Member Autumn 2013 Briefing For members of the Mitchells & Butlers Pension Plan
Chairman s welcome Welcome to Member Briefing 2013, from the Trustees of the Mitchells & Butlers Pension Plan. As you can see, the report is in a different style this year, with a fresh new look. We hope that you find it easier to read and that it helps you understand more clearly your benefits and how the Plan is managed. This new design has been created and sent to you without additional cost to the Plan. This report sets out how the money in the Plan is invested, the financial activity of the Plan during the year to 31 March 2013 and other matters of general interest to members. We ve implemented a new investment strategy for DC Choice, the Plan s Defined Contribution (DC) Section, with the aim of reducing risk and we hope improving the benefits our DC members might receive when they retire. We ve also simplified and improved the choices available for those members who want to make their own investment decisions. You can read more about the DC investment funds and their performance over the year on pages 6 and 7. It s important that you continue to check your DC Choice account regularly against your own financial plans and targets. Pages 8 to 11 of this newsletter look at some of the important issues that our DC members should consider. Meanwhile, pages 12 to 15 give an overview of the financial position and investment performance of the Defined Benefit (DB) Section over the year. We have started the formal actuarial valuation for 2013 to assess the Plan s ability to pay the benefits promised to Defined Benefit members. For that reason, this year s report does not include a summary funding statement. However, the article on page 16 gives you an idea of what is involved in this triennial process, 2
I hope that you will find this report useful. We are keen to hear your thoughts and questions. which all DB pension schemes are required to undertake a massive effort, involving a lot of work for our Pensions Department, advisers and indeed the Trustees. It has also been a busy year ensuring we keep up with all of the changes to State benefits and pensions legislation in general. These are summarised for you on pages 22 and 23. I hope that you will find this report useful. We are keen to hear your thoughts and questions. If you would like to send us your comments, or if you need more information, please contact us using the details on the back page. Mike Bramley Chairman of the Trustee DC Section page 4 Accounts, Membership, Investments, DC updates DB Section page 12 Accounts, Membership, Investments, Funding, DB news Plan noticeboard page 20 General updates from the Plan Pensions update page 22 General news about pensions, including State benefits KeepING in touch back cover 3
DC SECTION Money matters The year in brief... Every year, the Trustees have to produce a full set of accounts showing how much money has been paid into the Plan and how much has been paid out. These accounts are audited by PricewaterhouseCoopers LLP, who check that they show a true and fair view of the Plan s financial transactions. On 1 April 2012, the DC Section was worth Plus money in Less money out Plus the rise in value of our investments 15.7 million 5.1 million 0.4 million 2.3 million On 31 March 2013, the DC Section was worth 22.7 million FIND IT ON THE WEBSITE www.mbplcpensions.com You can download the Plan s full report and accounts. 4
DC SECTION MEMBERSHIP Membership as at 31 March 2013 1,354 active members 720 deferred members Total members: 2,074 5
DC SECTION investments Most DC Choice members are invested in the LifeStyle option. If you are invested in the LifeStyle option, a proportion of your savings will be moved automatically, every month as you get closer to your chosen pension age, into investments aimed at reducing the volatility of your retirement income. The aim of this is to protect the value of your savings that you have worked hard to build up. The chart below shows how the three main investment funds used in the LifeStyle option performed over the 12 months to 31 March 2013: Lifestyle funds 8.4% 11.9% 15 14 13 12 11 10 9 84% of members are invested in the DC Choice Growth Fund, managed by BlackRock. The DC Choice Growth Fund is designed to invest in global equities (through the Global Equity Fund) and also in a diverse range of other investments (through the Diversified Growth Fund). The split is 70/30 respectively. 8 (returns over the first 3 months of 2013, from inception) 0.6% 7 6 5 4 3 2 1 FIND IT ON THE WEBSITE www.mbplcpensions.com You can see all the latest fund factsheets online via the DC Members account login. DC Choice Growth Fund Index-Linked Gilt Fund Cash Fund 6
Other funds A small number of our members feel confident enough to make their own investment choices. These FreeStyle members can invest their account across any of the following core funds, and on request can also choose from a range of additional funds: Core funds Fund return (% p.a.) DC Choice Growth Fund (returns over first 3 months of 2013) 8.4 Global Equity Index Fund 17.5 Diversified Growth Fund 7.5 Index-Linked Gilt Fund 11.9 Long Gilt Fund 8.2 Cash Fund 0.6 Additional funds Overseas Consensus Index Fund 16.8 UK Equity Index Fund 16.9 North America Equity Index Fund 19.4 Europe Equity Index Fund 17.6 Asia Pacific Equity Index Fund 17.9 Japan Equity Index Fund 14.6 Property Fund 0.6 Sterling Bond Fund 6.2 The tables on this page show the returns achieved by these investment funds over the 12-month period to 31 March 2013. These figures are no indication of future performance, and investment returns can go up or down in response to market changes. 7
55 56 57 58 59 60 61 62 63 64 65 What s your number? 66 67 68 69 70 71 72 73 74 75 If you are invested in the LifeStyle option (as the vast majority of DC Section members are) you don t have to make decisions about how your account is invested it all happens automatically based on how many years you are from retiring. However, the one very important thing you do need to consider is this: at what age do you want to retire? 8
DC SECTION Your choices The size of your pension will depend on how much money you have saved up in your account by the time you stop working so you don t want it to suddenly fall in value just before you retire! But that can happen, especially if your money is held in the DC Choice Growth Fund, which invests in shares and other assets that can go up and down in value from one week to the next. If you ve chosen the LifeStyle option, we will automatically start to move your account into these historically lower-risk funds (the Index-Linked Gilt Fund and the Cash Fund) in the seven years before your retirement age. So, if we ve got 65 as your retirement age, but you end up working longer (say to 70), then your account will be invested in these historically lower-risk funds for a much longer time. That means it may not grow by as much as if you d left it in the DC Choice Growth Fund and also it may not be protected against inflation. On the other hand, if you think you ll want to stop working at 60 but you haven t told us, some of your pension account may still be invested in the DC Choice Growth Fund at that time meaning it may not be as well protected against some market falls. What you need to do If you re in the LifeStyle option, you simply have to log on to BlackRock s online service, Your Pension Online (see page 11), and make sure your retirement age is correct. If you re making your own investment choices (FreeStyle), you may want to move your account into safer investments as you get nearer to retirement. This will not happen automatically you will have to tell us how and when you want this to happen. It s a good idea to review your planned retirement age and investments regularly and certainly when you get within five to ten years of retirement. FIND IT ON THE WEBSITE www.mbplcpensions.com Log in to your account through the homepage, and call the BlackRock helpline on 01733 353416 if you have any problems. 9
DC SECTION Your choices Boost your pension As a member of a defined contribution pension plan, it s important you keep an eye on your pension savings and see if there are any ways you can add to them. On average, a 65-year-old man is expected to live for a further 18 years, and a 65-year-old woman almost 20 years. This is a very long holiday to pay for! With this in mind, you may want to look at all the options available to you to make the most of your pension savings. In DC Choice, the Company matches each 1 you contribute with 1.50 (up to 5% of your Plan Pay). If you re paying 4% of your pay into the Plan, have you thought about whether you could stretch to 5%? Remember that if you do, the Company will make a matching contribution of 1.5 times your contribution. Can you really afford to turn down this opportunity? You earn 16,000 CRISPS Every day in your lunch break you buy a packet of crisps 0.70 x 48 weeks = 168 (1% of your salary) Why not put that into your DC Choice account and potentially get an extra 252 from the Company as well? Remember, too, that you get tax relief on your contributions, so they may not cost you as much as you think. If you pay tax at the current basic rate of 20%, each 1 you pay into your pension will actually only cost you 80 pence. And, if you participate in NICwise, the cost to you could be even lower 10
The end game: annuities As you get closer to retirement, you ll need to make some important decisions about the type of pension (annuity) you want to buy with your DC Choice account. Annuity rates are used to convert your DC Choice account into a regular income (an annuity) during your retirement. Annuity rates are calculated using a number of different factors, including your postcode, health, lifestyle and smoking habits. Different insurers have different annuity rates, so it s important to shop around for the best deal. Hargreaves Lansdown has been appointed by the Trustees to provide an independent retirement annuity service. When you get closer to retirement, they will be on hand to help you decide which option is best for you. Remember, too, that an annuity is not your only option, but you should contact an independent financial adviser to discuss the alternatives. FIND IT ONLINE www.unbiased.co.uk Find an independent financial adviser on this website. Make your choices online Your Pension Online the secure, interactive pensions service provided by BlackRock is just a click away Your Pension Online gives you access to your pension account, 24 hours a day, 365 days a year. You can log in to the secure area by using the DC members shortcut on www.mbplcpensions.com, and then Monitor your account balance, transactions and contributions Review your investment choices and tell us if you want to switch funds View quarterly fund factsheets Use online calculators to see how much pension you could potentially receive when you retire See how taking early or late retirement will affect your pension Change your contact details. NEED HELP LOGGING IN? Please call the BlackRock helpline on 01733 353416. 11
DB SECTION Money matters The year in brief... Every year, the Trustees have to produce a full set of accounts showing how much money has been paid into the Plan, and how much has been paid out. These accounts are audited by PricewaterhouseCoopers LLP, who check that they show a true and fair view of the Plan s financial transactions. On 1 April 2012, the DB Section was worth Plus money in Less money out 1,207.4 million 29.6 million 45.0 million Plus the rise in value of our investments 157.0 million On 31 March 2013, the DB Section was worth 1,349.0 million FIND IT ON THE WEBSITE www.mbplcpensions.com You can download the Plan s full report and accounts. 12
DB SECTION MEMBERSHIP Membership as at 31 March 2013 612 deferred in-service members (who still work for the Company) 15,622 deferred members (who no longer work for the Company) 9,600 pensioners Total members: 25,834 13
DB SECTION Investments The vast majority of assets in the DB Section are invested in the Mitchells & Butlers Common Investment Fund (CIF). The CIF was set up with the aim of pooling the investments of the Mitchells & Butlers Defined Benefit pension plans, in order to generate cost savings. During 2012/13 we saw a general improvement in financial conditions as the markets steadied and investment returns improved. However, the impact of the global downturn is still uncertain, and the outlook for future economic recovery over the next few years remains unclear. Investment performance The Trustees set targets (called benchmarks) against which the performance of the investment managers, and the CIF, are measured. The investment return of the CIF for the year ended 31 March 2013 was 13.4%, compared with a benchmark of 12.9%. This was higher than the return achieved in 2011/12, because of a recovery in the markets during the first three months of 2013. Over the past three years the CIF has made a return of 11.1%, compared with the benchmark return of 10.4%. Hands off! The assets in the CIF are kept totally separate from the Company s assets 14
Year-on-year performance 15 1 year % 3 years % p.a. 5 years % p.a. Split of investments in the Common Investment Fund 14 13 12 CIF Benchmark Inflation 11 10 9 8 7 6 5 4 3 2 1 0 Equities 36.8% Gilts & Bonds 62.5% Property & Cash 0.7% As we have seen in recent years, the value of investments can be affected by volatility in the world s stock markets. However, splitting them between different types of investments does help to smooth out some of the ups and downs. 15
DB SECTION Funding update Putting a value on the Plan Last year we included the summary funding statement in our annual report to members giving you details about the funding position and financial security of the DB Section of the Mitchells & Butlers Pension Plan. This year, because we are in the middle of an actuarial valuation, your copy of Member Briefing does not include a summary funding statement. Every three years, the Plan is valued to determine the expected future pension payments (the liabilities) from the DB Section and how well these are funded by the assets held in the Plan. This process is called an actuarial valuation and it is carried out by a pension professional called an actuary. The actuary assesses the value of pensions already promised, how these pensions should be funded by the employers that participate in the Plan, and the cost of providing future DB pensions based on members service and earnings. The actuary has to assess many different variables to arrive at this value (for example: what is inflation expected to be like in the future? How will the Plan s investments perform? How long might pensioners live, on average, in future?). The answers to these questions are called the actuarial assumptions. The actuary assesses the Plan at a particular date in our case, 31 March. The Trustees and the Company use the results of the valuation to update the Schedule of Contributions, which sets out the Company s ongoing future service contributions, and also the expected payments to be made by the Company if the valuation shows a funding shortfall (this is called the Recovery Plan ). The actuary also carries out annual updates, which are less detailed but provide a quick snapshot of the Plan s financial position. We will send out a summary funding statement giving all the details, once the valuation has been completed and the results agreed by the Company and the Trustees. 16
Every three years, the Plan is valued to determine the expected future pension payments from the DB Section. 17
DB SECTION DB news Manage your pension online OneView is a secure member website run by our DB pension administrator, Mercer. www.merceroneview.co.uk/mab You were sent a letter in March 2013, giving you instructions on how to login to the secure site, and view your pension data. You can do loads of things on OneView: View, update or change your nomination form Request up-to-date values of your benefits (if you re still working for the Company) View details of your pension payments, print out payslips and change your bank account details online (pensioners) Access a comprehensive library of pensions information, including newsletters and handbooks If you have any problems accessing OneView, or need to request a new password, please call the Mercer OneView Contact Centre on 0845 600 0229 (Monday-Friday, 9am-5pm). 18
Pension increases Under the Rules of the Plan, your pension in excess of the Guaranteed Minimum Pension is increased in October in line with changes to the Retail Prices Index (RPI) in the year ending the previous 31 May, up to 5%. The RPI in May 2013 was 3.1%, so an increase of 3.1% will be applied to all pensions in payment and deferred pensions, with effect from 1 October 2013. 2014 pension payments Your January 2014 pension instalment will be paid on 20 December 2013. Pensions are typically paid in advance on the first working day of each month. For example, the pension you received on 1 October is to cover the period from 1 October to 31 October. When the first of the month falls on a Saturday or Sunday pensions are paid on the first working day of the month. In 2014 pensions will be paid on the first of the month except for 3 February, 3 March, 2 June, and 3 November. Minding our data The Pensions Regulator has introduced new guidance for pension schemes regarding member data. From December 2012, data such as name, address, date of birth, National Insurance number, membership dates etc must be present and accurate for 95% of legacy data (i.e. data created before June 2010) and 100% of new data (i.e. data created after June 2010), or it must be shown that reasonable endeavours to resolve inaccurate or missing data are being taken. We carried out a data cleansing project and wrote to the majority of our members to check that our data is up to date. Thank you to all those members who responded to our letters and provided information. If you need to update your nomination form or marital status, please contact Mercer. You can also download the relevant forms from the pensions website, www.mbplcpensions.com 19
DC DB SECTION Plan noticeboard Your Trustee Board There were a number of changes to the Trustee Board during the year: Saudagar Singh resigned from the Board and was replaced by Susan Martindale in November 2012. Michael Fenton (a member-nominated Trustee Director) also resigned in February 2013 and was replaced by James Cooper in March 2013. Peter Anderton retired as a member-nominated Trustee Director at the end of his five-year term in June 2012. There was also a previous vacancy. These membernominated positions were filled by Andy Gordon and Rita Mitchell in July 2012. With all these changes, the Trustee Board is now made up of the following nine Trustee Directors: Independent Mike Bramley (Chairman) Bill Scobie Bob Jones Law Debenture Pension Trust Appointed by the company Andrew Vaughan Susan Martindale nominated by the members Rita Mitchell Andy Gordon James Cooper 20
NICwise In the Plan NICwise is a salary sacrifice arrangement which provides a more efficient way of paying contributions to DC Choice as it (NICwise) reduces the amount of National Insurance contributions you pay. As a result your take-home pay increases. Leaving the Plan If you leave Mitchells & Butlers, and have been a member of the Plan for less than two years and have not transferred-in any benefits, you can choose to have a refund of your contributions. However, if you participate in NICwise, you are not making direct contributions to the Plan, so your refund would be nil. Stay in NICwise You benefit from National Insurance savings Opt out of NICwise The same amount is paid into your pension pot You do not benefit from National Insurance savings If you choose to leave before 2 years If you are eligible, you automatically participate in NICwise unless you complete an opt-out form. You won t receive a refund Your contributions can be refunded FIND IT ONLINE www.unbiased.co.uk If you re unsure about participating in NICwise, you should speak to an independent financial adviser. If you choose to leave after 2 years You keep your pension pot 21
DC DB SECTION Pensions update Pension tax allowances more change In a widely anticipated move, the Chancellor announced shortly before Christmas that the Annual Allowance would drop to 40,000 from 2014/15. The Annual Allowance is the amount which individuals may contribute tax-free to their pension savings over a set 12-month period. In April 2011, the Annual Allowance was reduced from 255,000 to 50,000. In addition, the Lifetime Allowance (the tax-free limit on an individual s total value of pension savings from all sources) is set to drop from 1.5 million to 1.25 million, with effect from 2014/15. Very few members will be affected by these changes. However, if you think you may be affected, you should speak to an independent financial adviser. FIND IT ONLINE www.unbiased.co.uk Find an independent financial adviser in your area. Protect your pension against predators Pension scheme members are being warned to steer clear of pension offers that claim to be able to provide loans or release tax-free cash from people s pension pots before they reach age 55. Unless someone is in ill health, heavy penalties apply if you access pension funds before age 55. Many schemes that offer so-called pensions liberation are acting fraudulently. The Pensions Regulator has detected an increase in these offers, and urges members not to be taken in by website promotions, cold-calls or adverts encouraging them to transfer their existing occupational or private pension to a new arrangement in order to access a cash payment or loan. FIND IT ONLINE www.pensionsadvisoryservice.org.uk Download a leaflet about pensions liberation here. 22
Changes to State pensions The Government has published further details of its proposals to introduce a flat-rate State pension, initially worth 144 a week for those with a 35-year National Insurance record. This would replace the current basic State pension and the State Second Pension (S2P, formerly known as SERPS). Under the proposals, any individuals reaching State pension age from 6 April 2016 would receive the flat-rate State pension. State pension age is currently 65 for men and gradually being increased to 65 for women, and rising to 66 for both sexes in 2020. Current pensioners in receipt of a State pension would not receive the new flat-rate pension. Individuals who have paid National Insurance contributions for less than ten years will not receive a State pension under the Government s current plans, and will need to have paid National Insurance for at least 35 years to receive the full amount of the flat-rate State pension. Final details are expected to be confirmed by the Government over the next few years. FIND IT ONLINE www.gov.uk Get the latest news on State benefits here. The Government s proposals indicate that all accrued pension rights will be recognised, and that under the new system some future pensioners may be paid a top-up to the new flat-rate State pension. 23
Keeping in touch DC Section If you have any questions about your benefits in the DC Section, please contact the administration team at BlackRock: BlackRock Employee Savings Service Centre, PO Box 704, Peterborough PE1 1WL Telephone: 01733 353416 Email: uk.ops@blackrock.com Your Pension Online: https://www.blackrockpensions.co.uk/ mitchellsandbutlers DB Section If you have any questions about your deferred benefits in the DB Section, or your pension payments, please contact the administration team at Mercer: Mitchells & Butlers Pensions, Mercer, 4 Brindley Place, Birmingham B1 2JQ Telephone: 0870 850 0981 Email: mbplc@mercer.com Mercer OneView: www.merceroneview.co.uk/mab Keep your details updated Please remember to tell us if you move house, and update your nomination form if your personal circumstances change. This form tells the Trustee Directors how you would like to see any benefits on your death paid out. They are not obliged to follow your wishes, but will be guided by them. Doing it this way means that any lump sum payments won t attract inheritance tax. FIND IT ON THE WEBSITE www.mbplcpensions.com You can download a nomination form online. The benefits provided by the Plan are governed by the Plan s Trust Deed and Rules (copies of which are available on request). Nothing in this Member Briefing confers any right to benefits save as provided by the Trust Deed and Rules and in the event of any inconsistency between this Member Briefing and the Trust Deed and Rules, the Trust Deed and Rules prevail. This Member Briefing does not constitute legal advice or financial advice and should not be relied upon as such. The description of legislation in this Member Briefing is intended as a basic guide only, not a comprehensive or exhaustive guide to the legislation. 304185