Introducing the 2016 Summary Funding Statement to all defined benefit (DB) members and beneficiaries of the Capgemini UK (2004) Pension Plan ( the Plan ) As the Trustees of the Plan, we are required to send you a statement on the funding of the Plan each year showing the current position and how it has changed since the last statement. The Trustees are responsible for monitoring the overall funding of the Plan and seeing how it compares with what the Plan will need in the future to provide your benefits. How pensions are paid for Active members of the Plan pay contributions (either directly or through deductions from their Flex funds) while they are accruing benefits. The level of contributions differs according to their particular category of membership. The Company also pays contributions (these are greater than those paid by the members) so that the Plan can afford to pay pensions to people when they retire. The assets are held by the Trustees in a common fund that is entirely separate from the Company assets. They are not held in a separate fund for each individual member, with the exception of Additional Voluntary Contributions which are held in separate individual accounts. The money to pay for members pensions is invested in a broad range of assets, mainly in shares in companies around the world, but also in government bonds and cash. The Trustees have diversified the range of funds used by introducing absolute return and hedge funds to the investment profile. How the Company s contributions are worked out The Plan Actuary carries out a formal valuation at least every three years to assess whether the Plan holds enough money to cover its liabilities ( technical provisions ) and to determine how much the Company should contribute in future. When undertaking the valuation, the Plan Actuary makes assumptions regarding such issues as inflation, investment returns and how long members will live. The most recent formal actuarial valuation was carried out as at 31 March 2014 and was signed off in June 2015. The next valuation will have an effective date of 31 March 2017. What happens if the funding level is below the target? If an actuarial valuation shows the Plan assets to be less than the accrued liabilities, extra contributions from the Company are required to meet the shortfall (on top of those for future benefit accrual) or the Company would need to explore other options for financing the Plan. Subject to arrangements being made to cover the shortfall, benefits will continue to be paid from the Plan. The financial position of the Plan at 31 March 2014 (the date of the most recent formal actuarial valuation) As at 31 March 2014 the assets of the Plan were worth approximately 305.8 million, whilst the Plan Actuary estimated that approximately 378.9 million would be needed to meet the future benefit payments arising in respect of all Plan members. Therefore, the actuarial valuation showed a deficit of 73.1 million at that date. This represented an increase of more than 53% of the deficit disclosed at the 2011 valuation, and was largely a result of the Plan s liabilities increasing due to falls in yields on Government gilt-edged securities (see later). 1
Contributions being paid to the Plan to address the deficit In order to address the deficit, the Company agreed to pay contributions of: 8.882 million each year for three years, payable in equal monthly instalments commencing 1 July 2015 and ceasing on 30 June 2018 payments will increase annually on 1 July in line with inflation These contributions are on top of those paid by the Company to meet the cost of benefit accrual for members service after the valuation date plus the expenses of running the Plan. Following the increase on 1 July 2016 the deficit contributions are currently 8.953 million a year. This arrangement (known as a Recovery Plan) has been agreed by the Trustees, following advice from the Plan Actuary, and is set out in the attached Summary Funding Statement. This Recovery Plan replaces that which was agreed by the Trustees following the 31 March 2011 valuation. Following that valuation, the Company agreed to pay index-linked contributions for a period of 5 years commencing on 1 July 2012 and ceasing on 30 June 2017. These payments started at 8.2 million a year and had increased to 8.7 million a year by the time the new Recovery Plan came into force. Contributions being paid to the Plan for future benefit accrual Following the 31 March 2014 valuation, the Company agreed that the joint contribution rate (Company and member) to meet the cost of future benefit accrual for active members will be paid at the rate of 30.2% of Pensionable Salary of which 26.9% is the average Company rate the balance is attributable to employee contributions, averaged over the different Sections of the Plan. In practice, the Company and member rates are different for each of the six Sections of the Plan as set out in the Summary Funding Statement attached. Additionally, the Company meets all of the costs of insuring death-in-service benefits and all the expenses of running the Plan. Review of future contribution levels As mentioned earlier, the next valuation will be undertaken with an effective date of 31 March 2017. At this valuation, the Company s Recovery Plan contributions and contributions for future benefit accrual set out above will be reviewed in the light of the Plan s funding requirements at that time. The Pensions Regulator (TPR) The Pensions Regulator is an independent body set up under the Pensions Act 2004 to regulate occupational pension schemes from 6 April 2005. Its role is to protect members of occupational pension schemes, to promote good administration of schemes and to reduce the risk of situations arising that may give rise to a claim on the Pension Protection Fund. In certain circumstances the Pensions Regulator can (a) direct how the Plan s technical provisions i.e. liabilities must be calculated; (b) set the period for eliminating any funding shortfall; (c) specify the level of employer contributions to be paid, rather than leaving these issues to be determined by the Trustees; and (d) exercise the power to modify the future accrual of Plan benefits. The Pensions Regulator has not taken such action in relation to the Plan. 2
Payments to the Company When a pension scheme has a significant surplus, it may be possible for some of that surplus to be refunded to the Company. The Plan is not now, and has never been, in surplus. However, we are nevertheless required by law to confirm that the Company has not received any such refund from the Plan in the last twelve months, or in any previous year. Winding-up Winding-up a pension scheme means terminating the Plan. In these circumstances, the Plan assets would be used to secure benefits for each individual member via an insurance policy with an insurance company. If the Plan were to wind-up and, at that time there were insufficient assets to enable the accrued benefits to be fully secured, the Company would be legally required to make good the balance of cost. However, if the Company was insolvent and unable to pay the full balance, not all members would receive the full amount of their benefits due under the Plan. Accordingly, there is a risk that if the Company should become insolvent at some time in the future, and trigger a winding-up of the Plan, benefits could be cut back for some or all members. To provide a safety net for a pension plan winding-up with insufficient assets at a time when the employer is insolvent, the Government has established the Pension Protection Fund (PPF), to ensure the provision of a minimum level of entitlement. Please note that the attached Summary Funding Statement is required by law to set out an estimate of the solvency position had the Plan been wound-up. This does not mean that the Company is currently considering winding-up the Plan. Where can I get more information about the Pension Protection Fund? More information is available from the PPF website at www.pensionprotectionfund.org.uk or by writing to: The Pension Protection Fund, Renaissance, 12 Dingwall Road, Croydon, Surrey, CR0 2NA. Why is the value of accrued liabilities associated with winding-up so high? You will see from the attached Summary Funding Statement that the 31 March 2014 valuation shows a shortfall on winding-up which is significantly greater than the ongoing shortfall. This is because the estimated cost of securing the accrued benefits with an insurance company is significantly greater than the anticipated cost of paying benefits from the Plan as a continuing entity. Insurers are obliged to take a very cautious view of the future due to (a) the statutory solvency margin requirements; (b) the fact that if the true cost is underestimated they cannot subsequently go back to the Trustees for extra funds; and (c) the fact that they aim to make a profit. In contrast, whilst the Plan continues, the Trustees can follow a more balanced and diversified investment strategy with the intention of reducing the overall cost, reflecting the continuing existence of the Company and taking into consideration its financial strength. If I have some questions about this statement, who can I contact? You should put your questions in writing to: The Trustees, Capgemini UK (2004) Pension Plan, Capgemini UK plc, No. 1 Forge End, Woking, Surrey GU21 6DB. 3
Where can I get further information about the Plan? The following information relating to the ongoing management of the Plan is available to you: the Statement of Funding Principles which sets out how the Plan will be funded the Schedule of Contributions which sets out how much money is being paid into the Plan and when the Recovery Plan which explains how the funding shortfall is being made up the Statement of Investment Principles which sets out the principles applied to the investment of the Plan assets the annual Trustees Report and Accounts which sets out the Plan s income and expenditure the Trust Deed and Rules of the Plan the latest Actuarial Valuation Report This information can be obtained by writing to: The Secretary to the Trustees, Capgemini UK (2004) Pension Plan, Capgemini UK plc, No. 1 Forge End, Woking, Surrey GU21 6DB Alternatively, you can contact: Capgemini Pension Helpline: 0870 241 4502 E-mail : capgemini.pensions@xafinityconsulting.com Do I need to inform you of a change in my personal circumstances? Yes, please help us to keep in touch with you by telling us if you change your address, your name or your marital status by writing to: Capgemini UK (2004) Pension Plan, c/o Xafinity Consulting, Phoenix House, 1 Station Hill, Reading, Berkshire, RG1 1NB. 4
The latest actuarial valuation Capgemini UK (2004) Pension Plan SUMMARY FUNDING STATEMENT The most recent formal actuarial valuation of the Plan was carried out as at 31 March 2014. The following summarises the accrued funding position of the defined benefit sections of the Plan as at 31 March 2014, assuming that the Plan continues to operate as a going concern and is not wound-up: Value of Plan assets 305.8 Value of accrued liabilities 378.9 Shortfall 73.1 Funding level 81% (Assets divided by Liabilities) The value of accrued liabilities (the technical provisions ) represents the Trustees estimate of the sum required at the valuation date to meet all future benefit payments in respect of members service to the valuation date. As a result of the valuation, Capgemini UK plc ( the Company ) agreed to pay contributions from 1 July 2015 at the following percentages of pensionable pay to cover the cost of future benefit accrual for active members: Aspire 1994 Section: 32.0% Aspire Retirement Section: 25.0% Local Government Pension (LGP) Section: 26.1% Classic Section: 32.6% Local Government Pension (LGP) 2008 Section: 20.2% DFEE (Xansa) Section: 29.5% In addition, with the aim of removing the funding shortfall, Capgemini UK plc ( the Company ) agreed to a revised Recovery Plan under which it will pay additional contributions of 8.882 million each year for three years commencing 1 July 2015, with each payment increasing annually in line with inflation. The Recovery Plan payments increased to 8.953 million from 1 July 2016. These contributions are on top of those paid by the Company to meet the cost of benefit accrual for members service after the valuation date. The Company also pays the Plan s running costs such as adviser fees, death in service insurance premiums and the Pension Protection Fund levy. Updated funding position as at 31 March 2016 The Trustees monitor the Plan s funding position between valuations. Had the Plan been valued at 31 March 2016 using the same approach as had been used for the valuation undertaken at 31 March 2014, the shortfall would have increased to approximately 114.6m. The reason the shortfall has increased so much since 31 March 2014 is due to quite significant falls in the yields available on Government gilt-edged securities, commonly m 5
referred to as gilts (for instance, the yield on over 15 year gilts has fallen from 3.46% pa to 2.18% pa over the two-year period). In isolation, a fall in gilt yields serves to place a higher value on the liabilities, with a 0.1% fall in the gilt yield increasing the liabilities by around 9m. The fall in gilt yields is largely a consequence of the current financial climate, including the effects of quantitative easing and the economic problems associated with the Eurozone. Winding-up As required by legislation, as part of the formal actuarial valuation, the Plan Actuary assessed the funding position if the Plan had been wound-up on 31 March 2014. The following summarises the position at that date, assuming that the Plan had wound-up: m Value of Plan assets 306.4* Value of winding-up liabilities 527.4 Shortfall 221.0 Solvency level 58% *The value of assets on the winding-up basis ( 306.4m) differs to the value on the ongoing basis ( 305.8m). This is because the Plan holds various insurance policies with insurance companies and these policies have been valued differently between the two bases, reflecting the different assumptions used by the Plan actuary for the going concern and winding-up valuations. The shortfall is an estimate of the additional sum that would have been required from the Company in order to ensure that all members benefits could be paid in full had the Plan wound-up on 31 March 2014. Providing winding-up information is a formal legal requirement and does not imply that the Company is considering winding-up the Plan. Payments to the Company There have not been any payments to the Company out of Plan funds since the date of the last Summary Funding Statement. The Trustees of the Capgemini UK (2004) Pension Plan December 2016 Registered Office: Capgemini UK plc, No 1 Forge End, Woking, Surrey GU21 6DB Registered in England. Number 943935 6