MEMBER AUTUMN 2017 BRIEFING. For members of the Mitchells & Butlers Executive Pension Plan

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1 MEMBER AUTUMN 2017 BRIEFING For members of the Mitchells & Butlers Executive Pension Plan

2 CHAIRMAN S WELCOME Welcome to the 2017 Member Briefing for members of the Mitchells & Butlers Executive Pension Plan. Here you can read the latest news about the Plan and an update on pensions in general. The trustees have had a busy year finalising the results of the 2016 valuation (relating to the security of benefits in the DB Section) and getting agreement from the Company on how to address the funding shortfall. The details are set out on pages 6 to 9. You can read a summary of the Plan s finances on the page opposite, detailing the money that has gone into and out of the Plan. This information is taken from the Trustee s Annual Report & Accounts, a copy of which is available on request from the M&B Pensions Department ( pensions@mbplc.com). However, remember that if you want information about your personal benefits in the Plan you need to contact the relevant administration team BlackRock, if you are a DC Section member, and Mercer, if you are a DB Section member. See the back page for details. We are always interested to hear your feedback, so if you have any comments or questions on the Plan, please get in touch using the contact details on the back page. Mike Bramley Chairman of the Trustee 2

3 MONEY MATTERS The following table summarises the Plan s total income and money that has been paid out as benefits to members and as fees to advisers. The Trustee publishes its financial accounts once a year, which are audited by PricewaterhouseCoopers LLP. The auditors have confirmed that the 2016/17 financial statements are a true and fair reflection of the Plan s income and expenditure. DC Section DB Section Total Plan Value at 1 April m 506.4m 521.1m Plus money in 1.1m 10.8m 11.9m Less money out 0.6m 27.3m 27.9m Plus the rise in the value of investments 2.6m 96.2m 98.8m Value at 31 March m 586.1m 603.9m MEMBERSHIP AS AT 31 MARCH 2017 DC SECTION 59 active members 86 deferred members 12 opted-out members DB SECTION TOTAL: 157 TOTAL: employed deferred members FIND IT ON THE WEBSITE You can download the Plan s full Report & Accounts. 327 deferred members 427 pensioners and beneficiaries 3

4 DC SECTION INVESTMENTS Members in the DC Section can choose to invest their Plan account in a range of investment funds selected by the Trustee, with help from its professional advisers. The table opposite shows the investment performance achieved by these funds over the year to 31 March The funds highlighted in red are those used in the Plan s Lifestyle strategy. Lifestyle is an automatic investment strategy used by most of our DC members that manages the investment of your account, based on how many years away you are from retirement. Fund return (%) 12 months to Cash Fund 0.5 Index-Linked Gilt Fund 21.0 DC Choice Growth Fund 16.8 Global Equity Index Fund 22.4 Diversified Growth Fund 4.0 Long Gilt Fund 12.3 Overseas Consensus Index Fund 33.1 UK Equity Index Fund 22.4 North America Equity Index Fund 35.0 Europe Equity Index Fund 28.0 Asia Pacific Equity Index Fund 36.6 Japan Equity Index Fund 32.9 Property Fund 2.4 Sterling Bond Fund 7.1 4

5 DB SECTION INVESTMENTS The DB Section s assets are invested in the Mitchells & Butlers Common Investment Fund (CIF), which is available to all the Company s Defined Benefit pension plans. The CIF invests in a range of traditional assets, including equities (both publicly-traded companies and privately-owned companies), bonds and property. Splitting the assets between different types of investments helps to smooth out some of the ups and downs of the market. As at 31 March 2017, the assets were split as follows: The table below shows the investment return over the last 12 months, three years and five years. Period to 31 March 2017 Actual Fund return Benchmark return 1 year (%) years (% p.a.) years (% p.a.) Return-seeking assets 39% Liability-matching assets (government and corporate bonds) 61% 5

6 SUMMARY FUNDING STATEMENT This statement has been produced by the Plan s Trustee in order to: 1 2 Provide a summary of the results of the latest actuarial valuation. Set out the Trustee s funding objectives for the Plan. HOW DOES THE PLAN WORK? The benefits of DB Section members are set out in the Plan s rules and are based on the member s final salary at retirement or earlier leaving, or on the member s salary at 12 March 2011, when the DB Section closed to future accrual. Benefits are paid to members from the Plan s assets. The Company pays contributions into the DB Section but member contributions ceased from March Outline the steps being taken to improve the funding of the Plan. IF YOU ARE A MEMBER OF THE DC SECTION ONLY, YOU DO NOT NEED TO READ THIS STATEMENT AS IT DOES NOT APPLY TO YOUR BENEFITS IN THE PLAN. As part of this statement, we need to tell you if the Pensions Regulator has used its powers in relation to the Plan over the last year, for example by changing the way future benefits build up, or amending the employer contribution rate. We are pleased to confirm that the Regulator has not used its powers in relation to the Plan over the last year. We can also confirm that there have not been any payments to the Company from the Plan in the last year. 6

7 WHAT IS AN ACTUARIAL VALUATION? HOW IS IT USED? Periodically the Plan s actuary assesses the financial position of the Plan by carrying out an actuarial valuation. The main purpose of the valuation is to help determine the financial position of the Plan. It also helps the Trustee to set the investment strategy for the Plan s assets. An actuarial valuation must be carried out at least once every three years and an actuarial valuation was completed showing the Plan s position as at 31 March The next triennial valuation is planned for 31 March As part of the valuation, the actuary estimates the cost of providing the benefits earned in the Plan, taking into account members life expectancy, the effects of future salary growth and price inflation. The Trustee s funding target (i.e. the value of assets which are needed to provide for all members benefits) partly depends upon the anticipated returns from the Plan s assets. The Trustee decided to set the funding target prudently by assuming that the Plan makes investment returns in line with those achieved by investing in government bonds (gilts) plus a small extra amount (0.8% per annum) for the period to 31 March

8 SUMMARY FUNDING STATEMENT CONTINUED The results of the Plan s valuation at 31 March 2016 and the most recent funding update as at 31 March 2017 on this basis were: Actuarial valuation as at 31 March 2016 million HOW DOES THE TRUSTEE INTEND TO RECOVER THIS FUNDING SHORTFALL? Funding update as at 31 March 2017 million Assets held Funding target Shortfall (106) (98) Funding level (%) 83% 86% The Trustee takes the financial strength of the Company into account when agreeing the contributions and recovery plan with the Company. It has therefore been agreed with the Company that the funding shortfall as at 31 March 2016 would be recovered within eight years of the valuation date. This is planned to be achieved by a combination of additional contributions by the Company (as set out in the next paragraph) and achieving additional returns from the assets held. The Trustee and Company have agreed rates of Company contributions to the DB Section of the Plan of 896, per month, backdated to 1 April 2016, and increasing in line with the annual change in the Retail Prices Index (RPI) (up to a maximum of 5% each year) from 1 April The Company has also granted an additional package of enhanced contribution and security arrangements for the Plan, the details of which are available in the full Report & Accounts. HOW HAS THE FUNDING POSITION CHANGED DURING THE PERIOD TO 31 MARCH 2017? We previously told you that the funding shortfall was calculated at 149 million as at 31 March The valuation at 31 March 2016 showed that this had fallen to 106 million. The main reasons for the change in the shortfall over 2015/16 were the contributions paid in by the Company, updated assumptions being made about life expectancy in the 2016 valuation (following more detailed analysis of the Plan s membership profile) and the more accurate calculations which were carried out as part of the valuation. 8

9 At 31 March 2017 the funding shortfall was calculated at 98 million using assumptions consistent with the 2016 valuation. The improvement over 2016/17 was largely due to strong investment returns and the contributions paid in by the Company, offset by a fall in gilt yields (which increased the expected cost of providing members benefits). WHAT IS THE CURRENT SOLVENCY POSITION? The following table shows the actuary s estimate of the cost of an insurance company taking on the Plan s liabilities ( buying out the Plan). 31 March 2016 million 31 March 2017 million Assets held Funding target Shortfall (156) (203) Funding level (%) 76% 74% WHAT HAPPENS IF THE COMPANY IS UNABLE TO MEET ITS COMMITMENT TO THE PLAN? There is a safety net for members of occupational pension schemes that have to wind up in the form of the Pension Protection Fund (PPF). To benefit from the PPF the employers must generally be insolvent and the assets of the plan insufficient to secure the pensions covered by the PPF. Briefly, the PPF will provide DB members and pensioners below normal pension age with 90% of their accrued pension, subject to a cap. This cap currently limits compensation to around 29,493 per annum at normal pension age. Pensioners over normal pension age and incapacity pensioners will receive 100% of their uncapped pension. However, in all cases, future increases to pensions in payment will be lower than the rates applicable under the Plan and there are some other differences compared with Plan benefits. Further information and guidance is available on the PPF website at or you can write to the PPF at Renaissance, 12 Dingwall Road, Croydon, Surrey CR0 2NA. 9

10 MONEY PURCHASE ANNUAL ALLOWANCE From April 2015, anyone taking income from a flexible drawdown plan or using an uncrystallised funds pension lump sum (UFPLS) will trigger the Money Purchase Annual Allowance (MPAA) of 10,000. On 6 April 2017, the MPAA was reduced from 10,000 to 4,000. Legislation for this reduction was put on hold in the lead up to the June general election. However, it has subsequently been confirmed that the reduction will go ahead as planned and members should note that it applies from this current 2017/18 tax year. If you take flexible drawdown and only take your tax-free cash, the MPAA does not apply; it is only when you receive a taxable drawdown that the MPAA is triggered. Contributions above the MPAA trigger an additional tax charge which is designed to deter pension savings being recycled to take advantage of tax relief on pension contributions. ANNUAL ALLOWANCE RE-CAP The Annual Allowance (AA) is a limit on the amount that can be contributed to your pension each year without incurring additional tax charges. It s based on your earnings for the year and is capped at 40,000 (or less for the highest earners). The AA applies across all of the schemes you belong to; it s not a per scheme limit and includes all of the contributions that you or your employer pay or anyone else who pays on your behalf. (For defined benefit schemes, the AA is based not on contributions but on the increase in value of the accrued benefits.) The MPAA works in a different way to the standard Annual Allowance in that it refers to contributions made to DC arrangements only. Also, when measuring the MPAA, you cannot carry forward unused MPAA from the previous three years. 10

11 MANAGING THE PLAN The Plan is run by a Trustee Board that is made up of nine trustee directors, three of whom are nominated by the members. The Trustee Board is made up of the following trustee directors: NOMINATED BY MEMBERS John Appleton (reappointed 6/10/2016) Sue Maslen (reappointed 6/10/2016) Sheila Mellish (appointed 6/10/2016) APPOINTED BY THE COMPANY AAA Trustee Limited (appointed 7/10/2016) Trustee Services Limited (appointed 5/7/2016) INDEPENDENT Mike Bramley (Chairman) Jonathan Duck (appointed 1/7/2016) Martin Thomas (appointed 14/10/2016) Law Debenture Pension Trust Corporation plc PENSION INCREASES Pensions in payment and deferred pensions (in excess of the Guaranteed Minimum Pension) will be increased on 1 October 2017 by 3.7% in line with the change in the Retail Prices Index (RPI) in the year ending 31 May PENSION PAYMENT DATES Pensions are typically paid in advance on the first working day of each month. For example, the pension you received on 1 September is to cover the period from 1 September to 30 September. When the first of the month falls on a bank holiday or weekend, pensions are paid on the first working day of the month. In 2018 pensions will be paid on the first of the month except for 1 January, 3 April, 2 July, 3 September and 3 December. Your January 2018 pension instalment will be paid on 21 December

12 KEEPING IN TOUCH DC SECTION If you have any questions about your benefits in the DC Section, please contact the administration team at BlackRock: BlackRock Retirement Service Centre, PO Box 705, Peterborough PE1 1ZL Telephone: TargetPlan: DB SECTION If you have any questions about your deferred benefits in the DB Section, or your pension payments, please contact the administration team at Mercer: Mitchells & Butlers Pensions, Mercer, 4 Brindley Place, Birmingham B1 2JQ Telephone: mbplc@mercer.com Mercer OneView: PENSION SCAMS Pension scams are on the increase. One in five people over the age of 50 have been targeted by scammers trying to con them out of their pension savings. If someone contacts you out of the blue to talk about your pension, please be very careful. You could lose your entire lifesavings don t let it happen to you. To find out more, please see The benefits provided by the Plan are governed by the Plan s Trust Deed and Rules (copies of which are available on request). Nothing in this Member Briefing confers any right to benefits save as provided by the Trust Deed and Rules and in the event of any inconsistency between this Member Briefing and the Trust Deed and Rules, the Trust Deed and Rules prevail. This Member Briefing does not constitute legal advice or financial advice and should not be relied upon as such. The description of legislation in this Member Briefing is intended as a basic guide only, not a comprehensive or exhaustive guide to the legislation