The Delta Pension Plan Pensions Report March 2015

Transcription

1 The Delta Pension Plan Pensions Report March

2 Contents Introduction 03 Who is the Trustee? 05 Meetings 05 Membership Numbers 05 Financial Summary 06 Investment Strategy 07 Investment Performance 09 Benefits & Pension Increases 11 Key Activities 13 Additional Voluntary Contributions 16 Other Sources of Information 17 State Pension Update 18 Looking After the Plan 19 02

3 Introduction Welcome to the 2015 annual informal Pensions Report to members of the Delta Pension Plan (the Plan) where you will find summary details about the Plan s finances and investments together with latest developments affecting the running of the Plan. The key financial information has been taken from the audited Trustee s Report and Accounts for the year ended 31 March 2014, a copy of which is available from the Secretary, whose details are provided at the end of this report, and also from the Plan s website ( valmont/investors/delta-pension). The Plan s Actuary assesses the funding position of the Plan by carrying out a valuation every three years, which looks at the balance between the assets and liabilities of the Plan. The next valuation is scheduled to take place as at 31 March 2015, the results of which will be reported in the next Summary Funding Statement. As noted in the recent Summary Funding Statement (issued to members in November 2014), the Actuary also provides a formal annual funding update in between the valuations, the most recent one being as at 31 March 2014, which showed an estimated deficit of 69.3m (corresponding to a funding level of 82%). However, the impact of falling Government bond yields from Q onwards (used as a basis for valuing liabilities), was largely responsible for increasing the estimated deficit to 85.5m as at 30 September In the meantime, Delta Limited (Delta), the Plan sponsor, is continuing to make its agreed cash contributions to the Plan of 10 million p.a. up to 31 March 2022, which may well change when the 31 March 2015 valuation has been finalised and agreed with Delta. In the 2014 Budget, the Chancellor announced a package of measures designed to give members of pension schemes greater flexibility over how they use their retirement savings. The changes announced primarily relate to defined contribution (DC) schemes, although there are also implications for members of final salary schemes, also known as defined benefit (DB) schemes, which includes the Plan. The changes may be of interest to some members with small pension pots wishing to exchange them for a lump sum payment or to members seeking greater freedom of choice by transferring their benefits to a DC arrangement. Please refer to the 2014 Budget and the Trivial Commutation sections of this report for further details. As always, the Trustee is not permitted to advise you on any of these aspects so, if you are interested in taking advantage of the additional flexibilities arising from the 2014 Budget, I urge you to take independent financial advice before doing so. 03

4 We again wish to draw attention to pension scams that can threaten member pensions and continue to be a growing concern in the pensions industry. The situation is expected to worsen as a result of the increased pension flexibility and freedom of choice announced in the 2014 Budget, and the danger is therefore again highlighted in this year s report, together with the enclosed note from the Pensions Regulator. Once again, the past year has been eventful for the Trustee Directors in tackling various technical issues and significant projects, as part of their responsibilities to ensure the Plan is well run and able to provide member benefits now and into the longer term future. I would therefore like to thank, on your behalf, my fellow Trustee Directors for their hard work, enthusiasm and commitment shown throughout the year. I also think it s appropriate to recognise the importance of the timely and professional guidance from the Plan s advisers and continuing support from Delta for demonstrating its commitment to ensure the Plan is viable and sustainable for the long term future. I hope you find this report useful and the Trustee welcomes any feedback you may have, which should be addressed to the Plan s Secretary. David Pearce Chairman 04

5 Who is the Trustee? The legal Trustee of the Plan is a company called Delta Pension Nominees Ltd and the individuals listed below are directors of that company. The Trustee Directors have overall responsibility to ensure the Plan is effectively managed in accordance with the Plan s Trust Deed & Rules and must always act in the best interests of all Plan beneficiaries. The Trustee Directors have a number of specific duties including acting impartially, prudently, responsibly and honestly, with an overriding objective to pay all benefits when they fall due in accordance with the Plan Rules. Meetings At 31 March 2014, the Trustee Board comprised the following Directors: David Pearce (Chairman) Company Appointed Jon Kempster Member Nominated Independent Trustee Services Limited, represented by Chris Martin Company Appointed The Trustee Directors held four formal Trustee meetings during the Plan year ending 31 March In addition, four informal or review meetings were held in this period with the Plan s advisers and/or Secretary in attendance. A further two meetings were held with representatives from Delta s Board of Directors. Membership Numbers The table below shows the membership at 31 March 2014 and the comparable figures for the previous year-end. 31 March March 2013 Members with deferred pensions 4,951 5,348 Pensioners and dependants 1,406 1,232 Total 6,357 6,580 The reduction in total numbers year-on-year was mainly attributable to eligible members opting for full commutation of their pension benefits at retirement, members transferring to other schemes and member deaths (where there were no spouses). 05

6 Financial Summary The table opposite shows the money going into and out of the fund during the year, and is extracted from the full Trustee s Annual Report and Accounts for the year ended 31 March 2014, audited by Clement Keys. A copy can be obtained on request from the Secretary to the Trustee. The figures do not include obligations to pay pensions or benefits which fall due after 31 March As you will see in the table, the fund increased in value by 8.6m to 317.7m in the twelve months to 31 March 2014, attributable mainly to the following key factors: An increase in the market value of investments of 2.8m Contributions from Delta of 15.2m. This comprised deficit contributions of 13.7m received in accordance with the Recovery Plan agreed following the Actuarial Valuation as at 31 March 2012 (ie 3.7m paid 2 July 2013 and 10m paid 31 March 2014), a further 1.0m contribution towards Plan administration costs and a voluntary contribution of shares to the value of 0.5m. What came in m Contribution from Delta 15.2 Total Receipts 15.2 What went out m Pensions and lump sums 6.9 Payments to leavers 0.8 Investment & administration costs 1.2 Bulk Annuity Purchase 0.5 Total Payments 9.4 Movement in fund m Fund Value at 31 March Total receipts 15.2 Total payments (9.4) Change in market value of investments 2.8 Fund Value at 31 March offset by Benefits paid out and management fees A payment of 0.5m to complete the purchase of benefits in the bulk annuity contract with Pensions Insurance Corporation. 06

7 Investment Strategy As part of the funding challenges facing the Plan, the Trustee is responsible for setting the Plan s strategic investment objectives under the guidance of its professional adviser, Towers Watson, and in consultation with Delta as the Plan s Sponsor. One of these objectives is to determine the asset allocation, i.e. the proportions that should be invested in the different classes of assets such as equities (shares in companies), corporate bonds, government gilts and property etc, and also the choice of investment managers who deal with the day-to-day investment decisions. As noted in last year s Pensions Report, the Trustee and Delta have agreed to a revised longer term asset allocation of 55% growth assets (equities and diversified growth funds, explained below) and 45% in fixed income assets (corporate bonds/gilts) and cash, although this will be kept under periodic review to ensure the Plan is on course to help achieve its funding objectives. At 31 March 2014, the asset allocation was as follows: Allocation at 31 March 2014 Strategic Objective Asset Class % % Global Equities Diversified Growth Funds (DGFs) Corporate bonds Index linked gilts Other (including cash)

8 As you can see, the actual allocation was close to the strategic objective, the small difference resulting from the relative market performance of the underlying assets which usually occurs over time. The Trustee reviews the actual asset mix on a quarterly basis to assess whether any rebalancing is required to restore it in line with the strategic objective. The investment in equities is on a worldwide basis (including the UK) comprising developed and emerging markets, and is split broadly in proportion to the respective market capitalisation (total value of shares issued) in the various countries. Around 75% of the overseas investments are hedged, which is a technique used to manage the degree of risk from currency movements against sterling. The equities are managed on a passive basis, within Legal & General index tracker pooled funds. DGFs are funds that invest in a wide range of asset classes e.g. global equities, bonds, property, infrastructure, commodities, and are managed actively by a third party investment fund manager. The long term aim is to produce equity like returns but with lower volatility, and the delivery of performance depends very much on the strength and skill of the fund manager. Two DGF managers Schroder and Fulcrum manage these funds. The corporate bond and index linked gilts holdings continue to be managed passively by Legal & General. 08

9 Investment Performance The spread of assets by investment manager at 31 March 2014 was as follows: Legal & General Overseas Equities 29.94% Legal & General Index-linked Gilts 22.33% Legal & General Corporate Bonds 18.83% Legal & General UK Equities 2.60% Schroder Diversified Growth Funds 12.82% Fulcrum Diversified Growth Funds 8.57% Cash and other 4.57% RMB/Morgan Stanley Overseas equities * 0.12% BlackRock UK pooled investments * 0.03% AVCs* 0.19% * The proportions of these investments are too small to register on the pie chart. In the year to 31 March 2014 Legal & General remained the major investment manager for the Plan, as the above chart indicates. The actual achieved return for the separate funds for the year ended 31 March 2014, compared with the return of the relevant market index or comparator, is shown on page 10. The overall return on the fund for the year to 31 March 2014 was 1.1% compared with a benchmark of 1.9%, with both figures including some estimation due to the strategic asset allocation changes at various times in the year. This compares with a return of 13.3% in the year to 31 March 2013, where market conditions were generally more favourable across all asset classes. 09

10 Legal and General The following table shows the returns for Legal & General s individual funds against benchmarks and, due to the impact of the reallocation of assets commencing mid-year, the annual return figures for equities (actual fund and benchmarks) have been projected on an estimated basis: Fund % Benchmark % UK Equity Index 8.9 * 8.8 * Developed World (ex UK) Equity Index 8.8 * 8.9 * Developed World (ex UK) Equity Index Sterling Hedged 19.7 * 19.9 * World Emerging Markets Equity Index * * Investment Grade Corporate Bond Over 15 Year Index Over 15 Year Index-linked Gilt Index Cash * These are indicative annual returns as the benchmarks were changed mid-year The Plan s assets invested in Legal & General s pooled funds in the above categories are passively managed on an index tracking basis. Corporate bonds are managed with the object of tracking the Investment Grade Corporate Bond Over 15 years Index Fund, index-linked gilts track the FTSE A Index-Linked Over 15 Year Index, and UK equities track the FTSE UK All Share Index. Overseas equities track a combination of the Developed World (excluding the UK) Equity Index, the Developed World (excluding the UK) Equity Index Sterling Hedged, and the World Emerging Markets Equity Index. Diversified Growth Funds Investments in the Schroder and Fulcrum diversified growth funds were made after 31 March 2013 (November 2013 and February 2014, respectively). Shown below are the returns since inception: Fund % Benchmark % Schroder Life Diversified Growth Fund Series TM Fulcrum Diversified Absolute Return Fund 0.8 N/A 10

11 Benefits & Pension Increases The benefits provided by the Plan are as set out in announcements, booklets and the Trust Deed and Rules. In the event of any discrepancy between this member report and the Trust Deed and Rules, the latter will prevail. Pension Increases Under the Plan s Rules, annual increases to pensions in payment are applied each October and are notified individually to each pensioner. The increases are generally linked to the year-on-year movement in the Retail Prices Index (RPI), but some members receive increases based on the Guaranteed Minimum Pension contractingout requirements, and, where historical guarantees apply, increases will continue to be paid subject to any restrictions imposed by legislation or the Plan Rules. 6.0 % History of Pension Increases In 2010 and 2011, increases to pensions in payment were capped at 5% in accordance with the Plan Rules. 11

12 2014 Budget In the 2014 Budget, the Chancellor announced a series of wide reaching changes to increase the flexibility and choice of how to take pension benefits, primarily aimed at members of defined contribution (DC) schemes, although this will have a knock on effect for members of defined benefit (DB) schemes. This may impact members of the Delta Pension Plan who have low value benefits or those wishing to transfer their benefits out of the Plan. Please refer to the briefing note that was circulated to members with the Summary Funding Statement last November, a copy of which can be found on the Trustee website (see opposite). Capita Employee Benefits (the Plan s administrators) have started an exercise to identify which members may be eligible to take a lump sum benefit if they have low value benefits in the Plan (see on page 15, under Trivial Commutations). With regard to the changes relating to transfers-out, with effect from 6 April 2015, members aged 55 or over seeking greater flexibility, can transfer their pension benefits into a DC arrangement outside the Plan, or into any other alternative approved pension arrangement. However, if the transfer value is 30,000 or more, members will have to provide evidence that they have taken independent financial advice. If you believe you may be eligible and wish to take advantage of the additional flexibilities arising from the 2014 Budget mentioned above, please contact the plan administrator, Capita, at the address shown at the end of this report. Please note that the Trustee cannot give you personal advice. If you do not currently have a financial adviser, you can find one through the following website: or by phoning Please also refer to the sections in this report on Pension Scams and on Additional Voluntary Contributions. 12

13 Key Activities In addition to completion of the reallocation of assets under the investment strategy changes mentioned earlier, the following key issues were either addressed by the Trustee during the year or will continue to be pursued over the coming months: Summary Funding Statement The 2014 Summary Funding Statement, summarising the financial health of the Plan, was sent to members in November Covenant assessment All trustees of pension schemes have a duty to assess and review their respective employer covenant, which means its legal obligation and financial ability to support the scheme now and into the long term future. This requires regular and appropriate monitoring and action to ensure security of future benefits, in accordance with guidance issued by the Pensions Regulator. In your Plan, this activity is carried out by the Trustee in conjunction with Lincoln Pensions Ltd (the Plan s covenant adviser). Valmont Industries Inc (Valmont), Delta s ultimate parent company, continues to provide the Trustee with regular updates on the business structure and financial performance of the Valmont Group. This has enabled Lincoln to carry out regular covenant assessment updates, which have focussed on the overall Valmont Group financial performance, supplemented by a periodic review of Delta s balance sheet, which has remained generally favourable. Valmont remains committed to long term funding support for the Plan although, legally, Delta remains as the Plan s sponsor. Trustee Website The Trustee operates a website hosted by Valmont, which has been updated during the year. This enables members to have more ready access to information about the Plan (such as the detailed Report and Accounts) and member communications. The site can be found at: investors/delta-pension Pension Scams Members of pension schemes continue to be targeted by unscrupulous companies which encourage them to access their pension savings in breach of HMRC rules. Often, members are promised a free pension review or are told that there is a legal loophole which means they can unlock their pension and have all the savings as cash now. This frequently results in high tax charges and fees, significantly reducing the value of an individual s pension savings (and may also be against the law). These scams are expected to become more prevalent following the additional flexibilities announced in the 2014 Budget. 13

14 Capita, the Plan s administrator, continues to be alert to this danger and operates additional safeguards to its procedures to help identify potentially fraudulent activity. If you are contemplating transferring your pension benefits out of the Plan, please take time to read the guidance provided by the Pensions Advisory Service, using the following link: (then click on About Pensions, followed by Pension liberation plans. You should also ensure you take independent advice before deciding whether to transfer your benefits out of the Plan. From April 2015, it will be a requirement for members to confirm to the Trustee that they have received independent financial advice if the transfer value amounts to 30,000 or more. The Pensions Regulator has recently launched a new campaign to combat pension scams, and a copy of their warning leaflet is included with this report. Plan governance As mentioned in previous reports, the Trustee has adopted a governance policy which formalises the processes in place for the effective management of the Plan including compliance monitoring and risk management. The Trustee also has a policy in respect of conflicts of interest together with a conflicts register which is reviewed at each Trustee meeting. This encompasses the Directors and also the Plan s professional advisers and service providers. The Trustee is mindful of the various risks faced by the Plan and therefore maintains a risk register that identifies the key risks for the Plan, assesses the likelihood of their occurrence and potential impact, and records the monitoring and control mechanisms in place to guard against those risks. The Board has reviewed the risk register regularly throughout the past year and applied updates where necessary. The Trustee also operates a formal process for reviewing the performance of the Plan s professional advisers and service providers against pre-determined measurement criteria. 14

15 Data cleansing Work continued throughout the year, in conjunction with Capita, on the data cleansing exercise, to enhance the overall quality of the membership data held on Capita s systems. This initiative is in line with, and supported by, the Pensions Regulator s guidance, which urges all trustee boards to carry out such exercises. The work, in respect of Conditional Data (i.e. numerical data including benefits, transfers in etc.), was substantially completed during 2014, but will still be subject to periodic checks for accuracy thereafter. Trivial Commutations In parallel with the work on data cleansing, Capita has been reviewing the extent to which Plan members with low value pensions can be offered the option to commute their benefits into a simple lump sum payment. The 2014 Budget announced an uplift in the maximum size of small pension pots which can be commuted, ie from 2,000 to 10,000 in respect of a single pot, and from 18,000 to 30,000 for total benefits arising from a number of pension pots built up during an individual s working life. Capita has therefore extended this exercise to reflect these higher limits and will continue to offer trivial pension payments during At present, members with low value pensions can only commute their benefits from age 60, but this age limit will reduce to age 55 from 6 April Please note that the above figures represent the capital value of a pension and not the annual pension payment. Expression of Wish It is important that you keep your Expression of Wish form up to date to reflect any change in your personal circumstances or wishes. In the event of your death, the Trustee Directors may be required to exercise their discretion to determine how your pension benefits are apportioned amongst a range of potential beneficiaries. The Trustee Directors will consider all relevant information in reaching their decision, but your own wishes will be an important factor. Please contact Capita (at the address at the end of this Report) if you need to update your Expression of Wish details. Change of Address Maintaining your correct address on Capita s records is a key data requirement. Will you please, therefore, help us keep in touch with you by telling us if you change address? This can be done by contacting Capita whose contact details are shown at the end of this report. You will be asked for details of your NI number and date of birth, for verification purposes. 15

16 Additional Voluntary Contributions (AVCs) Those members who have made AVCs in the past will receive their annual AVC benefit statement as normal later this year. The Trustee Board has undertaken a review of investment performance, and some of the funds accessed by members have performed relatively poorly compared to their benchmark. The Trustee therefore encourages members to review their AVC statements carefully, in particular in respect of the performance achieved over both the short and longer term. In this year s statement, the Trustee will provide you with more information relating to the investment objectives of each AVC fund, and the related fund charges, to assist you with your review. Members may also wish to visit the following website to obtain more information on their chosen funds: Equitable Life: unit-linked-funds/fund-factsheets/ Friends Life: For further information, please contact Capita at the address shown at the end of this report. Unfortunately, the website is being updated and is currently unavailable. The Trustee recommends you take your own professional advice should you wish to review your AVC investments. If you do not have a financial adviser, then you may wish to visit the following website which has details of regulated financial advisers in your area: or by phoning The Plan Rules were amended in January 2015 to allow for the increased flexibilities available to members announced in the 2014 Budget, so that members can now transfer their AVC funds to an approved pension arrangement (subject to consent by the Trustee and Delta) and leave their remaining benefits in the Plan. 16

17 Other Sources of Information Pension Complaints Although the Trustee Board makes every effort to resolve any problems members may have in respect of the Plan, there is a formal procedure in place for the resolution of unresolved issues. The Trustee Board operates an Internal Dispute Resolution Procedure (IDRP). A copy of the IDRP is available on request from the Plan s Secretary or via the Trustee website (noted on page 13). As pensions legislation is very complex, difficulties may arise through misunderstandings which can be dealt with quickly and informally. For this reason the Trustee Board recommends that, before submitting a formal complaint, members should speak to Robert Hurst at Capita on an informal basis (tel. no ). If the matter cannot be resolved informally, or you are dissatisfied with the outcome of the informal procedure, you or your representative should write to: Bob Folley Secretary to the Trustee The Delta Pension Plan c/o JLT Benefit Solutions Ltd The St Botolph Building 138 Houndsditch London EC3A 7AW The Pension Advisory Service (TPAS) and the Pensions Ombudsman TPAS exists to help with any problems in connection with pension benefits. Problems, which cannot be resolved either internally or by TPAS, may be referred to the Pensions Ombudsman. Both TPAS and the Ombudsman may be contacted at: 11 Belgrave Road London SW1V 1RB Telephone (Ombudsman office) or (TPAS Office) The Pensions Regulator (TPR) TPR may be contacted where trustees, employers or professional advisors are felt to have failed in their responsibilities. TPR can be contacted at: Napier House Trafalgar Place Trafalgar Street Brighton East Sussex BN1 4DW Telephone The Pension Tracing Service This service enables members who lose contact with any previous employing company, to trace their benefits. The address is: Pension Tracing Service The Pension Service 9 Mail Handling Site A Wolverhampton WV98 1LU Telephone Website: 17

18 State Pension Update State Pension payments The Government has recently introduced radical changes to the provision of State Pension. From 6 April 2016, the existing basic State Pension and State Second Pension will be replaced with a simple, flat rate State Pension. In order to qualify for the full benefit under the new State Pension, individuals will be required to have 35 years of National Insurance Contributions, or relevant National Insurance Credits. Any qualifying years already accrued prior to the change will be carried forward to the new system. The proposed changes are designed to simplify the State Pension system and make it easier for individuals to understand and plan for their retirement. The single-tier pension will apply to future pensioners only. Those who are already over State Pension age when the reforms are implemented will continue to receive their State Pension in line with existing rules. For more details of these changes, please visit: State Pension Age changes Following changes announced in October 2010, the new State Pension age will rise to 66 for both men and women by Under the new plans, equalisation at age 65 will be achieved by 2018 and the increase from 65 to 66 will be phased in between 2018 and A subsequent increase to State Pension age, from 66 to 67, is intended to be phased in between 2026 and 2028, and the Government is working on plans for a further increase from 67 to 68 as a reflection of increased life expectancy. Please note, however, that these changes will have no impact on your retirement age in the Plan. Further information is available on: and click on Benefits, then Working, jobs & pensions followed by State pension. Should you require more information on State Pensions regarding: Basic State Retirement Pensions, SERPS/S2P and new State Pension - contact your local Department of Works and Pensions ( DWP ) office. A forecast of your State Pension entitlement - you can obtain form BR19 from your local DWP office, or apply on-line, or print out form BR19 through the above website. Deferring your state pension If you are coming up to State Pension Age, you may be able to defer taking your State Pension and then receive a lump sum or an increased State pension when you eventually retire. For further details on deferring your State pension, please contact the Pension Service at: or telephone

19 Looking After the Plan To help the Trustee Directors carry out their duties and responsibilities, they employ the services of a number of professional advisers, as follows: Plan Actuary Robert Birmingham Administrators Capita Employee Benefits Investment Consultants Towers Watson Limited Legal Advisers Wragge Lawrence Graham & Co LLP * Covenant Advisers Lincoln Pensions Ltd Investment Managers Legal & General Investment Management Ltd BlackRock Investment Management (UK) Ltd Schroder Pension Management Ltd Fulcrum Asset Management LLP RMB/Morgan Stanley Auditors Clement Keys LLP The administrators, Capita, can be contacted at the following address: Capita Employee Benefits Hartshead House 2 Cutlers Gate Sheffield S4 7TL Telephone: and the Secretary to the Trustee, Bob Folley, at the following address: JLT Benefit Solutions Ltd The St Botolph Building 138 Houndsditch London EC3A 7AW Telephone: Please quote your National Insurance Number when contacting either of the above. Bankers Lloyds Bank plc * Previously known as Wragge & Co LLP prior to their merger with Lawrence Graham LLP in

20 20 The Delta Pension Plan Pensions Report March 2015