a cash payment or loan. Single-tier State pension The Government has proposed that a flat-rate State pension, initially worth 140 a week for those with a 30-year National Insurance record, will be introduced from This will replace the current basic State pension and the Second State Pension (S2P, formerly known as SERPS). The flat-rate pension will only apply to those retiring after implementation in 2016; pensioners already receiving the State pension will not move onto the new scheme. These proposals continue to be reviewed by the Government and are not yet finalised. Age-related personal allowances frozen The Government is proposing to freeze the existing age-related personal tax allowances from 2013, and to withdraw these allowances entirely for people turning 65 next year. The current age-related personal tax allowance is 10,500 for people aged 65-74, and 10,660 for people aged 75 and over. This means that any income you earn up to this level (including personal pensions and State pensions) is paid tax free (as long as you earn less than 25,400 a year). The Government is proposing to freeze the allowances at these levels from April From April 2013, people turning 65 will no longer qualify for the higher rate of 10,500 a year. Instead, they will continue to qualify for just a standard personal allowance, which will have risen in line with inflation to 9,205 by then.

10 10 Members Annual Report For members of Pace Introducing our new website Everything you need to know about Pace is available on our new website, The site, which went live in October to coincide with the launch of automatic enrolment in the Group, has lots of information, including short videos, to help you understand how your pension builds up in Pace. You can go online to: Start paying AVCs or change your AVCs Obtain a nomination form to indicate who you would like to receive your lump sum benefits in the event of your death. You can find out more about Pace by clicking on Documents. This area of the website contains: Members guides (available as interactive e-guides see box right) Factsheets, giving you more information about various topics, including AVCs, NICE Pensions, and pensions tax rules Annual reports A copy of the Pace Rules.

11 Members Annual Report For members of Pace 11 E-guides For the first time, the member guides are available online as interactive documents called e-guides. If you download a guide onto your computer, it will open up as an interactive PDF. Instead of scrolling down page by page, as you do in a normal PDF, the e-guide allows you to use your mouse to click through to the page you are interested in. You can either click to a specific page using the coloured page numbers on the left, or go to the contents page and click on any of the headings. You can also click on links in the text, for example to open up a specific form that is mentioned in the text. Legal & General website Legal & General, the company that has been appointed by the Trustees to administer the defined contribution sections of Pace, has set up a website for members of these sections of Pace. This can be found at:

12 12 Members Annual Report For members of Pace Looking after your pension what can YOU do? Think about paying in more Being a member of Pace Complete is a good way to save for your retirement. Not only does it help you build up a pension in a tax-efficient way (so it costs less than it might otherwise), but also the Group pays into your pension. Even so, you need to think about whether the pension that you are building up in Pace will allow you to live the retirement you want. One way of boosting your pension is by paying Additional Voluntary Contributions, or AVCs. These are contributions you can make over the standard rate that you pay into Pace. Your AVCs build up in a defined contribution account, and you can choose to invest them in a range of funds with the aim that the money you pay in grows over time. When you retire, you can use the money in your AVC account to buy extra benefits. Under current tax rules, you can take up to 25% of the value of your pension (including AVCs) as a tax-free lump sum. If you are already paying AVCs to the Co-operative Insurance Society Limited, you can continue to do so. However, as part of the changes to Pace, the Trustees have appointed Legal & General to invest members AVCs. If you decide to pay AVCs for the first time, they will automatically be invested with Legal & General. To find out more about paying AVCs, please take a look at the pensions website: You can access the Start AVCs form on the website.

13 Members Annual Report For members of Pace 13 Consider the switch If you were a former member of Co-operative Group Pension Fund (Group Fund), you can increase your Pace pension by becoming an Option B member. Before April 2006, most members of the Group Fund paid pension contributions on their pensionable pay less a deduction for the Lower Earnings Limit (currently around 5,564); these are classed as Option A members. When Pace was introduced in 2006, members were given the option to build up pension based on their full pensionable pay with no reduction, which means that while they contribute more they also build up more benefit; these are classed as Option B members. Over 1,900 members have taken advantage of the opportunity and switched to Option B, but if you haven t, please contact the Group Pensions team for more information. Please note: All other Pace members already contribute on their full pensionable pay with no deduction for the Lower Earnings Limit. Keep in touch It s important to tell the Group Pensions team if you move house or if any of your personal details change (eg, if you marry or enter into a civil partnership). This information helps us to run Pace efficiently and also ensures that, when the time comes to pay benefits from Pace, we can do so without any delays.

14 14 Members Annual Report For members of Pace Our accounts Fund value as at 6 April ,133m Money in Employers contributions 75m Members contributions 4m Special contributions 24m Members AVCs 4m Net return on investments 708m Total income 815m The expert view Deloitte, our independent auditor, has carried out an audit of the Pace accounts for the year ending 5 April They have confirmed that the accounts give a true and fair reflection of the Scheme s finances. Money out Pensions paid 181m Lump sum payments 30m Leavers/transfers paid 12m Other 4m Total expenditure 227m Fund value as at 6 April ,721m

15 Members Annual Report For members of Pace 15 Who s in Pace? Pace looks after the benefits of over 90,000 members. This includes members who are currently working for the Group ( contributing or active members), members who are receiving a pension from Pace ( pensioner members ), and members who have stopped working for the Group, or who have opted to stop paying contributions, but have left their pension in Pace to take when they retire ( deferred members ). We re getting bigger! By 2013, we expect Pace membership to have grown to well over 100,000! This is because of new members joining up through automatic enrolment and also as a result of the closure of the Group s other pension schemes. Membership as at 5 April 2012 Active members 12,482 Deferred members 40,314 Pensioners 37,257 You can download a copy of the Trustee s full report & accounts from the pensions website ( or request one from the Group Pensions team (see page 24).

16 16 Members Annual Report For members of Pace Our investments Investing the assets is a very important part of managing Pace, and the Trustees spend a great deal of their time on how the fund is invested. The Trustees set out Pace s investment strategy in a document called the Statement of Investment Principles. With the help of their investment consultant, they review the strategy regularly to ensure it remains appropriate for the Scheme s needs. The Trustees believe they should focus on growing Pace s assets by investing them, without exposing the members and the Group to unacceptable levels of risk. They have appointed 16 specialist managers to invest Pace s assets across a range of investment types, including company shares, property, government bonds and company bonds. Spreading the investments in this way helps to protect Pace against a sudden fall in one area of the market or underperformance by a particular manager. Investment spread The assets in Pace were invested across the following investment types at 5 April 2012: Shares 31.5% Liability driven investments 29.1% Bonds 21.1% Alternative growth assets 13.7% UK property 4.6%

17 Members Annual Report For members of Pace 17 How have the Pace investments performed over the period to 5 April 2012? Over the year to 5 April 2012, Pace assets increased by 588 million. One year 12.4% 11.9% Three years 15.0% 12.6% One year Three years Pace return 12.4% 15.0% Benchmark 11.9% 12.6% Want to know more? The pensions website, has a lot more detail about how the Trustees manage our investments.

18 18 Members Annual Report For members of Pace Summary funding statement Why should I read this? The summary funding statement is an important document sent to Pace Complete members by the Trustees of Pace, once a year. We are including this statement to tell you about the financial security of Pace Complete. We will send you a similar statement each year to update you on this important subject. This statement is based on the results of the last formal actuarial valuation of Pace and the annual updates we receive from the Actuary, an adviser to the Trustees. How is financial security of Pace measured? Every three years, the Actuary carries out an in-depth look at the finance of Pace. This is called an actuarial valuation. The Actuary also carries out less detailed but more regular annual check-ups on the scheme s financial position. When this is completed we receive an actuarial report, which summarises the Actuary s findings. The estimated cost of providing the benefits that you and other members have earned to date is known as Pace s liabilities. This includes the benefits of members who have left employment but whose pension is still in Pace, and members who have retired.

19 Members Annual Report For members of Pace 19 We collect money ( contributions ) from active members and from the Co-operative Group (the Group ). This money is added to previous contributions paid in, and is invested to provide your benefits. The money is held in a communal fund, not in separate funds for each individual (with the exception of members Additional Voluntary Contributions). The amount of money we have invested is known as Pace s assets. To check the financial security of Pace, the Actuary compares the value of its liabilities to its assets. If the assets of Pace exactly match its liabilities, it is said to have a funding level of 100%. If the assets are greater than the liabilities, Pace s funding level can be higher than 100% in which case it is said to have a funding surplus. However, at the moment, most defined benefit pension schemes in the UK have a funding shortfall. This is where the scheme s assets are lower than the liabilities and the funding level is reflected as a percentage below 100%. So, going by the results of the last actuarial valuation in 2010, the assets of Pace were enough to cover around 96% of the benefits that had built up in the Scheme at that date. 5 April 2010 (valuation) 5 April 2012 (update) Money invested in Pace excluding AVCs (assets) 5,827m 6,680m Money needed to provide all the benefits (liabilities) 6,075m 7,497m Surplus or (shortfall) ( 248m) ( 817m) Funding level 96% 89%

20 20 Members Annual Report For members of Pace Summary funding statement How has the funding position of Pace changed? In the last summary funding statement, we reported that Pace s shortfall was estimated to be 248m and the funding level was 96%. This was based on the results of the 2010 actuarial valuation. Between 5 April 2010 and 5 April 2012, Pace s financial position worsened despite better-than-expected investment returns, because of falling gilt yields (Government bonds), which increases the value placed on the liabilities. What is being done about the shortfall? The Trustees have agreed a recovery plan with the Group to improve Pace s finances over a period of time. The aim is to remove the shortfall by March To do this, the Group has agreed to pay an additional contribution of 20m a year, from 1 April 2011 until 31 March These extra payments are on top of the Group s regular contributions (see below). To calculate the recovery plan, assumptions have to be made about what will happen in the future, for example, the rate at which Pace s assets will grow. If the assumptions do not all turn out to be exactly right, the Group may need to pay in more, if the shortfall is still to be paid off by March The Trustees keep the recovery plan under review and a new plan will be drawn up with the agreement of the Group following the next actuarial valuation, due at 5 April Although Pace has a shortfall, all members who have retired have continued to receive the full amount of their pension.

21 Members Annual Report For members of Pace 21 Payments to the Group By law, we must say in this statement if there have been any payments to the Group out of Pace in the last 12 months and we can confirm that there have not. Is my pension guaranteed? Our aim is for there to be enough money in Pace to pay pensions now and in the future, but this depends on the Group carrying on in business and continuing to pay for Pace. If the Group goes out of business or decides to stop paying for Pace, it is expected to pay Pace enough money to buy all the benefits built up by members from an insurance company. This is known as Pace being wound up. The comparison of Pace s assets to the cost of buying the benefits from an insurance company is known as the solvency position. Is there enough money in Pace to provide my full benefits if Pace was wound up? The actuarial valuation at 5 April 2010 showed that Pace s assets could not have paid for the full benefits of all Pace Complete members to be provided by an insurance company if Pace had wound up at that date. The liabilities if Pace were to be wound up were estimated to be The assets of Pace were 6,823m 5,827m This means that there was an estimated shortfall of 996m The fact that we have shown the solvency position does not mean that the Group is thinking of winding up Pace. Indeed, the Group has shown that it has a strong commitment to maintaining Pace. Pace aims to have enough money to pay pensions and other benefits to members as they fall due, rather than having to pay an insurance company to provide the benefits, which can be very expensive.

22 22 Members Annual Report For members of Pace Summary funding statement What would happen if Pace was wound up and there was not enough money to pay for all my benefits? If Pace Complete was wound up without enough money to buy all the benefits with an insurer, then, unless the Group can afford to pay the difference, you would be unlikely to receive the full benefits you were expecting. To help members in this situation, the Government set up the Pension Protection Fund (PPF) in The PPF pays a legally defined level of benefits to members of eligible UK pension schemes which are wound up when the scheme does not have enough money to cover the cost of buying this level of benefits for members with an insurer and the company is insolvent and so cannot provide extra finance. The pension you would receive from the PPF depends on your age and when your benefits were earned. Further information and guidance is available on the PPF website at Or you can write to the Pension Protection Fund at Knollys House, 17 Addiscombe Road, Croydon, Surrey CR0 6SR.

23 Members Annual Report For members of Pace 23 Where can I get more information? If you have any other questions, or would like any more information, please visit the pensions website: or contact the Group Pensions team (see contact details on page 24). Remember, if you are thinking about leaving Pace, or transferring your benefits, you should speak to a professional financial adviser about your options. You can find one in your area on this website: The Pensions Regulator The Pensions Regulator is responsible for regulating work-based pension schemes in the UK. Its aims include protecting members benefits and promoting good scheme administration. You can find more details on the website at www. thepensionsregulator.gov.uk We need to tell you if the Regulator has used its powers in relation to Pace over the last year, for example by changing the way future benefits build up, or the way the funding target is worked out, or amending the employer contribution rate. We are pleased to confirm that the Regulator has not used its powers in relation to Pace over the last year.

24 Get in touch Phone us Pensioners (local rate) All other members (local rate) Call charges to 0843 numbers from landlines and mobiles vary and you may want to check this charge with your service provider. Write to us The Co-operative Group Pensions Department PO Box 53 New Century House Manchester M60 4ES us Find us online Please note: Benefits are determined by the Pace Rules. If there is any conflict between any information in this members annual report and the Rules, the Rules (as amended from time to time) will be overriding. If you have any questions or would like a copy of the Rules, please contact the Group Pensions team. Printed with chlorine-free, vegetable-based inks on FSC (Forestry Stewardship Council) grade paper