Pensions News. Keep informed online: On the phone: Actuarial Valuation See the results

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1 Pensions News News and updates for active members of the ICI Pension Fund Actuarial Valuation See the results 04 Highlights from the Report and Accounts Includes how the Fund s value changed over the year 11 Could you become a Trustee Director? Keep informed online: On the phone:

2 WELCOME Chairman s message Welcome to this year s Pensions News Contents The results are in from page 3 our Actuarial Valuation The results are in from our Actuarial Valuation This contains our review of what s been happening over the past year, both in the Fund and in the wider pensions world. Last year was a particularly important one for us, as we took some major new steps to further reduce risks to the Fund, and it was also time for the formal Actuarial Valuation. The valuation is a thorough examination of the Fund s financial position, which takes place every three years. After the results are known, the Trustee agrees with the Company the level of contributions needed from it and these are set out in a document known as the Schedule of Contributions. If the Fund is in deficit that is, at the time of the valuation, the assets are not sufficient to pay all of the benefits expected to become due until the last member dies the Trustee and the Company also agree a Recovery Plan which is designed to remove the deficit over a number of years. You can read about the valuation and what it revealed on page 3. The Trustee has a responsibility to administer the Fund and pay the benefits due to members so it is important for us to work to reduce risks. One of the biggest financial risks for the Fund is the increase in life expectancy. Although the Actuary uses careful assumptions when calculating the funding position, there is always a risk that the assumptions regarding life expectancy are not borne out in practice and pensions are paid for longer than assumed. As you may remember from last year s Pensions News, buying bulk annuity policies can reduce this risk to the Fund as the insurer takes on this risk. In the last Fund year, we bought two bulk annuity policies, and we bought two further policies in June and July You can read more about these on page 5. This brings the total number of bulk annuity policies held by the Fund to six. The Fund is now much better protected from the risk of changes in life expectancy. As you will see when you look at the highlights from the Report and Accounts, investing in the bulk annuity policies is all part of our strategy of investing in assets which tend to hold their value, rather than in equities and other similar assets whose values can vary considerably. As always, I would like to express my thanks to my fellow Trustee Directors, to our Secretariat and to our wide team of expert advisers, for their continued hard work and all that they have achieved on your behalf this year. As you will see, they are an award-winning team. As such, we re always pleased to hear from talented and hard-working people who are interested in becoming a Trustee Director, either now or in the future. If this sounds like you, you can find out more on page 11. David Gee Chairman of the ICIPF Board of Trustees Meet our new page 3 Fund Actuary... Highlights from the pages Report and Accounts 4 & 5 Financial summary Investments during 2014/15 Buy-ins increasing security A look at how the market performed Membership page 6 News from AkzoNobel page 7 News from the page 8 pensions world Watch-out there page 8 are scams about! Three awards in a page 9 row for the ICI Pension Fund The new pensions page 10 flexibilities - what they mean for you The SFS has moved page 10 online Could you become page 11 a Trustee Director? Keeping in touch page 12 Every three years, the Actuary carries out an Actuarial Valuation. Last year was a valuation year, with the date of the valuation being 31 March A full valuation process was completed in July The valuation reviews the financial position of the Fund based on the most up-to-date market and life expectancy forecasts available. Before the valuation can start, the Trustee, with the advice of the Actuary, needs to decide on the assumptions that should be used when working out the amount of money that is needed, for example future investment returns, retirement ages and life expectancy. The Actuary then performs the valuation, and presents the results to the Trustee. The valuation showed that the Fund had a shortfall of 850m as at 31 March 2014, and that the funding level stood at 91%. That meant the Fund would have been able to meet 91% of the benefits due. This is an improvement on the position shown in the 2011 Actuarial Valuation, when the deficit was greater ( 1,034m). As a result of the updated funding position, the Trustee has agreed a revised Schedule of Contributions with the Company. The Company paid a further 178.5m to the Fund in January 2015, and will make two additional payments of 150m, the first by 31 January 2016 and the second by 31 January It will then pay 125m by 31 January each year from 2018 up to and including When it isn t a valuation year, the Actuary performs an interim review of the financial position of the Fund. The most recent interim review showed that, despite the difficult economic conditions, at 31 March 2015 the shortfall had reduced to 751m, and the Funding level had increased to 93%. You can find the Actuarial Valuation and Information on the Interim Reviews, on the website, under the section Financial Information. The Recovery Plan is included in the Actuarial Valuation. The revised Schedule of Contributions is covered in the Report and Accounts. Meet our new Fund Actuary... Graham McLean The Actuary s role is very important to the Fund. Towers Watson provides us with actuarial services, including our Actuary, who must be a named individual, appointed to the role by the Trustee. In February, we appointed Graham McLean as our Fund Actuary, replacing his colleague David Donneky, who was retiring, having done sterling work for us since Graham made a significant contribution to the successful conclusion of the latest formal Actuarial Valuation and led the recent Interim Valuation. 2 3

3 HIGHLIGHTS HIGHLIGHTS Highlights from the Report and Accounts In July this year, the Trustee published its Report and Accounts for the year ended 31 March The following articles summarise some of the highlights. Financial summary For the year 1 April 2014 to 31 March 2015 Money coming in: Value of Fund assets as at 31 March 2014: 8,602m + m Money going out: Contributions 190 Pensions Investment income 228 Cash lump sums in exchange for pensions Value of Fund assets as at 31 March 2015: 9,806m Our auditors, KPMG LLP, gave the Fund s Financial Statements for the year 1 April 2014 to 31 March 2015 an unqualified audit opinion effectively a clean bill of health. If you want to look at the finances of the Fund in more detail, you can find the full Report of the Trustee and the Financial Statements on our website at m -17 Transfers to other funds -12 Total income 418m Total expenditure - 521m Change in the Fund s assets: Balance of income and expenditure Change in market value of investments Total change in the Fund m ,307 1,204m Investments during 2014/2015 The Trustee continued to follow its strategy of investing a substantial proportion of the Fund s assets in bulk annuity policies, bonds, cash and swaps, rather than in equities and other similar assets whose values can vary considerably. This strategy did particularly well for the Fund in the past year, where although further falls in gilt yields led to an increase in the Fund s liabilities, this was more than offset by an increase in the value of the Fund s assets. At the end of the Fund year, the market value of the Fund s assets had increased by 1,307m. By the end of the Fund year, the Trustee had reduced to 15% the allocation of the Fund s assets to equities and other Asset class similar assets, where the risk is higher (but the rewards can be higher too). The allocation of the Fund s assets to liability-related investments (which help manage funding level risk) was increased to 85%. Following the results of the latest valuation, the Investment Committee has been developing the Fund s investment strategy to ensure it fits closely with the Recovery Plan agreed with the Company. We will share the details of the developments in the next issue of Pensions News. You can see how our investments are split between different asset classes in the chart below. Our substantial investments in buy-ins and bonds are included in Liability-linked investments. Proportion of Fund invested in each asset class Liability-linked investments 85% Equities 10% Emerging Market bonds & currencies 2% Leveraged Loans 2% Other 1% Buy-ins increasing security The Trustee s investment strategy aims to increase the security of your benefits by reducing risk over time. The Fund has now bought six bulk annuity policies - together covering a large proportion of the Fund s pension payments. A bulk purchase annuity policy (also called a buy-in ) is a type of insurance contract between the Trustee of a pension plan and an insurance company. It is an investment of the Fund, however unlike bonds and equities, buy-ins reduce longevity risk within the Fund. The Trustee pays a premium to the insurance company and, in return, the insurance company makes payments to the Fund to cover the pension payroll for some of the Fund s pensioners. This means that certain risks previously faced by the Fund (like changes in life expectancy) will be covered by the insurance company, with a view to increasing the security of members benefits. Day-to-day nothing changes for members though, with the Trustee retaining responsibility for paying your benefits. All pensioners will continue to receive their pensions from the Fund each month, as normal. A look at how the market performed Over the 12 months to 31 March 2015, the global recovery continued. However, major economies benefited to different extents. Whilst the US and, to a lesser degree, the UK performed strongly over the period, Europe in particular struggled on. Emerging economies also experienced mixed fortunes. China continued to grow, albeit not without risks, while Brazil slipped into recession and the Russian economy was hit hard by western sanctions and the plunge in energy prices. Overall, stock markets recorded significant gains over the year. However, there were differences between regions. In the UK, the FTSE 100 index breached the 7,000 mark for the first time despite being weighed down by the mining and oil & gas sectors, which lost ground as commodity prices fell. The US stock market rose more emphatically over the period, returning 26.5%, benefiting from a strengthening US economy and continued low interest rates. European and Japanese shares returned 7.4% and 26.9% respectively, helped by their large scale quantitative easing ( QE ) programmes. UK bonds delivered strong returns over the year, outperforming the UK stock market, as investors were persuaded that interest rates would remain lower for longer. Furthermore, investors demand for safe haven assets also grew as geopolitical risks came to the fore. 4 5

4 MEMBERSHIP COMPANY Fund membership over the last 10 years News from AkzoNobel As you may know, AkzoNobel plays an Year s 46,196 47,586 48,934 50,460 51,937 53,200 54,191 55,554 57,030 58,405 Deferred members 9,327 9,816 10, , ,627 Active members , ,642 13, , , ,107 Total 55,870 57,819 59,757 61,912 64,043 65,711 67,412 69,416 71,840 73,950 important role in securing members benefits. It guarantees all of ICI s obligations to make payments to the Fund that arise both under legislation and under the Trust Deed and Rules. Here are some of the highlights from AkzoNobel s world. New Chief Financial Officer appointed Maëlys Castella Maëlys was appointed as Chief Financial Officer (CFO) in September 2014, and joined the Board of Management of AkzoNobel in October of that year. Before her appointment to AkzoNobel, Maëlys was Group Deputy CFO at Air Liquide, a world leader in gases, technologies and services for industry and health, and a company similar in size to AkzoNobel. A French national, Maëlys trained as an engineer, but then went on to a career in finance within the oil and gas industry, before joining Air Liquide in The company s financial performance We told you in last year s Pensions News of AkzoNobel s strategy to increase the return on capital, cash generation and margins. During 2014, the company continued to implement its strategy and there is clear evidence of improved financial performance. Operating income during the first half of 2015 was up 38% at 486m ( 353m in 2014) and all three business areas; performance coatings, speciality chemicals and decorative paint, showed positive improvements. These improvements were made despite overall market conditions remaining challenging. As Maëlys Castella, the CFO, noted: Our strategy is working, and its positive effects are becoming increasingly visible in our results. We continue to build on this strong foundation to further increase our profitability and we remain on track to deliver our 2015 targets. Our strategy is working, and its positive effects are becoming increasingly visible in our results. We continue to build on this strong foundation to further increase our profitability and we remain on track to deliver our 2015 targets. Maëlys Castella To find out more about AkzoNobel, visit 6 7

5 NEWS News from the pensions world State Pensions: changes taking effect on 6 April 2016 The Pensions Act 2014 introduced changes to the State Pension, which will come into effect in April The current State Pension, which is made up of a flatrate basic and an additional earnings related State Pension (known as the Second State Pension) is going to be replaced by a new flat rate State Pension, worth around 151 per week in today s money. If you reach State Pension age before 6 April 2016 you will receive your State Pension in line with existing rules. Currently the Fund is contracted out of the State Second Pension (S2P). This means that members will receive no or a reduced S2P and will instead receive For some time now, unscrupulous people have been trying to trick others out of their pension savings. Inevitably, the introduction of the new pensions flexibilities has led to an increase in such scams. The scams generally fall into one of two areas cashing in or liberating your pension, or investment opportunities offering extremely high, and most likely impossible, returns. If you are contacted out-of-the-blue about your pension, please be very careful, even if the offer is a free pension review. Such offers may well be a scam, and can result in people transferring their cash and never seeing it again effectively losing their pension savings or being able to take the cash but paying a tax charge of 55%! Citizens Advice has reported that some offers of a free pension review seem to be nothing more than certain protected minimum pension benefits from the Fund. In exchange for not contributing to S2P, contracting out allows the employer and the employee to pay lower rates of National Insurance contributions (NICs). With the abolition of S2P next year, contracting-out will also end. This means that from 6 April 2016, active members of the Fund will pay full NICs and as such will see an increase in the NICs paid equivalent to 1.4% of relevant earnings, which will impact on the amount of your take home pay. The maximum additional NICs for employees is estimated to be 480 a year. For the employer, the end of contracting out will mean an increase in the NICs an attempt to obtain financial details, and also notes an increase in people being asked by fraudsters to give them access to their pension pots so that they can invest them on their behalf. Also, if an investment opportunity seems to be too good to be true, it probably is. Again, please take great care when exploring investment opportunities. Citizens Advice has seen an increase in investment scams, enticing people into investing in overseas property or fine wines, which turn out to be bogus offers. Find out as much information about the proposed investment as possible, and consider carefully whether you can afford to lose the money if it all goes wrong. From reading this newsletter, we hope you can appreciate that this Fund is well run and offers significant security. It is unlikely that you could say the that it pays of 3.4% of relevant earnings for each employee who is an active member of the Fund. The Company will be writing to active members separately regarding any changes it decides to make as a result of the end of contracting out. Benefits built up in the Fund while it was contracted out are not expected to be affected. Members who receive the new flat rate State Pension in the future will see a reduction in the standard amount of this pension because their past contracted-out benefit will be taken into account when the amount of their State Pension is calculated. For more information go to Watch out there are scams about! same for pension arrangements that use cold calling or similar marketing techniques to entice people to sign up. The Pensions Advisory Service has published some useful information on how to protect your pension savings and avoid scams. Visit and look under the publications section. Finally, if you are considering transferring your benefits, we strongly suggest you take appropriate financial advice. Indeed, the Government has stipulated that where the transfer value from a DB fund to a DC fund is greater than 30,000, the Trustee must see evidence that the member has taken appropriate financial advice. If you want to find an adviser in your area, visit and look under pensions and retirement. Three awards in a row for the ICI Pension Fund The Trustee is delighted to announce that the Fund has recently won three awards. First at the Professional Pensions Awards 2015, the Fund was awarded the twin accolades of Large Defined Benefit Scheme of the Year and overall Pension Scheme of the Year. Later, the 2015 risk reduction initiatives led to the Fund being awarded Best de-risking initiative at the 2015 Engaged Investor Awards. All three awards are judged by key figures in the pensions industry. The Trustee is particularly pleased to have been recognised in this way for the quality of management of the Fund and for the work it has done on reducing risk. Summer Budget pension changes When you make a pension contribution, you are given tax relief based on your earnings for the year in which the contribution is made and your available annual allowance (the amount you can increase your pension savings by in any one tax year and get full tax relief on your contributions). HMRC uses a pension input period (PIP) to calculate and measure contributions paid/ benefits accrued in order to test against the annual allowance, which is currently set at 40,000. As well as the annual allowance, the value of your pension benefits is also measured against the lifetime allowance. This is the total value of pension benefits you can build up across all registered pension schemes that you are a member of during your lifetime without incurring a special tax charge. At the moment it is set at 1.25m but this will reduce to 1m from 6 April WINNER Benefits built up above the lifetime allowance will be taxed, currently at an overall tax rate of up to 55%. As part of the Summer Budget, the Chancellor announced a radical change to the annual allowance. However, this change will only affect people who earn 150,000 or more each tax year (including both employee and employer pension contributions). For people in this category, the annual allowance of 40,000 will be reduced by 1 for every 2 that the member earns above 150,000, subject to a minimum annual allowance of 10,000 for those earning over 210,000 a year. You can find more information on this tapered annual allowance at: government/publications/pensionstapered-annual-allowance/pensionstapered-annual-allowance The Chancellor also announced that PIPs would run in line with the tax year from the 2016/17 tax year to ensure that the new annual allowance mechanisms can be administered as intended (at present the PIP doesn t need to be the same as the tax year and is currently in line with the Fund year, which ends on 31 March). There are transitional rules in place so that for this tax year (2015/16) you will have two PIPs. The first PIP will start on 6 April 2015 and will end on 8 July The second PIP will run from 9 July 2015 to 5 April For the first PIP ending on 8 July 2015, members will have an increased annual allowance of 80,000. For the second PIP running from 9 July to 5 April 2016 members will have an initial annual allowance of nil but will be able to carry over any unused annual allowance from the first PIP into the second PIP subject to a maximum amount of 40,000. You will also be able to carry forward any unused annual allowance from previous PIPs. The tapered annual allowance provisions and the implications are complex. If you think you may be affected by the changes in the annual allowance, we recommend that you speak to an independent financial adviser. 8 9

6 NEWS TRUSTEES The new pension flexibilities what they mean for you In the last Pensions News, we noted the way that regulations regarding pension savings were changing. The recent changes largely affect members of defined contribution (DC) schemes, like AkzoNobel s Benefit Builder, where contributions are invested to build a pension pot for the member to use at retirement. As a member of a defined benefit (DB) scheme, these changes do not generally affect you. However, they do affect you if you made Additional Voluntary Contributions (AVCs), as you now have the option of taking your whole AVC pot as cash. If you fall into this group, you will have been sent a leaflet explaining your options. This leaflet is also available on the Fund s website. Visit As explained in this leaflet, the Government has introduced a free and impartial service called Pension Wise, which is available to members with DC benefits, such as any AVCs built up in the Fund. Pension Wise is now available to those over 50 to help them understand their choices. You should access the Pension Wise guidance and consider taking independent advice to help you decide what you should do with your AVC benefits. You can access Pension Wise guidance on the internet ( by phone with The Pensions Advisory Service or face-to-face at branches of the Citizens Advice services. You can also book phone or face to face appointments by calling (from outside the UK: ). Further information about booking appointments can be found at Could you become a Trustee Director? The Trustee works to ensure that over 50,000 members of the Fund receive their pension. This involves the oversight of nearly 10bn of assets. The Trustee Board is a close-knit team which takes decisions, based on professional advice, about how the Fund is run. The decisions are often complex and Trustee Directors have to act impartially and in accordance with the rules of the Fund and legislation. To be an effective Trustee Director, you need to be able to take in large Kevin January ICI Paints amounts of complex information and distil it into the key points so that you can engage in productive discussions with advisers and your fellow Trustee Directors to get the best outcome. It can be intellectually challenging but it is also rewarding. The pensions world is undergoing a lot of change so you need to be willing to learn continuously and develop your knowledge and skills. If you think that you may have the skills and you can spare at least 50 days a year to undertake this Meet your Trustee Directors John Fitzpatrick important work and would relish the opportunity to share your experience, from whatever walk of life, why not consider applying to be a? The next selection process is likely to be run in More information is available on the website at under the About The Trustee section. Ian Canham Deferred Member The Summary Funding Statement (SFS) has moved online Sue McMahon Deferred Member David Loose Wynne Turner Michael Chatterton Representing The Law Debenture Pension Trust plc David Gee (Chairman) Fred Gray You may remember that in most years we are required to produce an annual Summary Funding Statement (SFS). This technical document sets out the ability of the Fund to pay the benefits due at a particular point in time. In previous years we have sent a copy of the SFS to every member. However, as noted in last year s edition of Pensions News, this year we only sent a copy to members who have told us, in writing, that they still want to receive one in the post. If you wish to be added to the distribution list, please contact the administration team. As in previous years the SFS is freely available on the website in the Library and forms section. You can go to: to find the latest SFS. Derek Welch Director Moira Rugg Find out more at

7 CONTACT Keeping in touch We use Pensions News as the main way to keep in touch with you, to let you know what has been happening over the last year, both in the Fund and in the wider pensions world. We want to give you both the information we are required to provide and news or information you might find helpful as you plan for your retirement. We hope you find it useful. It is vital that you keep us informed about changes in your personal circumstances for example if you move house, or your marital status changes. So if you think our records may need updating, please contact the administration team. You can also contact the administration team if you have a question about your benefits or the Fund itself. But remember, you may find the answer to your question on the website it s always worth a look. ici@towerswatson.com Phone (from 09:00 17:00, Monday to Friday, not bank holidays) Write to ICIPF, PO Box 545, Redhill, Surrey, RH1 1YX Online Remember to include your National Insurance number when writing to or ing the administration team, or have it to hand when phoning them they ll need it to confirm your identity. Every effort has been made to ensure that the information in this newsletter is accurate. If there is any difference between this information and the Trust Deed and Rules, then the Trust Deed and Rules take priority. Data Protection Please note that the Trustee may use data relating to your membership of the Fund (including data about your dependants) for any purposes connected with the proper administration of the Fund. This includes the need to process data to calculate and pay benefits, for statistical, financial modelling and reference purposes, and to administer the Fund as a whole. This may involve passing on data about you to the Fund s sponsoring employer, professional advisers, administrator and third parties (including insurance companies, counterparties to Fund investments and other third parties), as may be necessary or desirable for the operation of the Fund. This may also 10 include your data being sent outside the European Economic Area (EEA) to a jurisdiction that may not offer an adequate, or equivalent, level of protection according to the laws of your home jurisdiction. However, in the event that your data is sent outside the EEA, the Trustee will still process your data in accordance with the UK Data Protection Act 1998, and will take reasonable steps to ensure that your data is treated securely and in accordance with this fair processing notice. The Trustee is the Data Controller responsible for the processing of data about you and your dependants, and is subject to the requirements of the UK Data Protection Act 1998 in processing that data. In certain circumstances, your data may be passed to the scheme actuary and Towers Watson and, where this is the case, the scheme actuary and/or Towers Watson may also be data controllers of your data. You can find more information about the scheme actuary s and Towers Watson s use of data about you and your dependants in their data protection policy at You have the right to inspect your personal records on request, which may involve payment of a small fee, by application to the Administrator.