The Metal Box Pension Scheme and AVC Plan

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1 The Metal Box Pension Scheme and AVC Plan The Metal Box Pension Scheme and AVC Plan Welcome to this edition of the Members Update, sent to you from the Trustee of the Metal Box Pension Scheme (the "Scheme") and Metal Box AVC Plan (the "Plan") Your Contacts Telephone enquiries Contributing Member and Deferred Pensioners: Pensioners: (UK) +44 (0) (from overseas). Written enquiries The Metal Box Pension Scheme c/o Xafinity Paymaster, Sutherland House, Russell Way, Crawley RH10 1UH xafinitypaymaster.com Pensioner Tax queries Telephone: (UK), (from overseas). When you call or write to HMRC please quote the Scheme tax code reference, see page 3 and your National Insurance Number. Also see page 3 for the address to use for written queries. Scheme Website The Scheme website address is: Standard Life General queries including With Profits Unit Price Adjustment queries: +44 (0) Employee Zone registration: +44 (0) Investment fund selection queries: +44 (0) UK Pensions Manager If you have difficulties obtaining the information you need or wish to raise a query directly with the Trustee please contact the UK Pensions Manager: Mrs Cathy Aston UK Pensions Manager Metal Box Pension Trustees Limited, c/o CROWN Packaging UK plc, Perry Wood Walk, Worcester WR5 1EG catherine.aston@ eur.crowncork.com Tel: +44 (0) Fax: +44 (0) Newsletter March 2011

2 Inside this issue Pension Increases Equitable Life New Scheme Tax Code Reference The Trustee Board Scheme Funding Formal Valuation at 31 March 2010 New pension tax rules State Pension Age Flexible Retirement This Members Update includes the Scheme s Summary Funding Statement which the Trustee is required to send to you. The purpose of the Summary Funding Statement is to provide you with information about the funding of the Scheme. Pension Increases The impact of the Government changing the statutory minimum rates at which pensions have to increase in private sector schemes from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI) is now better understood. There will be only two changes that affect the Scheme: Pensions in Payment Some of you will receive a Guaranteed Minimum Pension (GMP) after age 65 (males) or 60 (females). This is the part of the pension that replaces the earnings related component of the UK State Pension. The Scheme has to apply an increase to GMPs earned between 6 April 1988 and 5 April 1997 in accordance with a "GMP Increase Order" which is issued by the UK Government. From April 2011 this will be based on CPI rather than RPI. Deferred Pensions A check is carried out at Normal Retirement Date for deferred members to ensure that the increases awarded by the Scheme in deferment are sufficient to satisfy the minimum statutory requirements. Statutory revaluation for the purpose of this check will in the future be linked to CPI rather than RPI. Equitable Life The Independent Commission, set up to recommend how the compensation fund made available by the Government should be distributed, published its report in January The next step is for the Government to decide how the recommendations in the report can be best applied to the policyholders. The Trustee will not know if, how much, or when, any compensation will be payable in respect of members of the Plan until this process has been completed. Further information will be provided in due course. 2

3 For Pensioners New Scheme Tax Code Reference The Scheme has a new Tax Code Reference of 064/HA54605 which applies from 6 April This replaces the old Tax Code Reference of 083/M388A. If you need to contact HMRC about pension payments up to 5 April 2011, you can telephone or write to HM Revenue & Customs, Sefton Area Office, The Triad, Stanley Road, Bootle, L75 1HW. Please quote the old Tax Code Reference. For queries relating to pension payments after 5 April 2011, you can telephone or write to HM Revenue & Customs, Worcester and Hereford Area Office, City Centre House, 30 Union Street, Birmingham, B2 4AE. Please quote the new Tax Code Reference. This change will not affect the amount of your pension or tax. The Old Tax Code Reference will be shown on your P60. The new Tax Code Reference will be shown on your April payslip. The Trustee Board The Board of Metal Box Pension Trustees Limited comprises six Directors, two of whom are Member-nominated and four of whom are Management-nominated. The Member-nominated Directors each serve for a three year term. Your Trustee Directors at the time of writing are:- Member-nominated Directors Term of office expiry date Mike Davis Deferred Member * 30 June 2013 David Powell Pensioner Member 31 March 2012 Management-nominated Directors Terry Cartwright (Chairman) Deferred Member * John Riley Deferred Member Fred Dermody Non-Member At the end of December 2010, Crown Holdings Inc. established a new headquarters for its European businesses in Zug, Switzerland. This means that some employees who are now based in the new office in Switzerland, including Mike Davis and Terry Cartwright, can no longer contribute to the Scheme and have become Deferred Members. The Trustee s policy for Member-nominated Directors (MNDs) provides for one of the Member-nominated Directors to be a Pensioner of the Scheme and the other to be a Contributing Member. The Trustee Board has decided to make an exception to the MND policy to enable Mike Davis, who has attended Trustee meetings since the beginning of 2010 and completed his intensive induction training, to complete his term of office, after which he will be replaced. The MND policy is available on request from the UK Pensions Manager. Len Jenkins resigned as a Trustee Director with effect from 31 December A replacement is expected to be appointed shortly. 3

4 Scheme Funding This section of the Update relates only to the Metal Box Pension Scheme (the Scheme) and not The Metal Box AVC Plan (the Plan). Put simply, the Scheme s funding position is the difference between how much the investments (assets) are worth and how much is needed now in order to pay benefits in the future that have already been accrued (liabilities). If the assets exceed the liabilities the Scheme is in surplus. If the liabilities exceed the assets the Scheme is in deficit. The funding position is a snapshot, based on what is known at the time and estimates of what might happen in the future, such as how long people might live, what inflation might be and how the Scheme s investments might perform. Legislation requires the Trustee to commission a formal valuation at least once every three years. The formal valuation involves a detailed review of the funding target for the Scheme, the assumptions underlying the calculation of the liabilities at the valuation date and the financial support provided by the Company. The agreement of the Company is required as to the assumptions to be used, the level of contributions to be paid by the Company and other matters. Formal Valuation of the Scheme at 31 March 2010 Defined Benefit Section - Past service benefits First the Trustee establishes the value of benefits that have already been accrued. Each valuation is required to consider the Scheme from two different points of view, the ongoing basis and the discontinuance basis (described on page 5). The ongoing basis assumes that the Scheme continues broadly as it is today, with ongoing support from the Company. As at 31 March 2010, the Scheme s assets were 1,512 million and its liabilities were 1,805 million. This meant that it had a shortfall of 293 million giving a funding level of 84%. This compares to a funding level of 103% at the last formal valuation in 2007 and a funding level of 81% at the last interim valuation in 2009 (as noted in the previous Members Update). The funding level improved from 31 March 2009 to 31 March 2010 due mainly to a recovery in investment markets although the improvement was partially offset by changes to the valuation assumptions. The Trustee and Company have agreed a Recovery Plan which means that the Company will pay deficit contributions to meet this shortfall. These contributions amount to 1.5 million per month ( 18 million per year) and will increase each year in line with the Consumer Prices Index (subject to a cap on the increase of 5% each year). Payment commenced in January 2011 and will continue until the shortfall has been recovered. Based on the prudent assumptions used in the valuation it is expected that this will take around 23 years from 31 March The actual period could be significantly shorter if the Scheme earns good investment returns in the future, but it could be longer if investment conditions are difficult. Defined Benefit Section - Future service benefits In order to meet the cost of future service benefits, the Company has increased its rate of contributions to the Scheme to 4.5 times Defined Benefit Section Members contributions with effect from 1 January Defined Contribution Section Contributions and Trustee Credits paid to date are invested in Members Personal Accounts at Standard Life. The average rate of Company contributions in respect of DC Section Members to cover Members credits and associated risk benefits continues to be 1.2 times the relevant Members Core and Extra contributions. 4

5 Discontinuance basis This describes the situation if the Scheme were to be discontinued with no future service accrual or salary-linkage, and the benefits accrued to date were secured by buying annuities from an insurance company. This way of measuring the funding position of the Scheme is volatile and is expected to fluctuate from valuation to valuation. As at 31 March 2010, the assets would have amounted to around 68% of the estimated amount required to secure accrued benefits, including future pension increases, with an insurance company. The 68% position, which compares to 80% in 2007, would mean that, in the unlikely event of the Company becoming insolvent, benefits may need to be reduced. Please be aware that the Government requires schemes to inform members of this funding position even if there is no intention to discontinue the Scheme. Pension Protection Fund (PPF) The PPF was set up in 2005 to protect members of work-based Defined Benefit schemes from losing their benefits if their employer became insolvent and left a scheme in deficit. It provides compensation to members affected by such events at a typically lower level than their benefit entitlements and is funded through levies that all schemes have to pay each year. The PPF levy paid from the Scheme in October 2010 was 2.8 million. As part of the valuation discussions, the Company has agreed to reimburse the Scheme for the cost of future PPF levies. The Trustee is required to tell you that there has not been any payment to the Company from the Scheme in the last 12 months as a result of a surplus of assets. In addition, the Pensions Regulator has not exercised its powers to modify future Scheme benefits, to direct the Scheme to use particular assumptions for the valuation, to determine the length of the recovery plan or to set the level of contributions to the Scheme. 5

6 New pension tax rules In October 2010, the Government announced a number of changes that will affect the amount of savings individuals can make to registered pension arrangements including the Scheme and the Plan. Annual Allowance Since April 2006, there has been a limit on the amount of pension savings an individual can make each year while benefiting from income tax relief. This is called the Annual Allowance. For the tax year ending 5 April 2011 the Annual Allowance is 255,000 and so it does not currently affect many people. However, the Government has decided that the Annual Allowance will reduce to 50,000 with effect from the tax year that starts 6 April 2011 and ends 5 April 2012 and so more people will need to pay attention to it. The Annual Allowance used from the Scheme and Plan each year is shown on your annual benefit statement which is normally issued in July or August. If you think your savings may exceed the new limit you may wish to plan in advance, for example, to decide how much to contribute to the AVC Plan during the Scheme Year. An overview is provided below and a factsheet with more information will soon be available from your Human Resources Department. Most of the information you will need to make your own assessment can be found on your annual benefit statements and you may wish to ensure that these are kept safely for future reference. If your total pension savings exceed the Annual Allowance it is possible to take account of unused relief from the previous 3 tax years. If, after doing this, your pension savings still exceed the Annual Allowance you must declare this on your Self Assessment tax return and a tax charge will become payable by you. In some cases you will be entitled to meet the tax charge from the benefits payable to you from the Scheme or Plan. As the Annual Allowance test relates to pension savings in all registered UK pension schemes, you should ensure you take into account any other pension provision you are making to establish whether you may be liable for a tax charge (e.g. if you are also contributing to a personal pension). Information is also available online at: pensionschemes/annualallowance/changes.htm Over what period of time is the Annual Allowance determined in the Scheme and Plan? The way that pension savings are calculated, to determine if the Annual Allowance has been exceeded, is different for DB and DC Section Members as described below. Either way, you first need to understand the term Pension Input Period or PIP and which tax year this ends in. The PIP for the Scheme and Plan is 1 April to the next 31 March each year. However, for the tax year starting on 6 April 2006, or the first tax year in which you joined the Scheme if later, the PIP will start from a different date (but in all cases it ends on 31 March). This was notified to all Members via the announcements made in 2006 and in the Scheme Booklets issued in As the PIP will generally be the same as the Scheme Year, it will be referred to as the Scheme Year for the rest of this section. The current Scheme Year ends on 31 March This falls within the tax year that started on 6 April 2010 and ends on 5 April 2011, and therefore the 6

7 Annual Allowance for the current Scheme Year is 255,000. The Annual Allowance for the Scheme Year starting on 1 April 2011 and ending on 31 March 2012 will be at the reduced level of 50,000. The new Annual Allowance will therefore effectively be in force from 1 April this year. The test needs to be done each year that you are an active Member of the Scheme and also in the year that you leave pensionable service/retire. Valuing benefits to check against the Annual Allowance Defined Contribution Section If you are an active Member of the Defined Contribution Section, the maximum pension savings that you can make per Scheme Year without incurring tax charges is the total of the contributions you make to the Scheme, plus the Trustee Credits added to your account. You can easily track your contributions and the Trustee Credits by viewing your Personal Account via Employee Zone using the Standard Life link from the Scheme website ( If you do not yet have a user ID and password and wish to register for access, you can do this by calling Standard Life on The information you need can be found on the Payment History page. Please note that the Trustee Credits are shown as an Employer contribution on Employee Zone. Defined Benefit Section The increase in pension savings for active Members of the Defined Benefit Section is calculated as follows: a) take the accrued pension* at the end of the Scheme Year b) subtract the accrued pension at the beginning of the Scheme Year, uplifted by the increase in the Consumer Prices Index (CPI) c) multiply the result (i.e. the difference between a and b) by 16; this is the approximate method that HMRC use to determine the increase in the value of these pension benefits over the year d) add any contributions paid by you or the Company to The Metal Box AVC Plan** during the Scheme Year to determine the total pension savings to check against the Annual Allowance. * Your accrued pension is the deferred pension you would have earned had you left pensionable service at the end of the Scheme Year (shown on your annual benefit statement in the section called Leaving Service Benefits) ** You can track your own contributions and those paid by the company to your AVC Plan Personal Account on Employee Zone using the Standard Life link from the Scheme website ( Lifetime Allowance The Lifetime Allowance limits the total amount of pension saving that you can build up over your lifetime without paying an additional tax charge. This will reduce from 1.8 million to 1.5 million in April If you think you might be affected by this please contact the UK Pensions Manager as it may be possible to apply for protection from the reduced Lifetime Allowance. You may also wish to obtain independent financial advice. High Earners Information about the changes to tax relief on pension contributions for individuals with incomes over 130,000 (originally 150,000) applicable from April 2009 has previously been provided. These provisions will continue to apply until 5 April 2011 and if you think you may be affected by this you are recommended to obtain independent financial advice. 7

8 State Pension Age The Members Report issued in November 2010 described how the State Pension Age is increasing and mentioned that this timetable was under review by the Government. The Government has now decided that the State Pension Age will rise to age 66 for men and women by This increase will be phased in between December 2018 and April 2020, with the State Pension Age rising by three months in every four. This means that the increase will take place six years earlier than originally planned. The rate of the increase to State Pension Age for women from 60 to 65 will quicken from April 2016 so that it reaches age 65 by November The Government is also considering the timetable for future increases to the State Pension age from 66 to 68. Further information can be found at Flexible Retirement From 6 April 2011 individuals with a total annual pension income, from all pension arrangements including their State Pensions, of at least 20,000 will be able to gain access to money purchase pension funds from age 55 without purchasing an annuity. This will be known as flexible drawdown. To take advantage of this option you may need to transfer the value of your benefits in the Scheme and Plan to an alternative arrangement. If you are interested in this option you should seek independent financial advice. Metal Box Pension Trustees Limited, c/o CROWN Packaging UK plc, Perry Wood Walk, Worcester WR5 1EG March