Pensions News For all members and beneficiaries of the UK Power Networks Group of the ESPS

Transcription

1 Pensions News For all members and beneficiaries of the UK Power Networks Group of the ESPS ISSUE 13 AUTUMN 2017 Working with UK Power Networks to ensure that the Scheme is run properly and benefits are paid as promised

2 WHAT S INSIDE? Who looks after your pension? 03 Welcome 04 Group Trustee News 10 Investment Update 13 Topical News 18 News at Scheme Level 19 Useful websites 19 Contact us WHO LOOKS AFTER YOUR PENSION? Appointed Group Trustee Directors Chris Degg, Director of Human Resources and Chairman Andrew Kluth, Head of Treasury Richard Roberts, Finance Director Elected Group Trustee Directors Liz Anderson, Pensioner Roger Barnard, Pensioner Neil Freeman, Network Manager and Pensioner Henry Golton, Pensioner Tim Izzard, Pensioner Bob Jackson, Pensioner Terry Peel, Pensioner Welcome Welcome to the Autumn 2017 edition of Pensions News I am sure you will agree with me that we live in uncertain times both politically and economically, and both at home and away. This makes the role of a pension scheme trustee particularly challenging, as it is difficult to foresee how political events or financial markets will affect your pension scheme a crystal ball would be very helpful. As Group Trustees, we look at the risks that face the Group and try to mitigate these where it makes sense to do so. The biggest risk by far is that our assets might not deliver the returns we expect. The investment portfolio is designed to be diversified on a global basis to protect against regional volatility (such as Brexit, for example) and also to be robust in a number of different economic scenarios (such as recession or low growth) while investing in a mix of different assets. Over recent months, we have made some tactical changes, but we are confident that the general positioning of the strategy remains appropriate. We are pleased with the way that the Group is holding up in these uncertain times and believe that we have secured a good outcome for you in the 2016 valuation. However, looking after the Group is a continuous process and we have agreed a number of strategic projects that we will work on ahead of the 2019 valuation process. This edition focuses on the 2016 valuation results but also provides an update on the 2017 Trustee election and an article about how we assess our own performance as a Trustee Board. You will see that we have made some changes to the presentation of Pensions News following feedback from the last edition. If you have any suggestions for future articles, please submit them using the contact details shown in the Contact Us section. I would like to thank the Group Trustees, as well as our excellent advisers, for all their diligence, hard work and support over the past year. Kind regards Independent Trustee Steve Balmont, representing the Law Debenture Pension Trust Corporation PLC Chris Degg, Chairman UK Power Networks Group of the ESPS 02 03

3 GROUP TRUSTEE Actuarial Valuation 31 March 2016 We are pleased to confirm that the 2016 Actuarial Valuation of the Group was concluded earlier this year within the timeframe set by the Pensions Regulator. As part of the process we: Millions Assessed the quality of the employer covenant, which the Pensions Regulator defines as the extent of the employer s legal obligation and financial ability to support the scheme now and in the future. This assessment concluded that the covenant remains Strong, which is the highest rating available under the Pensions Regulator s guidance. Updated the underlying valuation assumptions, both financial (for example, inflation expectations) and demographic (such as how long we expect members to live). Assessed the confidence we have in the investment strategy s ability to deliver the returns we need. Funding Position at the two most recent valuations Funding position at 31 March In summary, the valuation outcome achieves the following: The funding deficit will be repaired 14 months earlier if the valuation assumptions are borne out in practice. The deficit repair contributions paid by UK Power Networks will continue at their previous level despite the reduction in the overall deficit. Funding position at 31 March We also secured a change in the funding basis that we consider will provide greater security for members. As you know, the principal objective of the Group is to work with UK Power Networks to ensure that the Scheme is run properly and benefits are paid as promised. We consider that part of this objective means reducing the Group s dependency on UK Power Networks over time so that we achieve a state of self-sufficiency. Self-sufficiency can be described as a state in which the deficit has been eliminated and the Scheme is able to run a very low risk investment strategy. Previously the Group was funded on the assumption that risk would reduce as people retire. This meant that there was a gap between the funding basis and the Group s aspirational self-sufficiency objective and it was hoped that investment out-performance would bridge the gap. With increasing global uncertainty, we have wanted to close this gap to provide greater confidence that the Group will achieve self-sufficiency. We believe that this should be secured by the time the Group reaches its cashflow peak (when the highest proportion of pensions are in payment) which we consider to be most likely between 2026 and So, as part of the 2016 valuation discussions, we agreed a new funding basis with UK Power Networks that embeds this objective and provides a tangible plan for achieving self-sufficiency. We trust that readers will take confidence from the valuation outcome and recognise the work undertaken by the Group Trustees to provide greater security for all members. 0 Assets Liabs Deficit Assets Liabs Deficit 04 05

4 GROUP TRUSTEE Formal Trustee review policy The Group Trustees have undertaken a review of their governance procedures and agreed to introduce a policy of annual self-assessment and triennial Trustee Board assessment. The objective of this policy, which is strongly supported by UK Power Networks as the Group s sponsor, is to foster a culture within the Board of continuous performance improvement. The Board has already made significant progress in this area over recent years with the achievement of the Pensions Management Institute s Continuous Professional Development accreditation in 2015 and However, the adoption of a formal policy will embed these positive behaviours within the framework of the Board s activities. Annual Self-Assessment This annual event will allow each of the Group Trustees (whether Company appointed or member elected) to reflect on his or her individual contribution to the effectiveness of the Trustee Board during the previous 12 months. The assessment covers four key areas: 1. Commitment Have the obligations of the Group Trustee s role been discharged appropriately? 2. Contribution Has the Group Trustee contributed in a way that has enhanced the performance of the Board and furthered its objectives? 3. Trustee Knowledge and Understanding Has the Group Trustee further developed his or her knowledge and understanding of pensions law, scheme administration, scheme funding, and investment principles? 4. Future Personal Development What areas of Group activity would the Group Trustee like to focus on over the next year? This self-assessment will form the basis of a discussion with the Chairman each year. While the process has been designed to support two-way feedback, the onus is very much on the individual Group Trustee to reflect on how he or she has served members best interests and supported the Board in the achievement of its principal objective, which is: to work with UK Power Networks to ensure that the Scheme is run properly and benefits are paid as promised. This review process is easily illustrated below: Chairman to hold annual 1:1 and personal development activities to be agreed Trustees to undertake a self assessment of their contribution to the Board Results and feedback to be collated by the Secretariat and provided to the Chairman Triennial Board Assessment You will be aware from earlier editions of Pensions News that the Board reviewed its governance framework in 2015 and has recently been taking steps to refresh how it works. As a result, the Board has decided to review all its activities and operations on a triennial basis. While we would not usually expect to need significant changes to the governance framework every three years, such reviews should be a good way to ensure that members of the Board are working together as a team in the most effective way possible and that the Board as a whole is acting corporately in accordance with the latest governance guidelines membership election As you know from earlier communications, the term of office of three Elected Group Trustees will end on 31 December We previously mentioned that, following a review of its governance arrangements, the Board decided to align its constitution with the standard ESPS rules and have six elected and three appointed Group Trustees. As a result, we are seeking two Group Trustee Directors in the elections. The response to the election campaign has been positive so far and we will update you with news of the successful candidates in the next issue of Pensions News. The Group Trustees would like all eligible members to vote in this year s election. You will already have received information on the candidates standing, as well as instructions on how to vote. Members have until 5:00pm on the 10 November 2017 to consider their choice of candidates and to record their votes

5 GROUP TRUSTEE Future focus GROUP TRUSTEE Group Financial Statements for 2017 The UK pensions sector is always developing and changing. This can be the result of changes in legislation or of innovation in the marketplace that could reduce unnecessary risk to pension schemes or improve the experience of our members. The Board has been considering where best to focus its collective energy over the next few years and has identified a number of key projects that will be developed: Continued focus on individual Group Trustee performance It is essential that the skills and knowledge of the individuals that look after the Group are maintained. Compliance Activities A number of projects will fall under this heading, including preparation for complex and potentially onerous new data protection legislation. Managing Risk This project will investigate different ways in which we can reduce the risk profile of the Group to further support our objective of self-sufficiency. Member Engagement We will look at ways in which we can improve communications with all Group members. The Group s Annual Report and Financial Statements for the year ended 31 March 2017 were completed and signed in July PricewaterhouseCoopers LLP, as the Group s auditors, have confirmed that the Financial Statements show a true and fair view of the financial transactions during the year, and of the Group s assets and liabilities at the year end, in accordance with all applicable accounting standards and regulations. Full copies of the document can be obtained from Pension Services, and current employees can view it on the UK Power Networks intranet. 2,738 Transaction summary of the year to 31 March 2017 What went in m Contributions receivable: Employers and members 96.5 Transfers in 0.0 Net increase in investments Total ,350 1,348 Summary of membership at 31 March ,351 Contributors Pensioners Dependents Deferred Pensioners* Total membership 15,787 *Excludes 907 deferred pensioners who are only entitled to a frozen benefit equivalent to the relevant State Graduated Pension Scheme in respect of service prior to ,500 3,000 2,500 2,000 1,500 1, What went out m Benefits payable to members Transfers to other schemes 5.9 Administrative expenses 0.0 Total Market value as at 31 March 2017 in m 2, , , , , Updates on these projects and the work being undertaken by the Group Trustees and Pension Services will be provided in future editions of Pensions News

6 INVESTMENT UPDATE Investment returns Throughout the year ended 31 March 2017, the Group Trustee s investment objective was for the assets to produce a return of 2.5% a year greater than the return on the pension liabilities assessed by reference to the yields available on government bonds (otherwise known as gilts). The Funding Committee receives reports from its investment advisers each quarter to monitor the Group performance against this long-term objective. Over the past year, there have been strong investment returns from a number of the investment managers. However, the returns on government bonds have been greater, such that the change in liabilities has exceeded the returns on assets. This is reflected in the returns as set out in the charts opposite. Return on assets This is the movement in the value of the assets over the year. Change in liabilities This is the movement in the present day value of the pension cashflows over the year. These are valued using the expected returns on gilts. Annual Performance to March Return on assets Change in liabilities Target return Annualised 3-Year Performance 9.1 Return on assets Change in liabilities Target return 11% Latest investment news As reported last year, the Funding Committee has reviewed its long-term objectives alongside the triennial actuarial results and has made a number of changes since the financial year-end to make the assets work harder while reducing risks. The liability-matching portfolio now hedges 60% of the interest and inflation risks, an increase from 40% as at 31 March This has been achieved while reducing the proportion of assets allocated from 37.5% to 32.5% with a corresponding increase to the growth assets. The total assets are now targeting a return of 2.7% a year greater than the return on the pension liabilities. In order to achieve this revised target, the Funding Committee has also appointed two new investment managers as part of the increases to the allocations to diversified growth funds and hedge funds. The changes to the asset allocations since those reported in the spring edition of Pensions News can be seen in the charts opposite. Asset Allocation September % 1% 19% 8% 0% 28% 14% 15% 1% Asset Allocation June % 30% 45% 0% Liability driven investment Gilts and cash Developed equity Diversified growth funds Corporate bonds Multi asset credit Hedge funds

7 TOPICAL Summary Funding Statement Every three years a full Actuarial Valuation of the Group is completed. This requires the Scheme Actuary to carry out detailed calculations in order to assess the funding position of the Group using assumptions which are agreed between the Group Trustees and the Company. The purpose of this statement is to provide you with a summary of the key results stemming from that valuation. In addition, the Group Trustees have also obtained an annual actuarial report as at 31 March These annual reports are provided to the Group Trustees in between valuation years to provide an estimate of changes in the Group s funding position. The results of both actuarial reports (which include additional voluntary contribution funds) are summarised below. 31 March March 2017 Market value of assets 3,117m 3,468m Technical provisions* 3,606m 4,139m Deficit 489m 671m Funding level 86% 84% *Technical provisions means the amount required in an actuarial valuation to make provision for the Group s accrued liabilities. As can be seen, the Group s technical provisions as at the 2016 valuation date were greater than the market value of the assets, with the funding deficit being 489m, which corresponds to a funding level of 86%. For reference, the funding level at the time of the previous valuation completed at 31 March 2013 was 75%. In order to remove this deficit, the Company has agreed with the Group Trustees that it will make payments of 65m a year payable from 1 April 2016 to 31 January 2024 (in addition to the contributions required to finance the ongoing accrual of current active members benefits). Over the year to 31 March 2017, the Group s technical provisions have increased as a result of the reduction in government bond yields during that period. The market value of the Group s assets also increased, partly as a result of the deficit contributions received, although not to the same extent as the technical provisions. Consequently, the Group s funding level has fallen from 86% to 84% over the year and the deficit has risen by 182m. Please note that the figures shown above are snapshots at a particular date and that the Group s finances fluctuate all the time

8 TOPICAL Solvency Basis The funding levels shown on the previous page are measured on an ongoing basis. In this statement, we are required to set out the position if the Group were to be discontinued (the discontinuance level). There are no plans whatever to discontinue the Group but, by law, we must provide you with this information. As at 31 March 2016 and 31 March 2017, if the full benefits of all members had to be provided by an insurance company (i.e. if the Group had been wound up or discontinued at that date), the Group s assets could not have paid for the full benefits of all members. (The results shown below include additional voluntary contribution funds.) 31 March March 2017 Assets 3,117m 3,468m Estimated cost of buying out liabilities with an insurance company 4,711m 5,278m Deficit 1,594m 1,810m Discontinuance level 66% 66% These figures make it clear that, in the very unlikely event that the Group were to be wound up without sufficient assets to buy out all the benefits with an insurer, and the Company could not afford to make up the difference, members would be unlikely to receive the full benefits that they are entitled to expect. The government created the Pension Protection Fund (PPF) to help UK pension scheme members who find themselves in this kind of situation. The PPF came into effect in April 2005 and pays a prescribed level of benefits to members of eligible UK pension schemes, which have been wound up because the sponsoring employer is insolvent and the scheme has insufficient assets to cover the cost of benefits for its members. If the Group were to be wound up and go into the PPF, the pension you would receive from the PPF could be less than the full benefit that you earned in the Group. The actual outcome would depend on your age and on when your benefits were earned. Further information is available on the PPF website at homepage.aspx. Alternatively, you can write to the Pension Protection Fund at: Renaissance, 12 Dingwall Road, Croydon, Surrey, CR0 2NA. If you are thinking of taking any action in relation to your pension as a result of this statement, you should consider taking independent financial advice before making any decisions. Lastly, we need to tell you whether there have been any payments to the Company from the Group in the previous twelve months or whether the Pensions Regulator has needed to intervene in the running of the Group. We can confirm that no such payments have been made and there has been no intervention by the Regulator. If you would like a copy of the 2016 valuation report and accompanying documents, or a copy of the 2017 actuarial report, please contact Pension Services. Receive Pension communications via Some of you have chosen to receive Pensions News by in the future. If you would now like to do this with the majority of your pension communications, please let Pension Services know your preferred address and we will update our records accordingly. Please note that some information will continue to be sent through the post if it contains sensitive or personal data (for example, the annual pension increase Please Pension Services at pensionservices@ukpowernetworks.co.uk from your usual account with ESPS Communications as the subject header and with the following information: Your full name Your National Insurance Number or Pension Pay Number The first line of your address 14 15

9 FOR TOPICAL ACTIVE FOR DEFERRED ACTIVE OR DEFERRED MEMBERS MEMBERS Scams and how to protect yourself Active members often do not realise that they can make further pension savings by paying Additional Voluntary Contributions (AVCs). If an offer seems too good to be true, then it usually is As part of its ScamSmart campaign, the Financial Conduct Authority (FCA) has lifted the lid on some of the common tactics that investment fraudsters use to deceive those they target over the age of 55. According to the financial watchdog s latest research, barely two-fifths (42%) of over 55s reckon they know how to spot an investment scam. The FCA said one of the most popular methods used by fraudsters is to pressurise potential victims into making a quick decision on the investment opportunity. The regulator found that more than half (53%) of over-55s believed acting quickly can be essential to obtaining a good deal, which it said demonstrates just how vulnerable people can be to the tactic. Investment fraud victims do not get off lightly either, losing 32,000 on average, according to figures from Action Fraud released last October. According to the FCA, the five most common tactics fraudsters use are: Offering lucrative returns above the market rate and downplaying the risks of the investment. Using flattery to make potential victims feel good, such as praising them for being a knowledgeable investor. Saying the deal is only available to the target and asking them to keep it a secret. Claiming other clients have invested or want in on the deal - a technique known as social proof. Putting them under pressure to invest in a timelimited offer. Put the phone down Nick Hewer, star of BBC1 s Apprentice and Channel 4 s Countdown, who is an active supporter of the campaign, advised investors to just put the phone down if they receive a cold call. As someone who has been approached by scammers myself, I know how hard it is to identify whether an investment offer is legitimate, he said. They re very clever, these people, playing psychological games to win over the trust of often vulnerable victims and that is why I m working with the FCA to raise awareness of this troubling issue. The FCA offered three pointers to help people to avoid becoming a victim of investment fraud: Reject unsolicited contact about investments. Before investing, check the FCA Register to see if the firm or individual you are dealing with is authorised and check the FCA Warning List of firms to avoid. Obtain impartial advice before investing. The regulator recently revealed it had opened 521 enquiries into unauthorised firms between 1 December 2015 and 30 November 2016 and subsequently opened 16 full investigations over the 12-month period. It also said that it had received 11,650 enquiries relating to scams from consumers in that time. For more information visit pension-scams to read the governments consultation response for preventing pension scams

10 TOPICAL FOR ACTIVE MEMBERS Pensions On the Road The National Scheme AGM was held on Tuesday 23 November Copies of the minutes of the meeting are available from Pension Services. The ever-popular Pensions On the Road will continue Bury St Edmunds in The and AGM date The has next been scheduled set for 29 dates November are and further Energy details House will shown be included opposite in the and Autumn have been edition publicised of Pensions inside News. UK Power Networks through the usual business channels. Hemel Hempstead Current employees also have the option of arranging a Fore Hamlet telephone meeting if this is more convenient. Look out for further dates and venues in Colchester 15 November 13 December 7 February 13 March 14 March Useful websites pensionwise.gov.uk A free and impartial government service that helps you understand your pension options. pensionsadvisoryservice.org.uk A free and impartial guide for workplace and personal pensions. gov.uk The official UK government website for citizens. It includes useful information on pensions and retirement planning, money, tax and benefits. AT SCHEME LEVEL National AGM This year s Annual General Meeting (AGM) of the national scheme will be held on Wednesday 29 November 2017 at the offices of Mayer Brown International LLP, 201 Bishopsgate, London, EC2M 3AF starting at 1pm. The purpose of this AGM is to receive the scheme s Annual Report and Financial Statements, the Auditor s report, the report of the Scheme Trustee, and to conduct any business, including the consideration of any resolutions proposed by the scheme s members. If you wish to submit a written resolution to the Scheme Secretary, please do so by the 8 November Details of the agenda, resolutions, and notices may be obtained nearer the date on request from Pension Services. Copies of the AGM minutes will be available upon request from Pension Services in early January Contact us If you have any questions about your pension, please contact us at: UK Power Networks, Pension Services Energy House, Hazelwick Avenue Crawley, West Sussex RH10 1EX Tel: pensionservices@ukpowernetworks.co.uk Next edition... Meet the new Group Trustees and the Independent Trustee What the new data protection legislation means for you

11 Please note that if there is any inconsistency between the information contained in Pensions News and the Trust Deed and Rules of the Group or any overriding legislation, the Trust Deed and Rules and the legislation will prevail. While the Group Trustees are ultimately responsible for ensuring that your pension benefits are paid correctly and on time, neither they nor UK Power Networks can advise you on your personal financial arrangements. We recommend you to obtain independent financial advice before making any decisions about your entitlements under the Scheme.