Pensions Update. The United Reformed Church Ministers' Pension Fund

Transcription

1 Pensions Update The United Reformed Church Ministers' Pension Fund

2 Chair's introduction Welcome to your new edition of Pensions Update, the annual newsletter for members of the URC Ministers Pension Fund. The Pension Fund is a 'Defined Benefit' pension scheme (sometimes referred to as a final salary scheme) which provides its members with a pension based on their ministerial service and stipend at retirement. Since the last edition of Pensions Update we have seen the financial position of the Pension Fund improve as a consequence of favourable investment conditions. Further details are provided in this edition but we remain on track to gradually eliminate the last valuation s deficit by 30 June 2031, which was the target date we agreed previously in the 2012 valuation. The next formal valuation of the Pension Fund s assets and liabilities will take place at the end of Mr Richard Nunn, Chair The United Reformed Church Ministers Pension Trust Limited 86 Tavistock Place London WC1H 9RT Trusteeship We have been fortunate to have had a consistent and faithful membership on the Board throughout 2016, but, in March 2017, Andrew Perkins tended his resignation, on his decision to support his wife full time in running a retreat in Normandy. Andrew s services will be missed both on the Board and the investment committee. Towards the end of 2017 the Revd James Breslin and the Revd Derek Wales will be standing down which means we will be looking for two nominations as member nominated directors. If you think you may be interested in applying for one of these positions or learning a little about what is involved, you can obtain further information and details of how to apply from Rob Seaman at Church House. (Turn to page 10 for full contact details.) The deadline for applications is 15 August Previous knowledge of pensions is not necessarily required but enthusiasm and a willingness to learn and engage with others in helping to reach major decisions in the next few years will be essential. Currently the directors of the United Reformed Church Ministers Pension Trust Limited are: Key: Also members of the Pension Fund Ex officio members + Nominated by members of the Pension Fund The Revd James Breslin Mr Richard Nunn (Chair) The Revd Paul Bedford + Ms Bridget Micklem Dr Chris Evans (convenor of the pensions executive) The Revd Pamela Ward (convenor MoM committee) + Mr John Ellis (honorary treasurer) The Revd Derek Wales + The Revd Dr Janet Tollington Mr Andrew Perkins (resigned in March 2017) Mr David Martin (convenor of the URC investment committee) Miss Margaret Atkinson + Cover image: Stas Volchenkov Fotolia.com 1 Pensions Update 2017

3 Financial progress of the Pension Fund A summary of the Pension Fund s income and outgoings in the year to 31 December 2016 is detailed to the right. A full set of the audited accounts, which is expected as usual to receive an unqualified audit opinion, is contained in the Trustee s Report and Accounts for 2016, a copy of which is available on request. All figures are in 000s Fund at 1 January 2016: 111,877 Church contributions Investment income Ministers' contributions Other 2,547 1,506 1, Total Income 5,276 Income Transfer values represent monies which leave the pension fund when a member joins another scheme or monies brought into the pension fund when a new member joins from another scheme; Management expenses comprise mainly fees to advisors (e.g. the investment fund managers); Pension commutation is lump sums paid on retirement to members who decided at retirement to exchange part of their pension for a lump sum payment. Increase in market value of Investments: 23,294 Pensions Management expenses Transfer values and refunds paid Death benefit insurance Pension commutation Lump sum on death 5, Total Expenditure 6, Expenditure Fund at 31 December 2016: 133,477 2 Pensions Update 2017

4 Statement by the actuary 2015 Actuarial Valuation As we reported in last year's Pensions Update, the actuarial valuation of the Pension Fund at 1 January 2015 has been completed. This was the Pension Fund s fourth valuation under the Scheme Specific Funding legislation and has built on the principles established in the three preceding valuations. The Trustee and Church agreed in the 2015 valuation that they will continue to target recovery of the deficit by 30 June 2031, this being the date that was agreed in the 2012 valuation, and deficit recovery contributions are being paid to the Pension Fund accordingly. The annual summary funding statement included in this Pensions Update summarises the results of the 2015 valuation and the latest annual update of the funding position, from which you will see that the deficit has continued to reduce presented some very difficult conditions for pension schemes to negotiate, in particular with the fallout from the EU referendum vote and gilt yields falling to exceptionally low levels in the late summer. As explained below, the low gilt yields translate into higher reserves being required by the Pension Fund. However, it is pleasing to report that the Trustee's investment strategy positioned the Pension Fund well to navigate those challenges and in fact at the end of 2016 the deficit had reduced slightly over the year. Further information is contained in the annual summary funding statement later in this Pensions Update. The Pension Fund continues to face significant challenges from the fallout of the 2008 global financial crisis and in particular low gilt yields (gilts are bonds issued by the UK government). Gilt yields continue to be at what are historically very low values. In the actuarial valuation, these lower yields translate into lower assumed future investment returns on the Pension Fund's assets and consequently more money will need to be reserved in final salary pension schemes such as your Pension Fund in order to meet the Pension Fund's future expected benefit payments. We call this reserve the Pension Fund s Technical Provisions. The factors that have led to low gilt yields remain the Bank of England s Quantitative Easing (QE) programme of buying back its own gilts with newly created money has yet to be reversed and in fact has been expanded since the result of the UK's referendum on EU membership, the European Central Bank and Japanese Central Bank have also both embarked upon a continuing programme of QE, and global economic growth expectations are low. Only in the United States of America has the economic stimulus of loose monetary policy started to be reversed. Update on Church support for the pension fund The United Reformed Church fully supports the Pension Fund and this is embedded formally in resolutions of the General Assembly. The formal guarantee of 16m, which could be drawn if for any reason the Church was unable to make its regular contributions to the Pension Fund, coincidentally matches the actuarial deficit as calculated at the 2015 valuation. Most of the money required for investment in the Pension Fund comes from the Ministry and Mission Fund (M&M) contributions made by local churches. In 2016 the latter were broadly in line with budget and totalled 19.3m, so able to bear fully the regular pension obligations. The Church s central budget was in surplus in 2016 by over 150,000 and a balanced budget is expected in 2017 and Should the triennial Pension Fund valuation at the start of 2018 require an increase in the total Church contribution from 2019 onwards, there is no reason to suppose this obligation could not be met. Several synods have also indicated informally that if a rise in contributions were required from the Church as a whole, they would be willing to assist. This is another indication that the Church family is more than able to meet its commitments to the Pension Fund. Annual summary funding statement It is a requirement under the Pensions Act 2004 that every year the directors issue members with a summary funding statement. The 2017 summary funding statement is detailed on the next page. 3 Pensions Update 2017

5 Summary funding statement made in accordance with the Scheme Funding Regulations 2005/3377 This statement relates to the actuarial valuation carried out as at 1 January 2015 and the subsequent report prepared by the actuary on the development of the funding position over the following two years. In accordance with legislation an ongoing valuation was carried out as at 1 January This assumes that the Pension Fund continues with the Church s contributions being made at the recommended levels. The valuation showed assets of 111.7m and liabilities of 128.3m, resulting in a funding level of 87% (and a deficit of 16.6m). The Deficit Recovery Plan agreed by the Trustee and the Church as part of the 2015 actuarial valuation is that the Church contributes 1.0m p.a. of deficit contributions over a deficit recovery period of 15 years six months from 1 January These payments will increase on 1 January each year in line with the percentage increase in a minister s stipend. The deficit contributions payable by the Church equated in 2016 to approximately 9% of total stipends. In addition to the deficit contributions, the Church contributes to the Pension Fund at a rate of 14.9% of stipends to fund the benefits which continue to accrue to contributing ministers. Ministers contribute at a rate of 7.5% of stipends. Last year's Summary Funding Statement reported that the funding position had improved over the year since the valuation date with the deficit as at 1 January 2016 having reduced to 12.5m ( a funding level of 90%). The improvement was primarily a result of changes in market conditions, which reduced the expected cost of providing benefits to members of the Pension Fund and therefore decreased the Pension Fund's technical provisions. In addition, the contributions paid to the Pension Fund contributed to this improved position. The Trustee has received a report from the actuary on the developments that have affected the Pension Fund over the two years since the 1 January 2015 valuation date. Without having undertaken a full valuation as at 1 January 2017, the actuary estimates that as at that date the Pension Fund s assets fell short of the technical provisions by 11.4m, representing a funding level of 92%. This represents an improvement since the 1 January 2015 valuation date and also since the 1 January 2016 update. The improvement in the funding position during 2016 was primarily due to the investment return on the Pension Fund's assets having been higher than expected over the period, along with deficit contributions made by the Church. However, the improvement from these factors was mostly offset by a fall in the yield available on index-linked gilts, which has increased the expected cost of providing benefits to members of the Pension Fund and therefore increased the Pension Fund's technical provisions. Deficit Funding level Deficit Funding level Deficit Funding level 1 January m 87% 1 January m 90% 1 January m 92% As at 1 January 2017 the Pension Fund continues to invest close to its benchmark target of 60% of its assets in an actively managed pooled fund of index-linked bonds. The actual percentage as at 1 January 2017 was 57%. The remainder of the assets are primarily invested in an actively managed portfolio of equities and as at 1 January 2017 there was an allocation of around 8% of the assets to a property pooled fund. In the 1 January 2015 valuation, the actuary also considered the hypothetical situation of the Pension Fund winding up on 1 January This is based on the assumption that the assets are invested in appropriate insurance policies at that date. On this basis the actuary estimated that the assets would have been sufficient to meet approximately 57% of the liabilities. It is a statutory requirement that all pension schemes include this information in the Summary Funding Statement and the Trustee would like to stress that there is no intention to wind up the Pension Fund nor to purchase annuities on terms currently available from insurers. We also have a statutory obligation to inform you that if the Pension Fund were ever to wind up at a time when the Church did not have sufficient funds to cover the cost of buying out members benefits with an insurance company, the Trustee would apply for admission to the 'Pension Protection Fund' set up by the government which would meet a significant part of the benefits due to members. No payments have ever been made to the Church or any other employer associated with the Pension Fund under the terms of Section 37 of the Pensions Act 1995, which permits such payments in certain circumstances. The Pension Fund has not been modified by The Pensions Regulator under Section 231(2)(a) of the Pensions Act 2004, nor is it subject to any directions by The Pensions Regulator under Section 231(2)(b) of that Act or bound by a Schedule of Contributions imposed by The Pensions Regulator under Section 231(2)(c) of that Act. Should you have any questions on this statement or more generally then please contact Rob Seaman (see page 10 for contact information). 4 Pensions Update 2017

6 2016 investment report a barrage of political and economic upheavals Last year I mentioned riding out a storm but 2015 was just a taster for the events of 2016 and those in prospect for 2017 and beyond. Financial markets have withstood a veritable barrage of political upheavals but despite this tough background, investment returns have perhaps been surprisingly positive. The decision of the UK to leave the EU and of the USA to elect Mr Trump as president led to international politics becoming dangerously overheated. UK domestic debt is rising upon consumerist euphoria, and European elections may lead to yet further uncertainty. We had a snap General Election on 8 June, uncertain negotiations to achieve Brexit and the prospect of another Scottish independence referendum. What happens in the remainder of 2017 is difficult to predict, but so far the markets are responding with restraint. Early in 2016 the policy of the Organisation of Petroleum Exporting Countries (OPEC) to allow oil production levels to be maintained led to falls in the price to around $30 per barrel. A weak first quarter s US economic activity, worries about the Chinese economic outlook and the Bank of Japan s announcement of negative interest rates added to market worries. In the second quarter the oil price recovered to around $50 and this factor along with more reassuring signs from the US and Chinese economies led to stock market recovery. The unexpected Brexit referendum result prompted market turbulence with weakness in sterling. There was also a very strong rally in the UK gilt market. Initial investor concerns were replaced by an optimistic view of large multi-national companies, although more domestically focused companies lagged on fears about the UK economic outlook. The Bank of England s cut in interest rates to 0.25% and measures to support bank lending helped boost sentiment. Overall growth in the second half of the year proved to be much more resilient than earlier predictions. Mr Trump s campaign rhetoric gave rise to concerns about an isolationist approach, with trade tariffs, protectionism and a different emphasis in international relations. In the short term markets have taken a positive angle, focussing on Mr Trump s ideas on lowering company taxation and increasing infrastructure spending. A strong US dollar was a feature of the fourth quarter. Concerns about higher inflation have also been prompted by the strong recovery in the oil price during the fourth quarter of A major factor in helping the oil price to reach $56.5 by the year end was the announcement by OPEC supported by other producers in November modestly to reduce oil production. With this background, the impact upon the Ministers Pension Fund in 2016 has been remarkable. Our equities returned 19.2% over the year. Those asset values rose dramatically as foreign earnings were converted to devalued Sterling. Our Bond fund assets, which returned 11.6% over the year, also rose as interest rates continued downwards. Rather fortuitously we benefitted from holding our particular portfolio as this increased in value proportionately more than the value of the scheme s liabilities. Our property assets rose by 12.9%, benefitting from the fact that, to a degree, the property market was stabilised by foreign investors tempted by low values of Sterling assets. At the end of the year we took a decision to look at how we invest our assets and see what potential might exist for managing the assets in a more efficient manner. Whilst this investigation continues we have in principle decided to make some changes which will lead to a less complex structure and lower costs. Through our membership of Church Investors Group, we continue to support good behaviour within those businesses in which we invest in such areas as fossil fuel investments, decarbonisation of business, restraining executive remuneration and bearing down on human trafficking. The Trustee Directors welcome the continued support from the Church in their Investments as in other matters. Richard Nunn, Chair 5 Pensions Update 2017

7 Benefit matters Flexible benefits (following the 2014 budget) Following the government's budget in 2014 a number of radical changes were introduced to the UK pension system with the aim of giving people wider options over how and when they receive their benefits. Not all the changes will necessarily affect you directly, although you may be able to take advantage of the new, more flexible choices, if they are appropriate for your particular circumstances. We reported these changes to you in last year's Pensions Update, but here is a brief reminder. You can find out whether your pension falls within the commutation limits by contacting Rob Seaman at Church House, but to give you a very rough indication a pension of 500 pa on retirement at age 65, or a pension of 400 pa payable from age 55 are likely to fall within the single scheme threshold of 10,000. For the 30,000 limit the pensions you will receive from all schemes must total less than 1,500 pa and in some circumstances the total may need to be lower. Small pension 'pots' If you have only built up a small level of benefit in the Pension Fund (or across several schemes), you may be able to draw it all as a cash sum after you have reached your 55th birthday, instead of pension. The technical term for taking cash benefits in this way is trivial commutation. The new rules have increased the limits for how much cash you can receive making it an option for many more people. For: Single schemes: you may take cash from a pension scheme if your benefits in that scheme are worth less than 10,000. Your overall benefits you may take cash from a pension scheme even if your benefits exceed 10,000 in value, but only if the value of your benefits from all your pension schemes totals less than 30, Pensions Update 2017

8 Defined contribution flexibilities The new measures for members of defined contribution (DC) plans (also known as money purchase plans, these being arrangements where the member has a pension fund account which grows in line with investment returns) apply in the Pension Fund s case to members with an Additional Voluntary Contribution (AVC) fund and also apply if you have any DC pension savings outside the Pension Fund. It is no longer a requirement to buy an annuity with a DC fund. Instead, there are alternatives available, including drawing down directly on the DC fund as income either in one lump sum or in stages (while keeping the rest invested to draw on later) as and when an individual wishes. Further detailed information on these options, and the restrictions in place for the Pension Fund, was provided in the 2015 Pensions Update. Briefly, there is now the scope to take the whole of your AVC fund as a lump sum, although depending upon your circumstances only part of it will be payable tax free. However, if you wish to take full advantage of the new flexibilities and operate your AVC fund in a similar way to a bank account, by drawing from it as and when you require funds, then you will need to transfer your AVC fund to a suitable provider. This is because, unfortunately, we do not have the administrative resources to provide this level of flexibility from the Pension Fund. If you wish to pursue a more flexible approach you are permitted to transfer your AVC fund out of the Pension Fund without transferring your final salary benefits. The option of taking a tax free lump sum from your AVC fund and purchasing an annuity in the Fund or with an insurance company with the balance of your AVC fund continues to be available. In the light of the new pension flexibilities, the government has launched Pension Wise ( to help guide people through their pension retirement choices. Pension scams There is a statutory requirement that you take financial advice before transferring your final salary benefits out of the Pension Fund if the transfer value exceeds 30,000. Even if your transfer value is under this threshold the Trustee strongly recommends you take independent financial advice from someone qualified to give that advice before taking any action. The Pensions Regulator has also issued guidance which requires pension scheme trustees and administrators to carry out certain checks before making transfer payments. As part of this campaign, trustees and pension providers are being encouraged to raise members awareness and to be alert to potentially fraudulent pension scams. There are significant tax consequences where pension scheme members access their pension savings before age 55 (except in very limited circumstances) and these tax charges and penalties can amount to more than half the value of a member's pension savings. Therefore, in order to make an informed decision about a transfer and to seek any appropriate additional advice, it is important to have all relevant documentation and information about the transfer, the terms and conditions and how your pension will be paid on retirement. The Pensions Regulator states that it is crucial that members understand any transfer they agree to and should always receive adequate documentation from the receiving scheme. A leaflet providing advice on how to spot the warning signs of pension scams can be found on the Pension Advisory Service's website by following the web address below. If you would like a quotation of your transfer value then please contact Rob Seaman at Church House. 7 Pensions Update 2017

9 Flexibility over when you take your Pension benefits Take benefits early Benefits can be taken between age 55 and 68 The Pension Fund's Normal Retirement Age (NRA) is 68 for both males and females, with the exception of those members who opted out of the 2013 benefit changes and retained a Normal Retirement Age of 65. You have flexibility in the date you choose to take retirement benefits and in when you stop working. These do not need to be on the same date and Rob Seaman can provide guidance on the financial implications of these options. The level of benefits you receive is determined by when you choose to start receiving your pension: Take pension benefits at NRA Take benefits early benefits can be taken between age 55 and 68 with a reduction applied to your pension for each year of retirement prior to NRA. The amount of tax-free cash will also be less than if you retired at NRA Take benefits at NRA Benefits can be taken at age 68 Take benefits late you may defer receipt of your benefits up to age 75. This will benefit from a late retirement enhancement or additional service will build up if you remain in stipendiary service For members with service before 1 January 2013, this element of service is treated as having a NRA of 65, which means that on retirement at age 65 this part of the pension is not reduced. Take benefits late You may defer receipt of your benefits up to age 75 8 Pensions Update 2017

10 New state pension In April 2016 the old Basic State Pension and State Second Pension were replaced with a single-tier State Pension. The new State Pension arrangement will only apply to members reaching their State Pension age from April 2016 onwards existing State Pensions will be unaffected. The maximum entitlement under the new State Pension is currently per week for a single person. To receive the full amount of new State Pension from your State Pension age you will need 35 qualifying years, earned by either making National Insurance contributions or receiving National Insurance credits. If you have ten or more qualifying years, you will receive some level of the new State Pension. Some reminders The Pensions Regulator is the regulator of work based pension schemes in the UK. The Pensions Regulator s website ( has useful links via the Scheme Members section on the home page to a number of useful addresses. The Trustee and its advisers must hold certain information about you to ensure that the Pension Fund is managed efficiently. In order for the Trustee s records to be kept up-to-date, please notify the Pension Fund s administrators of any changes to your personal circumstances, for example a change of address or marital status. This will ensure the timely payment of pensions and enable the Trustee to keep you informed about any news affecting your benefits. Moving to non-urc posts Members may not be aware but there can be pension implications if part of their role is for an organisation other than the URC. Therefore, if you are considering taking up a non-urc post please contact Rob Seaman to discuss the potential pension implications. Personal data In providing actuarial services to the Trustee, the Trustee's adviser Aon Hewitt, the Scheme Actuary and the Trustee require access to personal data about members and their dependants. The Data Protection Act governs how the Trustee, Aon Hewitt and the Scheme Actuary use and store personal data. Members can find out more information about how their personal information is used in the provision of actuarial services at Should a member have further questions regarding the processing of their personal information, they should contact Rob Seaman in the first instance using the address in this document. General guidance is also available from the Information Commissioner's website ( Members of the Pension Fund who are in stipendiary service should also remember to keep their Expression of Wishes Nomination Form up to date. The Expression of Wishes Nomination Form is used by the Trustee to help decide who should receive the lump sum death benefit and in what proportions. Not having completed a form or failure to keep the form up to date could lead to a delay in settling death benefits. The appropriate form is available on request. 9 Pensions Update 2017

11 Further information You can obtain further information on any items covered in this edition of Pensions Update and matters affecting your own pension by contacting Rob Seaman at Church House, 86 Tavistock Place, London, WC1H 9RT. Contact Details Tel: Fax: Pensions Update 2017

12 Produced by the URC s communications department on behalf of the finance committee, July 2017