Delta Pension Plan Summary Funding Statement

Transcription

1 Dear Plan Member, Please find below the latest for the Delta Pension Plan (the "Plan ). A list of common questions (and answers) frequently asked by members of pension schemes about summary funding statements is provided on pages 4, 5 and 6 to assist you in understanding the Statement. The latest actuarial valuation The most recent formal actuarial valuation of the Plan was carried out as at 31 March The following summarises the funding position as at that date, assuming that the Plan would continue to operate as a going concern. Value of Plan assets Value of accrued liabilities Shortfall Funding level 75% million million 95.9 million The value of accrued liabilities (the technical provisions ) represents the Trustee s estimate of the sum required at the date of valuation to cover the benefits to which members and/or dependants are entitled when they fall due. In arriving at these technical provisions, the Trustee has also formed a view on the strength of the covenant (financial support) available from Delta Limited (Delta), the Plan s Sponsoring Employer. The valuation calculations revealed a Shortfall of 95.9m. After a period of negotiation, the Trustee agreed a 10 year Recovery Plan with Delta, commencing in 2013, where a total of 10m was paid by Delta. A further 10m was paid in March 2014 and, thereafter, further lump sum payments of 10m will be made on or before each 31 March up to and including 31 March In addition, Delta will continue to pay the annual administration and associated costs involved in running the Plan, estimated to be around 1m per annum. Page 1 of 6

2 More up-to-date information The following figures have been extracted from the estimated quarterly funding updates that the Plan s Actuary provides to the Trustee: Formal Valuation Annual Update Annual Update Update Value of Plan assets 280.5m 317.1m 318.3m 333.5m Value of accrued liabilities 376.4m 412.4m 387.6m 419.0m Surplus/(Shortfall) (95.9)m (95.3)m (69.3)m (85.5)m Funding level 75% 77% 82% 80% Both the assets and liabilities of the Plan have increased during the year to March 2013, but the net outcome had little overall impact on the Plan shortfall, which reduced by just 0.6m from the March 2012 figure. The funding level (assets measured against liabilities) improved slightly to 77%. The increase in liabilities was mainly attributable to the fall in Government bond (gilts) yield (used as a basis for valuing liabilities) of around 0.3% between March 2012 and March 2013.The Plan s assets benefited from the 6.3m contribution received from Delta as part of the deficit recovery plan, and also the effect of falling corporate bond yields which resulted in increased asset market values. Between March 2013 and March 2014, government bond yields recovered and rose by around 0.4%, which had the effect of reducing the value of accrued liabilities in this period. The value of the assets changed little over this period. Although corporate bond yields rose, reducing the value of the Plan s corporate bond holdings, this was offset by further contributions from Delta totalling 13.7m. The overall net effect of the changes in asset and liability values was favourable, reducing the shortfall by an estimated 26m and improving the funding level to 82%. Between March 2014 and September 2014, government bond yields fell by around 0.5%, which had the effect of increasing the value of accrued liabilities in this period. Assets however performed relatively well increasing by around 4.8% over the period. Falling yields on corporate bonds and government bonds had the effect of increasing the value of these assets. Equities also performed well over the period. However, the overall net effect of the changes in asset and liability values was unfavourable, and the funding shortfall rose by an estimated 16m and the funding level fell to 80%. Page 2 of 6

3 Winding up As required by legislation and as part of the formal valuation of the Plan, the Actuary assessed the funding position of the Plan as if it had been wound up on 31 March The position at that date, on the basis that the Trustee had purchased annuities for all members with an insurance company, is as follows. Value of Plan assets Value of winding up liabilities Shortfall Solvency level 48% million million million The shortfall is an estimate of the additional sum that would have been required from Delta to ensure that all members benefits could have been secured by the purchase of annuities from an insurance company had the Plan wound up on 31 March Providing winding up information is a formal legal requirement and does not imply that Delta was considering winding-up the Plan at 31 March The Pensions Regulator In certain circumstances the Pensions Regulator can direct how the Plan s technical provisions must be calculated, set the period for eliminating any funding shortfall, specify the level of Delta's contributions to be paid (rather than leaving these issues to be determined by the Trustee) and has the power to modify the Plan s future accrual of benefits. No such circumstances have arisen. The Trustee of the Delta Pension Plan October 2014 Page 3 of 6

4 Common Questions and Answers Why are you sending me a statement on the funding of the Plan? Members have always been able to request detailed information about the funding of the Scheme. However since 2006 legislation requires that the Trustee must automatically provide you with this statement, which amongst other things keeps you up-to-date with the Plan s funding level and any important events which might affect you. How often will I receive a? A statement similar to the enclosed will usually be sent on an annual basis to all Plan members and beneficiaries. The last was sent to you in March 2014 and provided a funding update to 31 December 2013 as well as other pertinent details. What must this statement include? The has to contain a number of different pieces of information. These include the funding position at the last formal valuation and the steps being taken to eliminate any funding shortfall, an estimate of the position if the Plan had been wound up and an explanation of any change in the funding position from that disclosed in the previous. How is the Plan funded? The Plan pays retirement pensions and, following a member s death, may pay benefits to dependants. The money to provide these benefits comes from contributions paid to the Plan. These contributions are then invested by the Trustee and held in a common fund from which the benefits are paid. The Plan s ability to pay pension benefits to members depends on investment growth and the continuing financial support of Delta. What is the funding objective when setting the Company contribution rate? The Pensions Act 2004 introduced a Statutory Funding Objective requiring pension plans to put in place a recovery plan if they had insufficient assets to cover their technical provisions. This is the cost of pensions and associated benefits accrued to date. This translates into an objective that the ongoing Plan should have enough money at any time to continue to pay existing pensions as well as future benefits in respect of the accrued pension entitlements of current and former employees. How are the Company contributions determined? To determine how much money the Plan requires from Delta, the Trustee obtains a formal triennial valuation (ie once every three years) from the Actuary of the Plan. These valuations compare the values of accrued liabilities (the estimated sum of money required to pay all accrued benefits in respect of members pensionable service at the valuation date) with the existing Plan assets. This gives the accrued funding position. In a valuation, various assumptions have to be made such as the expected investment return on the Plan s assets, the level of inflation and how long members are expected to live. Almost inevitably, actual experience will vary from the assumptions made, so the assumptions about the future will be reassessed at each subsequent valuation. As a result, the level of required contributions will fluctuate over time. Page 4 of 6

5 Common Questions and Answers What happens if the funding level is below the target? If an actuarial valuation reveals that the Plan s assets are less than the value of accrued liabilities, the Trustee has to agree a Recovery Plan with Delta. This must be designed to eliminate the funding shortfall within an agreed timescale. During this time, benefits will continue to be paid in full from the ongoing Plan, however, transfer values may be reduced to protect the interests of the (remaining) Plan members. Currently, the Delta Pension Plan is paying full (i.e. unreduced) transfer values. Have there been any payments to the Company from the Plan? Money can only be paid back to Delta from the Plan in very limited circumstances. No such payments have been made in the past 12 months. When was the last formal valuation of the Plan and when is the next one? The last formal actuarial valuation of the Plan was carried out as at 31 March 2012 and the next is ordinarily due as at 31 March In the interim, the Trustee is required by law to obtain approximate updates on the funding position from the Actuary of the Plan on a yearly basis. However, the Trustee has decided to obtain these on a quarterly basis. What happens if the Plan were to be wound-up? Winding up a pension scheme means terminating the scheme. In this circumstance, the Plan s assets would be used to secure individual members benefits with an insurance company. If the Plan was to wind up and there were insufficient Plan assets to enable accrued benefits to be fully secured, Delta would be legally required to make good the balance of the cost. However, if Delta was unable to pay the full balance, not all members would receive the full amount of their benefits. Accordingly, there is a risk that, if Delta becomes insolvent at some time in the future, benefits might be cut back for some or all members. To provide a safety net for a pension plan winding up with insufficient assets at a time when an employer is insolvent, the Government has established the Pension Protection Fund to ensure the provision of a minimum level of compensation. Please note that the attached is required by law to set out an estimate of the solvency position had the Plan been wound up at the valuation date. Where can I get more information about the Pension Protection Fund? More information is available from the Pension Protection Fund s website at or by writing to the Pension Protection Fund at Renaissance, 12 Dingwall Road, Croydon, Surrey, CR0 2NA. Why are the costs associated with winding up so high? You will see from the attached that the valuation at 31 March 2012 disclosed a shortfall on winding-up which is significantly greater than the on-going shortfall. Page 5 of 6

6 Common Questions and Answers This is because the estimated cost of securing accrued benefits by purchasing annuities from an insurance company is significantly greater than the anticipated cost of paying benefits from the Plan as a continuing entity. Insurers must satisfy statutory solvency margin requirements. This means that they must take a very cautious view about future investment returns and be equally cautious in investing funds. The Trustee can follow a more balanced and diversified investment strategy with the intention of keeping the cost of the Plan affordable, taking into account the continuing existence of Delta and its financial strength backed by the Valmont Group. Therefore, the risks facing pension schemes from investment volatility, longevity of members, interest rate changes, inflation and plan running costs will be taken on by the Insurers and reflects in the annuity prices. If I have some questions about this statement who can I contact? Bob Folley, Secretary to the Trustee, JLT Benefit Solutions Ltd, The St Botolph Building, 138 Houndsditch, London, EC3A 7AW or by Bob_Folley@jltgroup.com. If you have any questions about your Plan benefits, please contact the Plan s administrator, Capita Employee Benefits, at the address shown near the bottom of this page. Where can I get further information about the Plan? The following information relating to the ongoing management of the Plan is available to you. These can be obtained by writing to Bob Folley, Secretary to the Trustee at the above address. Certain of the information below is also available on the Pension Plan website hosted by Valmont at: The Statement of Funding Principles which sets out how the Plan will be funded. The Schedule of Contributions which sets out how much money is being paid into the Plan and when. The Recovery Plan which explains how the funding shortfall is being made up. The Statement of Investment Principles which sets out the principles applied to the investment of the Plan assets. The Annual report and accounts which set out the Plan s income and expenditure. The Rules of the Plan. The latest full Actuarial Valuation Report. The Actuary s most recent interim updating report. If I have some questions about my Plan benefits or if I need to inform you of a change in my personal circumstances who can I contact? Please help us to keep in touch with you by telling us if you change your address, your name or your marital status. To do so, you should write to: The Delta Pension Plan, Capita Employee Benefits, 2 Cutlers Gate, Sheffield, S4 7TL. Alternatively please on delta@capita.co.uk or telephone Questions about your Plan benefits should also be directed here. If for any reason you are thinking of leaving the Plan or transferring your benefits to another arrangement, you should consider seeking professional independent financial advice before making any decision. Page 6 of 6