Pension & Life Assurance Scheme. Pensions update

Transcription

1 Pension & Life Assurance Scheme Pensions update December 2017

2 Chairman s welcome message Welcome to the 2016/17 abbreviated Trustees Report on the Scottish Enterprise Pension & Life Assurance Scheme (the Scheme ). As in previous years, full details of the Scheme s finances are available in the formal Trustees Report & Accounts as at 31 March However, in this summary I aim to highlight the main points and provide some useful information. The financial year 2016/17 and the period since the year end have been very busy. The main Scheme administration and advisory appointments were again subject to open market competitive tender. The Scheme actuarial and administration services were retained by Hymans Robertson, continuing the dedicated support from their original appointment in the 1990s. The previous Scheme investment advisers, Mercer, were however unsuccessful in their tender and have been replaced by KPMG. We thank Mercer for their valuable work over the last 7 years and welcome KPMG. Although many ms of employee and employer contributions are paid into the fund each year, the healthy funding position of the Scheme (see page 4-5) is very dependent on the success and stability of the Scheme investments. We are, therefore, most grateful to Mercer for their advice and guidance in getting us to, and keeping us in, a healthy investment position. 31st March 2017 was also the effective date for the Scheme s three yearly actuarial valuation. Although the Scheme s funding position is monitored on a regular basis, indeed this can be done daily if required, a formal valuation is undertaken every three years for regulatory and contribution setting purposes. INSIDE THIS REPORT: Chairman s welcome message Update on pension issues Scheme finances Update on the Scheme s funding position The valuation calculations were completed very promptly and agreed at the Trustee Meeting in September. Whilst the recent further reduction in long term interest rates and, hence, future investment returns has put pressure on the cost of future benefits, I m pleased to report that the Trustees and Scottish Enterprise have agreed only a slight change to the ongoing contributions. Employee contributions remain the same (mostly administered via Pension Salary Exchange) and employer contributions have been revised as part of the actuarial valuation to 18% of salaries (increasing to 20% from April 2021). This small reduction was only possible because of the excellent recent investment performance of Scheme funds and the protection introduced to shield the scheme against the effects of inflation and interest rates. Further details are given on page 6. Other work over the coming months will be dominated by the introduction of more benefit options at retirement, further refinements to the scheme investments and ensuring that the scheme is fully prepared for the new data protection regulations in May Finally, please note that we have again included an expression of wish 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. Forms can also be accessed on the Scheme website, If you have any thoughts or feedback on how the current procedure for submitting your expression of wish form (e.g. confidentiality), or any other areas of Scheme administration, could be improved please get in touch with the administrator. You will find their details in the Useful information section. Sincerely, Who looks after the Scheme? Useful information Allan Martin Chairman 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 KEEP IN TOUCH Please help us to keep in touch with you by telling the administrator if you change address and providing an address if you have one. Contact details can be found on page 8. 2

3 Update on pension issues The following is a summary of recent changes impacting pension provision in the UK PARTIAL TRANSFERS Due to the changes introduced by the 2014 Budget, if you have not yet retired, you now have the freedom to transfer your pension pot to a defined contribution (DC) arrangement to take advantage of the increased flexibility to draw down your pension savings as you choose. As a member of the Scheme, you have the option of transferring your benefits in full, or only taking a partial transfer. This lets you transfer a proportion of benefits to a DC arrangement, with the remainder being retained within the Scheme. Please be aware that if, the total value of your benefits is over 30,000, you will be required by law to seek appropriate independent financial advice before transferring your DB benefits to a DC arrangement. PENSION LIBERATION SCAMS The Pensions Regulator (TPR) 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. Information on where to find financial advice is provided on page 8. NEW TOOLS TO AVOID PENSION SCAMS Relating to the above, TPR has introduced several new tools as part of its scorpion campaign to help savers avoid pension scams. TPR is helping savers spot the danger signs of a scam in a range of new resources including: new videos for savers alerting them to typical scammer tactics and the devastating consequences for scam victims; an online scam-spotting tool for savers considering investing their pension pot; and a quick five-step guide to help savers protect themselves with practical tips and questions to consider. Please visit press/pn17-10.aspx to access these tools. LIFETIME ISA An alternative approach for retirement saving for younger people, known as the Lifetime ISA, was introduced as part of the 2016 Budget. Lifetime ISAs are available to those aged between 18 and 40. You can invest a maximum of 4,000 per year until you re aged 50. The Government will add a 25% bonus to your savings, up to a maximum of 1,000 per year. Tax free withdrawals are available to put towards the purchase of a first home or from age 60 for retirement purposes. Restrictions apply to withdrawal in other circumstances. For more details, visit YOUR PENSION ONLINE As you may be aware, the Scheme s website, known as the pensionsweb portal, has now been launched for all members of the Scheme. Members can visit for basic Scheme information, forms and important documents, to update personal details and much more. If you are an employee member, you can access your annual benefit statement and a handy tool that shows your pension/ cash lump sum options. CHANGES TO STATE PENSION AGE As you may know, the State Pension Age (SPA) has been increasing. The Department for Work and Pensions (DWP) has published a report confirming that it intends to increase the State Pension Age to 68 between 2037 and 2039, seven years earlier than currently scheduled. The State Pension Age is currently 65 for men and is gradually increasing to 65 for women. From 2019, this will start to increase for both men and women to reach 66 by 2020 and 67 by PENSIONS DASHBOARD The Government has announced that they will ensure that the pensions industry launches an online pensions dashboard by The dashboard will allow you to view all of your pension savings in one place, including what you ve saved so far and what it might be worth in the future. For more details, visit PENSION SCHEMES & THE GENERAL DATA PROTECTION REGULATION (GDPR) The EU s GDPR will (despite Brexit) replace the UK s existing data protection legislation on 25 May The new regulations mean that members of the Scheme will have enhanced rights of access to their personal data, and new rights of erasure ( the right to be forgotten ) and data portability. In summary, this will provide you with more fairness and transparency in how your data is used. The Trustees are currently preparing for this change. 3

4 WHAT DO WE MEAN? INVESTMENT TERMS EXPLAINED... 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. 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. Emerging market equities These are funds that invest the majority of their assets in the financial markets of developing countries. 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. 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. Liability driven investments This is used to describe a range of investment approaches that are designed to help schemes reduce the volatility of their funding level by addressing interest rate and inflation risks. Multi-asset credit This is a portfolio that consists of predominantly credit related assets. It includes allocations to investment and non-investment grade bonds, loans, emerging market debt and asset backed securities. Cash Cash is a short term investment that provides a return in the form of interest payments. 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. Private equity Private equity consists of equities in companies that are not publicly traded on a stock exchange. 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. Scheme finances MONEY IN AND OUT OF THE SCHEME Amount of money in the Scheme at 31 March 2016: ( 000s) 653,651 What came in (total): 37,636 Investment income received 25,138 Contributions from employer and employees and other income 12,498 What went out (total): 23,528 Benefits payable to pensioners and payments to leavers 21,441 Investment Management Expenses 1,235 Administration and consulting fees 852 Increase in value of investments 118,048 Amount of money in the Scheme at 31 March 2017: 785,807 Note: the figures may not total exactly due to rounding. SCHEME ASSETS As at 31 March 2017, the Scheme s target asset allocation was as follows: 45.0% UK equities Global equities Emerging market equities Private equity 5.0% 5.0% 5.0% 9.0% 7.5% 20.0% Diversified growth funds Government bonds and liability driven investments Multi-asset credit Property 3.5% The aim of the Government bonds and liability driven investments is to match around 50% of the sensitivity of liabilities to interest rates and inflation. There was one change to the investment strategy over the 12 months to 31 March The allocation of emerging market equities, managed by Stewart Investors, was increased from 2.5% to 3.5% and the allocation to developed global market equities, managed by BlackRock, was correspondingly decreased from 10.0% to 9.0%. 4

5 INVESTMENT UPDATE The Scheme s investments (excluding private equity assets) returned 19.5% over the year to 31 March 2017 against a benchmark of 18.8% (net of fees). The key contributors of this relative outperformance came from the Baillie Gifford diversified growth and CQS multi-asset credit fund. Despite the surprise result from the UK s referendum at the start of the period, most major equity markets posted positive returns, with emerging markets also performing strongly as economic conditions appeared to stabilise. Following a strong 2016, the first quarter of 2017 again saw broadly positive returns on both growth and defensive assets. This was, in part, due to a reversal of the Trump trade as sectors that had initially lagged following Trump s election victory outperformed and vice versa. 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 that there is continued support for the Scheme and, on this basis, feel that the likelihood of the Scheme s not being able to continue is small. The Trustees continue to review the Scheme s investment structure and risk profile on a regular basis. INVESTMENT PERFORMANCE Year ending 31 March Years ending 31 March 2017 Scheme return % p.a. Benchmark return % p.a. Scheme return % p.a. Benchmark return % p.a MEMBERS IN THE SCHEME March ,186 1,210 1,197 March ,139 1,160 1,261 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? A full valuation has been carried out as at 31 March This showed the funding position was approximately 107% and means that, as at 31 March 2017, the Scheme had more than enough money to pay benefits. LATEST INFORMATION At the time of the previous full valuation 31 March 2014, the funding position was approximately 109%. The main reason for the deterioration of the funding position since the valuation in 2014 is the experience in financial markets 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. As part of the 2017 actuarial valuation, a revised schedule of contributions will be implemented. This will set out that, from 1 April 2018, Scottish Enterprise have agreed to make contributions of 18% of pensionable pay into the Scheme for the ongoing cost of benefits (increasing to 20% from 1 April 2021). In setting the contribution rate, we take account of the Scheme s funding position, investment strategy and the strength of Scottish Enterprise. Currently, Scottish Enterprise makes contributions of 20% of pensionable pay into the Scheme. As a member of a defined benefit pension arrangement, this reduction doesn t change the amount of pension you will get. Scottish Enterprise remains fully committed to supporting the Scheme. 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 affairs of the Scheme. FREQUENTLY ASKED QUESTIONS How is my pension paid for? Every four weeks you pay 6% of your salary into the Scheme via Pension Salary Exchange. Scottish Enterprise also makes a contribution of 20% 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 this 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 1,138m 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. You can also 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) Allan McQuade David Smith Derek Ballantyne Douglas Colquhoun Jan Robertson Jim Watson Member nominated Alan McLeod Bryan Stewart Linda Ellison Stuart Andrew Clarke 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 (reappointed on 1 July 2017) Auditors BDO LLP Scheme Actuary Calum Cooper of Hymans Robertson LLP Investment Consultant Mercer Limited (ceased on 1 July 2017) KPMG (appointed on 1 July 2017) Investment Managers Baillie Gifford & Co Standard Life Investments Stewart Investors BlackRock Investment Managers Pantheon Ventures Ltd M&G Investments CQS (UK) LLP Quoted Private Equity Trusts Pantheon International PLC Standard Life Aberdeen PLC Insurers Aviva PLC Legal Advisers Burness Paull LLP Bankers Bank of Scotland 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 Scheme website: The scheme booklet giving an overview of the Scheme. The partial retirement explanatory booklet. The Annual Report and Accounts of the Scheme giving a detailed breakdown of the Scheme s finances. The following documents can be requested from the Scheme administrators: The Scheme Actuary s full report on the actuarial valuation of the Scheme as at 31 March The 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. SCHEME WEBSITE Pensioner members can visit for basic Scheme information, forms and important documents, to update personal details and much more. For active members, Scheme information can be found on the Scottish Enterprise intranet. 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. 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