Mitchells &Butlers PensionPlan

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1 Mitchells &Butlers PensionPlan Pensions Update for DB Section Members Welcome to the Autumn 2004 edition of Update which brings you up-to-date with all the latest news regarding your section of the Plan, including a summary of the Trustee s Annual Report to members. in this edition 02 What s new understand how recent legislation impacts on the Plan 03 Plan funding find out how the funding of the Plan is progressing 04 & 05 Trustee s Annual Report take a look at the summary of the Trustee s Annual Report for the year ending 31 March Living in a troubled world sometimes we may not always be able to pay the death benefits this explains why 07 Benefits Info pensioners and deferred pensioners should check here for the latest inflation based increases to pensions 08 Keeping us informed take a moment to make sure we have the information we need to pay your benefits Pension Website Don t forget to take a look at our website at You will find lots of useful information there, and you can us with feedback or any questions you may have.

2 02 What s New Disability Regulations The Trustees are required under new legislation to ensure that disabled people are not unfairly discriminated against in relation to pension scheme membership and benefits. The definition of disability under the legislation is a physical or mental impairment which has a substantial and long-term adverse effect on an individual s ability to carry out normal day-to-day activities. And, from Spring 2005, individuals diagnosed with certain forms of cancer, HIV or MS are likely to also qualify as disabled, even if they are not showing symptoms. The Trustees have therefore reviewed their practices to make sure that they meet the requirements of the legislation and have made some changes to how they do things. However, if you think you qualify as disabled and consider that there are any practices that put you at a disadvantage, the Trustees would like to hear from you. If you have any comment to make or issues to raise you should firstly speak to your HR contact who will pass your comments on to the Trustees to consider. Changes to the priority order on wind-up The Government continues with its attempt to protect pension scheme members by making the share-out between members fairer in the event of a scheme winding up without enough money to go round. Previously pensioners got the best deal with both pension and future increases having first call on the available funds after expenses and money purchase benefits (e.g. AVCs). Any money left over was then shared between the non-retired members. This changed in May 2004 so that future increases to pensions in payment are now a lower priority than benefits yet to come into payment. On this new basis if the Plan had wound-up at 31 March 2004 pensioners could have expected to continue to receive the pension they were being paid, but pensions for non-retired members would have been cut back by 33%. There would not have been any money left over to provide increases to pensions for either pensioner or non-retired members. These figures are estimates only. The actual position if and when the Plan winds up will vary depending on many factors, including the level of future contributions paid and investment conditions at the date of wind-up. The Government is still working on the detail of its pension reforms so there may be further changes in the winding up requirements in the future. Statutory Money Purchase Illustrations (SMPI) The Plan provides a pension based on your salary when you retire or leave service your final salary pension. However, members also have a guarantee that any pension earned after 6 April 1997 will not be less than that which could be secured by their own contributions, the reduction in their employer s national insurance contribution as a result of being contractedout of the State Second Pension and a notional investment return over the same period. This is a money purchase guarantee. Therefore, under new legislation members need to be issued with an illustration of the amount of pension that their money purchase guarantee might provide, using certain assumptions. These illustrations will be sent out before the end of the Plan year in March. You do not need to do anything when you receive your SMPI when you retire your money purchase guarantee will be compared with your final salary pension for the same period and you will be paid the higher amount.

3 03 Plan Funding Because of the substantial changes to the Plan following the separation from Six Continents, the Trustees decided to bring forward the next actuarial review by one year to 31 March 2004.This review values the assets and liabilities of the Plan and assesses the level of future contributions required to fund the benefits. The initial results from this review have been received and are being considered by the Trustees and by the Company. Mitchells & Butlers had already committed to paying additional contributions of 8m in each of their financial years 2005 and 2006 to reduce the deficit. This latest review shows that although substantial additional contributions have been made by the Company, as expected, the Plan still has a significant deficit. This is partly because the actuary has advised that life expectancy continues to improve and the Plan will therefore be paying pensions for longer than previously estimated. Once the Trustees have agreed on the level of future contributions, which they expect to do by the end of the year, they will also decide on the investment strategy to be adopted taking into account the assumptions underlying the actuary s calculations and level of risk they consider appropriate to the Plan s circumstances. Pension Protection Fund (PPF) The Government is pressing ahead with setting up a Pension Protection Fund to provide a minimum level of pension for members whose scheme goes into wind-up with a deficit. The details of the benefits available from the PPF, and the cost of the levy to fund these, are expected in the next few months as the Government intends the PPF to be operational from April 2005.

4 04 Trustee s Annual Report Introduction Following three years of falling markets, this year ended on a positive note with a 17.6% return on investments. Excluding the transfer on the separation from Six Continents, the Plan s assets relating to DB members increased by almost 135m to over 683m. However, the Plan is still in deficit and it is estimated that the DB section remains around 84% funded on an ongoing basis as at 31 March A summary of the Trustee s Annual Report at the year end, as it relates to DB members, is shown on these pages. A full copy that includes both the DB and DC Sections of the Plan is available on the pensions website or on request to the Pensions department, Fleet Street. Value of the DB Section Assets The breakdown of the value of the DB related assets is shown below. 000 CIF units 675,558 Property outside of CIF (now sold) 2,198 AVCs 4,376 Cash deposits 574 Current assets 921 Total 683,627 The Common Investment Fund (CIF) combines most of the assets of the Mitchells & Butlers Pension Plan with those of the Mitchells & Butlers Executive Pension Plan. This generates worthwhile cost savings in fund management and custodial expenses, while still preserving the separate identity of each plan s assets in terms of units they buy and sell in the CIF. The Plan owns 75.82% of the CIF by value. The allocation of the Common Investment Fund s assets is shown below. Both Plans currently follow the same investment strategy and therefore have the same percentage of their value in each of the asset classes within the CIF. Mitchells & Butlers Common Investment Fund Total Combined Assets - 891m UK bonds % Overseas bonds - 9.4% UK equities % Overseas equities % Property - 8.5% Cash and other - 2.2%

5 05 % Fund Performance -Vs-Inflation The bar chart shows how the Plan s investments have performed in comparison to inflation over one, three and five year periods Over 5 years Over 3 years Over 1 year Fund Performance Inflation Membership The total number of members decreased substantially during the year largely as a result of the transfer of members to the new Hotels and Britvic Plans on 1 April Membership as at 31 March 21,897 21,000 16,000 10,586 11,000 7,328 6,000 1, ,392 8, ,934 Active Pensioner Deferred Income Expenditure Member Contributions 3.0m Company Contributions 59.2m Excludes 212.7m on transfer of members following separation from Six Continents Transfer Values received 0.6m Benefits Paid 29.5m Change in market value of Investments 100.8m Transfer Values paid 1.1m Other Income 3.0m Administration costs 1.2m Movement in the value of the fund over the last 5 years The bar chart shows the value of the Fund over the last five years. It reflects the impact on the Plan of the transfer of members and assets on the sale of the brewing business in 2001 and to new Plans for InterContinental and Britvic members following the recent separation from Six Continents. 1946m 954m 900m 762m 684m

6 06 Living in a Troubled World Nowadays we all face an increased threat of terrorist action or an unexpected disaster impacting on our lives. If such an incident should occur, affecting a large number of our members, an exceptional strain could be placed on the Plan to pay death benefits. The Trustees therefore insure against a catastrophe happening and take advice on the level of this cover from the Plan actuary. However, insurers are beginning to look for ways to reduce the risk they are taking on either by imposing restrictions on the causes of death that qualify under the policy or by increasing their premiums. For example, our insurer introduced a new policy exclusion relating to nuclear, chemical or biological warfare or terrorism last year and this is now standard in the insurance market. The Plan rules allow the Trustees to reduce death benefits if they are unable to obtain insurance cover on reasonably satisfactory terms. If a catastrophe not covered by insurance should occur, the Trustees would need to decide how much could be paid out and would consult with the actuary on what the Plan could bear. Therefore, members need to be aware that in exceptional circumstances, such as those noted above, the Trustees may not always be able to pay the level of death benefits shown in the Plan Handbook.

7 07 Benefit Info Pension increases for 2004 Pensions in excess of the Guaranteed Minimum Pension (GMP) for pensions in payment and deferred pensions (those of former employees who have not yet retired) will be increased by 2.8% with effect from 1 October This figure is the increase in the Retail Prices Index (RPI) over the year up to May. Christmas Gift The Christmas Gift is given by the Company, in place of pension increases, to certain pensioners who retired before The 2004 Christmas Gift will be 391. January 2005 Pension Payment Please note that the January 2005 pension instalment will be paid on 17 December 2004.

8 08 Keeping us Informed Contact Details If you have questions about the Plan generally or your individual benefit entitlement, you should contact the Administrator at: Mitchells & Butlers Pensions Mercer Human Resource Consulting Stratford Court Cranmore Boulevard Solihull West Midlands B90 4QT Telephone: If you have any pension payment queries you should contact pension payroll at: Mitchells & Butlers Pensions Pension Payroll Mercer Human Resource Consulting 52 Westgate Chichester West Sussex PO19 3HF Telephone: Should you complete a Beneficiary Form? It is important that the Trustees are kept up-to-date about the beneficiaries you wish to be considered to receive any lump sum benefits payable if you die. A Beneficiary Form should be completed by all active and deferred members and by pensioners who have retired in the last five years. Pensioners who retired on grounds of illhealth should also complete a form if they have not yet reached age 65, even if they have been retired for more than five years. If you can t remember the last time you completed a Beneficiary Form or who you nominated to receive the lump sum benefit, it s time to fill in a new form. Even if you completed a form some years ago and your nominated beneficiaries have not changed, you should fill in a new form as it helps the Trustees if they know your wishes are recent. Do you want your partner to receive a pension when you die? The Trustees do not wish to unfairly discriminate against members who do not marry, or are unable to legalise their relationship with a partner (of either sex). Therefore, the Rules allow for a pension to be paid to a partner instead of to a spouse (subject to certain legal constraints) but you need to complete a Partner Nomination Form. If you wish your partner to be considered for a pension on your death please complete a Partner Nomination Form and return it to the Administrator and remember to keep your form up-to-date. Have you married recently? Under the Plan rules, a spouse s pension is only payable if the marriage had taken place at least six months before your death. However, your spouse can still be considered for a partner s pension but only if you complete a Partner Nomination Form. The Beneficiary Form and Partner Nomination Form can be obtained from either the Administrator (see contact details) or the pension website at and should be returned to the Administrator. Remember you need to keep us informed about changes in address! It is important that pensioners and deferred pensioners let the Administrator know if they move house, so that we can keep them informed about what is happening with the Plan. It is even more important that you let the Administrators know of any change in address if you are receiving a pension. The Trustees need to be sure that they are not paying pensions into the bank account of a member who has passed away. Therefore, if post is unable to be delivered at the address held on the pension payroll records often returned marked gone away the payment is suspended until the pensioner gets in touch. So pensioners, make sure you do not get caught out and remember to include the Administrator when you send out notifications of your new address.