Xerox Final Salary Pension Scheme Actuarial report as at 31 March 2017 4 January 2018 willistowerswatson.com
Summary The main results of this actuarial report and those from the latest actuarial valuation are as follows: Technical provisions funding level as at 31 March 2017 is estimated to have increased to 85% over the year Contents Summary Introduction Scope Next steps Limitations 2017 2016 81% 85% Statutory funding objective Secondary funding objective Deficit of assets relative to technical provisions is estimated to have decreased to 534 million over the year Additional information Data provided Glossary 2017 534 2016 581 level on the secondary funding target basis as at 31 March 2017 is estimated to have increased to 70% over the year 2017 2016 67% 70% Deficit of assets relative to liabilities on the secondary funding target basis is estimated to have increased to 1,270 million over the year 2017 2016 1,270 1,215 Throughout this report the following terms are used: Scheme Trustee Xerox Pensions Limited Company Xerox Limited Employers Participating employers in the Scheme (which were Xerox Limited, Xerox UK Limited and Continua Limited on 31 March 2017) Trust Deed & Rules The Actuarial Scheme s report Trust as Deed at 31 and March Rules 2017 dated Xerox 5 April Final 2012, Salary together Pension with Scheme subsequent amending deeds 1
Introduction Scope This is the actuarial report in respect of the as at 31 March 2017 and I have prepared it for the Trustee. As noted in the Limitations section of this report, others may not rely on it. The actuarial report is required under Part 3 of the Pensions Act 2004 in years when a full actuarial valuation is not conducted; a copy of this report must be provided to the Company within seven days of its receipt. The main purpose of the actuarial report is to provide an approximate update of the development in the financial position of the Scheme relative to its statutory funding objective since the latest actuarial valuation. It should be considered in conjunction with the report dated 28 September 2017 on the actuarial valuation as at 31 March 2016. This report and the work involved in preparing it are within the scope of and comply with Technical Actuarial Standard 100: Principles for Technical Actuarial Work (TAS 100) and Technical Actuarial Standard 300: Pensions (TAS 300) published by the Financial Reporting Council. However, as this report has been produced solely to meet a legislative requirement and no decisions are expected to be taken on the basis of the information set out in it, I have taken a proportionate approach when considering and applying the requirements contained within TAS 100 and TAS 300. Next steps The Trustee is required to disclose to members, in a summary funding statement, certain outcomes of this actuarial valuation within a reasonable period. Members may also request a copy of this report. The financial position of the Scheme and the level of Company contributions to be paid will be reviewed at the next actuarial valuation, which is expected to be carried out as at 31 March 2019. In intervening years the Trustee will obtain annual actuarial reports, such as this one, on developments affecting the Scheme s assets and technical provisions. The next such report, which will have an effective date of 31 March 2018, must be completed by 31 March 2019. Richard Akroyd Fellow of the Institute and Faculty of Actuaries 4 January 2018 Towers Watson Limited, a Willis Towers Watson company 51 Lime Street London EC3M 7DQ Authorised and regulated by the Financial Conduct Authority http://eutct.internal.towerswatson.com/clients/617577/xeroxtrret2017/documents/xfsps_actuarial report_31 march 2017_final.docx
Limitations Third parties This report has been prepared for the Trustee for the purpose indicated. It has not been prepared for any other purpose. As such, it should not be used or relied upon by any other person for any other purpose, including, without limitation, by individual members of the Scheme for individual investment or other financial decisions, and those persons should take their own professional advice on such investment or financial decisions. Neither I nor Towers Watson Limited accepts any responsibility for any consequences arising from a third party relying on this report. Except with the prior written consent of Towers Watson Limited, the recipient may not reproduce, distribute or communicate (in whole or in part) this report to any other person other than to meet any statutory requirements. Data supplied The Trustee bears the primary responsibility for the accuracy of the information provided, but will, in turn, have relied on others for the maintenance of accurate data, including the Company who must provide and update certain membership information. Even so it is the Trustee's responsibility to ensure the adequacy of these arrangements. I have taken reasonable steps to satisfy myself that the data provided is of adequate quality for the purposes of the investigation, including carrying out basic tests to detect obvious inconsistencies. These checks have given me no reason to doubt the correctness of the information supplied, other than as described below. It is not possible, however, for me to confirm that the detailed information provided, including that in respect of individual members and the asset details, is correct. This report has been based on data available to me as at the effective date of the actuarial report and takes no account of developments after that date except where explicitly stated otherwise. Material data assumptions We have estimated contingent spouses pensions for pensioners, where possible based on data provided for the 2014 review from the old administration system but in other cases based on the member s pension information provided. We do not consider that these approximations are material for the funding update. We have assumed that on completion of the current GMP reconciliation exercise there will be no material overall change to the liabilities (with increased pensions for some members being offset by pension reductions for other members). We have made an allowance on an approximate basis for the statutory minimum benefit underpin for members who retain a salary link, which has been incorporated into the Scheme Rules following the MNRPF judgment. Methodology In carrying out this review, we have carried out full liability calculations based on individual membership data supplied by the administrators. However, a detailed data analysis was not completed. Corrections are currently being made to the benefits of some members for whom pension increases were calculated incorrectly after their GMP payment age. This issue affects a small proportion of members and we have allowed for its impact on an approximate basis in our calculations. Consistent with the position agreed between the Trustee and the Company at the 2016 valuation, no allowance has been included in the technical provisions for the cost of equalising benefits for the effects of GMPs should this prove necessary. My current view is that the impact on the technical provisions and secondary funding target might be around 1% of the liabilities (including back-dating payments where necessary) assuming that a value-based test similar to that proposed in the latest Government consultation is used. 2
The assumptions used for this review, on the primary and secondary funding targets, are consistent with the Scheme s current Statement of Principles, as adopted by the Trustee in September 2017 and underlying the actuarial valuation as at 31 March 2016. In particular, it is assumed that: the Trustee s investment strategy for the Scheme continues to support discount rates of 2.375% pa above gilts before a member retires and 0.625% pa above gilts thereafter; the Scheme continues to operate as currently with salary linkage maintained for current active members on the closure of the main section to future accrual on 31 December 2013. The funding of the is subject to a number of risks and it is not possible to make an allowance for all such risks in providing our advice. Unless stated, no explicit allowance has been made for any particular risk. In particular, no explicit allowance has be made for climate-related risks. 3
Introduction Statutory funding objective The Trustee s formal funding objective is the statutory funding objective under the Pensions Act 2004, which is to have sufficient and appropriate assets to cover the Scheme s technical provisions. The method and assumptions for calculating the technical provisions as at 31 March 2016 were documented in the Statement of Principles dated September 2017. The table below summarises the main financial assumptions used to estimate the Scheme s technical provisions for this actuarial report and the latest actuarial valuation. Financial assumptions Statement of Principles Single equivalent rates 31 March 2017 % pa 31 March 2016 % pa Pre-retirement discount rate Gilt curve plus 2.375% pa 4.025 4.525 Post-retirement discount rate Gilt curve plus 0.625% pa 2.275 2.775 Price inflation (measured by Retail RPI inflation curve derived 3.42 3.14 Price Index) from fixed and index-linked curves Price inflation (measured by RPI assumption less 1% pa 2.42 2.14 Consumer Prices Index) Pensionable salary increases RPI assumption plus 1.00% pa 4.42 4.14 Section 148 orders RPI assumption plus 1.25% pa 4.67 4.39 Pension increases in deferment RPI assumption 3.42 3.14 on excess over GMP (pre and post April 2009) Pension increases in payment: - Pre 1988 GMP (as defined in the 0.00 0.00 0.00 Rules) - Post 1988 GMP and pre 1997 CPI curve with cap and collar 1.95 1.85 Protected Rights (as defined in the Rules) - Excess (pre and post April 2006) and commuted pension eligible for increases RPI assumption 3.42 3.14 I consider the financial assumptions adopted for this actuarial report are consistent with those used for determining the Scheme s technical provisions at 31 March 2016 as set out in the Statement of Principles dated September 2017, adjusted for changes in market conditions, and in my view they are appropriate for the purpose of this actuarial report. The demographic assumptions used for the purposes of this update are consistent with those adopted for the actuarial valuation as at 31 March 2016, as set out in the Scheme s Statement of Principles dated September 2017. However, if the Trustee and Xerox Limited were to consider all the assumptions in detail as part of a formal valuation process some of these assumptions might be updated. Discretionary benefits The following discretionary benefits have been allowed for in the calculation of the technical provisions. Pension increases: The Trustee and the Company have agreed that for the purpose of calculating the technical provisions it will be assumed that discretionary increases will be awarded so that the following elements of members pensions will increase in line with Retail Price Inflation (RPI).
In payment: Pensions relating to service before 6 April 2006 and in excess of GMP in payment, which are guaranteed to increase each year at the lower of 5% and RPI. Pensions relating to service after 6 April 2006 which are guaranteed to increase each year at the lower of 2.5% and RPI. In deferment Pensions above the GMP which are guaranteed to increase each year at the lower of 5% and RPI for service before 6 April 2009. Pension to which the lower cap of 2.5% pa applies to the guarantee for service after 5 April 2009. Death in service and death after retirement benefits to be paid to dependants (as defined in the Rules), which are at the Trustee s discretion. Results The table below compares the estimated technical provisions as at the effective date of the actuarial report with the market value of the Scheme s assets and the corresponding figures from the latest actuarial valuation: Valuation statement 31 March 2017 31 March 2016 m m Amount required to provide for the Scheme s liabilities in respect of: Employed members 371 353 Deferred pensioners 953 789 Pensioners and dependants 2,064 1,841 Expenses 34 30 AVCs and other money purchase benefits 32 26 Technical provisions 3,454 3,039 Market value of assets 2,920 2,458 Past service (deficit)/surplus (technical provisions less (534) (581) assets) level (assets technical provisions) 85% 81% 5
Developments since the latest valuation The funding level is estimated to have increased to 85% from 81% at the previous valuation. The main factors contributing to this change are shown below. Deficit at previous valuation (581) Interest on deficit (10) Expectation Deficit contributions Assumed asset outperformance 59 21 Expected deficit at this valuation (511) Change in market conditions Additional asset outperformance (452) 450 Experience Revaluation and pension increases experience (30) Miscellaneous 9 Deficit at this update (534) -1000-800 -600-400 -200 0 200 m 6
Secondary funding objective The Trustee and the Company have agreed a secondary (higher) funding target which is intended to provide a substantial degree of security if at some point in the future the Employers are no longer in a position to support the Scheme. It is recognised that this secondary funding target will be met over a longer period than the recovery plan and may require investment returns on the Scheme s assets in excess of those required to achieve full funding of the technical provisions. The method and assumptions for calculating the value of the secondary funding target liabilities as at 31 March 2016 were documented in the Statement of Principles dated September 2017. The only difference in the assumptions used relates to the discount rate which has been based on the gilt curve without adjustment either before or after retirement. The single equivalent discount rate to this curve is 1.65% pa at 31 March 2017 (2.15% pa at 31 March 2016). The table below compares the estimated liability value on the secondary funding target basis as at the effective date of the actuarial report with the market value of the Scheme s assets and the corresponding figures from the latest actuarial valuation: Valuation statement 31 March 2017 31 March 2016 m m Amount required to provide for the Scheme s liabilities in respect of: Employed members 534 505 Deferred pensioners 1,292 1,068 Pensioners and dependants 2,250 2,002 Expenses 82 72 AVCs and other money purchase benefits 32 26 Total value of liabilities on Secondary Target basis 4,190 3,673 Market value of assets 2,920 2,458 Past service (deficit)/surplus (Secondary Target liability value less assets) level (assets Secondary Target liability value) (1,270) (1,215) 70% 67% The funding level on the secondary funding objective is estimated to have increased to 70% from 67% at the 2016 valuation. 7
Additional information Introduction Data provided Membership data A summary of the data provided for this actuarial report and the preceding actuarial valuation is presented below. Number of members Number 31 March 2017 31 March 2016 Number of members Salary or Pension ( 000) Number of members Salary or Pension ( 000) Active members 729 38,884 872 45,226 Deferred pensioners 4,380 31,079 4,518 31,017 Pensioners and Dependants 8,240 93,586 8,262 91,449 Total 13,349-13,652 - Notes on data tables: Members shown as active members include both public sector section members and other members whose pension remains linked to final pensionable salary when they leave service. All pension amounts and salaries are shown as their current amount at 1 April 2017. Asset information The audited Report and Financial Statements supplied as at 31 March 2017 show that the market value of the s assets was 2,290 million. This includes Additional Voluntary Contributions (AVCs) which amounted to 32 million.
Glossary This glossary describes briefly the terminology of the regime for funding defined benefit pension schemes as introduced by the Pensions Act 2004. Actuarial report: A report prepared by the Scheme Actuary in years when an actuarial valuation is not carried out that provides an update on developments affecting the Xerox Final Salary Pension Scheme s assets and technical provisions over the year. Actuarial valuation: A report prepared by the Scheme Actuary that includes the results of the calculation of the technical provisions based on the assumptions specified in the Statement of Principles and assesses whether the assets are sufficient to meet the statutory funding target. Demographic assumptions: Assumptions relating to social statistics for Xerox Final Salary Pension Scheme members, which can affect the form, level or timing of benefits members or their dependants receive. This can include levels of mortality experienced by the Xerox Final Salary Pension Scheme and the proportion of members electing to exercise benefit options. Discount rates: Assumptions used to place a capital value at the valuation date on projected future benefit cash flows from the Xerox Final Salary Pension Scheme. The lower the discount rate the higher the resulting capital value. Financial assumptions: Assumptions relating to future economic factors which will affect the funding position of the Xerox Final Salary Pension Scheme, such as inflation and investment returns. target/objective: An objective to have a particular level of assets relative to the accrued liabilities of the Xerox Final Salary Pension Scheme. See also statutory funding objective. Scheme Actuary: The individual actuary appointed (under the Pensions Act 1995) by the Trustee to perform certain statutory duties for the. Secondary funding target: The secondary funding target is a stronger target than the statutory funding objective, and one to which the trustees aspire over the longer term. Once 100% funding on the technical provisions basis is reached, the secondary funding target may be expected to be achieved by a combination of investment returns and contributions. Statement of Principles (SFP): The SFP sets out the trustees policy for ensuring that the statutory funding objective and any other funding objectives are met and, in particular, the assumptions for calculating the technical provisions at the effective date of the actuarial valuation. The trustees are responsible for preparing and maintaining this document, taking into account the advice of the Scheme Actuary and in many cases seeking the agreement of the employer. Statement of Investment Principles (SIP): The SIP sets out the trustees policy for investing the s assets. The trustees are responsible for preparing and maintaining this document, taking into account written investment advice from the appointed investment advisor and consulting the employer before any changes are made. Statutory funding objective: To have sufficient and appropriate assets to cover the Xerox Final Salary Pension Scheme s technical provisions. Summary funding statement: An update sent to members following the completion of each actuarial valuation or actuarial report informing them of the assessed financial position of the. Technical provisions: The amount of assets required to make provision for the accrued liabilities of the scheme. The technical provisions are calculated using the method and assumptions set out in the Statement of Principles. 9