pensionwatch 1 pensionwatch

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1 pensionwatch 1 pensionwatch FEBRUARY 2015 MCGRAW-HILL (UK) RETIREMENT BENEFITS PLAN (1973) NEWSLETTER

2 pensionwatch 2 Welcome to pensionwatch As the recently appointed Chair of your pension Plan I am delighted to present this newsletter on behalf of the Trustees of the McGraw-Hill (UK) Retirement Benefits Plan (1973). In this newsletter we introduce you to the Trustees and provide you with information about the Plan, its funding position and update you on recent and proposed changes in the pensions world. We intend to provide you with a newsletter on an annual basis and we hope that you find it helpful and interesting. We are keen to get any feedback or comments from you and, indeed, any ideas you may have for content in future issues. Please do let us have your comments and ideas using Andrew Menhennet s contact details on page 8. Peter Alexander Chair of Trustees

3 pensionwatch 3 Your Trustees & ADVISERS The Plan is managed by its Trustees. The Plan currently has six Trustees. Four Trustees are nominated by McGraw Hill, the other two are elected by Plan members. We usually meet four times a year to manage the Plan and its investments. We are supported at these meetings by our advisors. The Trustees have a responsibility to ensure that the Plan is run in accordance with its rules and the law, and have a duty to ensure that all categories of beneficiary whether it be you as a member or your dependents - are treated fairly. Running a pension plan is complicated, and the law requires us to take specialist advice. Opposite are our current advisors. We regularly review our advisers. From 1 January 2015 LCP are the appointed investment advisers and from 1 March 2015 they will also act as scheme administrators. You will receive a letter from LCP in February 2015 confirming the transfer and their contact details. Current trustees Chairman Peter Alexander Employer-nominated Amanda Baldwin Goke Osibogun Martin Winn Member-nominated Andrew Campbell-Hart Dominic Crawley Secretary to the Trustees Andrew Menhennet Current advisers Scheme Actuary SJ Davies FIA Lane Clark & Peacock LLP Actuarial and investment advisers Lane Clark & Peacock LLP Legal advisers Ashurst LLP Stephenson Harwood Auditor Ernst & Young LLP Administrators Please see below If you have any queries regarding your benefits in the Plan you should contact the administrators. Until 28 February 2015 From 1 March 2015 Buck Consultants Lane Clark & Peacock LLP 5th Floor St Paul s House Temple Circus St Paul s Hill Temple Way Winchester Bristol SO22 5AB BS 6HG Telephone: Telephone:

4 pensionwatch 4 Membership data The Plan was established on 26 June 1958 and provides defined benefits to its members. The Plan closed to new entrants with effect from 1 July 2004 and from 30 April 2013 the Plan closed to future accrual. It is important that we continue to keep you informed about the financial health of the Plan, please help us to ensure we have your most up to date address in our records by informing the administrators of any changes. Please refer to page 3 for contact details. 1, Frozen active members Deferred members Pensioners Frozen active members Means an employed member who was in pensionable service on 30 April 2013 (Plan closure date) for as long as they remain an employed member. once a Frozen active member leaves employment with McGraw Hill they become a Deferred member. Deferred members Means a member who has left the Plan and is entitled to a benefit payable from the Plan. Pensioners Means a member who is in receipt of a pension June June 2014 FUNding update One of our key jobs is to regularly monitor the funding position of the Plan to ensure there are sufficient assets to pay the promised benefits. We provide regular updates to members on the funding position and the most recent update was sent to you in April last year. This update summarised the results of the actuarial valuation of the Plan carried out as at 30 June It also summarised the funding position as at 30 June As a reminder, the 2011 valuation revealed a deficit of assets compared to the target level of assets that is expected to be enough to pay all the pensions that members have built up in the Plan of 8.5m. This deficit measure assumes the Plan continues with the support of the Company. As at 30 June 2013 the position had improved and there was then estimated to be a surplus of assets on the same basis of about 3m. Since 30 June 2013, the Plan s assets have performed well. However, in recent months the target level of assets has significantly increased due to an increase in bond prices, which are used as a benchmark for setting the target level of assets we need to hold. The next actuarial valuation, as at 30 June 2014, is currently being undertaken and we are discussing with the Company the assumptions that should be used for the valuation. When the valuation has been completed we will write to you with an update.

5 pensionwatch 5 INVESTMENT UPDATE One of the most important and interesting jobs that we do is to decide how to invest the Plan s assets - it is a complex matter. The performance of the Plan s investments plays an important part in securing your benefits. The Trustees aim to achieve a good level of growth on the Plan s assets without exposing the Plan to an excessive amount of investment risk. The Plan s current asset allocation is shown below: Liability driven investment 25% Multi asset class growth funds 40% Equities 35% In essence, the investments in equities and multi asset class growth funds are expected to produce a suitable level of growth over the medium term without excessive volatility, and the investment in the liability driven investment portfolio helps the value of assets move more in line with the value of the pensions to be paid, leading to a more stable funding level. The Trustees have made some changes to the Plan s investments over the past year, thereby continuing to reduce investment risk when appropriate. In December 2014 the Trustees sold the Plan s corporate bond holdings, which have performed very well in recent years, as they felt the potential downside risks now outweighed the upside potential for further good returns. The Trustees are discussing other potential risk-reducing changes with the Company, and in particular the appropriate timescale for increasing the protective liability driven investment holdings in future. The Trustees have also made plans to reduce investment risk further as the funding level of the Plan gets stronger, by reducing the remaining equity investments when good returns have been achieved. The Trustees have agreed funding level triggers to do this, and are monitoring the funding position daily to ensure that opportunities will not be missed. This approach is aimed at reducing the volatility of the Plan s funding level over time. WHAT DO THESE TERMS MEAN? Liability driven investment fund A fund which helps a pension scheme s asset value move more closely with the value of the liabilities. This is achieved by investing in assets which match the expected pension payments, such as gilts and investment instruments called derivatives (for example interest rate swaps) which move in a similar way. The value of a liability driven investment fund should rise and fall in a very similar way to a pension scheme s liabilities. Pension scheme liabilities are the benefits in payment now and the benefits payable in the future. Multi asset class growth funds A multi asset class growth fund is a fund which invests in a mixture of assets, mostly equities and bonds, but potentially also other assets such as land, insurance, precious metals and commodities (i.e. tea, coffee, oil, etc). Corporate bonds A corporate bond is an IOU issued by an organisation other than a government, e.g. by a company. They are more risky than UK government bonds (called gilts), because the company can only pay interest on the IOU and pay it back ( redeem it ) when it matures if it makes the money to do so from its business. Because of this, in normal market conditions they tend to pay higher interest rates than gilts, to compensate for the increased risk that the bond issuer may default. Equities Equities are another name for shares. The shareholders of a company benefit if the company grows in value, because the shares become worth more. The shareholders also benefit if the company makes a payment ( pays a dividend ) to its shareholders. However, if a company gets into financial trouble, it has to pay back the money it has borrowed before it can give anything left to its shareholders. Because of this, buying equities is more risky than buying corporate bonds or gilts but the returns are potentially greater.

6 pensionwatch 6 BUDGET NEWS In his Budget on 19 March 2014, the Chancellor announced very significant changes to pension rules. The Government has since announced its main decisions following the subsequent consultation, some of which are detailed below. The new rules introduce additional options for members of pension schemes, and you may therefore want to review, and possibly change, any pension decisions you intend to make in the light of this. The key change which is attracting most media attention relates to people with defined contribution ( DC ) pension arrangements. A DC pension is an account where what you get is wholly dependent on the contributions paid into it, the investment returns achieved, and (unless the pension account is taken as cash) the cost of buying a pension income at retirement. Some Plan members may have DC pension arrangements from previous and/or subsequent employments or from personal pension savings or because they are a member of the Company s DC pension arrangement. From April 2015, individuals with DC pension arrangements will have much greater flexibility about how they take their DC pension benefits for example, they won t have to purchase an annuity and, if they wish, they can take all their pension benefits from age 55 in one lump sum, or spread their pension money over a period of time with full flexibility, subject to applicable income tax rules. The Plan is not a DC arrangement, so these flexibilities do not apply to your Plan benefits directly. However, you will be able to take advantage of the increased choice and flexibility, if you so wish, by transferring your Plan benefits to a DC pension arrangement, such as a personal pension plan, which offers the new flexibilities (not all DC arrangements will offer the new flexibilities). This may be attractive, for example, if you prefer more immediate cash or more income earlier in your retirement (perhaps because of ill-health, paying off debts, or spending plans) and/or because you wish to make use of new rules on passing DC pension assets tax-free on your death to your family. You should note that a decision to transfer your Plan benefits to a DC arrangement cannot be reversed, and a transfer fundamentally changes the nature of your retirement benefits. It is important to seek independent financial advice (and from April 2015 independent financial advice will be a legal requirement for transfers over 30,000). If you are happy with your current benefits and options offered by the Plan there may be no need for you to consider the new rules. Pensions already in payment cannot be transferred. Higher limits for cashing out your Plan benefits Subject to certain conditions, members about to draw their Plan benefits aged over 60 (changing to age 55 with effect from 1 April 2015) with benefits worth 30,000 or less across all registered pension schemes, or 10,000 when looking at this scheme only, will be able to take their Plan benefits as cash. Up to 25% is tax free. Previously the limits were much lower, being 18,000 and 2,000 respectively. You can find a list of independent financial advisors at:

7 pensionwatch 7 PENSION NEWS Pensions liberation The Trustees want to draw your attention to a growing scam known as Pension Liberation Fraud. This often starts with a phone call or text message out of the blue telling you that because of loop-holes you can release the cash you have invested in your pension. These companies offer promises of quick cash, but what they often fail to point out is that they will take fees of anything up to 20% of the total value of your pension, and in addition you could be hit with a substantial tax charge on top, which may leave you with very little left of your pension savings. Things which should make you suspicious are: being approached unexpectedly by phone or by text message; pushy people claiming to be advisors; or references to pensions loan, savings advance, cashback from your pension, or talk of loopholes, overseas investment, or new investment techniques. In general, unless you have a genuine need to access your pension early because of ill-health, it is not possible to draw pension benefits until age 55. More options for defined benefit members may become available in light of the Chancellor s announcement discussed in the previous page, but in the meantime if you come across a company claiming otherwise, it is likely to be a scam. If you are concerned about Pension Liberation Fraud, or want to know more about it, you can find out more at Possible extra taxes on pension savings The following warns you of two additional taxes that can apply in some cases in relation to pension savings over and above normal income tax. The Lifetime Allowance Charge The Lifetime Allowance Charge would generally only apply if the HM Revenue & Customs (HMRC) value of the retirement benefits you are due to receive from the Plan, which when taken together with the HMRC value of all the retirement benefits you are receiving (or have already received) from other pension schemes, exceeds a certain amount, known as the Lifetime Allowance (LTA). From 6 April 2014, the standard LTA reduced from 1.5m to 1.25m. At the time your benefits come into payment, and in order to comply with HMRC tax rules, checks will be made as to whether your benefits exceed this limit. The Annual Allowance Charge The Government made changes in 2010 to the tax treatment of pension savings which increase the likelihood that, for some people, an additional tax may arise. Pension savings include the value (using tax rules) placed on pension earned in a defined benefit scheme along with any money purchase contributions (including any additional voluntary contributions or contributions to personal pensions) made by you and/or your employer. If you think you may be affected you should consider seeking financial advice at the earliest opportunity. The Annual Allowance was set at 50,000 with effect from the 2011/12 tax year. However, from the 2014/15 tax year, the Annual Allowance reduced to 40,000. Annual Allowance The Annual Allowance is an upper threshold for the amount of new pension benefit each year that a member can accrue before being subject to a tax charge. For defined benefit schemes, the value of any pension accrued during the year is tested against this limit. For money purchase schemes, it is the total contribution paid that is tested.

8 pensionwatch 8 USEFUL documents and further information Documents which provide more information about the Plan are listed below and are available on request. Statement of investment principles Explains how the Trustees invest the money paid into the Plan Schedule of contributions Shows how much money is being paid into the Plan Annual Report and Accounts of the scheme Shows the Plan s assets, income and expenditure Full report on the Actuarial Valuation Provides more details on the check of the Plan s funding as at 30 June 2011 Complaints Most disputes are settled quickly and informally after consultation with the Secretary to the Trustees. However, the Plan has a formal procedure, an Internal Dispute Resolution Procedure (IDRP), for any unresolved disputes. Should you wish to use the IDRP, please contact Andrew Menhennet, Secretary to the Trustees, McGraw Hill Financial, 20 Canada Square, London E14 5LH. USEFUL CONtacts GOV.UK PENSIONS OMBUDSMAN PENSIONS REGULATOR INDEPENDENT FINANCIAL ADVICE TPAS AGE UK