Popular Report Benefit changes. Welcome. Financial overview. Asset liability study. Pensions Board. Valuation

Transcription

1 Popular Report 2007 Asset liability study

2 Asset liability study to the popular version of the 2007 Annual Report and Accounts. We hope that you will find the information useful and of interest. As well as the financial information, we are including a report on the Plan s asset liability study, which was carried out by our investment adviser after the last full valuation of the Plan. We also update you on the latest benefit changes agreed with the Company, and tell you more about the next Plan valuation, which has been brought forward by a year. If you wish to view the report online, you will be able to access it at The full report covers 30 A4 pages but if you would like to see a printed copy, please contact the Pension Department at the address below. The Pension Department Griffin House Osborne Road Luton LU1 3YT Or team@thepensiondepartment.co.uk The Actuary to the Pension Plan is required to value the Plan every three years. The most recent full valuation report was dated 1 January This showed that the Plan was 79% funded. Following a full valuation, it is good practice to request the Plan s investment adviser to undertake an asset liability study. This report reviews the existing objectives, policy and strategic allocation of the Plan s assets between different classes of investment (for example equities, bonds, property) and provides for informed decision-making regarding the future allocation of assets. The results of the study have been considered by the Trustee and revised investment objectives and strategic asset allocations have been agreed with the Company. Specifically, a decision was taken to move 5% from the UK equity investment pool into alternative investments.

3 In last year s report, we advised you that the valuation had shown that there was a shortfall in the Plan of 30.7 million, i.e. an ongoing funding ratio of 79%. As a result, although the Company could not afford to pay additional contributions to address the shortfall, Company contributions were increased to 21.9% of Pensionable Pay. At that point in time, the next valuation was expected to be 1 January However, after submitting the results of the valuation to the Pensions Regulator, the Trustee has been having an on-going dialogue with the Regulator and has agreed to bring the valuation forward by one year to 1 January The Actuary for the Plan has therefore been instructed to work on a new valuation, the results of which are expected by the year-end. Earlier this year, the Trustee advised members of some changes to benefits resulting from Company/Trade Union negotiations. In summary, these changes were as follows: new rules on allowances and tax-free lump sums the ability to pay higher AVCs changes to increases for pensions in payment minimum pension age of 55 from 2010 flexible retirement options (at the discretion of the Company) options for a spouse following death in service. Please feel free to contact the Pension Department if you want more information on any of these changes.

4 - fund value 000 Fund value 1 Jan ,432 Net withdrawals from dealing with members (6,705) Net returns on investments 5,549 Management expenses (425) Fund value 31 Dec ,851 UK equities 15% - investment* Equities Investments in shares of companies listed on the major stock exchanges of countries in Europe, Asia and America, and in some developing economies in Europe, Asia and South America. International equities 33% Emerging market equities 2% UK index-linked bonds 10% UK corporate bonds 10% International hedged fixed-interest 10% Property 15% Alternative investments 5% * As at December 2007 after change to strategic asset allocation Property A combination of UK investment properties including offices, shops and industrial units. The objective is to achieve income and capital returns. Alternative investments Represent a range of different investments that seek to achieve consistently better returns regardless of how the markets move. The types of investments will vary for each market. Bonds These are investments in loans issued by governments and companies around the world. Hedging is a process that removes the movements of foreign currencies when compared to Sterling. This reduces the volatility of overseas investments and ensures that the Plan receives the local market return.

5 - membership numbers income & expenditure Total scheme membership decreased by 18 to 1,931 members. Employee members fell by 98 to 333, and deferred members rose by 1 to 506, while pensioner members increased by 79 to 1, December January 2007 Income 000 Company contributions normal 2,217 Employee contributions 405 AVC contributions 264 Transfers in 3 Miscellaneous income 1 Total 2,890 Expenditure 000 Pensions (5,622) Lump sum commuted pension (3,780) Death benefits - Payments to and on account of leavers (193) Administration expenses (425) Total (10,020) Pensioners 1,092 (57%) Deferred 506 (26%) Active members 333 (17%) Total 1,931 Pensioners 1,013 (52%) Deferred 505 (26%) Active members 431 (22%) Total 1,949

6 - investment performance Global stocks and bonds ended 2007 with modest gains in a year that saw major stock markets reach record highs and then stumble amid rapidly deteriorating credit market conditions. In a mirror image of the 1997 Asian financial crisis, the US was the centre of the financial market troubles while emerging economies provided the much-needed offset of sustained economic growth and market liquidity. Emerging markets stocks outpaced those in developed markets by a wide margin; the Euro area also provided solid returns but Japanese equities declined. A very small number of large stocks led the markets. In the first quarter of 2007, global government bond markets, with the exception of the UK, posted mildly positive returns. With the onset of the credit crisis in July, central banks cut interest rates aggressively, fuelling a rally in bonds. Late 2007 saw the realisation that UK property had become too expensive, fuelled by cheap borrowing. The curtailment of this cheap finance with the credit crunch led to a reassessment of value and the sector saw a correction that is continuing into With the exception of property, there was little difference in total return between the different asset classes over the full year. However, there was a considerable amount of volatility on a month-to-month basis and the Plan did well to remain close to benchmark in all assets. This resulted in an annual return for the Plan being similar to the Pension Plan benchmark. Total rates of return for Total rates of return for periods ended 31/12/2007 periods ended 31/12/2006 (annualised) (annualised) 1 year % 3 years % 5 years % 1 year % 3 years % 5 years % Plan returns Benchmark Out/(under) performance (0.4) 0.3 (0.2) (0.1) Employee Representatives G Rigby (Chairman, appointed 31 January 2008) T Prout (Chairman, retired 31 December 2008) I Gorry J Collins R Leigh Pensioner Representative T Prout (appointed 31 January 2008) Company Representatives I Gaskell (Vice Chairman, appointed 11 February 2008) J Burns (appointed 11 February 2008) J Drewe-Smith (resigned 30 April 2007) I George (appointed 11 February 2008) S Hislop (Vice Chairman, retired 31 December 2007) Mrs L Kelly A Leyland Ms L Sandford

7 Contact us The Pension Department Griffin House Osborne Road Luton LU1 3YT Designed and produced by Wordshop, Sherborne, Dorset.