DAIRY CREST GROUP PENSION FUND

Transcription

1 DAIRY CREST GROUP PENSION FUND

2 CONTENTS Introduction by the Chairman 3 Trustee Board 5 Trustee Advisers 6 Financial Information 6 Fund Membership 8 Actuarial Valuation 8 Record Keeping & Pension Increases 9 Fund Investments 10 Additional Voluntary Contributions (AVCs) 11 Summary Funding Statements 11 Contact Details 12 Fund Information 13 Statutory Information 14 Further Information 14 Regulatory Organisations 15 Appendix 16 This report, from Dairy Crest Pension Trustees Limited (the Trustee), is for members who are receiving a pension (pensioners) or with an entitlement to a deferred pension (deferred pensioners) from the Dairy Crest Group Pension Fund (the Fund).

3 INTrOduCTION by ThE ChaIrmaN The Fund continued to make satisfactory progress in, with overall investment returns being ahead of benchmark in a year during which the major investment sectors experienced volatile conditions. The Fund was able to carry out some limited de-risking during but still remains reliant on growth assets in order to produce the level of returns necessary to improve the funding level. The 2013 Actuarial Valuation was finalised in March following discussions with Dairy Crest Limited ( the Company ) and agreement on appropriate actuarial assumptions together with an updated Recovery Plan and Schedule of Contributions. Further details of the Valuation and of the revised funding arrangements are set out later in this Report. In the Budget the Chancellor introduced a number of changes to pensions, including increases in the trivial commutation and small sums commutation limits. The Trustee is still considering these changes, but it will be communicating with members in January when information will be given about additional retirement options to be made available from April The announcement by the Company, in November, of the agreement to sell its Dairies business to Müller Wiseman is a potentially significant development for the Fund and the Trustee is currently considering the implications with its advisers and The Pensions Regulator is being kept advised of progress. The Trustee is seeking to engage with the Company at an early stage in order to discuss future funding and investment strategy options. The initial view of the Trustee is that the transaction, if successfully implemented, should strengthen the employer covenant, although the post-disposal operations of the Company will be small in comparison with the size of the Fund. Early in the year the Trustee reviewed its Governance and Secretarial arrangements as part of its on-going regular assessment of Fund risks, including the need to avoid overdependence on any particular organisation or individual. Following this review, it was decided to outsource certain Governance and Secretarial functions to Inside Pensions, a specialist provider of such services, with effect from 1 February. The Trustee 3

4 believes, however, that there are certain key functions and responsibilities which should not be delegated but should be exercised by a Managing Trustee and Roger Newton was appointed to this role from 1 February. The terms of office of the three Member Nominated Trustee Directors come to an end on 31 March 2015 and the communication to be issued by the Trustee in January will contain information about the process for selecting replacements, including a form to enable members to nominate themselves for consideration by the Trustee s selection panel. This is a very interesting and worthwhile role, for which appropriate training and professional support is provided, and I hope we will receive a good response from the membership. As always, I should like to thank all members of the Trustee Board for their continuing valuable contributions to the effective governance of the Fund and I would remind members that the Trustee website is available for the purposes of member information and communication. Members will be able to view this Report via the website and to download a copy. Printed copies of the Report will only be sent to those members who so request. David Felder Chairman Dairy Crest Pension Trustees Limited January

5 TruSTEE board The Law Debenture Pension Trust Corporation plc (nominated representative David Felder). David acts as a professional trustee for a number of major pension funds, following an earlier career in investment management. He is the chairman of the Trustee Board. Appointed September John Brown John was Director of Milk Management and External Affairs of Dairy Crest Limited, retiring in He is a Member Nominated Trustee Director. Appointed March Michael Brydges Michael is Group Financial Controller of the Company. Appointed June Richard Halkes Richard was, until recently, a driver based at Hanworth. During his employment with the Company he was an active member of Unite and is a Member Nominated Trustee Director. Appointed March Gareth Hopkins Gareth is an HR consultant, having previously held senior HR positions within the Company and in other substantial companies. Appointed August David Lattimore David is a former senior manager within both Unigate and the Company and became a pensioner of the Fund in He is a Member Nominated Trustee Director. Appointed April Roger Newton Roger was Company Secretary of the Dairy Crest Group during the period He is Managing Trustee of the Fund, having previously served as Secretary since its inception in December Appointed September

6 TruSTEE advisers Actuary Paul Dooley, Aon Hewitt Bankers Lloyds Banking Group PLC Financial Adviser Deloitte LLP Fund Administrators (see page 12) Aon Hewitt for deferred pensioners Legal & General Assurance Society Ltd (Legal & General) for pensioners Investment Adviser Mercer Investment Consulting Legal Advisers Wedlake Bell LLP Clifford Chance LLP Fund Secretary and Governance Provider (see page 13) Inside Pensions Limited FINaNCIaL INFOrmaTION Opposite is a summary of the Fund s accounts for the year ended 31 March, together with comparative figures for the year ended 31 March 2013, which have been audited by the Trustee s independent auditors, Ernst & Young LLP, who have issued an unqualified opinion on the financial statements and an unqualified statement that the contributions have been calculated and received in accordance with the Fund s Schedule of Contributions. 6

7 Contributions 1 55,917 17,490 Benefits and other payments out pensions and benefits paid (32,383) (31,984) payments to and on account of leavers (648) (11,989) administrative fees and expenses (1,369) (1,478) (34,502) (45,451) Net payments in (out) 21,415 (27,961) Returns on investments investment income 3 4,473 4,348 investment management expenses (352) (278) change in market value of investments 2, ,858 Net increase in investments 6, ,928 Net increase in the Fund during year 28,315 97,967 Net assets of the fund at: 1 April 975, , March 1,004, , This amount included a special contribution from the Company of 40,000,000 which was negotiated by the Trustee following the disposal of the St Hubert spreads business in August This amount includes 6,604,000 of transfers out of the Fund made during the year 2012/13 pursuant to the Enhanced Transfer Value exercise which was completed in May These amounts include 2,835,000 of rentals from the Company in respect of the leaseback of freehold/long leasehold interests acquired by the Trustee in June

8 FuNd membership Year Deferred pensioners Pensioners Total 31 March 7,262 8,311 15, March ,537 8,076 15,613 The benefits of pensioners in payment in August 2008 (5,789 members as at 31 March ) are insured under two bulk annuity policies with Legal & General. These policies are Trustee investments and do not give rise to any individual pensioner entitlements. actuarial VaLuaTION as at 31 march 2013 The Valuation was completed in March, following agreement with the Company on the assumptions to be used in respect of discount rate, future inflation and mortality, including an assumption about the rate of further improvements in life expectancy. The Valuation indicated a shortfall against the Technical Provisions (the value of past service benefits for deferred pensioners and pensioners in payment, excluding those included within the Legal & General bulk annuity policies, plus an allowance for expenses) of 145m and a deficit on a full solvency basis (that is the amount required to buy-out all uninsured benefits with an insurance company) of 482m. The Fund s objective is to hold assets at least equal to the Technical Provisions, whilst progressively de-risking its investments from growth to liability matching assets. Continuing deficit reduction contributions are therefore required from the Company in order to eliminate the shortfall over time. In discussions with the Company, the Trustee was made aware of certain current capital investment projects which are projected to generate good returns in future years but which were occasioning short to medium term cash flow requirements. In reaching agreement on the Recovery Plan and revised Schedule of Contributions, the Trustee, had appropriate regard to the future development needs of the Company and determined that deficit contributions (including the rentals received under the lease back arrangements referred to on page 10) for the period 1 April to 31 March 2016 should be reduced from the previous 20m 8

9 per annum to 13m per annum and to 16m per annum for the period 1 April 2016 to 31 March These reductions were considered appropriate in order to assist the Company through this period of significant capital expenditure, however, it was also agreed that deficit contributions would return to the rate of 20m per annum for the three years period commencing 1 April record KEEPING & PENSION INCrEaSES Record Keeping Further work has been carried out during the year to improve the quality of the Fund s records, particularly in the context of reaching agreement with Legal & General on the finalisation of the premiums for the bulk annuity policies taken out by the Trustee in 2008/09. Good progress has also been made in the exercise to reconcile the Fund s records of the Guaranteed Minimum Pension (GMP) against the records held by HM Revenue & Customs and the most significant anomalies have been identified and addressed. Pension Increases The Fund provides increases to pensions in payment based on the increase in the December Retail Price Index (RPI), subject to a maximum of 5% for service up to 5 April 2006 and to 4% for service from 6 April 2006 to 31 March Pensions relating to service in the MMB Fund prior to 1 December 1993 receive increases in payment based on the increase in the December RPI, subject to a maximum of 7%. After state pension age the GMP element of the pension, in respect of service on or after 6 April 1988, will be increased by the change in the September Consumer Price Index (CPI) up to 3%. If the increase in CPI is greater than 3%, the State is responsible for payment of the excess through the State Pension. Similarly increases on GMP earned in respect of service prior to 6 April 1988 are the responsibility of the State. The relevant CPI and RPI increases, for the purposes of the pension uplifts applied with effect from 25 March, were both 2.7%. 9

10 FuNd INVESTmENTS The Trustee monitors the performance of the Fund s investments and makes decisions on asset allocation and on investment management arrangements having regard to performance data and other advice provided by the Fund s Investment Adviser and by the Actuary. The Statement of Investment Principles and the Investment Policy Implementation Document set out the key features of the Fund s investment strategy and are updated periodically. Returns, during the financial year to 31 March, from investment markets were modest with a total return for the Fund for the year of 5.6%, which brought the average annual return over the previous three years to 10.1%. During the year the Fund s allocation to equity investments was lowered by terminating the Schroder s mandate and by reducing the value of its total return equities swap contracts. On 1 January, as a diversification of its asset allocation strategy, the Fund invested 25m in an insurance linked securities mandate managed by Nephila Capital. As at 30 September, the Fund was invested, as to 62.8% in growth assets (equities, emerging market debt, absolute return bonds and insurance-linked securities) with its equities primarily passively managed by Insight and with small actively managed allocations to Mercer and to Russell Investments. Its bonds investments were managed by PIMCO, Insight and Wellington with its investments in real property being split between Legal & General and AVIVA, with a small allocation to Russell. In addition the Fund continues to own the freeholds/long leasehold interests in three operational sites (valued at 12,134,000 as at 31 March ) and to receive rentals from the Company in respect of the leasebacks of these sites. The Fund also holds a floating charge over the Company s maturing cheese stocks of an amount which will realise a value of 60m in the event of an insolvency. This charge is not a capital or income generating asset, but can be considered as some security for the payment of future deficit reduction contributions. 10

11 additional VOLuNTary CONTrIbuTIONS (avcs) The Fund s AVCs arrangements were closed to new contributions after 31 March 2010 following the cessation of future accrual at that date. However the Fund continues to hold AVCs on behalf of deferred pensioners with the large majority of funds being invested with Clerical Medical in Unit funds and in the Prudential Deposit fund. The Trustee carries out periodic reviews of its AVC providers through Aon Hewitt. The Trustee allows deferred pensioners to apply AVCs in order to fund tax free cash at retirement and individuals may wish to take independent advice upon the suitability of appropriate funds for their AVCs, particularly as they approach retirement. In February, the Trustee issued a communication to members concerning the investment of their AVCs as they approach retirement and members are recommended to view the Trustee website where this information is posted. A small number of deferred pensioners remain invested in the Equitable Life With Profits Fund and have received periodic updates from the Trustee. Individuals who require details of the current position in relation to AVCs with Equitable Life should contact Aon Hewitt at the address given on page 12. Summary FuNdING STaTEmENTS Summary Funding Statements for 2013 and were posted to members in August and copies are available for inspection on the Trustee website. 11

12 CONTaCT details Legal & General carries out the function of pensioner payroll and administration and the contact details are as follows:- Legal & General Assurance Society Ltd Legal & General House Kingswood Tadworth Surrey KT20 6EU Helpline: Aon Hewitt carries out the function of deferred pensioner administration and the contact details are as follows:- Aon Hewitt 5th Floor Fountain Precinct Balm Green Sheffield S1 2JA Tel: Please ensure that you inform the relevant administrator of any changes to your or your dependant s personal details including any change of address. If you have any other questions, or would like any more information about your benefits, please contact Aon Hewitt if you are a deferred pensioner or Legal & General if you are a pensioner. 12

13 FuNd INFOrmaTION The following documents are available to download from the Trustee s website: The Statement of Investment Principles / Investment Policy Implementation Document. This explains how the Trustee invests the Fund s assets. The Schedule of Contributions. This shows the amount that is being paid into the Fund. The Annual Report and Accounts of the Fund, which shows the Fund s income and expenditure in the year up to 31 March. The Actuarial Valuation as at 31 March The Fund s Trust Deed and Rules. or on written request to: The Fund Secretary, Inside Pensions Limited, Victoria Street, St Albans, Hertfordshire AL1 3HZ For an explanation of how the Fund operates, please refer to the Appendix on page 16 of this Report. By law, the Trustee cannot give you advice about your pension arrangements. If you are thinking about any changes concerning your benefits in the Fund, you should obtain independent financial advice. 13

14 STaTuTOry INFOrmaTION The Pensions Regulator can change the Fund, give directions about working out its technical provisions or impose a Schedule of Contributions. The Pensions Regulator has not needed to use its powers in this way concerning the Fund. There has not been any payment to the Company out of the Fund in the previous twelve months, other than in relation to standard administration charges. FurThEr INFOrmaTION Your details Please contact the relevant Fund administrator if your address or any other important details about you or your situation have changed. It is also important that you keep your expression of wish form up to date in order to advise the Trustee of who you would like to receive benefits in the event of your death. If you would like to make changes to your instructions contact the relevant administrator or download a new form from the Trustee s website at Fund Factors/Transfer Values During the year the Trustee has received advice from the Actuary on the assumptions used for determining Fund factors for cash commutation, early retirement, AVCs conversion and trivial commutation and has agreed revisions where appropriate. The Trustee has also determined a policy on cash equivalent transfer values, following advice from the Actuary. 14

15 regulatory OrGaNISaTIONS The Pensions Advisory Service (TPAS) Members with concerns about their pension benefits who are not satisfied with explanations given by the Trustee or its advisers should contact: TPAS 11 Belgrave Road London SW1V 1RB Tel: TPAS prefers that it is not approached until the Fund s internal disputes resolution procedure has been followed. For details of this procedure, members should contact the Fund Secretary. Pensions Ombudsman Where a complaint or dispute cannot be resolved, normally after a referral to TPAS, an application can be made to the Pensions Ombudsman for adjudication. The Ombudsman operates from the same address as TPAS and the telephone number is

16 appendix How the Fund operates The Company makes contributions to the Fund so that it can build up an investment fund to enable it to pay pensions to members when they retire. The investments to pay for members pensions are held in a common fund. They are not held in separate funds for each member, except for AVCs where such members have notionally separate funds. The Trustee obtains regular valuations of the benefits payable to members together with updates on the performance of the Fund s investments. Using this information, the Trustee arrives at an agreement with the Company on future contributions. The Trustee s objective is to have enough money in the Fund to pay pensions now and in the future. However, the achievement of this objective relies on the Company continuing to support the Fund because: - ultimately the Company will be paying the future expenses of running the Fund on an annual basis; - the funding level can fluctuate and, when there is a funding shortfall, the Company will usually need to put in more money; and - the cost of benefits may increase so that the Company will need to put in more money. If the Fund were to start to wind up, the Company is required to pay enough into the Fund to enable the members benefits to be completely secured with an insurance company. It may be, however, that the Company would not be able to pay this amount in full. Whilst the Company is in a position to support the Fund through contributions, even though the funding level may be temporarily below target, benefits will continue to be paid in full. If the Company is unable to support the Fund without becoming insolvent, then you may not get the full amount of pension you have built up even if the Fund is fully funded on its targeted funding level. If the Company became insolvent, the PPF might be able to take over the Fund and pay compensation to members. The PPF helps to protect members pensions where a company becomes insolvent, although PPF compensation would not match the Fund s full benefits. The full solvency position of the Fund assumes that benefits will be secured by buying insurance policies. Insurers are obliged to take a cautious view of the future and include a profit margin. The cost of securing pensions in this way also incorporates the future expenses involved in administration. By contrast, the Trustee s funding plan assumes that the Company will continue in business and support the Fund while adopting less cautious, albeit still prudent assumptions about the future. 16

17 Dairy Crest Pension Trustees Limited Inside Pensions Limited Victoria Street St Albans Hertfordshire AL1 3HZ Tel: Dairy Crest Pension Trustees Limited, Registered in England and Wales, number