Mowlem (1993) Pension Scheme Valuation Update 2013
Introduction In November, you were sent a newsletter from the Trustees of the Mowlem (1993) Pension Scheme (the Scheme ), giving you the latest news about the Scheme and pensions in general. In that newsletter, we told you that we would send another update once the results of the 2011 valuation were known. This valuation, which was performed as at 31 December 2011, was completed and agreed with the Company in December 2012 so we can now share the results of the financial position of the Scheme with you. What is an actuarial valuation? Every three years, the Scheme actuary carries out an in-depth look at the Scheme s finances. This is called an actuarial valuation. The estimated cost of providing the benefits that you and other members have earned to date is known as the Scheme s liabilities. These include the benefits of members who have left employment but whose pension is still in the Scheme, and those who have retired. We collect money ( contributions ) from active members and from the Company. This money is added to previous contributions paid in and is invested to pay for your benefits. The money is held in a communal fund, not in separate funds for each individual (with the exception of members Additional Voluntary Contributions). The amount of money we have invested is known as the Scheme s assets. To check the Scheme s financial security, the actuary compares the value of its liabilities with its assets. If the Scheme has fewer assets than liabilities, it is said to have a shortfall. If the assets are more than the liabilities there is said to be a surplus. 2
What is the Scheme s financial position? The ongoing position as at 31 December 2011, compared with the 2008 valuation, is shown in the following table: Valuation results ongoing position 31 December 2011 31 December 2008 The value of the liabilities was 97.0 million 64.4 million The Scheme s assets were valued at: 75.5 million 49.1 million This means that there was an estimated shortfall of 21.5 million 15.3 million Funding level 78% 76% How has the Scheme s financial position changed since the last actuarial valuation? The 2008 actuarial valuation showed that the Scheme had a funding level of 76%. Between 31 December 2008 and 31 December 2011, the Scheme s funding level therefore improved from 76% to 78%. Is the shortfall going to be paid off, and if so, how will this be done? We have agreed a recovery plan with the Company, with the aim of removing the shortfall by 30 April 2018. To do this, the Company has agreed to pay additional contributions of 3.6 million each year for six years until 31 December 2017 and 300,000 per month from January to April 2018 (inclusive). These extra payments are on top of the Company s regular contributions (see page 4). To calculate the recovery plan, assumptions have to be made about what will happen in the future, for example, the rate at which the Scheme s assets and liabilities will grow. If the assumptions do not all turn out to be exactly right, the Company may need to pay in more, if the shortfall is still to be paid off by 30 April 2018. The Trustees will keep the recovery plan under review and a new plan will be drawn up with the agreement of the Company following the next actuarial valuation, due at 31 December 2014. Although the liabilities have increased, so too has the value of the Scheme s assets. This increase in the assets is due to the extra payments made by the Company to reduce the shortfall, and also the better-than-expected returns made on the Scheme s investments. However, we changed some of the assumptions that are used to calculate the liabilities, in particular as interest rates fell and also to reflect increasing life expectancies, which meant that the value of the liabilities went up as well, so the shortfall wasn t reduced by as much as we had hoped. 3
How much money is paid into the Scheme each year? There are two different types of contributions paid into the Scheme. Regular contributions are paid by Carillion employees who are active members of the Scheme and by the Company. These contributions cover the cost of the pension that these active members are earning in the Scheme. In addition, the Company pays deficit contributions because the Scheme has a shortfall in respect of benefits earned to date, as described on page 3. After each actuarial valuation, the actuary also advises the Trustees what regular contributions the Company should pay into the Scheme for the active members. We then agree this level of contributions for the Scheme with the Company and record it in a document called the Schedule of Contributions. We review and update the Schedule of Contributions at least each time the Scheme has an actuarial valuation (so at least every three years). Following the 2008 valuation, the Company has been paying contributions to the Scheme of 27.7% of Pensionable Pay each year. With effect from 1 January 2013 the Company will increase these contributions to 36.1% of Pensionable Pay each year. Active members also pay contributions in accordance with the Rules of the Scheme. Is my pension guaranteed? Our aim is for there to be enough money in the Scheme to pay pensions now and in the future, but this depends on the Company carrying on in business and continuing to pay for the Scheme. Should the Company go out of business or decide to wind up the Scheme, it is expected to pay the Scheme enough money to buy all the benefits built up by members from an insurance company. This is known as the Scheme being wound-up. The comparison of the Scheme s assets to the cost of buying the benefits from an insurance company is known as the solvency position. 4
Is there enough money in the Scheme to provide my full benefits if the Scheme was wound-up? The actuarial valuation at 31 December 2011 showed that the Scheme s assets could not have paid for the benefits of all members to be provided by an insurance company if the Scheme had wound-up at that date. Valuation results estimated solvency position 31 December 2011 31 December 2008 The value of the liabilities was 133 million 100 million The Scheme s assets were valued at 75 million 49 million This means that there was an estimated shortfall of 58 million 51 million Funding level 56% 49% The fact that we have shown the solvency position does not mean that the Company is thinking of winding-up the Scheme. Indeed, the Company has shown that it has a strong commitment to maintaining the Scheme. The Scheme s aim is to have enough money to pay pensions and other benefits to members as they fall due, rather than having to pay an insurance company to provide the benefits, which can be very expensive. 5
What happens if the Scheme is wound-up and there is not enough money to pay for all my benefits? If the Scheme were to wind-up without enough money to buy all the benefits with an insurer, then, unless the Company can afford to pay the difference, you would be unlikely to receive the full benefits you were expecting. To help members in this situation, the Government set up the Pension Protection Fund (PPF) in 2005. The PPF pays a legally defined level of benefits to members of eligible UK pension schemes which are wound-up when there is not enough money to cover the cost of buying this level of benefits for members with an insurer and the company is insolvent and so cannot provide extra finance. The pension you would receive from the PPF depends on your age and when your benefits were earned. Further information and guidance is available on the PPF website at www.pensionprotectionfund.org.uk. Or you can write to the Pension Protection Scheme at Knollys House, 17 Addiscombe Road, Croydon, Surrey CR0 6SR. What is the Scheme invested in? The money in the Scheme is invested across different investment categories. Our asset allocation policy (which describes how the If you are thinking of leaving the Scheme for any reason, you should consult a professional adviser, such as an independent financial adviser, before taking any action. The law prevents us from providing you with financial advice. money should be split between these different categories) is written down in the Scheme s Statement of Investment Principles. At any point in time, the way that the Scheme s money is split across these different investments can be a little bit different to the target asset allocation policy. This is because the value of the investments change in investment markets and the Trustees might decide not to rebalance for short-term tactical reasons. The two pie charts show the actual split of assets and the target split on 31 December 2011. More information on the Scheme s investments, including how they performed in the year to 31 December 2012, will be included in the next member s annual report (Review), which will be sent to you later this year. 6
Target investment split Actual investment split Have there been any payments to the Company? We can confirm that there have not been any payments to the Company from the Scheme, other than to reimburse expenses, in the previous 12 months. The Pensions Regulator The Pensions Regulator is responsible for regulating work-based pension schemes in the UK. Its aims include protecting Growth UK equities 11% Global equities 29% Growth UK equities 15.4% Global equities 23% members benefits and promoting good scheme administration. You can find more details on the website at www.thepensionsregulator.gov.uk Global Tactical Asset Allocation Bond-like 10% Index-linked gilts 10% UK corporate bonds 20% HLV property 20% Cash 0% Global Tactical Asset Allocation Bond-like 6.6% Index-linked gilts 12.8% UK corporate bonds 23.3% HLV property 16.6% Cash 2.3% We need to tell you if the Regulator has used its powers in relation to the Scheme over the last year, for example by changing the way future benefits build up, or the way the funding target is worked out, or amending the employer contribution rate. We are pleased to confirm that the Regulator has not used its powers in relation to the Scheme over the last year. 7
Contact us If you have any other questions on your benefits from the Scheme please contact the Scheme administrator, Xafinity Consulting: Suite 1/1 3 Minster Court Mincing Lane London EC3R 7DD Helpline 0207 469 1800 Email Mowlem.PensionScheme@xafinityconsulting.com If you have any queries on the valuation or you would like a copy of any of the documents opposite, please email Sally Corlett at sally.corlett@carillionplc.com or write to her at Group HR, Carillion plc, 24 Birch Street, Wolverhampton WV1 4HY. We will be sending you a Summary Funding Statement each time we receive an actuarial valuation or actuarial report, so if you change address you should let us know so that we can update our records. Additional documents available on request Statement of Investment Principles This explains how we invest the money paid into the Scheme. Formal Actuarial Valuation Report as at 31 December 2011 This contains the details of the actuary s check of the Scheme s financial position as at 31 December 2011. Schedule of Contributions This shows how much money is being paid into the Scheme by the Company and the active members, and includes a certificate from the actuary showing that it is sufficient to meet the requirements set out by law. Recovery Plan The Trustees and the Company have agreed a recovery plan to remove the funding shortfall that was identified in the 2011 actuarial valuation. This plan sets out how the shortfall will be removed. Statement of Funding Principles This explains how the Trustees plan to manage the Scheme with the aim of being able to continue to provide the benefits that members have built up. Annual Report and Accounts This shows the Scheme s income and expenditure in the previous financial year. 301028