Pension News 2014 / Issue 12 Issued to all active members, pensioners and deferred pensioners of the AvestaPolarit Pension Scheme Principal Employer - Outokumpu Stainless Ltd Chairman s Introduction Welcome to the 2014 Newsletter which contains articles which I hope will be of interest whether you are a DB or DC member of the Scheme. This is a significant year for the Scheme as it has been for Outokumpu following the Inoxum transaction and the refinancing activities conducted by the Group. Every three years there is a formal valuation of the DB Section of the Scheme and the valuation as at 1 January 2014 is now under way along with consideration of how the refinancing affects the Scheme. The Trustee will be working with the Scheme Actuary and representatives of Outokumpu Stainless Ltd and the Group over the coming year to carry out the valuation and we outline the background in our first article below. 2014 is also a significant year for the DC Section of our Scheme. At the turn of the year we took in some new members as we became subject to the Auto-Enrolment provisions required by legislation and followed with changes to our DC investment options and the default Lifestyle fund which covers most of our DC members. A busy year became busier when the Chancellor of the Exchequer announced major changes to the U.K. pension environment in his March Budget with some implications for DB and DC members but focussed primarily on giving DC members greater flexibility in using their pension account at or as they approach retirement. In such times it is important to have a full strength Trustee Board with the right experience and I am therefore glad that Mike Shelton, a retired member with considerable pension s knowledge, has brought the Board back to full strength. The full Trustee Board comprises of Martin Pinder, Peter Holes, John Hurst, Mike Shelton, Andy Backhouse, Andy Gaze, Steve Roberts and Mats Nordén. Further articles cover some amendments made to the Scheme Rules reacting to legislative changes and putting us in alignment with good practice on Bridging (Hi-Lo) Pensions, Same Sex Marriages and Partial Transfers of AVC s in the DB Section. Finally, but no less important, updates on the Scheme s key numbers and who to contact to deal with any enquiries. Remember, your feedback is critical to us offering relevant communications in the future. Martin Pinder, Chairman of the Trustee Board Scheme Funding - DB Section This article explains a key area of activity in 2014 when the Trustee discusses scheme funding with the Company. Since the last valuation significant changes in the stainless industry and the Outokumpu group have been experienced all needing to be weighed in coming to a forward plan that ensures the ongoing robustness of the Scheme. A formal valuation of the Scheme is called for as at 1 January 2014 to update the previous formal valuation as at 1 January 2011. This marks an important event in the ongoing cycle of pensions work where the Trustee holds discussions with the Scheme s sponsoring employer (Outokumpu Stainless Ltd) regarding scheme funding. The resulting Valuation and Statement of Funding Principles are determined within a framework established by pension s legislation and follow a Code of Practice published by the Pensions Regulator. The valuation process should be completed by 31 March 2015. The process commences with the Scheme Actuary assessing in detail the liabilities of the Scheme, i.e. the anticipated funds required to pay future pensions. As well as details of the membership, in terms of age, salary, etc. a number of prudent assumptions have to be made to assess the liabilities for example how long the membership will live, what future inflation and interest rates will be, what salary increases might occur, etc. Agreement of these assumptions by the Trustee and Company is a crucial part of the process and then allows Scheme funding to be determined i.e. whether the Scheme has insufficient assets to cover the liabilities (a deficit) or has more than sufficient assets (a surplus). It also allows the required rates for future contributions to be determined. From this simplified view one can hopefully understand that this is a time consuming and complex process which will run through the majority of 2014 before a conclusion is reached and possibly longer. As part of their ongoing monitoring of the Scheme performance, the Trustee estimates that a deficit existed at 1 January 2014. If substantiated by the formal actuarial valuation process this would require a Recovery Plan to be agreed with the Company. A feature of the 2011 valuation settlement was an agreement whereby the Company would hold monies from the sale of redundant UK assets, to be used in the event of deficits arising in future valuations. The amount held in this account is in excess of 20m. In addition to the triennial valuation process the Trustee is required to consider the impact of recent corporate activity in particular the refinancing by the Group and the associated agreements with the financial institutions which were involved. The Trustee has engaged specialist advisers to evaluate this. Page 1
DC Investments (including DB Section members AVCs) As announced in our spring 2014 Newsletter specific to members of the DC section and those DB members with AVCs (which are invested alongside DC funds) investment arrangements for DC funds were changed at the beginning of May 2014. In line with guidance from the Pensions Regulator the Trustee has undertaken a review of the default fund, where members have not made their own investment choices and of the other funds from which members can choose. As a result the Trustee has changed the constituent funds making up the default fund and extended the range of funds available for members to choose from. The earlier Newsletter DC Investment Update- is available on the scheme website (Library) at www3.savingforthefuture.com/avestapolaritpension and provides full details of the changes. While in the Trustee s opinion the previous arrangements have operated well, the changes made offer some improvements in the level of diversification of equity investments in the default fund reducing the level of exposure to the UK equity market in favour of exposure to the more diverse global market. The Lifestyle design of the default fund remains with a gradual transition out of equity investments starting 10 years from Selected Retirement Age (default 65 if another age is not selected). This transition, which replaces equity investments with bonds and cash instruments, is designed with an aim to reduce the volatility and risk of investments as retirement is approached. However, it should be noted that these investments are also likely to offer lower returns than equities. All investment involves risk and we encourage members to seek independent financial advice where appropriate decisions regarding the investment of your DC pension account are important for the level of income you can aspire to in retirement. Also important is the decision you make if you are invested in the default Lifestyle Fund with respect to your Selected Retirement Age as this triggers the transition in investments described above. DC Contribution Structure We remind DC members of the flexibility offered by the Scheme to vary the level of contributions they can pay and also that the Company pays. The Pensions Regulator encourages schemes to offer and publicise such flexibility. Our Core contribution levels, while meeting the required standards, (for automatic enrolment) are unlikely to give an income that many members say they aspire to for their retirement. Discretionary contributions allow members to at least increase payments into their account with the Company matching employee contributions. As an example, a member aged over 50 could be making contributions of 8% of pensionable earnings 3% by the member and 5% by the Company - at the Core level or 18% at the maximum discretionary level 8% by the member and 10% by the Company. Clearly investing the greater amount is likely to be the most critical factor in determining the value of the account at retirement - and we note that Additional Voluntary Contributions can also be made by members on a regular or one-off basis (for example from a bonus payment). It is not the Trustee s role to advise members in financial matters but we do encourage members to give serious consideration to how their decisions on contributions will impact on their income level in retirement. DC Forum The DC Forum met in early 2014, to discuss changes to both the default Lifestyle Fund and the investments available under the Freestyle approach. These changes were implemented during May 2014. They were also given an update on the Scheme s Auto Enrolment process which began on 1st November 2013. The current DC Forum consists of: SMACC S Torjussen, C Sabine, R Holmes, R Ross Distribution A Backhouse, V Sorsby, M Briggs, S Marsden Mgt Information Team K Shah IT F Cooper Sheffield Stainless Bar J Connell, L Haigh P Holes, M Pinder, J Hoyland and L Brocket also attend. Anyone interested in joining the DC Forum should contact Julie Hoyland on julie.hoyland@outokumpu.com for further information. The purpose of the Forum is to provide information and offer two-way communication no pension knowledge is required. Page 2
Rule Changes The Company and Trustees have updated and modified the Scheme Rules to comply and better align with recent legislation as explained in the three items below. Please note this is a summary guide only. Bridging Pensions Hi-Lo DB Members will be aware of provisions in our scheme allowing a choice of taking a higher pension from the Scheme until the age of 65 at the expense of a lower one thereafter. This is called a bridging pension as it was intended to assist members bridge the period from retirement through to 65 when traditionally the State Pension became payable. Some members may know it as the Hi-Lo option. This allowed combined income from the Scheme and State Pension to remain reasonably consistent. State Pension arrangements have been subject to changes by the Government and, in particular the age at which an individual will be entitled to receive the State Pension, which is set to increase in the future Accordingly, the Trustee and the Company have amended the Scheme Rules relating to bridging pensions in the light of the above with effect from 2 May 2014. Retirees from 2 May 2014 will be offered a bridging pension to their State Pension Age (as calculated at the date of their retirement). It should be noted that some retirees with bridging pensions applying until age 65 are already affected by changes to State Pension Age and will not receive State Pension until after age 65. Currently the trustees are looking at this group but if nothing changes they will need to make their own provision to cater for the period between their Scheme pension being reduced at 65 until their State Pension becomes payable. New retirees should also be aware that in the event that further changes are made to State Pension Age their higher bridging pension will only be paid to the State Pension Age as calculated at the time of their retirement. Same Sex Marriage In accordance with recent legislation an amendment has been made to the Scheme Rules. Following introduction of the Marriage (Same Sex Couples) Act 2013, same sex marriage has been recognised in England and Wales since 13 March 2014. This has implications for pension schemes and, in particular for survivors benefits which are paid to a spouse or civil partner in the event of the death of a member. Accordingly, the Scheme Rules have been amended to comply with this legislation and now provide survivors benefits to same sex spouses on the same basis as surviving civil partners, i.e. in relation to contracted-out rights based on service on and after 6 April 1988 and other survivor benefits in relation to service on and after 5 December 2005 (being the date that the Civil Partnerships Act 2004 came into force). AVC Partial Transfers The Scheme Rules have been modified to allow DB Section members with AVCs to transfer some or all of their AVC funds at the point of retirement to one or more registered pension schemes to give these members the same flexibility to retiring DC Section members following the 2014 Budget (see separate article). This is only applicable in certain circumstances and at the discretion of the Trustee. 2013/2014 DB Benefit Forecast In September DB members will have received a Benefit Forecast as at 6th April 2014. A number of employees have asked why their 2014 forecast is less than their 2013 forecast. The reason is almost certainly because their Pensionable Earnings in 2013/2014 were lower than in the previous year due to reduced bonus and /or reduced overtime earnings. You should be aware that when a member retires the APPS rules state: Final Pensionable Earnings means the average of the highest three Tax Years Pensionable Earnings for the Member out of the last 10 Tax Years Active Membership (or during the actual number of Tax Years if less than ten) up to the end of the last complete Tax Year. This provides some measure of protection for members approaching retirement if they suffer a reduction in Pensionable Earnings in their run up to retirement. For further information please speak to any of the contacts on Page 8 of this newsletter. Page 3
2013 Scheme Accounts - Key Numbers Membership at 31/12/2013 totalled 1870 of which 837 were deferred members and 530 were DB Section pensioners. Of the remaining 503 active members, the DC Section was in the majority with 294 against 209 in the DB Section. Scheme Membership as at 31 December 2013 DB Section Active Members DC Section Active Members DB Pensioners Deferred Members Key Financials ( 000) Contributions (Employer and Employee) 3305 Other Income 198 Benefits and Other Payments (8314) Net (4811) Return on Investments net of fees 18613 Net Increase in Fund 13802 Net Assets at 31/12/2012 294011 Net Assets at 31/12/2013 307813 Of which DB 300111 DC 7702 These are summary numbers. The full accounts are available on request. The Accounts are independently audited by PWC LLP. Three features to note: a) That payment to pensioners now regularly exceeds contributions. b) Investment returns exceeding 18m were key to the net increase in assets. c) The Accounts and the net assets do not take account of obligations to pay pensions and benefits that fall after 2013. Investment Strategy As discussed with the Company during the 2011 valuation discussions, we will continue the trend of gradually reducing investment risk by increasing the proportion of assets that broadly match the Scheme s liabilities. Accordingly the Scheme investment strategy has changed over the last year, increasing its holdings in bonds (liability matching assets) to 70% of the total assets - with the majority of these in index linked gilts (which offer inflation protection) and the balance in high quality corporate bonds. The remaining 30% of assets are held in assets where we seek a higher return (but with associated higher risk) these include holdings in funds investing in equities (across all global stock markets), property, hedge funds and re-insurance securities. The Trustee receives advice from Towers Watson as Investment Consultants on the suitability of these investments and monitors asset performance on a regular basis. The portfolio is designed to limit the number of funds the scheme invests in, such that we can retain sufficient focus on our investments while offering a high level of diversification in order to give good risk adjusted returns. The Scheme s strategic investment allocation is set out below. Asset Allocation (%) Equities Benchmark allocation (%) Total Equities Property Reinsurance Hedge Funds UK Non-Government Bonds UK Index-Linked Gilts UK Equities North America Equities Europe (ex UK) Equities Pacific Basin (ex Japan) Equities Japan Equities Emerging Markets Equities Page 4
Budget 2014 changes to the UK pensions system You may have seen the press coverage regarding changes to pensions announced in the March 2014 Budget and the Government s follow-up consultation this summer. In particular, there will be significant changes to the way members building up DC pension benefits will be able to access their pension funds in retirement, with increased flexibility and choice for individuals with DC benefits, allowing them more freedom over how they provide for their retirement. Some of these changes became effective immediately, such as the increase in trivial commutation lump sum limit described below, while other changes will come into force from April 2015. Further details of the changes can be found at: https://www.gov.uk/government/news/pension-reforms-eight-things-you-should-know We have included a summary of the main points but please note that individual cases will be subject to the detail of legislation, HMRC regulations and the Scheme Rules the interaction between these is complex and the Trustee is awaiting further confirmation from the Government in relation to how these changes will work in practice before deciding the extent to which these new flexibilities will be incorporated into the Scheme. Members interested in utilising the new arrangements are therefore recommended to consult an appropriately qualified independent financial adviser. Please note that the changes mainly affect members who have not yet retired, although in some circumstances very recent retirees who built up DC type benefits may still be able to use the additional flexibility. Such retirees may wish to speak to an independent financial adviser if they would like more information. Immediate changes for members with limited pension savings Members with pension benefits valued below certain limits are currently able to take all of their benefits as a lump sum (25% of which is tax free) rather than as a pension. From 27 March 2014 these limits were increased. The two scenarios where a lump sum payment may be possible and the relevant limits are as follows: If the value of all your pension savings (in the Scheme and any other pension arrangements you have) is less than 30,000, you will now be able to take them all as a lump sum provided you are at least age 60. If the value of your pension in the Scheme is less than 10,000, you can take this as a lump sum from age 60 regardless of what pensions you have elsewhere (so long as you take no more than three small pots in total). We would not expect a significant number of members of the DB Section (who have typically been building up a pension for a long time) to fall within these limits. However, any DB Section members who do qualify would not need to transfer their DB Scheme benefits to a DC arrangement to take advantage of this change. DC Section members are also able to take their benefits as a lump sum, subject to the limits set out above. However from April 2015 these members will also be able to benefit from the greater flexibility to take their benefits in whatever pattern they like (as we describe further below) and therefore the above limits will, in practice, no longer be applicable to DC Section members. Members should be aware that taking your Scheme pension as a one-off lump sum is an irreversible decision and may have tax implications. Therefore, you should take impartial financial advice before taking this option. Future changes for all members The earliest age from which pension benefits can be taken is increasing from 55 to 57 in 2028, and this minimum pension age will then increase in line with the State Pension Age, so that it is set 10 years below the State Pension Age. Please note that members of the Scheme in the DB Section who have a protected pension age of 50 will not be affected by the increase in the minimum retirement age on retirement in certain circumstances. Transfers continue to be allowed for members in the DB Section Most deferred members of the DB Section of the Scheme can currently transfer their Scheme benefits to another pension arrangement. These transfers can be to another DB scheme or to a DC arrangement, including a personal pension scheme. As part of its consultation the Government raised the possibility of restricting or banning transfers from private DB pension schemes to DC pension arrangements. However following the consultation the Government has announced that it will continue to allow these transfers. Whilst transferring to a DC arrangement may allow access to the greater flexibility available from April 2015 (see below), members should be aware that the consequences of transferring out of the Scheme are significant, and this is an irreversible decision. Therefore, members should seek impartial financial advice before considering a transfer. Indeed, from April 2015, any members wishing to transfer out of a DB pension scheme will be required to take advice from a financial adviser who is independent from the Scheme and authorised by the FCA. If you are considering transferring out and do not have an adviser, then you can find one at: www.unbiased.co.uk or www.moneyadviceservice.org.uk Page 5
Future changes for individuals with benefits in the DC Section (and possibly DB Section members with money purchase AVCs) Currently individuals with DC benefits can, on retirement, take up to 25% of their pension fund as a tax-free lump sum. The remainder can be used to buy an annuity (or, in other words, a pension) with an insurance company, to provide a guaranteed income for life. Individuals can choose the form of annuity which best suits their personal circumstances, for example, with or without a spouse s pension (which is payable if they are out-lived by their spouse) and with or without increases. Alternatively members can access a drawdown arrangement by transferring-out of the Scheme before retirement, to a provider which offers this facility. The income from both annuities and drawdown is taxable. From April 2015, individuals in DC pension arrangements which offer a drawdown facility will be able to take money from their funds in whatever pattern they like. There will be no requirement to have a minimum level of income in payment. A lump sum of 25% of the fund may be taken tax-free. Further withdrawals will be subject to the individual s marginal rate of income tax in the year they are taken. This flexibility may also apply to additional voluntary contributions (AVCs) made by members of the DB Section of the Scheme. However, the extent is still to be finalised. We expect that this flexibility will not be suitable for all members but may be attractive to some, depending on their personal circumstances. Whilst the Trustee will be reviewing the extent to which all new flexibilities will be incorporated into the Scheme once all the information is available from the Government, since the Scheme does not currently operate a drawdown arrangement, we expect that any member who wants to take advantage of this flexibility will need to transfer their benefits to a DC arrangement that does offer income drawdown just before, or at the point of, retirement. Some important considerations in respect of this are as follows: Members now have enhanced transfer rights, meaning members can transfer their benefits out of the DC Section at any point up to their Normal Retirement Age(previously transfers were only allowed up to a year before Normal Retirement Age). Those who choose to draw down more than their tax-free lump sum from a DC pension arrangement (even if this is a separate arrangement to the Scheme) will be subject to a reduced Annual Allowance of 10,000 per year (in respect of future accrual in DC arrangements), rather than the normal figure of 40,000 (the Annual Allowance is the maximum annual amount of tax-free pension savings that you can make over a twelve month period which is known as the Pension Input Period). Guidance guarantee From April 2015 the Government has committed to providing members of DC pension arrangements with free and impartial guidance at retirement and will use providers such as the Pensions Advisory Service (TPAS) and the Money Advice Service (MAS) to provide this. This guidance will be tailored to individuals personal circumstances, but will not recommend specific products or providers. The Trustee will need to agree in future how this will fit in with the current retirement services provided to members within the Scheme. Finding out more Please note that this is a high level summary of the proposed changes and in no way constitutes advice from the Trustee. If you want to know more about your current options under the Scheme, then please contact the Scheme s administrator, Jardine Lloyd Thompson. If you think you might benefit from any of these changes or are starting to plan for your retirement, then you should speak to an independent financial adviser. The Trustee will be working with the Scheme s administrator and their other advisers to ensure that the Scheme is ready for the changes in April 2015. We will let relevant individuals know nearer the time about any changes that will be made to the way the Scheme will work in future following the Budget changes. Pension Scams. Don t get stung. The scammers have a variety of tricks to catch you out. They may: Claim that you can access your pension pot before age 55 Approach you out of the blue over the phone, via text message or in person door-to-door Entice you with upfront cash Offer a free pension review or try to lure you in with so called one-off investment opportunities Check the facts before you make an irreversible decision. A lifetime s savings can be lost in a moment. What to do if you think you re being targeted: Never be rushed or pressured into making a decision Before you sign anything, call The Pensions Advisory Service on 0300 123 1047 If you have already accepted an offer, call Action Fraud on 0300 123 2040 Visit www.pension-scams.com to find out more. Page 6
AvestaPolarit Pension Scheme Nomination Form Please use BLOCK CAPITALS To: The Trustees of the AvestaPolarit Pension Scheme Surname First Name National Insurance Number Title In the event of my death I would like the Trustees to consider paying any lump sum benefit to the following person(s) in the proportions shown: Name Address Relationship Proportion % Name Address Relationship Proportion % Name Address Relationship Proportion % I understand that this Nomination Form is not binding on the Trustees and that I can cancel or amend it at any time. Signed Date Nomination Form Notes Your completed form should be sent to the Payroll Manager, c/o Outokumpu Stainless, PO Box 161, Europa Link, Sheffield, S9 1TZ 1. You may nominate any person, whether or not related or financially dependent on you, as a beneficiary to receive the lump sum death benefit, however your nomination is not binding on the Trustees. 2. If you wish to nominate more than three people, please complete a second nomination form or separate sheet of paper and make sure the proportion adds up to 100%. 3. If there is any change in your circumstances, you should contact the Payroll Manager for another form which, when completed and returned, will automatically replace your existing form. Page 7
Communications Administrators Jardine Lloyd Thompson Administration Solutions Post Handling Centre St James s House 7 Charlotte Street Manchester M1 4DZ Telephone Helpline 0870 160 7329 The helpline is staffed 9.00am to 5.00pm Monday to Friday, excluding Bank Holidays. Outside of these hours members are welcome to leave a message and Jardine Lloyd Thompson will get back to them as soon as possible. Payroll Payroll Manager: Linda Brocket Telephone 4014 (internal) or 0114 261 4014 (external) Payroll Officer: Samantha Docherty Telephone 4031 (internal) or 0114 261 4031 (external) General Enquiries For general enquiries about our company pension scheme contact Payroll (above), or Martin Pinder on 6005 (internal) or 0114 261 6005 (external) or Julie Hoyland on 4031(internal) or 0114 261 4031(external). Keeping us informed It is important that we have the correct details for all of our members, so that pensions are paid as intended. This includes any changes to personal details such as name and address. Contacts are: Active and pensioner members - Payroll Deferred - Administrator Jardine Lloyd Thompson This newsletter is issued by the Trustee and summarises for the information of members, pension s issues that may be relevant to the AvestaPolarit Pension Scheme. However, neither the Trustee nor the Company accept any liability or responsibility whatsoever for the content of this newsletter. They are not regulated to provide investment advice or to promote the scheme. Full details of the Scheme are contained in the Trust Deed and Rules, which are the legal documents governing the scheme and which override anything in this Newsletter in the event of any discrepancy. Pension News Page 8