Journey. Shipbuilding Industries Pension Scheme. Annual Review 2017 for in-service and deferred members

Transcription

1 Journey Shipbuilding Industries Pension Scheme Annual Review 2017 for in-service and deferred members

2 Welcome Welcome to Journey, the Trustee s 2017 annual review of the Shipbuilding Industries Pension Scheme ( the Scheme ). I hope that you find it an informative read. If there is anything you would like to see covered in a future issue, please get in touch 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. Richard Shackleton, the Scheme Actuary from Hymans Robertson, comments further on page 5. On pages 6-8, John Walbaum of Hymans Robertson who also manage 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. On pages 9-12, we touch on the latest pensions news, covering topical issues and developments that may interest you. In this section, we remind you of the role of the Local Pension Committees and also include an article on some of the factors that members leaving the Scheme and members proposing to take a transfer out should consider before taking any action. Finally, my term of office as Chairman has now come to an end. It s been a pleasure fulfilling the role during the last two years and I now hand over the reigns to Ian Hancock. It is important that within this Annual Review we provide you with information that you find useful, so if there is anything that you would like to see covered in a future issue, please get in touch using the contact details on page 15. Dave Cole Chairman of the Trustee 2 Shipbuilding Industries Pension Scheme Annual Review 2017

3 What s inside 4 Who s in the Scheme? 5 Money in and money out 5 Funding update 6 Investment update 9 Pensions news 13 Defined contribution pensions round-up 14 More information 15 Getting in touch Trustee Directors and Advisers The Scheme s Trustee Directors: Tina Bailey Chris Baker Dave Cole (Chairman)* Ian Hancock James McMillan* Joseph O Gorman* Harold Samms* David Tindall *Member Nominated Trustee The Scheme s Advisers: Actuary Richard Shackleton, Hymans Robertson LLP Auditor Grant Thornton UK LLP Legal Advisers Linklaters LLP Investment Consultant Hymans Robertson LLP For a copy of the full Annual Report and Financial Statements, please contact the Shipbuilding Industries Pension Scheme (SIPS) team (see page 15) Shipbuilding Industries Pension Scheme Annual Review

4 Who s in the Scheme? At the end of March 2017 the Scheme had a total of 15,000 members. This total was made up as follows: BAE Systems (VSEL) Portsmouth Segregated Section Fleet Support Total Membership In-service Members 1,669 Deferred Pensioners 4,456 Pensioners 7,101 In-service Members 166 Deferred Pensioners 142 Pensioners 300 In-service Members 259 Deferred Pensioners 298 Pensioners 609 BAE Systems (VSEL) 13,226 Portsmouth Segregated Section 608 Fleet Support 1,166 Total 15,000 Is your Expression of Wish form up to date? The Scheme provides valuable benefits in the event of your death. The Trustee is responsible for deciding who these benefits are paid to, but takes your wishes into consideration. It is important that you tell us what you would like to do by completing an Expression of Wish form. You can nominate anyone to be your beneficiary and you can ask the Trustee to split the benefit between two or more beneficiaries. It is important to keep your Expression of Wish form up to date if your circumstances change. You can obtain an Expression of Wish form at any time from the SIPS team or online at: 4 Shipbuilding Industries Pension Scheme Annual Review 2017

5 Money in and money out Funding update The table below is a summary of how the value of the Scheme s assets changed during the year ended 31 March VSEL Portsmouth Fleet Support Fund at the beginning of the year 1,535,173 1,570, , , , ,034 Income Contributions 33,896 35,254 3,053 2,591 4,540 4,947 Other income 1, Total income 35,638 36,106 3,151 2,709 4,542 4,947 Expenditure Pension (44,560) (43,480) (2,721) (2,491) (1,921) (1,790) Commutation and lump sum benefits (11,152) (9,493) (1,426) (979) (1,321) (547) Death benefits (930) (401) (0) (23) (0) (101) Transfers to other schemes (6,734) (2,882) (406) (867) (12,067) (29) Employees AVCs invested (628) (637) 0 0 (235) (154) Administrative expenses* (2,178) (2,390) (156) (145) (229) (209) Total expenditure (66,182) (59,283) (4,709) (4,505) (15,773) (2,830) Income minus expenditure (30,544) (23,177) (1,558) (1,796) (11,231) 2,117 Investments Change in market value of investments 259,730 (14,329) 22,512 (852) 19,910 (1,092) Net investment income 7,838 1, (55) 516 (80) Total investment return 267,568 (12,646) 23,197 (907) 20,426 (1,172) Fund at the end of the year Net assets of the section at 31 March ,772,197 1,535, , , , ,979 At the time of writing this we re in the middle of the 2017 actuarial valuation. This is the exercise carried out every three years to check the Scheme s funding and agree what contributions will be paid, so the Scheme has sufficient money. This also involves reviewing the strategy for how the Scheme s assets will be invested and checking the long-term outlook for BAE Systems as the sponsoring employer. You may have read a lot in the press recently that pension scheme funding has had a difficult few years, and has been affected by recent significant events including Brexit and the outcome of the US election. However, most types of investments have performed strongly. We are currently working with the Trustee and BAE Systems to refine the funding and investment strategy for the Scheme. Richard Shackleton Hymans Robertson LLP * The 2016 comparative has been re-stated to include the PPF levy and administrative expenses covered by the Schedule of Contributions 5

6 Investment update John Walbaum Hymans Robertson Investment Consultant Over the year to 31 March 2017 political uncertainty was to the fore, most notably in the UK s decision in June 2016 to leave the EU and the US election of President Trump in November. Neither event was widely expected at the start of the year, and both disrupted financial markets, but only briefly. The most significant sustained reaction was a plunge in sterling after the referendum vote falling by 10% over the period as a whole. Global economic growth was a little disappointing over 2016, but momentum increased towards the end of the year. Equity markets had dipped in advance of the US presidential election. Just before polling day, global indices were barely higher than they were at the start of the period. But initial doubts about a Trump regime were quickly replaced by growing optimism and markets rallied strongly. Interest rates fell even further during the year and government bonds again produced positive returns. UK commercial property values fell in the wake of the EU referendum and some property funds had to make substantial quick sales to meet redemption requests. However, values recovered towards the end of the period. A summary of investment performance to 31 March 2017 for the main investment vehicles in SIPS is set out below (returns sourced from the Scheme s custodian, Northern Trust): Actual return % 1 Year 3 Years 5 Years Benchmark return % Actual return %pa Benchmark return %pa Actual return %pa Benchmark return %pa Whole Scheme return Asset class return: UK Equity Global Equity Diversified Growth (LGT portfolio) Property Private Equity Credit/Debt Corporate Bonds Index-Linked Gilts Liability Driven Investments (LDI) Excluding investment in API 2. Investments include AgFe Partners and York, which were funded over a period of time when managers issued capital calls. The performance figures shown have taken account of this but should be viewed as best estimate figures, given the changing asset allocations of each underlying mandate over time. 6 Shipbuilding Industries Pension Scheme Annual Review 2017

7 During the year to 31 March 2017, the investment managers across the various asset classes were as follows: Asset class Managers/ vehicles Manager % of Asset class at 31 March 2017 UK Equities Invesco Asset Management 54 Majedie Asset Management 46 Legal & General 40 Global Equities Longview Partners 42 Somerset (emerging markets) 18 Diversified Growth LGT Capital Partners 100 First Property (partnership) 16 Property (1) First Property (new mandate) 77 (2) Abercromby Property International 3 CBRE 4 Private Equity Capital Dynamics 86 Parallel 14 (3) AgFe 22 Credit/Debt Partners Group 55 York Credit Opportunities 23 Corporate Bonds Legal & General 100 Index-Linked Gilts (4) Northern Trust 100 Liability Driven Investment Legal & General 100 Cash Legal & General 88.6 Trustee Bank Account 11.4 During the year under review, the Trustee continued to undertake the investment restructuring programme, which commenced in This included: > further funding of the First Property segregated mandate; the commitment to the mandate was increased from 130 million to 170 million during the year > further funding of the AgFe debt mandate; this mandate is now fully funded. The Trustee agreed to a 50 million commitment to a new private debt mandate with Partners Group. The investment is due to take place during the first six months of the 2017/18 Scheme year and has been funded by a disinvestment from equities. The new mandate with Partners Group has been given a 2% strategic benchmark allocation. The current property investments with API and CBRE are in the process of being sold on a gradual basis. It is anticipated that the API investment will be fully redeemed by March The majority of the CBRE investment will be sold off by mid-2018, with the exception of one underlying fund that has an expiry of December The Trustee has agreed not to increase its exposure to actively managed private equity vehicles, and the existing investments with Capital Dynamics and Parallel Private Equity are expected to be realised in the next three years. 1. Being funded on a gradual basis; total commitment 170 million 2. The Trustee is a partner in Abercromby Property International for investment in US real estate 3. Being funded on a gradual basis; total commitment of 45 million 4. Index-linked gilt holdings are held at Northern Trust (custodian) Shipbuilding Industries Pension Scheme Annual Review

8 Following completion of the 2014 actuarial valuation, the Trustee considered its ongoing investment strategy and asset allocation. The Scheme s current target allocation is as follows: Asset Class Target % Equities 33 Diversified Growth 8 Property 10 Debt 14 Growth Assets Total 65 Corporate Bonds/Gilts/LDI 35 Matching Assets Total 35 Total 100 The Trustee has developed a de-risking programme to assist with the objective of meeting the long-term target. Details of the asset allocation within the three sections of SIPS as at 31 March 2017 are shown opposite. Asset split at 31 March 2017 The net assets split for the different sections of the Scheme as at 31 March 2017 were as follows: BAE Systems (VSEL) Equities 34.2% Diversified Growth 6.6% Debt 9.2% Property 9.5% Private Equity 0.7% LDI 12.2% Cash 2.5% Corporate Bonds 15.9% Index-Linked Gilts 9.2% Total 100% Portsmouth Segregated Section Equities 36.5% Diversified Growth 6.6% Debt 9.1% Property 8.9% Private Equity 0.4% LDI 12.2% Cash 3.5% Corporate Bonds 15.8% Index-Linked Gilts 7.0% Total 100% Fleet Support Equities 32.5% Diversified Growth 6.3% Debt 8.4% Property 8.7% Private Equity 0.0% LDI 11.6% Cash 10.4% Corporate Bonds 15.3% Index-Linked Gilts 6.8% Total 100% 8 Shipbuilding Industries Pension Scheme Annual Review 2017

9 Pensions news Change of address reminder for deferred members It is important to keep the Trustee informed of your current address to ensure you continue to receive Journey and any other mailings about your benefits. Payment of your pension at retirement age may be delayed if your current address is unknown. You can update your address by writing to the SIPS team (see page 15 for their contact details). Part-time working If you are considering reducing your hours of work then it is important to think about the impact that this would have on your pension. Under the Scheme, the pension you receive is calculated with reference to your salary and pensionable service. Therefore, a reduction in hours and the corresponding reduction in salary will, generally speaking, affect your benefits as outlined below: Future pension > Any future pension which you earn following a reduction in hours would be proportionately lower. Pension already earned > Any pension that you earned prior to your reduction in hours is protected. Other benefits: > If you die in service, a pension may be payable to your spouse or dependants. This pension will be lower as a result of part-time working. > A lump sum may also be payable based on your salary, and so any reduction in salary following a move to part-time working would reduce the lump sum benefit payable. > If you qualify for early retirement on medical grounds, your pension may, in some cases, include an element of prospective service. If you are working part-time immediately prior to early retirement on medical grounds, then, for the purpose of calculating any prospective service element due, it would be assumed that you would have continued to work part-time until Normal Retirement Date. For more detailed information about how part-time working will impact your pension given your own circumstances, please contact the SIPS team using the details on page 15. Transition to Retirement Leave Did you know, under the Company s UK Normal Retirement Policy, if you are planning to retire at the Scheme s Normal Retirement Date you are entitled to Transition to Retirement Leave (TRL) during the 26 weeks prior to retirement? The Company provides TRL in order to assist you in managing the transition from work to retirement by providing shorter working weeks (and hence more free time) in the run up to retirement date. TRL will have no impact on the calculation of your pension. Shipbuilding Industries Pension Scheme Annual Review

10 An introductory guide to early retirement Early retirement is a subject that generates lots of questions so we have put together the answers to some frequently asked questions. Q1. What does retiring early actually mean? Early retirement means leaving the employment with the Company and starting to receive your pension before your Normal Retirement Date (NRD), which is age 65. You cannot draw your Scheme pension and remain in employment with the Company. The age at which you may receive your future State pension may be different to the age at which you receive your Scheme pension see page 12 of this Journey for further details. Q2. What is the earliest age I can start to receive my pension? The earliest age at which you can currently take your pension is age 55. However, if you are suffering ill-health and meet the eligibility criteria you may qualify for an immediate pension regardless of your age. Further details are available from the SIPS team. Q3. What happens to my pension if I retire early? Your pension is intended to come into payment from your NRD. If you retire at an earlier age, you will have had less pensionable service and so you will have earned less pension. Furthermore, your pension will be paid for a longer period of time and this increases the cost of providing it. An Early Retirement Factor is therefore applied to your pension, which reduces the annual amount paid. Q4. Who decides whether I can retire early? In-service members can usually retire if both the Company and the Trustee give consent. However, in-service and deferred members of the Fleet Support Section, or who joined the VT Group section of SIPS before 1 July 1991, or who joined the VSEL section of SIPS before 1 April 1992 do not require Company and Trustee consent, if they choose to retire after age 60. In the case of early retirement from deferred status, the Trustee s agreement to receive benefits before the Scheme s NRD will be required. Q5. How can I obtain an early retirement quotation? For an instant, indicative quotation, you can log into the Hartlink service at: If you are an in-service member and seriously considering retiring early, you should discuss this with your line manager in the first instance and a formal quotation can be arranged on your behalf. If you are a deferred member, you should contact the SIPS team see their contact details on page 15. SIPS team update ID security checks When contacting the SIPS team by telephone or , you will need to satisfy an ID security check before any personal information is released. You will need to provide the following personal information: Mandatory information: > Full name > Address > National Insurance number > Date of birth One other piece of information from the following: > Scheme name > Date joined employer > Date joined the SIPS > Date left the SIPS > Payroll number 10 Shipbuilding Industries Pension Scheme Annual Review 2017

11 Are you considering opting out or transferring out of the Scheme? The Scheme is a Defined Benefit scheme and the Trustee recognises that the greater flexibilities now available to members of Defined Contribution (DC) schemes could be encouraging members to think about leaving the Scheme and/or transferring out their SIPS benefits. Before taking any action, there are important considerations for both in-service members and deferred members concerning either opting out or transferring out. Opting out of in-service membership and transferring out would be an irrevocable decision. Factors in-service members should consider before opting out There s not only future pension provision that will be given up by opting out, but also associated benefits that provide protection to a member s family in the event of death or ill-health. Members opting out would become deferred members. They would have reduced prospective ill-health benefits and would immediately cease to be covered for the death-in-service lump sum. The Company has a statutory duty to automatically re-enrol employees who meet certain age and salary criteria into a pension arrangement. It is possible that even though a SIPS member may have opted out, that they may subsequently need to be enrolled into the BAE Systems DC Retirement Plan at the appropriate time. Factors in-service and deferred members should consider before transferring out The Scheme offers members a pre-determined level of pension that is payable for life. It is important that anyone who decides to transfer out their benefits to a DC scheme understands that the value of DC savings is not pre-determined and will fluctuate, depending on the performance of the investment funds that are selected. There is no guarantee that the DC savings will provide a pension equal to that provided by SIPS. Members may transfer out any Additional Voluntary Contributions that they have paid, regardless of whether they also transfer their Defined Benefit pension see question 4 on page 13 for further information. A transfer out of benefits may normally only be paid to another registered UK pension scheme or Qualifying Recognised Overseas Pension Scheme. Under the Scheme, inflation protection of pensions is provided before and after retirement and provision for a spouse/dependant s pension is provided in retirement. However, these come at an added cost under a DC pension bought with an insurance company. Including such options could therefore decrease the amount of pension provided by the insurance company. The advice requirement for Defined Benefit transfers It is a statutory requirement that members provide evidence that they have taken advice from an appropriately authorised independent financial adviser before the Trustee can pay the transfer value (unless the value of the transfer is less than 30,000). Therefore, evidence that this has been taken must be provided to the SIPS team. Help for members The Trustee would urge you to take appropriate independent financial advice to ensure opting out and/or transferring out is in both yours and your family s best interests. You can find a financial adviser via this website: Shipbuilding Industries Pension Scheme Annual Review

12 General Data Protection Regulation and cyber threats The European Union s General Data Protection Regulation (GDPR) will replace the UK s existing data protection legislation on 25 May Many of the GDPR s main concepts and principles are much the same as those in the current Data Protection Act. However, there are new elements and significant enhancements, so as data controller, the Trustee has started preparing for these changes. The GDPR places greater emphasis on the documentation that data controllers (in this case the Trustee) must keep to demonstrate their compliance with each of the principles of the GDPR. Other key changes include identifying how long data is retained for and time limits for the reporting of breaches. The Trustee is reviewing the basis on which members personal data are processed, its approach to governance, and how it manages compliance with data protection legislation. Work is currently taking place to ensure that the requirements of the GDPR are reflected in the arrangements with each of the Scheme s service providers. Work is also continuing to mitigate the risk of ongoing cyber threats and the Trustee has already started to take practical steps to protect the Scheme against this. This is an ongoing concern for all industries and appropriate measures and controls should be in place to prevent such attacks. The Trustee is working very closely with BAE Systems IT Security team to implement a governance framework, which includes working with all third-party suppliers who are in possession of member data to confirm they have sufficient measures and controls in place against cyber risk. The Trustee is ultimately responsible for the use and management of personal data, and the work required to address GDPR requirements and cyber security risks is being closely monitored. State Pension Age are further changes due? The age at which you may receive your State Pension will depend on your date of birth. The State Pension Age used to be 60 for women and 65 for men, but since 2010 it has been undergoing radical change and by 6 November 2018 it will be 65 for both women and men. Thereafter, State Pension Age will change as follows: > Between 6 December 2018 and 5 October 2020 the retirement age will gradually rise to age 66 for all; > Between 6 April 2026 and 5 March 2028 it will gradually rise to age 67; > Between 6 May 2044 and 6 March 2046 it will gradually rise to age 68. The Government has stated that it has further proposals to bring forward the dates for a State pension age of 68, to between 2037 and You can check your State Pension Age and obtain a State Pension Forecast: or you can contact the Department for Work and Pensions at: > UK Telephone: (from overseas: ) Local Pension Committees (LPCs) The LPCs are committees that support the Trustee. They are composed of an equal number of Member and Company representatives. The LPCs play an important role in supporting the Trustee and the Scheme in areas such as distribution of death in service benefits, awarding of ill-health pensions and communication of SIPS benefits to members. Following the recent nomination and selection process, a number of employees have been appointed as LPC representatives. You can find the contact details of your site representatives in the library section of the SIPS website: 12 Shipbuilding Industries Pension Scheme Annual Review 2017

13 Defined contribution pensions round-up Additional Voluntary Contributions (AVC) investment choice reviews AVC members should undertake a regular review to ensure that their fund selections continue to meet their investment and retirement objectives. With this in mind, here are some questions which the Trustee suggests you may wish to consider: Q1. Are you clear about the differences between the Lifestyle Profiles and Self Select Funds choices? The Lifestyle Profiles automatically transition higher risk investments to lower-risk investments as you approach your Target Retirement Age (TRA), whereas AVC monies invested in the Self Select Funds remain in those funds until such time as you make an alternative choice. Q2. Should you review your choice if you are close to retirement? On retirement, your AVC fund may be taken as a tax free cash sum and/or income stream. You may therefore wish to align your investment choice accordingly. The latest AVC booklet, which describes your investment options and the associated risk profiles, fund factsheets and performance information can be obtained from the SIPS team (see page 15 for their contact details). Q3. Has your risk tolerance changed over the years? Quite apart from proximity to retirement, your risk tolerance may have changed over time reflecting a change in personal/financial circumstances. Q4. If you selected a Lifestyle Profile, does this remain appropriate? There are two issues to consider here: i. The automatic fund transitioning to lower-risk funds is based on the time left until your TRA, normally set at the default age of 65. This means that, if you are now thinking of taking your pension benefits at say age 60, then the Lifestyle Profile won t necessarily be managing the asset transition appropriately. So, you may have a higher exposure to investment risk than you might have been expecting. This risk can be managed by monitoring your retirement plans and, where appropriate, advising the SIPS team of any change to your TRA. ii. The Lifestyle Profile is designed to transition your AVC fund towards lower-risk investments. However, following the introduction of Pension Freedoms in 2015, you can now use your AVC fund in new ways (via a transfer out to a Personal Pension Plan). Note that this action involves a partial transferring out of your AVCs only your Defined Benefit pension would stay in situ. Considerations relating to transfers out of Defined Benefit pensions are covered under the article Are you considering opting out or transferring out of the Scheme? which you can find on page 11 of this Journey. Q5. Will your AVC fund produce the benefits which you had anticipated? Check your annual benefit statement to see how your AVC fund is performing. The SIPS team can provide you with retirement income estimates so that you can check that your AVC fund remains on target to provide the anticipated level of tax free cash and/or income stream. The Trustee cannot advise you on the best investment choice for you. However, if after considering these questions you decide that professional advice is required, you can find an independent financial adviser on this website: Shipbuilding Industries Pension Scheme Annual Review

14 More information Hartlink Online You can access your pension record by logging into the Hartlink Online service at: > Read more information on the pensions websites: Useful documents 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 SIPS team. 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 31 March 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 This Journey provides some information on the Scheme. However, it is the Rules of the Scheme that set out the legal basis for the Trustee s administration of the Scheme and which override any provisions of this Journey with which they are inconsistent. Copies of the Rules are available from the SIPS team. References to external websites are given for information only. No responsibility is accepted for the content or accuracy of the information provided through these sites. 14 Shipbuilding Industries Pension Scheme Annual Review 2017

15 Getting in touch Need help? We can give you information about your benefits in the Scheme, but we cannot advise you about the best option for you and we cannot give you financial advice. If you need help with your pension options the Pensions Advisory Service provides independent and impartial information and guidance about pensions, free of charge, to members of the public: > They can also help with any unresolved complaints, as can the Pensions Ombudsman: > If you would like to find out more about pensions and how to make the most of your retirement planning, visit the Money Advice Service website: > You can also go to Pension Wise, a free and impartial guidance service set up by the Government to help people understand their defined contribution pension options: > Contact us The SIPS team is available if you ve got any questions or need to update your contact details: > UK Telephone: > If calling from overseas: > member.enquiries@sips-pensions.co.uk > Websites: > Hartlink Online: If you want to write to us our address is: > Capita Private Sector Pensions (SIPS), 2 Cutlers Gate, Sheffield, S4 7TL If you are not sure what to do, you can speak to an independent financial adviser. You will find one in your area on this website: > If you want to make a formal complaint about the Scheme, please contact the Scheme Secretary at: > Hadrian Trustees Limited, 65 Gresham Street, London, EC2V 7NQ If your complaint remains unresolved you can contact the Pensions Advisory Service or the Pensions Ombudsman. Shipbuilding Industries Pension Scheme Annual Review

16 For more information visit BAE Systems Pensions websites w: Copyright 2017 BAE SYSTEMS. All Rights Reserved. BAE SYSTEMS is a registered trade mark of BAE Systems plc TC3109g.123