Spotlight. Welcome... to Spotlight on pensions. Take. December MMC UK Pension Fund

Transcription

1 MMC UK Pension Fund Spotlight Take 6 December 2005 on pensions Welcome... to Spotlight 2005 This has been a busy and complicated year for the Trustee of the Fund with the application of the 2004 Pensions Act and the Company s review of the future benefit structure. As a result of the Company s deliberations, all active members have received details about the proposal to move from final salary benefits to a career revalued pension arrangement and to change the early retirement terms and level of pension increases for pension earned from 1 April These proposed changes have come from the Company and, as your Trustee, we will be sending you information about what the finalised changes will be in the New Year, following the end of the consultation period. If you are an active member, you may be interested to look up some of the questions and answers which relate to the Trustee on the FAQs posted on the intranet. The proposed changes will only impact on pension earned after 31 March 2006, so they do not affect the benefits of current pensioners or deferred pensioners. In this Spotlight we also take a look at what A-Day means along with some further Government initiatives on pensions and some other changes that are being made to the factors used in calculating your benefits, as well as the usual financial summary and investment news (including a review of the most recent Report and Accounts as at 31 December 2004). If you have any comments or suggestions for future issues of Spotlight, or you would like a copy of the formal Report and Accounts please contact the Trustee using the address on page 11. Hady Wakefield Chairman of MMC UK Pension Fund Trustee Ltd

2 Inside this issue Welcome Welcome to Spotlight on Pensions Take 6, our regular round-up of news and views from the Trustee. Countdown to A-Day On 6 April 2006 the UK s pension system will undergo its most radical overhaul for 50 years. Government initiatives in 2005 New measures to increase pension scheme security. The BIG debate How to combat pensioner poverty. Financial highlights The Trustee s Report to Members for the year ending 31 December 2004, including a review of the membership numbers and accounts for the last financial year. Changes to the Fund s factors Results of the review of the Fund s actuarial factors. Investment news Information on the Fund s investments, including performance for the year ending 31 December The Trustee and advisers Who is on the current Board and details of the experts who provide professional advice. The Pensions Forum Details of current Forum members and how to contact them. Countdown to A-Day A-Day is the 6 April 2006 and is the date when the UK s pension system will undergo its most radical overhaul of the past 50 years. Pension legislation will, literally, change overnight, with all existing pension rules changing from that date. With the introduction of different types of pension schemes over the years, the UK currently has eight different sets of rules governing pensions. The aim of the new legislation is to simplify the system and to encourage greater pension investment. In summary, the changes are as follows: there will be one simplified set of tax rules to apply to all pension arrangements. a member will be allowed to accumulate total pension across all their pension arrangements to the value of 1.5 million - the Lifetime Allowance. Anything above the Lifetime Allowance will be subject to a recovery charge of 25% if taken as pension income or 55% if taken as cash. there will be wider choice of investment options. the current limits on pension contributions will be replaced by an annual allowance ( 215,000 p.a. for 2006/2007). income tax relief will be available on personal contributions up to 100% of earnings. the tax-free cash sum will now be 25% of the value of a member s benefit (up to the Lifetime Allowance) irrespective of the type of pension plan. Anyone with a tax free cash entitlement in excess of 25% can protect this, but action must be taken before 6 April there will be new retirement options with no requirement to buy an annuity at age 75. A-Day will affect the Fund and details of this will be sent to you soon. You are advised to take independent financial advice if you wish to explore this issue further. 11 Keeping in touch Useful information and contact points. 2

3 Government initiatives in 2005 Many of you will be aware of the changes in pensions legislation and this year has seen the start of two of the Government s major new initiatives from the Pensions Act They are both aimed at improving the financial security of company pension schemes and are: The appointment of a new Pensions Regulator Launch of the Pension Protection Fund (which was explained in the last edition of Spotlight) The Pensions Regulator s job is to tackle risks to the security of members benefits. The Pensions Regulator can do this by asking for information about the pension fund, the company and its plans. If the Pensions Regulator considers that pension promises are at risk as a result of a company buy-out, restructure or sale of the company, it may issue a contributions notice or a financial directions notice under which shareholders, a parent company or other investors may be required to make payments to the scheme. The BIG debate The current state pension age of 60 for women is due to be increased to 65 by the year This will bring it in line with men and will be phased in from the year After a visit to the USA in September of this year, the now ex- Work and Pensions Secretary David Blunkett said that a further rise in the state pension age should be considered. The Chancellor Gordon Brown also said that the UK must have a national debate about raising the state pension age. The Pensions Commission which has been reviewing the UK private pension system and long-term savings, issued its second report at the end of November unfortunately not in time for the publication of Spotlight. It is expected, based on the recommendations of its first report last year, that the commission will also suggest that people have to work longer. The Commission s First Report explained that faced with the increasing proportions of the population aged over 65, society and individuals must choose some mix of four options. Either: Pensioners becoming poorer relative to the rest of society; or Taxes/ National Insurance contributions devoted to pensions rising; or Savings rising; or Average retirement ages rising. The option of poorer pensioners is the least attractive and some combination of higher taxes/national Insurance contributions, higher savings and/or later average retirement age will be required. The Commission has stated that the way forward must involve some mix of: Successful revitalisation of the voluntary system; Significant change to the state system; Increased compulsion. These options have been the focus of the Pensions Commission since the publication of its initial report. A full update on the Commission s autumn report will be included in a future issue of Spotlight. To take part in the National Pensions Debate you can give your views on-line at 3

4 Financialhighlights The Trustee s report and financial summary for the twelve months to 31 December 2004 is summarised for you over the next few pages. Membership Numbers 24,000-22,000-20,000 - Final Salary Benefits As at 31 December 2003 As at 31 December ,025 23,116 3,000-2,750-2,500 - Money Purchase Benefits 2,598 3,076 18,000-16,000-14,000-2,250-2,000-1,750-2,109 2,217 12,000-10,000-10,937 11,351 1,500-1,250-8,000-7,396 6,832 1, ,000-4,692 4, , , Active membership Pensioners (including spouses and children s pensions) Members with deferred benefits Totals 0 - Active membership Members with deferred benefits Totals Fund Account Income 62.3% 10.3% 0.1% 2.0% 25.3% Expenditure 80.8% 2.0% 3.5% 0.2% 0.4% 13.1% Employer contributions received 107,371 Member contributions received 17,727 Individual reinstatements resulting from SIB claims 247 Other income 3,264 Investment income 43, Benefits payable 69,453 Life assurance premiums 1,718 Transfers-out to other pension schemes 2,985 Refunds of contributions 213 Reinstatement of State Scheme benefits 325 Fees and expenses 11,255

5 Movement in the net assets of the Fund 000 Net assets at 1 January ,921,355 Change in market value of investments 153,259 Net income over expenditure 86,294 Net assets at 31 December ,160,908 Changes to the Fund s factors Following the completion of the actuarial valuation, and in line with its past practice, the Trustee has reviewed the continuing appropriateness of the administration factors used in the Fund. Recent falls in gilt yields and increased life expectancies have served to increase the value placed on each 1 p.a. of pension. As a result, the Trustee has decided to amend a number of the Fund s factors accordingly. The changes are likely to affect different members to varying degrees. In particular, early retirement factors for current employees and deferred pensioners are likely to be generally slightly less generous than previously. However, commutation factors, which are used to convert pension into cash at retirement, have been made more generous. The changes will take effect from 1 April In order to reduce the potential impact on members who are very close to retirement, the Trustee has decided that all members who have requested, or have already received, a retirement quotation before 31 December 2005 for a retirement date between 1 April 2006 and 30 September 2006 will receive two quotations, reflecting both the existing and the new factors. The member will then be allowed to choose either of the two quotations. All retirement quotes requested after 31 December 2005 will be based solely on the existing factors for retirement dates before 1 April 2006 and on the new factors for retirement dates thereafter. If you are considering retiring in 2006 and are uncertain about which factors will apply to your benefits, you should contact the Fund s administrator. Contact details are shown on page 11. As you may be aware, the actuarial profession is currently reviewing the way in which transfer values should be calculated by trustees and is expected to issue further guidance about these calculations in Given this uncertainty, the Trustee has decided to retain the Fund s existing transfer value factors for the time being, and to review these factors in 2006 when the actuarial profession s guidance note becomes available. Given the proposed benefit changes due to come into effect from 1 April 2006, the Company is currently reviewing the Fund s Flexible Defined Benefit Additional Voluntary Contribution rates that will apply from 1 April Details of any changes to these rates will be communicated to you separately. 5

6 Investment news Final Salary benefits The Fund is made up of three sections, each invested slightly differently depending on the needs of the membership. The approximate split of the assets is as follows: Marsh (35.6%), Sedgwick (51.4%) and Mercer (13.0%). Overall, the assets for the Fund were invested with the following investment managers at 31 December Investment Manager Proportion of assets % Aegon Asset Management UK plc 6.0 Alliance Captial 5.5 Baillie Gifford & Co 8.9 Deutsche Asset Management Ltd 13.7 HG Capital Investment Managers Limited 0.1 Harbourvest Partners VII 0.1 The rest of the Fund s assets are actively managed which means that the investment manager picks out markets and industries showing potential growth. The aim is to outperform the general market by choosing the right areas for investment. As you can see from the pie chart below the assets are invested in a broad mix of equities, bonds and an investment in long lease property to further diversify the investment pool. An investment was made in December 2004 for the extra contributions of 47 million paid in by the Company to help boost the Fund s financial health. Legal & General Investment Management Ltd 26.9 Putnam Investments Limited 21.0 Schroder Investment Management (UK) Ltd 8.8 Marathon Asset Management 6.1 Standard Life Investments Limited 2.8 Equity Cash 0.1 The Investment Committee of the Trustee spends a lot of time assessing what the right balance is for the investments within each section and overall for the fund. The Committee is currently undertaking a review of the investment strategy as part of the actuarial valuation and any changes to the mix of investments or approach will be reported on in a future issue of Spotlight. At the moment, approximately 26.9% of the Fund s assets are managed passively. This means that these assets are invested in all the companies quoted on a particular market or index e.g. the FTSE (Financial Times Stock Exchange) All-Share Index in the UK. The result is that the investments are spread widely across a whole range of different companies and industry sectors. The aim of an index fund is to match the return of that particular index. The investment manager is not trying to do better than the index, but equally, the investment manager should do no worse. UK Equities 24.5% Overseas Equities 32.6% UK Bonds & Overseas Bonds 39.8% Property 2.7% Cash/Others 0.4% Investment performance to 31 December 2004 The Fund outperformed the benchmark by 0.9% during 2004 giving a return of 10.2% compared to the benchmark return of 9.3%. The performance of each investment manager is measured by The Northern Trust Company and the returns for the individual sections for the year to 31 December 2004 are as follows: Fund % Benchmark % Difference Marsh % Sedgwick % Mercer % Investment comment 2004 turned out to be a better year than expected with UK bonds performing well. Almost half of the equity returns came in the last quarter of the year following the US presidential elections and the easing of oil prices. Economic and corporate earnings growth was good despite some concerns about rising US interest rates, policy changes in China and a strong euro. 6

7 Money Purchase benefits Members of the Money Purchase (Defined Contribution) section of the Fund now have access to 12 investment funds for their individual accounts. The eight new funds which were introduced recently are: FUND WHAT IT DOES Legal & General Passive Management Index funds aim to eliminate the risk of poor share selection and deliver returns that are close to market returns. They do this by investing in most of the companies within the relevant market measured by the index. Ethical Global Equity Index UK Equity Index Overseas Equity Fund The Fund is designed to capture the returns of the FTSE4Good Global Index. FTSE4Good is an index series for socially responsible investment, which was designed with the support of UNICEF, the United Nations Children s Fund, and uses data provided by EIRIS, the Ethical Investment Research Service. The FTSE4Good Advisory Committee is responsible for the management of the FTSE4Good selection criteria and for undertaking the review of all FTSE4Good Indices. The FTSE4Good Index excludes completely, companies that are significantly involved in tobacco production, the manufacture of whole weapons systems or strategic parts or services for nuclear weapon and those who operate nuclear power stations or mine/process uranium. When deciding whether to exclude companies outside these sectors, FTSE4Good classify companies based on their impact on the environment. The Fund aims to capture the returns of the UK equity market. It tracks the FTSE All- Share Index and is invested only in UK equities. This Fund aims to capture the total returns of North American, European (ex-uk), Japanese and Asia Pacific (ex-japan) equities as represented by the FTSE World Indices, while maintaining the Fund s distribution within control ranges determined by the Trustees. Threadneedle Active Management Active managers use in-depth research and market experience to pick out markets and industries showing potential growth. The aim is to outperform the general market by choosing the right areas for investment. Global Equity 60/40 Fund Overseas Equity Fund UK Equity Fund High Alpha Fund Corporate Bond Fund Invests in a spread of equities across the UK and abroad. The aim is to bring in a return of 1.5% or more above the benchmark for each market index. Invests in a range of pooled pension funds giving a balanced overseas portfolio. The aim is to bring in a return of 2% or more above the benchmark. Primarily invested in the UK this fund aims to produce a return of 1% - 1.5% or more above the FTSE All Share Index. Investing in UK equities, this fund aims to achieve 2% or more above the FTRSE All- Share Index. Investing mainly in corporate bonds issued by UK companies, this fund aims to achieve a return of 0.5% above the ibox Sterling non-gilt Index. 7

8 Investment performance The investment performance of the various funds (gross of fees) within the Money Purchase Section for the year to 31 December 2004 is set out in the table below: Legal & General (passive) Fund Benchmark % % Global Equity 60: Index Fund Over 15 year Gilts Index Over 5 year Index linked Gilt Index Reviewing your investments It s always a good idea to reassess where your money is (gross of fee) invested on a regular basis. The Fund gives you the opportunity to move your money around so that you are actively involved in choosing the investments that you feel comfortable with. You can switch your investments twice a year and the Company will pick up the administration cost for this. Any more changes in a year and you will need to pay the charges for moving your money. The application form for switching can be downloaded from the website and your money will be moved to the new fund the following month. Cash Fund DB Equity Pool (active) For the new funds there is a six month investment performance report to the 31 December 2004 as follows: Fund Benchmark % % Legal & General (passive) Ethical Global Equity Index UK Equity Index Overseas Equity Fund Threadneedle (active) Global Equity 60/40 Fund Overseas Equity Fund UK Equity Fund High Alpha Fund Corporate Bond Fund

9 The Trustee... Trustee board...and Advisers Company Appointees Elected Members Hady Wakefield (Chairman) Wendy Beaver, Mercer Matt Bartley, MMC Oliver Crispin, Marsh Peter Felton, Mercer Stuart Faloon, Mercer Mike Jones, Marsh Andrew Fewster, Marsh Philip Gregory, Marsh Gordon Pollock, Mercer Linda Shepherd, Mercer Company Secretary to the Trustee Toni Foster, FCIS Fund Actuary Auditors Investment Managers Legal Advisers Pensions Manager Fund Administrator Fund Consultants Custodians Banker Life Assurance Jonathan Bernstein FIA of Mercer Human Resource Consulting Limited Deloitte & Touche LLP Aegon Asset Management UK plc Alliance Capital Limited Baillie Gifford & Co Deutsche Asset Management Limited Harbourvest Partners, LLC HG Capital Investment Managers Limited Legal & General Assurance (Pensions Management) Limited Marathon Asset Management Limited Northern Trust Global Cash Funds Plc Putnam Investments Limited Schroder Investment Management UK Limited Standard Life Investments Limited (Private Equity) Standard Life Investments Limited (Long-Lease Property) Threadneedle Pensions Limited (appointed 1 July 2004) UBS Global Asset Management (UK) Limited Linklaters Kevin Scott APMI Mercer Human Resource Consulting Limited Mercer Human Resource Consulting Limited The Northern Trust Company and PFT Limited National Westminster Bank plc Legal & General Group plc Scottish Equitable plc Canada Life Limited Generali Employee Benefits UK UNUM Limited 9

10 The Pensions Forum The Pensions Forum acts as a link between employees and the Trustee. The current members of the the Pensions Forum are: Sarah Pearse HR Director, Mercer Company appointee, joint chair Janet Elms UK HR Director, Marsh Company appointee, joint chair John Ashbolt Mercer Pensioner Elected Nicholas Bacon Active member of Marsh Elected Graham Burgess Active member of Mercer Elected Jenny Massey Marsh Pensioner Elected Chris Merry Active member of Marsh Elected Clare Owen Active member of Mercer Elected Kevin Scott Pensions Manager Company appointee Simon Thurgood Active member of Marsh Elected Paul Wotherspoon Active member of Mercer Elected 10 Who to Contact If you would like to contact a member of the Pensions Forum regarding a pensions issue, please use the following address: PensionsForum.uk@mercer.com Pensions Forum Representives 24/03/05 09/09/05 John Ashbolt Nicholas Bacon Graham Burgess WC WC Janet Elms Andrew Fewster N/A Jenny Massey Chris Merry AL Clare Owen WC WC Sarah Pearse WC WC Kevin Scott Simon Thurgood (appointed 06/06/05) N/A Paul Wotherspoon Trustee meeting attendance 16/12/04 09/03/05 06/06/05 11/10/05 Matt Bartley (appointed 04/04/05) N/A N/A Wendy Beaver S Oliver Crispin Stuart Faloon AL Peter Felton (appointed 01/07/05) N/A N/A N/A Andrew Fewster (appointed 06/06/05) N/A N/A AL* Philip Gregory Mike Jones WC WC Gordon Pollock WC Linda Shepherd (appointed 22/04/05) N/A N/A Hady Wakefield (Chair) A = Alternative Attended ML = Maternity Leave JS = Jury Service AL = Annual leave BT = Business Trip WC = Work Commitments A = Alternative Attended - ML = Maternity Leave - JS = Jury Service - AL = Annual Leave - BT = Business Trip - WC = Work Commitments - S = Sickness - *arranged prior to appointment We will then forward your query to the appropriate Pensions Forum representative for attention. However, if you would like to address your query to a particular member, please name them. The following tables show the attendance record of each Trustee and Forum Representative at the meetings which have taken place over the period since the last edition of Spotlight was produced. As always, it is inevitable that not all members are able to attend every meeting. However, input is received and feedback given for each meeting.

11 Keeping in touch useful information and contact points You can contact the administrator of the MMC UK Pension Fund at: MMC UK Pension Fund PO Box 476 Westgate House 52 Westgate Chichester PO19 3WZ Tel: Further information If you would like any further information regarding any topic in this newsletter, you should contact Sarah Baron at the following address: MMC UK Pension Fund Tower Place London EC3R 5BU Fax: The Marsh Mercer Welfare Trust This Trust fund is entirely separate from the Pension Fund and is available to all employees and pensioners. Awards are made to help employees and pensioners who are faced with financial hardship. Should you feel that the Trust could assist you, you should apply in the first instance to your Human Resource representative if you are a current employee, or to your Pensioner Consultant if you are a pensioner. The Trust Administrator, Barbara Clarke, is retiring at the end of the year. From 21st December 2005, the responsibility for administering the Welfare Trust will change to the Marsh Human Resources Department at Tower Place. You can write to the administrator at the following address: Marsh Mercer Welfare Trust Marsh Human Resources Department 6th Floor Tower Place East Tower Place London EC3R 5BU This newsletter is written in general terms and is not intended to modify the MMC UK Pension Fund or alter in any way the benefits you are entitled to under the Fund. In the event of this newsletter conflicting in any way with the Trust Deed and Rules then the Trust Deed and Rules will prevail. If you wish to see a copy of the Trust Deed and Rules they are available for inspection and you should contact Sarah Baron at the above address to arrange a time to do this.. 11

12 Designed & produced by MercerHR 7146Lon05