Introducing the 2016 Summary Funding Statement to all defined benefit (DB) members and beneficiaries of the Capgemini UK Pension Plan ( the Plan ) As the Trustees of the Plan, we are required to send you a statement on the funding of the Plan each year showing the current position and how it has changed since the last statement. The Trustees are responsible for monitoring the overall funding of the Plan and comparing it with what the Plan will need in the future to provide your benefits. How pensions are paid for The Plan pays retirement pensions and, following a member s death, may pay benefits to dependants. The money to provide these benefits comes from contributions paid to the Plan. From 1 April 2015, future benefit accrual in the Plan ceased. As such there will be no more contributions in respect of future benefit accrual. However the Company continues to pay deficit reduction contributions to meet the funding shortfall. These contributions, along with the other assets of the Plan, are then invested by the Trustees in a common fund that is entirely separate from the Company assets. They are not held in a separate fund for each individual member, with the exception of Variable Additional Contributions (previously known as Additional Voluntary Contributions) which are held in separate individual accounts. The money to pay for members pensions is invested in a diversified range of assets, including growth assets such as shares in companies around the world, absolute return funds and hedge funds, together with defensive assets such as government bonds, corporate bonds and cash. How the Company s contributions are worked out The Plan Actuary carries out a formal valuation at least every three years to assess whether the Plan holds enough money to cover its liabilities ( technical provisions ) and to determine how much the Company should contribute in future. When undertaking the valuation, the Plan Actuary makes assumptions regarding such issues as inflation, investment returns and how long members will live. The most recent formal actuarial valuation was carried out as at 1 April 2015 and was signed off in June 2016. The next valuation will have an effective date of 1 April 2018. What happens if the funding level is below the target? If an actuarial valuation shows the Plan assets to be less than the accrued liabilities, extra contributions from the Company are required to meet the shortfall or the Company would need to explore other options for financing the Plan. Subject to arrangements being made to cover the shortfall, benefits will continue to be paid from the Plan. The financial position of the Plan The most recently signed-off actuarial valuation of the Plan was carried out with an effective date of 1 April 2015 and was signed off on 28 June 2016. As at 1 April 2015, the assets of the Plan were worth approximately 1,670.5 million, whilst the Plan Actuary estimated that approximately 2,250.7 million would be needed to meet the future benefit payments arising in respect of all Plan members. Therefore, the actuarial valuation showed a deficit of 580.2 million. This is a decrease in the deficit at the previous valuation, which was 601.6 million 1
A number of factors impacted the deficit at 1 April 2015. As a part of the valuation process, the Trustees agreed an improvement in cash commutation factors and the use of a more prudent method of valuing the liabilities - these changes had an unfavourable effect on the deficit. Similarly, market conditions, in particular falling yields on fixed interest investments such as corporate bonds and Government gilt-edged securities ( gilts ), also had an unfavourable impact. Conversely, the Company s deficit reduction contributions (see below) and higher investment returns than had been assumed had a favourable effect on the deficit. Overall, the favourable movements outweighed the unfavourable movements, giving rise to the reduced deficit at this valuation. Contributions being paid to the Plan to address the deficit In order to address the deficit, the Company agreed to pay contributions of: 35 million each year for 7 years and 9 months, payable in equal monthly instalments commencing on 1 July 2016 and ceasing on 31 March 2024. Payments will increase annually on 1 July in line with inflation. As the Plan has now closed to future accrual, the Company is only paying deficit reduction contributions along with all the costs of insuring death-in-service benefits and the expenses of running the Plan. This arrangement (known as a Recovery Plan) has been agreed by the Trustees, following advice from the Plan Actuary, and is set out in the attached Summary Funding Statement. This Recovery Plan replaces that which was agreed following the 1 April 2012 valuation. Following that valuation, the Company agreed to pay index-linked contributions for a period of 7 years and 9 months commencing on 1 July 2013 and ceasing on 31 March 2021 as well as a lump sum payment of 215.8 million in July 2013. These payments started at 25 million a year and had increased to 26.4 million a year by the time the new Recovery Plan came into force. The Pensions Regulator (TPR) The Pensions Regulator is an independent body set up under the Pensions Act 2004 to regulate occupational pension schemes from 6 April 2005. Its role is to protect members of occupational pension schemes, to promote good administration of schemes and to reduce the risk of situations arising that may give rise to a claim on the Pension Protection Fund. In certain circumstances the Pensions Regulator can (a) direct how the Plan s technical provisions must be calculated; (b) set the period for eliminating any funding shortfall; (c) specify the level of employer contributions to be paid, rather than leaving these issues to be determined by the Trustees; and (d) exercise the power to modify the future accrual of Plan benefits. The Pensions Regulator has not taken such action in relation to the Capgemini UK Pension Plan. 2
Payments to the Company When a pension scheme has a significant surplus it may be possible for some of that surplus to be refunded to the Company. The Plan is not now, and has not been in a surplus position for some time. However, we are nevertheless required by law to confirm that the Company has not received any such refund from the Plan in the last twelve months, or in any previous year. Winding-up Winding-up a pension scheme means terminating the Plan. In these circumstances, the Plan assets would be used to secure benefits for each individual member via an insurance policy with an insurance company. If the Plan were to wind-up, and at that time there were insufficient assets to enable the accrued benefits to be fully secured, the Company would be legally required to make good the balance of cost. However, if the Company was insolvent and unable to pay the full balance, not all members would receive the full amount of their benefits due under the Plan. Accordingly, there is a risk that if the Company should become insolvent at some time in the future, and trigger a winding-up of the Plan, benefits could be cut back for some or all members. To provide a safety net for a pension plan winding-up with insufficient assets at a time when the employer is insolvent, the Government has established the Pension Protection Fund (PPF), to ensure the provision of a minimum level of entitlement. Please note that the attached Summary Funding Statement is required by law to set out an estimate of the solvency position as if the Plan had been wound-up. It does not mean that the Company is currently considering winding-up the Plan. Where can I get more information about the Pension Protection Fund? More information is available from the PPF website at www.pensionprotectionfund.org.uk or by writing to: The Pension Protection Fund, Renaissance, 12 Dingwall Road, Croydon, Surrey, CR0 2NA Why is the value of accrued liabilities associated with winding-up so high? You will see from the attached Summary Funding Statement that the 1 April 2015 valuation shows a shortfall on winding-up which is significantly greater than the ongoing shortfall. This is because the estimated cost of securing the accrued benefits with an insurance company is significantly greater than the anticipated cost of paying benefits from the Plan as a continuing entity. Insurers are obliged to take a very cautious view of the future due to (a) the statutory solvency margin requirements; (b) the fact that if the true cost is underestimated they cannot subsequently go back to the Trustees for extra funds; and (c) the fact that they aim to make a profit. In contrast, whilst the Plan continues, the Trustees can follow a more balanced and diversified investment strategy with the intention of reducing the overall cost, reflecting the continuing existence of the Company and taking into consideration its financial strength. 3
If I have some questions about this statement, who can I contact? You should put your questions in writing to: The Trustees, Capgemini UK Pension Plan, Capgemini UK plc, No. 1 Forge End, Woking, Surrey GU21 6DB Where can I get further information about the Plan? The following information relating to the ongoing management of the Plan is available to you: the Statement of Funding Principles which sets out how the Plan will be funded the Schedule of Contributions which sets out how much money is being paid into the Plan and when the Recovery Plan which explains how the funding shortfall is being made up the Statement of Investment Principles which sets out the principles applied to the investment of the Plan s assets the annual Trustees Report and Accounts which set out the Plan s income and expenditure the Trust Deed and Rules of the Plan the latest full Actuarial Valuation Report This information can be obtained by writing to: The Secretary to the Trustees, Capgemini UK Pension Plan, Capgemini UK plc, No. 1 Forge End, Woking, Surrey GU21 6DB Alternatively, you can contact: Capgemini Pension Helpline: 0870 241 4502 E-mail: capgemini.pensions@xafinityconsulting.com E-E- Do I need to inform you of a change in my personal circumstances? Yes, please help us to keep in touch with you by telling us if you change your address, your name or your marital status by writing to: Capgemini UK (2004) Pension Plan, c/o Xafinity Consulting, Phoenix House, 1 Station Hill, Reading, Berkshire, RG1 1NB. 4
The latest actuarial valuation Capgemini UK Pension Plan SUMMARY FUNDING STATEMENT The most recent formal actuarial valuation of the Plan was carried out as at 1 April 2015. The following summarises the accrued funding position as at that date, assuming that the Plan continues to operate as a going concern and is not to be wound-up: m Value of Plan assets 1,670.5 Value of accrued liabilities 2,250.7 Shortfall (580.2) Funding level 74% (Assets divided by liabilities) The value of accrued liabilities (the technical provisions ) represents the Trustees estimate of the sum required at the valuation date to meet all future benefit payments in respect of members service to the valuation date. With the aim of removing the funding shortfall, Capgemini UK plc ( the Company ) agreed to pay future contributions towards the deficit of 35 million each year for 7 years and 9 months commencing 1 July 2016, with each payment increasing annually in line with inflation. The Company also pays the Plan s running costs such as adviser fees, death in service insurance premiums and the Pension Protection Fund levy. Change in funding position since the 2015 Summary Funding Statement The deficit of 580.2m disclosed at the 1 April 2015 actuarial valuation represented a reduction from the deficit of 601.6m disclosed at the 1 April 2012 valuation. A number of factors impacted the deficit at 1 April 2015. As a part of the valuation process, the Trustees agreed an improvement in commutation factors and the use of a more prudent method of valuing the liabilities - these changes had an unfavourable effect on the deficit. Similarly, market conditions, in particular falling yields on fixed interest investments such as corporate bonds and Government gilt-edged securities ( gilts ), also had an unfavourable impact. Conversely, the Company s deficit reduction contributions and higher investment returns than had been assumed had a favourable effect on the deficit. Overall, the favourable movements outweighed the unfavourable movements, giving rise to the reduced deficit at the 1 April 2015 valuation. 5
The Scheme Actuary has also prepared a funding update with an effective date of 1 April 2016. The deficit disclosed in this update was 579.1m, virtually unchanged from the deficit of 580.2m disclosed at the 1 April 2015 valuation. Whilst the Company has continued to pay deficit reduction contributions over the year, the impact of these has been offset by weaker than assumed investment returns. Winding-up As required by legislation, as part of the formal actuarial valuation, the Plan Actuary assessed the funding position if the Plan had been wound-up on 1 April 2015. The following summarises the position at that date, assuming that the Plan had wound-up: m Value of Plan assets 1,673.9 Value of winding-up liabilities 3,323.0 Shortfall (1,649.1) Solvency level 50% *The value of assets on the winding-up basis ( 1,673.9m) differs to the value on the ongoing basis ( 1,670.5m) because the Plan holds various insurance policies with insurance companies and these policies have been valued differently between the two bases, reflecting the different assumptions used by the Plan actuary for the ongoing concern and winding-up valuations. The shortfall is an estimate of the additional sum that would have been required from the Company in order to ensure that all members benefits could be paid in full if the Plan had wound-up on 1 April 2015. Providing winding-up information is a formal legal requirement and does not imply that the Company is considering winding-up the Plan. Payments to the Company There have not been any payments to the Company out of Plan funds since the date of the last Summary Funding Statement. The Trustees of the Capgemini UK Pension Plan December 2016 Registered Office: Capgemini UK plc, No 1 Forge End, Woking, Surrey GU21 6DB Registered in England. Number 943935 6