Redrow Staff Pension Scheme Trustees Annual Newsletter Defined Benefit Members November 2010 Welcome to the Trustees Annual Newsletter to Members Contents Welcome to the Trustees Annual Newsletter to Members The Trustees Keeping you informed Group Re-structuring Scheme membership Investments 01 02 02 03 03 04 Financial review 2009/10 05 Keeping your details updated Summary Funding Statement for period ending 30 June 2010 Pension Protection Fund Who helps the Trustees Did you know? Expression of Wish form 05 06 07 08 08 08 The aim of the newsletter is to keep you up to date with news about the Redrow Staff Pension Scheme ( the Scheme ) and its financial position. This newsletter covers the Scheme year for the period from 1 July 2009 to 30 June 2010. This year we have split the information supplied on the Defined Benefit (DB) and Defined Contribution (DC) sections and this newsletter contains only information in respect of the DB section. If you are also a Member of the DC section you will be sent a separate newsletter in respect of the DC section. During the Scheme year, David Arnold resigned as a Company Appointed Trustee. The Board of Trustees wish to express their thanks for his work as a Trustee. Following David s resignation the Company are taking steps to appoint a new Trustee. The Trustees also express their thanks to Heather Bowness who has been Acting Secretary to the Trustees during Karen Jones maternity leave and who has now taken on the role on a permanent basis. The Trustees wish to thank Karen for all her endeavours and considerable assistance during the seven years she was Secretary to the Scheme and wish her well as she returns to work on a part time basis whilst juggling the demands of being a new mum to twins! The last 12 months have been a challenging period for the economy as a whole and there has been continuing volatility in financial markets around the world. In this newsletter you will find information about the DB Scheme s investment performance. The Trustees would like to remind you of the importance of keeping your Expression of Wish form up to date. This will help the Trustees to determine who should receive any death benefit which may be payable should you die. Further details can be found on page 8. If you have any questions arising from this Newsletter or about the Scheme in general please contact Heather Bowness, who is Secretary to the Trustees, at the address given on page 2 of the newsletter. Alternatively, if you are a Member who is currently employed by Redrow then you may wish to access the pension section of redroweb. Redrow Staff Pension Scheme Trustees Annual Newsletter (DB) November 2010 1
The Trustees Iain Mason Iain was appointed as a Trustee by the Company in 1996 and has been Chair of Trustees since 2008. He works for Group Services as Litigation Director and joined the Company in 1991. Graham Micklewright Graham has served on the Board of Trustees since 2006 after being elected and subsequently re-elected in 2010 as a Member Nominated Trustee. He started with the Company in 1999 and works as Finance Director for Redrow Homes Midlands Division. Rachel Tranter BESTrustees Rachel sits on the Board representing BESTrustees plc as an Independent Trustee and was appointed in July 2008. Rachel is a qualified actuary who acts as an Independent Trustee for a number of pension schemes. George Cronin George joined the Board of Trustees in March 2009 after being elected a Member- Nominated Trustee. George has been with Redrow since 2003 and is the Managing Director for Redrow Homes Eastern Division. Scheme Actuary Mark Rogers Mark has been the Scheme Actuary for 4 years and has advised the Trustees since 2001. Mark s primary responsibility is to prepare the actuarial valuation every 3 years. Secretary to the Trustees Heather Bowness Heather has taken on the role of Secretary to the Trustees having performed the role for the last year on a temporary basis. For details on how to contact Heather please see the next section entitled Keeping you informed. Trustees Training Each Trustee of the Redrow Pension Scheme completes an annual review with the Chairman of the Trustees. These reviews appraise the Trustees against the objectives they were set the previous year and define new objectives for the year ahead. Each Trustee has a training plan tailored specifically for them to help them achieve their objectives. The training in which each Trustee partakes is tailored specifically to develop their knowledge and spectrum of skills that are required of the Trustees, both individually and collectively. Every Trustee, along with the Secretary to the Trustees is encouraged to sit and pass the PMI exam Award in Pensions Trusteeship. Keeping you informed There are some important documents which may give you an insight into how your Scheme is run. These are: Scheme Rules The Statement of Investment Principles which explains how the Trustees invest the money paid into the Scheme The Schedule of Contributions which shows how much money is being paid into the Scheme The full Annual Report and Accounts (we have only included a summary in this Newsletter) The full report of the Actuarial Valuation which is the Actuary s check of the Scheme s situation as at 30 June 2008 The Staff Pension Scheme Handbook If you are a Member of the Scheme who is currently employed by Redrow and you have access to redroweb you should take the time to visit the pension section. This section of redroweb enables you to access the above mentioned information. If you are not currently employed by Redrow or you do not have access to redroweb you can obtain copies of all these documents from: Heather Bowness, Secretary to the Trustees C/O Redrow Group Services, Redrow House, St David s Park, Flintshire CH5 3RX Email: pensions@redrow.co.uk or the Scheme Administrators Jardine Lloyd Thompson at redrowpensions@jltgroup.com or 0800 458 6077. 2 November 2010 Trustees Annual Newsletter (DB) Redrow Staff Pension Scheme
Group Re-structuring In April 2010 Redrow plc ( the Company ) wrote to all employees setting out its proposals to simplify the group structure. Historically the Company had operated a relatively complex structure with lots of separate trading and group service companies, each dealing with a separate part of the overall business activity. The Company proposed that at the start of the new financial year the structure would be simplified by moving the majority of the business and employees into one single entity Redrow Homes Limited ( RHL ). Prior to this, the Trustees received a letter from the Company setting out the restructuring arrangements being proposed by the Company and inviting the Trustees to support the restructuring and enter into a document reflecting the changes ( the Deed of Apportionment ). A Deed of Apportionment is a formal document entered into by the Company and the Trustees confirming how the liabilities of the Scheme will be met following a restructuring. In order for the Trustees to support the restructuring arrangements they had to ensure that what is known as the Funding Test would be met and therefore the Employer s Covenant would not be weakened by the proposals. The Funding Test is a statutory requirement which provides that once the restructuring has taken place RHL has to be able to meet the liabilities of the Scheme as they fall due and that the apportionment arrangements would not adversely affect the security of Members of the Scheme. The Employer s Covenant is the Company s ability and willingness to support the Scheme. Towards the end of 2009, as part of the Trustee s ongoing obligations under the Scheme, they had instructed PKF Accountants and Business Advisers ( PKF ) to undertake an Employer Covenant Review. This review confirmed that the Redrow Covenant remained good at the time notwithstanding the financial state of the economy. The Trustees therefore thought it appropriate to re-instruct PKF to review the Company s restructuring arrangements and to advise upon whether the proposals would affect the Funding Test and/or weaken the Employer Covenant. Following a detailed investigation PKF confirmed to the Trustees in a letter of 9 April 2010 that the proposed reorganisation would not prevent the Funding Test being met and was unlikely to weaken the Employer s Covenant. Therefore PKF confirmed that it would be reasonable for the Trustees, in principle, to support the restructuring. The Trustees instructed their solicitors, Addleshaw Goddard ( Addleshaws ) to act on their behalf in the preparation of the Deed of Apportionment. Addleshaws negotiated the terms of the Apportionment Deed with the Company s solicitors, Linklaters. The Deed of Apportionment provided that the existing employers (the regional and group companies) would exit from the Scheme and be replaced by the new Participating Employer (RHL) on 25 June 2010 ( the Transfer Date ). The deed was caveated on the basis that, if at the Transfer Date the Funding Test had not been met, the deed would have no effect. Once Addleshaws had confirmed they were satisfied with the contents of the document the Trustees executed the Deed of Apportionment on 19 April 2010. Following further investigations, PKF wrote to the Trustees on 21 May 2010 confirming that following receipt and consideration of additional information from the Company the Funding Test would be met and the Employer Covenant would not deteriorate as a result of the reorganisation. The Company provided to the Trustees details of the means by which the assets and liabilities would be transferred on the Transfer Date and thereafter confirmed to the Trustees that the transfer of assets and liabilities had taken place as planned. Scheme membership - DB Section Active Members at 1 July 2009 157 Less retirements 1 Leavers with a deferred pension 7 Deaths in service 1 Active Members at 30 June 2010 148 Former employees entitled to a deferred pension at 30 June 2010 722 Pensioners at 30 June 2010 179 Total Membership at 30 June 2010 1,049 The DB section is now closed to new Members Redrow Staff Pension Scheme Trustees Annual Newsletter (DB) November 2010 3
Investments The chart shows how the DB section s investments were made up at the end of June 2010. The Scheme s DB section also held cash amounting to 72,902 in the Trustees bank account as at 30 June 2010. This cash was mainly in relation to contributions due to be invested and benefits due to be paid. DB Assets as at 30 June 2010 12.1% 7.7% 32.4% The Scheme s investments are made in accordance with the Statement of Investment Principles, which sets out the Scheme s investment strategy. This strategy is summarised in the table below together with the funds used to implement this strategy and the benchmark weights. The Trustees review the performance and structure of the funds using quarterly reports from their investment managers and investment advisers. 27.4% 20.4% Global Equity (70:30) 24,222,046 Corporate Bonds 15,270,578 Index Linked Gilts 20,435,489 High Yield 9,028,686 Property 5,730,482 Total 74,687,281 Asset Class Manager Fund The term passive as used in the above table refers to passively managed funds - often called tracker funds - these aim to achieve a stated or benchmark index. Passive fund managers generally charge lower fees than active fund managers, who aim to add value by seeking to achieve a higher return than the benchmark index. The DB section s assets are currently invested with two investment managers, Legal & General and ING. In addition, the Trustees hold assets invested separately from the main fund on a money purchase basis for Members who pay Additional Voluntary Contributions. These are currently held with Equitable Life ( 43,831) and Legal & General ( 369,997). The 12-month return to 30 June 2010 on the DB assets was 16.4%. Annual Holdings Benchmark weight Global Equity L&G, passive Global Equity (70:30) Index Fund 32.4% 32.5% Index Linked Gilts L&G, passive Index Linked Gilts Index Fund 27.4% 30.0% Corporate Bonds L&G, passive AAA-AA-A Corporate Bond Index Fund 20.4% 20.0% High Yield L&G, active High Yield Bond Fund 12.1% 10.0% Property ING, active Osiris Property Fund 7.7% 7.5% 4 November 2010 Trustees Annual Newsletter (DB) Redrow Staff Pension Scheme
Financial Review 2009/10 All of the information below is taken from the audited full Trustees Report and Accounts for the period 1 July 2009 to 30 June 2010. 2010( s) 2009 ( s) Fund at beginning of period 64,579,023 71,042,854 Contributions and other income Employer normal contributions 750,573 1,726,008 Members normal contributions 512,224 1,076,658 Members additional voluntary contributions 57,130 20,332 Life assurance benefits received 64,872 0 Total Income 1,384,799 2,822,998 Benefits and other payments Benefits payments 1,118,965 1,437,341 Payments to and on account of leavers 95,689 270,935 Life assurance premiums 148,762 141,186 Administration expenses 326,789 317,236 Total Expenditure 1,690,205 2,166,698 Net return on investments 10,692,232-7,310,312 Transfer from DC section * 170,329 190,181 Fund at end of period 75,136,178 64,579,023 Please note that the Investment Values shown on page 4 are lesser values to those shown to the left. The table below explains the differences. 2010 ( s) Assets displayed in chart on page 4 74,687,281 Bank account balance 72,902 Bank account liabilities -92,353 AVCs 413,828 Property fund investment accrual 54,520 Cash holding with investment manager 0 Assets displayed in table to the left 75,136,178 * The transfer is in relation to the employer s contributions, which remain in the fund when a Member takes a refund of contributions. Keeping your details updated It is important that you inform the Trustees of any change of address or name. This is to ensure that the Trustees are able to contact you about any benefits that may be due and to keep you updated about the Scheme. How you do this depends on if you are an Active, Deferred or Pensioner Member. If you are an Active Member please inform the Human Resources team so they can update their records, they will also notify the Trustees on your behalf. If you are a Deferred or Pensioner Member you should notify the Scheme Administrators, JLT, whose contact details are on page 3. Redrow Staff Pension Scheme Trustees Annual Newsletter (DB) November 2010 5
Summary Funding Statement For period ending 30 June 2010 The Trustees have produced this statement to give you an update of the Scheme s funding position. This is required annually under legislation. The last formal actuarial valuation of the Scheme was carried out as at 1 July 2008 and this statement reflects the position at that date. The Trustees also obtain an annual funding update and a summary of the funding position as at 1 July 2010 is included in this statement. How is my pension paid for? Redrow pays contributions to the Pension Scheme so that the Scheme can pay pensions to Scheme Members when they retire. Active Members also pay contributions to the Scheme, and these are deducted from gross salary. The money to pay for Members pensions is held in a common fund. It is not held in separate funds for each individual. The Trustees obtain formal valuations of the benefits earned by Members every three years and annual valuation updates. Using this information the Trustees determine what level of future contributions are required to adequately fund the Scheme. However, it is up to Redrow rather than the Trustees to decide what proportion of the overall contributions is paid by Members and what proportion is paid by Redrow. The last ongoing funding valuation It is the Trustees duty to fund the Scheme on a prudent basis and all of the funding assumptions were reviewed carefully as part of the valuation process, in particular the assumptions regarding how long Members are expected to live after retirement. Following receipt of initial valuation results, Redrow was concerned that the cost of the Scheme was becoming prohibitively high. In order for the Defined Benefit section of the Scheme to remain affordable for both Members and Redrow, Members were given the option to have their future Pensionable Salary increases limited to the lower of any actual salary increases they receive in the Scheme year or the percentage increase in the Retail Prices Index, in each case subject to a maximum of 2.5% p.a; and to pay a lower rate of Member contributions with effect from 1 July 2009. All Active Members have agreed to this change. Allowing for this cap on Pensionable Salary growth, the most recent funding valuation of the Scheme showed that on 1 July 2008 the funding position (on an ongoing basis) was as follows: Assets Amount needed to provide benefits Surplus 70.6m 60.7m 9.9m Funding level 116% The Scheme Rules provide for expenses to be paid by the Company. As the Scheme is in surplus the Trustees have agreed that a proportion of Scheme expenses can, for the time-being, be met from an expenses reserve included in the valuation liabilities. This reserve has been calculated as 0.7m and has been included in the figures shown above. Contribution Rates from 1 July 2009 The ongoing cost of providing future benefits in the Scheme is 20.6% of Pensionable Salary for Executive Members and 15.2% of Pensionable Salary for Ordinary Members. With effect from 1 July 2009 contributions to fund future benefits have been paid at the following rates: By Members By the Company 6 November 2010 Trustees Annual Newsletter (DB) Redrow Staff Pension Scheme Ordinary Members 6.2% of Pensionable Salaries 9.0% of Pensionable Salaries Executive Members 8.3% of Pensionable Salaries 12.3% of Pensionable Salaries How has the funding position changed over the year to 1 July 2010? The last actuarial report of the Scheme at 1 July 2009 showed that the funding level was 107% and that the Scheme had a surplus of approximately 4m on an ongoing funding basis, which had fallen from a surplus of 9.9m at the formal actuarial valuation of the Scheme at 1 July 2008. Since the 1 July 2009 actuarial report was prepared, there has been a recovery in global investment markets which has resulted in a rise in the value of the Scheme s assets at 1 July 2010. The value of the Scheme s liabilities have also increased over the year, primarily due to falls in the bond yields which are used to derive the discount rate assumption. The discount rate assumption is used to value the Scheme s liabilities and if this assumption decreases the value of the liabilities increases. The increase in the value of liabilities more than offsets the rise in assets and therefore the funding update at 1 July 2010 indicated that the funding level has fallen to 102% and that the Scheme surplus has reduced to approximately 1.6m. The Trustees continue to review the funding position of the Scheme carefully. It is the Trustees duty to fund the Scheme on a prudent basis and the Trustees aim to maintain a surplus in the Scheme to protect against future adverse experience. Pensions currently being received by Members and Scheme expenses and are paid directly by Redrow out of the regular monthly contributions. If the monthly contributions are more than the Scheme expenses and pensions in payment, the balance is paid to the Scheme. From July 2009 the reduction in contribution rates meant that the regular monthly contributions paid by Redrow were no longer sufficient to cover the cost of Scheme expenses and pensions in payment. In this situation Redrow pay the full
amount of pension payments and expenses and are then reimbursed by the Scheme for the excess. Apart from these payments, there has not been any payment to Redrow out of Scheme funds in the last 12 months or previously. The importance of Redrow s support The Trustees objective is to have enough money in the Scheme to pay pensions now and in the future. However, to meet this objective Redrow s support is likely to be needed (at least in part) to meet unexpected costs should they arise. What would happen if the Scheme started to wind up? One of the requirements of current legislation is that Trustees must disclose to Members what the financial position of the Scheme would be if it started to wind up, even though Redrow currently has no intention of winding up the Scheme. When a pension scheme winds up, benefits for all the members are secured with an insurance company. Pensions and other benefits are then paid by the insurance company. This is much more expensive than providing the benefits through the scheme as insurers are obliged to take a very cautious view of the future and need to make a profit, as well as maintaining a statutory solvency margin. The cost of securing pensions in this way also incorporates the future expenses involved in administration. By contrast, our funding plan which is in accordance with good practice and legislation, assumes that Redrow will continue in business and support the Scheme. A solvency valuation looks at the estimated cost of providing the benefits through an insurance company. A solvency valuation was carried out for the Scheme at the same date as the ongoing funding valuation (1 July 2008). This showed that the estimated amount needed to ensure that all Members benefits could have been paid in full if the Scheme had started winding up was 88.2m i.e. the Scheme was around 80% funded on this basis. This is an improvement from the previous formal valuation at 1 July 2005 when the Scheme was 56% funded on a solvency basis. If the Scheme were to start to wind up, Redrow is required to pay enough into the Scheme to enable the Members benefits to be completely secured with an insurance company. If Redrow were not able to pay this full amount and became insolvent, the Pension Protection Fund might be able to take over the Scheme and pay some of Members benefits. Further information and guidance is available on the Pension Protection Fund s website at www.pensionprotectionfund.org.uk. Or you can contact the Pension Protection Fund at: Knollys House 17 Addiscombe Road Croydon, Surrey CR0 6SR Tel: 0845 600 2541 Email: information@ppf.gsi.gov.uk Pension Protection Fund The Pension Protection Fund ( the PPF ) was established to pay compensation to members of eligible defined benefit pension schemes when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover the PPF levels of compensation. Defined benefit schemes are generally obliged to pay the PPF levy. An element of the levy is calculated by reference to an independent financial rating of the sponsoring employer. Last year this element of the levy was 66k, compared to under 20k in previous years. Due to economic conditions the financial rating in respect of each company meant that the PPF levy for 2009/2010 was likely to increase substantially to between 200k to 400k as it is based on financial ratings at the end of March 2010. Redrow Homes Ltd had a much higher independent financial rating than the regional companies and so the Trustees negotiated a guarantee from Redrow Homes Ltd which provided additional security to the Scheme and has meant that this element of the levy has only increased to 76k. Prior to the recent reorganisation each regional Redrow company was a sponsoring employer which meant that this risk based element of the PPF levy was calculated on the individual rating of each company. Redrow Staff Pension Scheme Trustees Annual Newsletter (DB) November 2010 7
Who helps the Trustees? The Trustees run the Scheme on the advice of a number of professional advisers with whom they meet regularly. Did you know? That if you have left service and are entitled to a deferred pension you have the option of taking a transfer value to a new employer s scheme or an individual arrangement right up until shortly before you reach Normal Retirement Age. (If you wish to consider a transfer to a new employer please check whether they are prepared to accept this before going ahead). Additional Voluntary Contributions (AVCs) are extra contributions that you can make to increase the pension benefits you receive under the Scheme. You may wish to make AVCs in order to provide: Extra pension for you on retirement Additional financial protection for your dependants In order to make an AVC payment you should download an application from the redroweb. You can choose how much you want to pay up to 100% of your earnings each tax year and receive tax relief on those contributions. This includes Company contributions and all of the other contributions you pay into the Scheme plus any other pension arrangements during the same period. There are different investments into which you can pay depending on whether you are a DB or DC Member. For further information about the funds available to you refer to redroweb. You have the freedom to adjust AVC contributions to your changing circumstances as time goes by increasing, reducing, or even stopping them altogether for a while. You can choose to pay in a regular monthly amount, or an occasional lump sum. We recommend that before you make any decisions you take independent financial advice. Visit www.unbiased.co.uk and also www.searchifa.co.uk to find your nearest Independent Financial Adviser. Expression of Wish form Your Expression of Wish form helps guide the Trustees when they are deciding who receives any death benefit (full details are on the form). You should have completed a form when you joined the Scheme. Please remember to keep it up to date by filling in a new form whenever your circumstances change, for example if you marry or have any children or anytime you change your mind. If you need to update your form you can download one from the pension section of redroweb or alternatively please contact the Human Resources team who are based at St David s Park or the Scheme Administrators - full contact details are on page 3. 8 November 2010 Trustees Annual Newsletter (DB) Redrow Staff Pension Scheme The Trustees regularly review the service that they receive from the Scheme s advisers, to ensure that it is of a high quality and value for money. The Trustees current advisers are: Secretary to the Trustees Heather Bowness (Group HR Manager, Redrow Group Services) Scheme Actuary Mark Rogers of Xafinity Consulting (formerly PricewaterhouseCoopers LLP) Pension Consultants Xafinity Consulting Scheme Administrators JLT Benefit Solutions Ltd Investment Advisers Jagger & Associates Investment Managers Legal & General Assurance (Pensions Management) Limited ING Real Estate Investment Management (UK Funds) Ltd Lawyers Addleshaw Goddard LLP Auditors RSM Tenon Audit Limited (formerly RSM Bentley Jennison) Bankers Royal Bank of Scotland plc Important note The content of this newsletter is for information only and does not give any entitlement to benefit or constitute advice. All benefits are subject to the Scheme Rules and any overriding legislation. In particular there are limits on the maximum benefits and contributions that can be paid without incurring certain tax charges. If you are planning to make any decisions regarding your pension arrangements, we recommend that you take independent financial advice.