Pension & Life Assurance Scheme. Pensions update

Transcription

1 Pension & Life Assurance Scheme Pensions update November 2016

2 Chairman s welcome message Welcome to the latest edition of the Pensions Update, the 2015/16 abbreviated Trustees Report on the Scottish Enterprise Pension & Life Assurance Scheme (the Scheme ). Full details of the Scheme s finances are available in the formal Trustees Report & Accounts as at 31 March This Update however aims to summarise the main points and provide some useful information has been quite a year in political and economic terms. The UK s referendum vote to leave the EU was followed by further action by the Bank of England. Both have had a significant effect on exchange rates, interest rates and investment markets. Your defined benefit pension promise is not however affected by such market fluctuations. The Scheme s funding position has varied but pleasingly the Scheme is significantly protected from adverse movements in interest rates and inflation. The previous formal actuarial valuation of the Scheme was carried out as at 31 March 2014 and the position is checked continuously. Details of the Scheme s estimated funding position as at 31 March 2016 are available on page 6. This shows that whilst experience in financial markets has been disappointing, the funding position is still satisfactory. The funding position is expected to fluctuate over time with changing market conditions and this will continue. Irrespective of the funding position your pension promise remains the same and Scottish Enterprise remains fully committed to supporting the Scheme. Details of the Scheme s investments are given on pages 4 and 5. These investments are regularly reviewed by the Scheme Trustees with input from their advisers. Continued market volatility can be expected over the coming months and years. The Trustees will formally review the Scheme s investment structure and risk profile with the next formal actuarial valuation of the Scheme due to be carried out as at 31 March The Scheme represents a very significant benefit in kind from working for Scottish Enterprise. You are therefore encouraged to look into all the aspects of the Scheme. Please make sure you are not missing out on potential early, partial or deferred retirement options, the opportunity to save tax efficiently or to provide protection for your loved ones. Finally, please note that we have included a nomination form with your copy of Pensions Update. If you have not already done so, or if your circumstances have changed, please complete this form and return this to us to record your wishes in the event that any death benefits become payable. Pensioners who have been receiving their pension for over five years do not have to submit this form. Active members can access an electronic copy on the Scottish Enterprise intranet site. Similarly members with co-habiting partners are encouraged to provide beneficiary details or any changes. Sincerely, Allan Martin Chairman HAVE YOUR SAY If you have any feedback on the content of this report, we d like to hear from you. Please get in touch with the administrator INSIDE THIS REPORT: Chairman s welcome message Update on pension issues Scheme finances Update on the Scheme s funding position Who looks after the Scheme? Useful information KEEP IN TOUCH Please help us to keep in touch with you by telling the administrator if you change address and providing an address if you have one. Contact details can be found on page 8. 2

3 Update on pension issues The following is a summary of recent changes impacting pension provision in the UK BREXIT: THE EFFECT ON THE SCHEME Following the UK s referendum vote on membership of the EU and the decision for the UK to withdraw its membership, the Bank of England announced a further cut in bank base rates to 0.25% together with the recommencement of quantitative easing. This is on the back of a series of downbeat economic indicators pointing to lower growth following the referendum result. As a result of falling rates together with market volatility, many pension schemes are reporting a deterioration in their funding position. What does this mean for your defined benefit pension? Since the referendum, financial markets have experienced significant volatility and it is expected that markets will continue to exhibit high volatility in the short term. However, as a member of a defined benefit pension arrangement, you shouldn t be too concerned if the markets are volatile as it doesn t change the amount of pension you will get. Scottish Enterprise is fully committed to supporting the Scheme and is working with us to monitor the Scheme s investments and funding position. We are satisfied that Scottish Enterprise is able to continue making contributions to the Scheme. Pensions are long term vehicles so reacting to any short term variation is rarely advisable. The Trustees are monitoring developments and will be reviewing the longer term options with our advisers as appropriate. PENSION LIBERATION SCAMS The Pensions Regulator and others are concerned that some people are being misled into transferring pension rights into private arrangements that claim to liberate funds (such as by providing loans, upfront cash or other promotions). The tactics used by pension scammers to encourage people to transfer their savings to them is constantly changing. Be on the lookout and always obtain financial advice before deciding to transfer. Information on where to find financial advice is provided on page 8. CHANGES TO SCHEME BENEFITS AND LEGISLATION Changes to pensions tax allowances The amount of tax relief that can be claimed on pension savings was restricted with effect from April 2016, with the Annual Allowance reduced for those earning over 150,000 (from 40,000 down to a minimum of 10,000 for those earning over 210,000) and the Lifetime Allowance reduced to 1 million. We provided information on these changes in the 2014/15 update. These changes are only likely to affect members with long service and/or high salaries and those who may have significant pension savings outwith the Scheme. Consultation on changes to tax relief Tax relief is set by the UK Government, and like all legislation, is subject to change. The Government recently consulted on radical changes to pension tax relief. While it decided not to advance these at this time, pension tax relief could be reviewed again. There has been no suggestion that the Government will change this as a direct result of the vote to leave the EU. New single tier Basic State pension For those reaching State Pension Age after 6 April 2016, the State Pension was replaced with a new single tier State Pension. State Pension is paid in addition to your pension from the Scheme. It is paid by the Government from your State Pension Age and the amount you receive will depend on your National Insurance contribution record (see for more details). End of contracting-out Contracting out ended in April 2016 when the Government moved to the single tier Basic State pension. Before April 2016 the Scheme was contracted out of the State Scheme which meant members paid less in National Insurance Contributions (NICs) and did not build up benefits in the State Second Pension. The end of contracting out increases NICs for contributing members of the Scheme and Scottish Enterprise however, the introduction of PSE (see below) has helped to reduce the impact of this. Introduction of Pension Salary Exchange (PSE) PSE was introduced with effect from 1 April 2016 to offer contributing members of the Scheme a new and more beneficial way of saving for a pension. For those who participate in PSE, Scottish Enterprise will pay 6% contributions directly to the Scheme on their behalf (along with the employer contribution) with pay reduced by the same amount. 3

4 Scheme finances MONEY IN AND OUT OF THE SCHEME Amount of money in the Scheme at 31 March 2015: ( 000s) 652,363 What came in (total): 13,841 Investment income received 2,221 Contributions from employer and employees and other income 11,620 What went out (total): 18,732 Benefits payable to pensioners and payments to leavers 16,748 Investment Management Expenses 1,181 Administration and consulting fees 803 Increase in value of investments 6,179 Amount of money in the Scheme at 31 March 2016: Note: the figures may not total exactly due to rounding. SCHEME ASSETS As at 31 March 2016, the Scheme s target asset allocation was as follows: UK equities Property 7.5% 5.0% 5.0% 10.0% 5.0% 45.0% Emerging market equities Government bonds and liability driven investments 20.0% Global equities Diversified growth funds Multi-asset credit Private equity 2.5% 653,651 The aim of the government bonds and liability driven investments is to match around 50% of the sensitivity of liabilities to interest rates and inflation. There were no changes to investment strategy over the 12 months to 31 March WHAT DO WE MEAN? INVESTMENT TERMS EXPLAINED... UK Equities Also known as shares or stock, UK equities are a type of security that indicates ownership in a company based in the UK. Global Equities These are stocks and shares of companies in countries around the world. These markets are influenced by their local economies and involve exposure to different currencies, which can affect their value. Emerging market equities These are funds that invest the majority of their assets in the financial markets of developing countries. Diversified growth funds These are a type of actively managed fund designed to generate investment returns by investing in a range of growth-seeking asset classes, including equities, property, commodities, private equity, bonds, hedge funds and currency. Cash Cash is a short term investment that provides a return in the form of interest payments. Bonds Bonds are loans issued by governments, companies, banks, public utilities and other large entities. Bonds pay the bearer (or owner) a fixed amount at a specified end date. Property Pension property funds usually invest in commercial property such as offices, shops and industrial units. Any return on capital is dependent on capital growth and rental incomes. Therefore returns on property funds are subject to fluctuation. Private equity Private equity consists of equities in companies that are not publicly traded on a stock exchange. Benchmark A benchmark is a target or measure that the Trustees expect their investment manager to achieve. For example, they may specify that the investment returns on the Scheme s UK equities should be at least as much as the return on the FTSE All Share Index. The investment manager s performance is then judged against this benchmark. 4

5 INVESTMENT UPDATE The Scheme s investments (excluding private equity assets) returned 1.2% over the year to 31 March 2016 against a benchmark of 2.7% (net of fees). The key contributor of this relative underperformance came from the Scheme s diversified growth funds. Investor concerns over the looming EU referendum in June 2016, led to more defensive, fixed income asset classes outperforming risk asset classes over the year. Equity markets fell particularly sharply at the start of 2016 amid concerns of slowing global economic growth. Whilst they rebounded towards the end of the quarter, recovering some of the earlier falls, absolute returns for the year were negative. The Trustees continue to review the Scheme s investment structure and risk profile on a regular basis. REMEMBER As a member of a defined benefit pension arrangement, your pension is linked directly to your salary and years of service rather than performance of funds. So you shouldn t be too concerned if the markets are volatile as it doesn t change the amount of pension you will get. Scottish Enterprise is also fully committed to supporting the Scheme and is working with us to monitor the Scheme s investments and funding position. We are satisfied that Scottish Enterprise is able to continue making contributions to the Scheme. The Trustees believe there is continued support for the Scheme and on this basis feel that the likelihood of the Scheme not being able to continue is small. INVESTMENT PERFORMANCE Year ending 31 March Years ending 31 March 2016 Scheme return % p.a. Benchmark return % p.a. Scheme return % p.a. Benchmark return % p.a MEMBERS IN THE SCHEME March ,135 1,242 1,144 March ,186 1,210 1,197 Active members Members with deferred benefits Pensioners 5

6 Update on the Scheme s funding position WHAT IS AN ACTUARIAL VALUATION? Every three years, the Scheme Actuary carries out a financial review of the Scheme known as an actuarial valuation. This shows the Trustees if the Scheme has enough money to pay the benefits that members have built up. If there is not enough money, the actuarial valuation will show how much money Scottish Enterprise will need to pay into the Scheme over a certain period of time. The amount of money in the Scheme and the money needed in the future is known as the funding position. WHAT WAS THE SCHEME S FUNDING POSITION AT THE MOST RECENT VALUATION? At the time of the last full valuation which was carried out as at 31 March 2014, the funding position was approximately 109%. This means that the Scheme had more money than it needed at that time to pay members benefits. This position has changed since 31 March 2014; see the latest information below. LATEST INFORMATION While the next valuation will be as at 31 March 2017, the Trustees review the Scheme s funding position on a regular basis. The Scheme Actuary has estimated the funding position of the Scheme as at 31 March 2016 (based on the Scheme s 2014 valuation assumptions) to be approximately 100%. This means that as at 31 March 2016, the Scheme was still well funded. The main reason for the deterioration of the funding position since the valuation in 2014 is the experience in financial markets being worse than expected, with falling bond yields increasing liabilities significantly. It is expected that the funding position will go up and down in the short term with changing market conditions. REGULATORY NOTE We are required to confirm that no payments have been made to Scottish Enterprise from the Scheme and can also confirm that the Pensions Regulator has not intervened in the affairs of the Scheme. FREQUENTLY ASKED QUESTIONS How is my pension paid for? Every four weeks you pay 6% of your salary into the Scheme via Pension Salary Exchange. Scottish Enterprise also makes a contribution of 20% of your pensionable pay into the Scheme. All of this money is held in a single Trust which is managed by the Trustees. The Trustees work with their appointed Investment Managers to invest the money with the aim of getting the best possible return. This money is then used to pay your pension. Will I receive funding information regularly? The Trustees will send this update on the Scheme s funding once a year. Please help us to keep in touch with you by telling the administrator if you change address. Contact details can be found on page 8. What would happen if Scottish Enterprise decided to stop supporting the Scheme? Scottish Enterprise is fully committed to supporting the Scheme so that members benefits are paid in full. Although we have no reason to believe that this support will not continue, we are required to provide details of the funding position if the Scheme ceased to exist and was wound up. When a scheme is wound up, members benefits are usually secured with an insurance company. The cost of providing benefits in this way is much higher than paying benefits directly from the Scheme. The Scheme Actuary estimated that the amount needed to buy all of the members benefits from an insurance company was 848m as at 31 March If the Scheme was wound up and could not pay members benefits that were due, Scottish Enterprise would be required to pay any shortfall to the Scheme. In the unlikely event that this was not possible, the Pension Protection Fund (PPF) may be able to take over the Scheme and pay a certain amount of benefits to its members. If such a situation were to arise, we would inform you of your rights and the next course of action. Visit the PPF s website at for more information. Or you can write to the PPF at Renaissance, 12 Dingwall Road, Croydon, Surrey, CR0 2NA. 6

7 Who looks after the Scheme? THE SCHEME TRUSTEES The Scheme is managed by a group of Trustees: some are appointed by Scottish Enterprise and some are elected by you. Our main duties are to make sure contributions are paid on time; the assets are invested appropriately and the Scheme is well managed to provide members with their pension benefits. In order to do this we meet regularly throughout the year. This includes meetings and training with specialist advisers that we have appointed to help assist us in the management of the Scheme. The current Trustees are listed below: Scottish Enterprise appointed Allan Martin (Chairman) Allan McQuade David Smith Derek Ballantyne Douglas Colquhoun Jan Robertson Jim Watson Member nominated Alan McLeod Bryan Stewart Linda Ellison Stuart Andrew Clarke The Trustees have appointed the following professional advisers and service providers: Administrator Hymans Robertson LLP Auditors BDO LLP Scheme Actuary Calum Cooper of Hymans Robertson LLP Investment Consultant Mercer Limited Investment Managers Baillie Gifford & Co Standard Life Investments Stewart Investors (previously First State Investments) BlackRock Investment Managers Pantheon Ventures Ltd Pantheon International Participations PLC M&G Investments CQS (UK) LLP Quoted Private Equity Trusts Pantheon International Participations PLC Standard Life Insurers PROFESSIONAL ADVISERS The Trustees would like to thank Alan Browne, who stepped down in June 2016, for his service as a trustee. We are pleased to welcome Jim Watson to the board as a new Scottish Enterprise appointed trustee. Our main duties are to make sure contributions are paid on time; the assets are invested appropriately and the Scheme is well managed to provide members with their pension benefits. Aviva PLC (previously Unum) Legal Advisers Burness Paull LLP Bankers Bank of Scotland Secretary to the Trustees Hymans Robertson LLP 7

8 Useful information SCHEME DOCUMENTS The following documents which provide more detailed information on the Scheme are available on the Scottish Enterprise intranet and Scheme website. The scheme booklet giving an overview of the Scheme. Partial retirement explanatory booklet. An annual benefit statement if you are not receiving a pension from the Scheme (and have not received a benefit statement in the previous 12 months), you can ask for a statement that provides an illustration of your likely pension. The Annual Report and Accounts of the Scheme giving a detailed breakdown of the Scheme s finances. The Scheme Actuary s full report on the actuarial valuation of the Scheme as at 31 March Annual actuarial report to 31 March The Schedule of Contributions showing how much money is being paid into the Scheme. The Statement of Investment Principles explaining how the Trustees invest the money paid into the Scheme. This report covers the requirements for the Scheme s annual Summary Funding Statement. SCHEME WEBSITE Pensioner members can visit for basic Scheme information, forms and important documents, to update personal details and much more. For active members, Scheme information can be found on the Scottish Enterprise intranet. USEFUL ONLINE RESOURCES There are plenty of online resources available to you. Here are just a few: Neither the Trustees nor their advisers can give you financial advice, but a financial adviser will be able to do so. If you are thinking of leaving the Scheme, or making any changes to your pension arrangement you may wish to contact such an adviser. You can find one local to you by visiting this site. This Government website has gathered all public information sites into one place. You can find out how much State Pension you might receive and see general information about planning for retirement. There is also a host of other helpful non-pension related information too. The Pensions Advisory Service (TPAS) is an independent non-profit organisation that provides free information, advice and guidance on the whole spectrum of pensions, including State, company, personal and stakeholder schemes. This website has plenty of information about retirement planning. TRACKING DOWN LOST PENSIONS Nowadays, it would not be uncommon if you changed your job several times throughout your career and this is likely to mean that you have more than one pension when you come to retire. As a result, it is easy to lose track of your company pension plans, especially if the company has relocated, changed its name or been taken over. If you would like to track down a lost pension, the Pension Tracing Service may be able to help you free of charge. Simply go to to complete an online application form or call for a hard copy application. You can also write to them at: Pension Tracing Service, The Pension Service 9, Mail Handling Site A, Wolverhampton WV98 1LU When you call it is a good idea to have some information to hand such as your National Insurance number, the name of the company you worked for and the dates you were there. WHERE CAN I GET MORE INFORMATION? Please get in touch with the administrator: Scottish Enterprise Pension & Life Assurance Scheme Administration, Hymans Robertson LLP, 20 Waterloo Street, Glasgow, G2 6DB Tel: scenadmin@hymans.co.uk 8