for members of the Final Salary Section of the Bank of America Merrill Lynch UK Pension Plan (the Plan)

Transcription

1 Update June 2014 for members of the Final Salary Section of the Bank of America Merrill Lynch UK Pension Plan (the Plan) Update aims to provide you with useful information about the Final Salary Section of the Plan and if you have not yet retired, information to help you manage your retirement savings. The Plan s finances This edition includes the results from the latest valuations of the Final Salary Section. We are pleased to confirm that, as at 31 December 2013, it is estimated that the Plan was fully funded against the target agreed by the Trustee and the bank. This is primarily as a result of the significant contributions the bank has been paying into the Plan to reduce the Plan s deficit, as agreed with the Trustee. The Plan has also seen positive investment performance over Read more, and see a summary from the 2013 Report and Accounts from page 3. News from the pensions world If you have not yet retired, you will receive a communication this summer outlining the proposed changes to pensions the Government announced in the 2014 Budget, and what they could mean for your Final Salary benefits (also known as defined benefit or DB benefits) in the Plan. Other updates from the pensions world are set out on page 6. If you also have defined contribution (DC) benefits in the Plan, you will receive an Update with news from the DC Section of the Plan. What else is inside? Find out useful facts about the Plan and if you have not yet retired, key resources to help you manage your retirement savings. We hope you find this Update informative. Please let us know if you have any comments or ideas for future issues of Update by ing boaml@capita.co.uk. Yours sincerely Peter Gibbs Chairman of the Trustee Regular reminders Make sure you keep your address details up to date so we can keep in touch. If you still work for the bank, you can view and update address details on Flagscape go to myhr (HR Portal). Pensioners and former employees can update their details on the pensions website or by writing to the Plan Administrators; see page 7 for details. Do your Expression of Wish details need updating? The Trustee needs the latest information about your preferred beneficiaries to help decide how to apply your death benefits should you die. To make your nominations, or update your existing details, log on to the pensions website or contact the Plan Administrators; see page 7 for details. 1

2 Plan facts About the Trustee Board The Plan is managed by a Board of 11 Trustee Directors who meet regularly to govern the Plan. There is currently a vacancy for a Member Nominated Trustee Director. More information will be available later in the year. Membership The table below shows the Plan s total membership and how this has changed over the year. The number of members with Final Salary Section benefits is shown in brackets. As at 31 December: Michael Vavrinek Peter Gibbs Simon MacKenzie-Smith Employee members 3,382 (190) 8,010 (167) Philip Middleton Anne Urban Deferred members 8,274 (3,965) 17,530 (3,906) Ursula Mapley Pensioner members 720 (679) 771 (719) Skip McMullan John Plaxton Total 12,276 (4,834) 26,311 (4,792) Alastair Stables Mervyn Gutteridge Stuart Baxter The number of employees and deferred members has increased significantly in 2013 as a result of the consolidation of the bank s retirement arrangements. Chairman Company Nominated Director Member Nominated Director The Bank of America Merrill Lynch UK Pension Plan Trustee role in Plan funding One of the Trustee s key tasks is to conduct a formal actuarial valuation of the Plan every three years. The Trustee may ask the Plan Actuary to carry out more frequent formal actuarial valuations. As reported last year, this was the case for the Plan in 2013: a formal actuarial valuation was carried out as at 31 December 2012 in addition to the one carried out as at 31 December When formal actuarial valuations are not carried out, the Trustee monitors the funding position through an annual funding update. This gives an insight into whether the Plan is on track to reach its long-term funding strategy. Funding updates give a more approximate check than a formal actuarial valuation. Find out about the latest figures on the funding level on the next page. The Plan s investment strategy The Trustee is also responsible for the overall investment policy of the Plan. The Trustee aims to invest the assets of the Plan prudently to ensure that the benefits promised to Plan members are provided. The asset allocation strategy selected is designed to achieve a higher return than the lowest-risk strategy while maintaining a careful approach to meeting the Plan s liabilities. Following a review of the Plan s investment strategy in 2013, the Trustee made some changes to the investment strategy with the objective to reduce the risk and return of the Plan s portfolio. In particular, some of the allocation to higher risk and return investments such as equities were moved to lower risk and return investments, which aim to better match the movement of the Plan s liabilities. 2

3 Financial healthcheck The table below highlights the results from the formal actuarial valuation as at 31 December 2012 and the annual funding update as at 31 December The Trustee and the bank have been committed to removing the deficit for some time. As you can see, at 31 December 2013 the annual funding update estimates that the Plan was fully funded against the target agreed by the Trustee and the bank. As at 31 December 2011 Formal actuarial valuation 2012 Formal actuarial valuation 2013 Annual funding update The liabilities were valued at 1,086 million 1,156 million 1,126 million The assets were valued at 970 million 1,037 million 1,133 million This means there was a surplus or deficit of ( 116 million) ( 119 million) 7 million The funding level was 89% 90% 101% The Plan funding position explained At 31 December 2012, the Final Salary Section needed 1,156 million to provide members benefits (or liabilities ). As its assets were valued at 1,037 million, there was a shortfall of 119 million. Please note that these figures exclude members defined contribution balances. Overall, the Final Salary Section s funding level was 90% and the Trustee and the bank agreed an updated Recovery Plan. What is a funding level? The funding level shows how much money (assets) the Final Salary Section of the Plan has, compared with how much the Plan Actuary and the Trustee estimate is needed to pay all the benefits (liabilities) built up by all members. Each time a formal actuarial valuation is carried out, the Trustee and the Plan Actuary consider suitable assumptions for calculating the value of the liabilities. These assumptions cover a range of factors including future investment returns, price and earnings inflation and life expectancy. As those assumptions could be quite different to what will actually happen, future funding levels of the Plan are not certain. All the assumptions used are specific to the Plan and agreed between the Trustee and the bank. Please note that formal actuarial valuations can be done in many ways and the Trustee does not rely on a single set of figures. How has the 2013 funding position changed? The annual funding update as at 31 December 2013 showed the assets of the Final Salary Section had increased to 1,133 million. As its liabilities were valued at 1,126 million, the result was a surplus of 7 million. The overall funding level therefore increased to 101%, meaning that the Plan was fully funded against the target set by the Trustee and the bank. Why has the 2013 funding position changed? Following the formal actuarial valuation as at 31 December 2012, the Trustee and the bank agreed an updated Recovery Plan to remove the shortfall that was then identified ( 119 million). As set out in last year s Update, the bank paid 44.2 million to the Plan in 2013 to remove the shortfall. The bank also paid 20 million into the Plan in March 2014, and will pay a further 10 million by 31 March 2015 and 31 March 2016 respectively. The payments made in 2013 were an important driver behind the Plan s improved funding position. The Plan s existing invested assets also increased in value over The Plan s liabilities reduced over 2013, mainly due to changes in the interest rates used to estimate how much money the Plan needs to meet future benefit payments. How the Trustee monitors the bank s support The bank provides vital financial support to the Plan and so the Trustee monitors its financial strength on a regular basis. The bank is fully supportive of this and provides management information to the Trustee upon request. The Trustee has also engaged an independent specialist to improve and extend its existing monitoring of the bank s financial and business health. 3

4 What does being fully funded actually mean? As shown in the latest annual funding update, this is when the assets in the Final Salary Section of the Plan exceed what the Plan Actuary estimated that is needed to pay all the liabilities built up by members. The liabilities are valued by reference to a set of assumptions agreed between the Trustee and the bank. Doesn t the Final Salary Section of the Plan have to be 100% funded at all times? Your Final Salary Section benefits are not directly linked to the value of the Final Salary Section s assets. As long as the bank remains able to support the Plan, benefits will continue to be paid in full to members (even if there is a shortfall). It is important to remember that any valuation, or funding update, is just a snapshot in time and that we expect the funding position to go up and down. Any additional resources provide a safeguard against less favourable outcomes in the future. No payments to the bank The Trustee confirms that no payments out of Plan funds were made to the bank in the 12 months to 31 December No intervention from the Pensions Regulator The Pensions Regulator can change the Plan, give directions about working out its technical provisions (liabilities) or impose a schedule of contributions. The Trustee confirms that the Pensions Regulator has not needed to use its powers for the Plan. What would happen if the Plan wound up? Benefits will continue to be paid in full by the Plan as long as it remains in existence. If the Plan was wound up (or came to an end) the Plan s assets would be used to buy the equivalent benefits from an insurance company. In this situation, the bank would have to pay an additional amount to secure those benefits. If the bank became insolvent and could not provide sufficient funds to secure 100% of benefits, these would be reduced and possibly the Plan would enter the Pension Protection Fund. By law, the Trustee needs to show the winding up (or discontinuance) position, but this doesn t mean that the bank is planning to discontinue the Plan. The Plan Actuary calculated that if the Plan was discontinued on 31 December 2013, the Plan s assets were estimated to provide 72% of the money needed to secure Final Salary benefits in this way. The equivalent estimation was 66% as at 31 December More about the Pension Protection Fund The Government has set up the Pension Protection Fund (PPF) to pay compensation to members of pension plans in certain circumstances where their plan is discontinued, or where companies have become insolvent. Please note: the PPF only provides a certain level of protection, so members may still see some reduction in their benefits if the PPF were to step in. Find out more at or write to the PPF at Renaissance, 12 Dingwall Road, Croydon, Surrey CR0 2NA. Next year s issue of Update will include the results of the annual funding update as at 31 December The next full actuarial valuation will be as at 31 December

5 More financials the 2013 accounts Over the year since the 31 December 2012 formal actuarial valuation, the value of the Plan s assets increased by 99.4 million. This was mainly a result of the bank s deficit contributions to the Plan, and positive investment performance. Value of the Final Salary Section at the beginning of the year 1,042,418,072 Money in Company contributions Investment income (net of expenses) Other income Total 47,065,312 13,616, ,682,464 Money out Benefits paid Payments to, and on account of, leavers Administrative expenses Total ( 14,879,167) ( 5,613,359) ( 0) ( 20,492,526) Change in market value of investments Value of the Final Salary Section at the end of the year 59,258,233 1,141,866,243 Please note: The value of the Final Salary Section s assets at the beginning and end of 2013 shown above is slightly different to that shown earlier for the valuation results at 31 December 2012 and 31 December This is because the assets used for the valuations exclude members defined contribution assets and include some insured pensions that are not included in the accounts. Although they are not expected to change, the 2013 Accounts had not been formally approved at the time of this Update s publication. Finding out more You can read more about the Plan and how it is funded in the documents listed below. For copies, please contact the Plan Administrators (see page 7 for contact details). Formal Actuarial Valuation Report: gives more information on the funding position for the Plan s Final Salary Section and details of the Recovery Plan as at 31 December Annual Actuarial Report: covers the results of the 2013 annual funding update. Annual Report and Accounts: shows the Plan s income and expenditure for the latest year. They are also available online at Statement of Investment Principles: explains how the Trustee invests the Plan, including the assets of the Final Salary Section. Statement of Funding Principles: sets out the funding strategy for the Final Salary Section. Schedule of Contributions: shows how much money is being paid into the Plan; together with the Plan Actuary s certificate which confirms that the Schedule meets current requirements. 5

6 The notice board This section focuses on useful information for members who have not yet retired. Budget 2014 If you have not yet retired, this summer you will receive an Update on the Government s overhaul to pensions announced in the 2014 Budget. The Government s objective is to give more choice and flexibility over how retirement savings are used. The changes focused on defined contribution (DC) pensions although there may be some implications for Final Salary benefits. If you have DC benefits in the Plan, you will receive an Update from the DC section of the Plan including the 2014 Budget proposals. State Pension Age State Pension Age what is yours? The State Pension Age for both men and women begins to rise above 65 from December By 6 October 2020, it will reach age 66 for everyone. The chart below shows how this may increase further over the next few decades. It is proposed by 2028 the State Pension Age will increase to 67 with more changes likely beyond this date. Visit to see what your State Pension Age will be New State Pension Legislation in the Pension Act 2014 confirmed that the simplified universal State Pension will be introduced in April 2016 and will replace the current Basic State Pension and the State Second Pension. Here is a quick reminder of the details: This single flat-rate pension is expected to be no less than a week. The actual amount will be set in autumn The amount you receive will be pro-rated, depending on your number of qualifying years and will still be based on your National Insurance contribution records. The changes will affect anyone reaching State Pension Age from April 2016 onwards. Please note: if you previously contracted out of the State Second Pension in the past (for example during the period you were an active member of the Plan s Final Salary Section) the exact details of how the single flat-rate pension will be adjusted for your contracted-out service are being finalised. For more information on the new State Pension, visit Getting financial advice Please remember that by law, the bank, the Trustee and/ or the Plan Administrators are not allowed to give financial advice. If you would like to discuss your options and personal circumstances in more detail, we recommend that you speak to an impartial financial adviser. For details of how an adviser can help and how to find one in your area, visit Please note that you may have to pay for financial advice Year (July) Tax relief allowances on contributions to retirement savings Pensions Act 2011: Women Pensions Act 2011: Men Pensions Act 2011: Both Pensions Bill 2013 For the 2014/15 tax year: The Annual Allowance is 40,000. The Lifetime Allowance is 1.25 million. These limits apply to all pension savings not just the Plan. For more information see the Your pensions savings and tax document available in the Plan Library section of the pensions website (see page 7 for details). Further information is available at 6

7 Managing your retirement savings Plan Administrators If you have any questions about the Plan or your benefits, or if you would like to request a copy of Plan documents, contact the Plan Administrators at: Web: Phone: Post: State Pension Click Login and enter the details required. If you are not registered, click Register at the top of the screen and complete your personal and contact details. Then wait for a PIN to be sent to your phone or address (for pensioners) (for all other members) boaml@capita.co.uk Bank of America Merrill Lynch UK Pension Plan Hartshead House 2 Cutlers Gate Sheffield S4 7TL Find out more about your State Pension, and/or request a forecast of your State Pension in today s money at Or use the details below. Phone: Post: Future Pension Centre The Pension Service 9 Mail Handling Site A Wolverhampton WV98 1LU Pension Tracing Service If you have lost track of a previous pension, contact the Pension Tracing Service. You will need to provide as much information as you can. Find out more at Alternatively, contact them by: Phone: (+44 (0) from outside the UK) Do you have a comment or concern about the Plan? If you have a comment, concern or complaint about the Plan, please follow the process set out below so that those who need to give you a response will be able to provide it more quickly. Your comment, concern or complaint first needs to be referred to the Plan Administrators. If the Plan Administrators are unable to resolve the query/ complaint, the Trustee has established an Internal Disputes Resolution Procedure (IDRP). To request a copy of the procedure and details of how to make a complaint, boaml@capita.co.uk. If the issue has not been satisfactorily resolved using this process, then members can contact: The Pensions Advisory Service (TPAS), The Pensions Ombudsman and/or The Pensions Regulator. For more information and contact details, see the 2012 Update available at Pension payslips If you are already receiving your Income in Retirement from the Plan, please read this section carefully. Since January 2014, your monthly pension payslips are online. Here is a reminder of access details: Go to the pensions website at See details at the top of the page if you have not yet registered.»» Click Login and enter the details required.»» See your latest payslip and your previous payslips in the left-hand navigation under My Pension.»» You can also see your P60 History there. Did you know? Every month your payslips are available two working days before the payment date. You can print your online payslips at any time just go to File and Print in your menu bar when you are viewing the page you would like to print. Post: Pension Tracing Service The Pension Service 9 Mail Handling Site A Wolverhampton WV98 1LU 7

8 Looking after the Plan The Trustee appoints professional advisers to assist with actuarial, investment, legal, and accounting aspects of the Plan. The current advisers are set out below. Full address details can be found in the 2013 Report and Accounts which will be available from July 2014 at Plan and Investment Consultants / Actuary Aon Hewitt Actuary: Jonathan Wicks FIA Legal Adviser Linklaters LLP Bankers Lloyds Bank Plc Independent Auditors KPMG LLP Custodian Bank of New York Mellon Covenant Assessment Lincoln International Communication Consultants Towers Watson Ltd Investment Managers Aberdeen Property Investors Babson Capital Global Investment Funds Plc BlackRock Investment Management (UK) Limited Fauchier Partners Gottex Fund Management HarbourVest Partners LLC Insight Investment Management (Global) Limited Pantheon Ventures Limited Standard Life Investments UBP Asset Management LLC AVC Investment Managers Aviva Investors Pensions Limited Aviva Life & Pensions UK Limited BlackRock Life Limited Fidelity Pensions Management The Equitable Life Assurance Society 8