THE METAL BOX PENSION SCHEME Proposed Pension Changes 1
Welcome We have sent you this information pack because you are currently an active member of The Metal Box Pension Scheme (the Scheme) or the Metal Box AVC Plan (the AVC Plan), or you are eligible to be a member. Crown Packaging Manufacturing UK Limited (the Company) wants to make sure that the pension benefits it offers are competitive and flexible, whilst being affordable and sustainable for all its employees and for itself. The Company has carried out a comprehensive review of the Scheme and the AVC Plan. As a result, the Company is proposing to close both the Scheme and the AVC Plan to future accrual from 31 March 2019 and replace them with a new defined contribution plan (the new DC plan). You can read more about why the Company is proposing these changes on page 3. The Company is going to consult with employees who are current members, or eligible to be members, of the Scheme and/or the AVC Plan about its proposals via the UK Forum. The consultation period will run for a minimum of 60 days and this is your opportunity to give your feedback. This pack contains all the information you need about the proposals and the consultation. In this pack you will find: a copy of the announcement from the Company; this newsletter, outlining the background to and the detail of the proposed changes; and detailed Questions & Answers. We will also be sending personal illustrations to members of the Scheme separately. Please take the time to read this information carefully because the proposed changes would affect your pension if they were to go ahead. You don t need to do anything else, but I would like to encourage you to take part in the consultation by providing your feedback on the proposals. Information about how you can do this is on page 11. You can find this information on the pension scheme website: www.metalboxpensions.co.uk where you will also find modellers and information about the proposed new pension arrangements. Sidonie Lécluse Vice President, Human Resources For and on behalf of the following employers: CarnaudMetalbox Group UK Limited Crown Aerosols UK Limited Crown Packaging Manufacturing UK Limited Crown Packaging Distribution UK Limited Crown Promotional Packaging UK Limited CarnaudMetalbox Engineering Limited The Company wants to make sure that the pension benefits it offers you are competitive and flexible, whilst being affordable and sustainable for all its employees and for itself. 2 DC Scheme
Why are the changes needed? Before we look at the Company s proposals in more detail, it is important to understand why the Company is proposing these changes at this time. The Company s pension arrangements have to be affordable and sustainable for the Company and attractive for employees. You may have seen in the news that many public and private sector Defined Benefit (DB) pension schemes are closing or have already closed in recent years. In DB arrangements, employers are responsible for meeting the cost (beyond the contributions that members make) of providing the benefits promised now and in the future. The cost and risks associated with providing these benefits are uncertain and have increased over time, for example, due to the lower return expectations and greater volatility in investments, increases in life expectancy (people are living longer) and because inflation has been unpredictable. There have also been changes in regulation that have increased the burden of operating a DB pension scheme. For our Scheme, the cost to the Company of providing DB benefits reached 37.3% of DB members pensionable salaries less Additional Contribution after the 2016 valuation. This increasing cost affects the Company s ability to invest in our business and remain competitive. It is also significantly higher than the cost of pension benefits for other employees, which creates significant unfairness. The Company has kept its pension arrangements under regular review and decided to close the DB Section of the Scheme to new members in 2001. Since then, all new employees have built up pension benefits in the DC Section of the Scheme. This means that employees doing identical or very similar jobs are earning very different pension benefits which is no longer equitable. In fact, there are now fewer than 500 active members in the DB Section out of a total UK workforce of over 2,000. Consistent with other DB pension schemes in the UK with such a scheme profile, given the increasing risk and financial burden associated with running the Scheme and having regard to fairness across the whole workforce, the Company is proposing to close both the DB and DC Sections of the Scheme to future accrual. All existing members would be offered membership of one harmonised DC scheme the new DC plan which would also be open to eligible and new employees. This new arrangement would provide harmonised, equitable pension benefits going forward for all employees, would be easier to administer, and would enable the Company to better control long-term costs. This stability in long-term pension cost would help the Company manage and grow the business in the future for the benefit of all employees. Key points The cost of and risks associated with providing Defined Benefit (DB) benefits through a final salary scheme has increased substantially year on year. The Company believes it is not sustainable to continue to provide DB benefits. Moving to a single UK pension provision would allow the Company to control, and have more certainty about, longterm costs. The new DC plan would be fairer to all employees and would give members more flexibility and choice in the future. DC Scheme 3
The proposals The following pages explain the Company s proposals in more detail. Your benefits already built up in the DC Section of the Scheme If the proposals went ahead, you would stop building up benefits in the Scheme from 31 March 2019. Any amount you had built up in your Personal Account to that date would be transferred into the new DC plan shortly after. If you are not currently a member of the Scheme and wish to join, please speak to your Human Resources team. The new DC plan If the proposals go ahead, the Company intends to use a master trust to provide DC benefits. A master trust is a trust-based pension scheme in which unrelated employers participate. Master trusts benefit from economies of scale when delivering value for both employers and members. Although the trustee board of the master trust is responsible for running the pension scheme, each employer can make decisions about contributions, investments, and benefit options for its employees. The Company has already considered master trust providers (with input from the Trustee of the Scheme) and, should the proposal go ahead, the likely provider would be Aon. They have provided some online information about their master trust to enable you to explore what the proposed new DC plan might be like. For details go to: www.metalboxpensions.co.uk/consultation Those employees who are not currently members of the Scheme would be able to join the new DC Plan from 1 April 2019. Key points Members would stop building up benefits in the DC Section of the Scheme from 31 March 2019. Benefits built up to that date would be transferred to the new DC plan shortly after closure. Employees would be enrolled in and start to build up benefits in the new DC plan from 1 April 2019. There would be higher contribution rates from the Company under the new DC plan compared with the current DC Section of the Scheme. Pensionable Pay, life cover and ill health arrangements would also change. 4 DC Scheme
Your contributions While you are working for the Company and you are a member of the new DC plan, you would contribute a percentage of your Pensionable Salary into your own account in the new DC plan. The Company would also contribute, depending on how much you chose to pay. You could choose to contribute as much of your Pensionable Salary as you like, but the maximum amount the Company would contribute would be 9%. If the proposals went ahead and you didn t choose a contribution rate, your contribution rate would be 6% by default. The contribution from the Company would be higher than it is for the current DC Section of the Scheme. Here is the proposed contribution structure: % of your Pensionable Salary You pay 4% 5% 6% or more The Company pays 5% 7% 9% Total into your new DC plan account 9% 12% 15% or more This compares with the current DC Section contributions, which are as follows: % of your Pensionable Pay You pay 3% 4% 5% 6% The Company pays (depending on age) 3% Between 3.25% and 4% Between 3.5% and 5% Between 3.75% and 6% If you are currently contributing to the Scheme through salary exchange, you could continue to do so in the new DC plan. If you have opted out of salary exchange, you would remain opted out in the new DC plan. As you can now, you would be able to change your preference at any time. Pensionable Salary for the proposed new arrangements would comprise Basic Pay, shift allowance, overtime and Average Holiday Pay. More information about this is in the Q&As. Your investments If the changes went ahead you would be able to choose from a range of investment options in the new DC plan. How these investments perform would affect the value of your personal account in the new DC plan. The investment funds would be subject to an annual management charge. More information about this is available in the Q&As. Over time, the value of your account would go up and down in line with how your investments performed. The value of your account when you retire would depend on the contributions you and the Company have paid in and the investment gain/loss you have made. The value of your account when you retire would depend on the contributions you and the Company have paid in and the investment gain/loss you have made DC Scheme 5
What would the proposals mean for me? You can see an illustration of how your benefits would be affected in your personal statement. What happens when I retire? When you retire, you would be able to use the value of your account in the new DC plan in several different ways (see below). Your options at retirement from the new DC plan Just like you currently do in the DC Section of the Scheme, you would have choices about how you receive your benefits from the new DC plan. The options available from the new DC plan would include taking up to 25% of the value of your account as a tax-free cash lump sum and then: Using the rest of your account to buy an annuity. An annuity is an insurance product which provides you with a set income for life. Keeping the rest of your account invested and drawing money from it as and when you need it. This is known as a drawdown arrangement. You would be able to access this option without transferring your savings to another pension arrangement. Taking the remainder of your account as cash. This would be taxed at your marginal rate. More information about all the at-retirement options in the proposed new DC plan is available in the Q&As. i If I become seriously ill or die while working for the Company? If you became seriously ill while working for the Company, you may be able to take your benefits from the new DC plan early. If you were to die while working for the Company your dependants would receive: a lump sum of seven times your Pensionable Salary. If you were to die before you start receiving any payments from your pension, either while working for the Company or having left employment, your dependants would receive: a lump sum of the value of your account in the new DC plan. 6 DC Scheme
If I leave the Company? If you were to leave the Company before retiring, you and the Company would stop contributing to your account in the new DC plan. You could: leave it invested in the new DC plan where its value would go up and down in line with how your investments performed. At retirement, you could use the value of your account in the new DC plan in various ways (see page 6); or transfer the value of your account to a different DC arrangement of your choice. If I die in retirement? Your dependants would receive: any dependant s pension that you may have secured from your new DC plan funds, depending on the choices you made when you retired. Your chosen beneficiaries would also receive: any remaining balance in your pension account in the new DC plan. Your Pensionable Salary for the purposes of the new DC plan will be the sum of your Basic Pay, shift allowance, overtime and Average Holiday Pay. Your Pensionable Salary at 31 March 2018 is noted in your personal statement. Further details of this is included in the Q&As. i DC Scheme 7
The difference between DB and DC The proposed new DC plan would work in a similar way to the existing DC Section, but in a completely different way to the existing DB Section of the Scheme. Here s an explanation of the difference between the current DB and DC Sections. How does the DB Section of the Scheme work? What members get when they retire from the DB Section is based on a formula that depends on their pay, how long they have paid contributions to the Scheme, and how many DB Units they have earned (including any Units awarded from transfers into the Scheme). The pension payable at Normal Retirement Date is the greater of: DB Final Average Earnings Total Number X 360 of Units = DB Pension OR Final Average Normal Pay Total Number X 360 of Units = Pension Based on Normal Pay Fluctuating 50% of Fluctuating + 2 Contributions = Contributions = DB Pension The maximum number of Units that can be accrued in the DB Section is normally limited to 240, plus any Bonus Units awarded. Savings in the AVC Plan are payable in addition. 8 DC Scheme
How does the DC Section work? DC In the DC Section members build up a pot of money (in an account) that they can then use to provide an income in retirement. Members and the Company both make contributions into members individual accounts. Members have a choice of investment funds for their account. Members have an individual account in the DC Section. At retirement, the account is worth the value of all contributions, plus or minus any investment returns, and members have a choice about how to take their benefits, including: Taking them as cash. Transferring them to another pension scheme and taking them over time (drawdown). Using them to buy a pension (sometimes called an annuity) from an insurance company. This has flexibility about the increases the pension will receive and whether a pension is available to dependants. How would the new DC plan differ from the current DC Section? The new DC plan would work in a similar way to the DC Section, but there are a few important key differences: There would be a new and improved contribution structure (see page 5). There would be a different choice of investment funds. There would be improved communications and online access, for example to change contribution rates and/or investment choices. You would be able to transfer benefits in from previous pension arrangements. Scheme governance would be through a master trust rather than the existing Trustee board. You would have more options available at retirement directly from the new DC plan. DC Scheme 9
People like me Will Will joined the Company in September 2010 and joined the DC Section of the Scheme shortly afterwards. He started out contributing the minimum of 1% and this increased to 3% on 1 April 2018 when the minimum rates set by the government increased. At the moment, the Company is contributing 3% of Will s Pensionable Salary into his Personal Account too. He s only 28 so Will isn t really thinking about his retirement plans yet he s keen to save a deposit for a house but he knows that the more he pays into his account now, the better outcomes he ll have in retirement. If the proposals went ahead, Will wouldn t mind paying an extra 1% as he knows he would receive an extra 2% from the Company, so it s an easy way to increase his savings. Dawn Dawn is 42 and started working for the Company in 2003. She s been paying 6% into the DC Section since she became a member in 2004. For the past three years, the Company has been paying 4.5% into her Personal Account. Dawn is planning to retire at her Normal Retirement Age of 65 so she s glad that she can continue to contribute 6% and receive a much higher contribution of 9% from the Company. When she retires, Dawn plans to take 25% of her account as tax-free cash and use the rest to buy an annuity that will provide her with a secure, regular income. 10 DC Scheme
How to feed back on the proposals We want to ensure that everyone has a voice in the consultation. What happens now: the consultation 2 October 2018 Consultation is a process of sharing the Company s proposals, providing full and relevant information to all affected employees, considering any representations and questions raised by employees, and responding to those questions before reaching any final decisions. A formal consultation under pensions legislation lasting at least 60 days will commence on 11 October 2018 with the UK Forum. The announcement is made to the UK Forum 11 October 2018 The UK Forum represents the interests of all UK employees and for the purpose of this consultation only, its membership will be increased by the addition of more employee representatives. Information about how this will be done will be shared in due course. Members of the UK Forum will then represent your views to the Company and can ask questions on your behalf during the consultation. You can also: Send an email: pensions@eur.crowncork.com Attend a presentation: These will be delivered by Wealth at Work and will take place between mid October and mid November. Details of when they will be held at your site will be provided by your HR team by 11 October 2018 and will also be posted to the Scheme website: metalboxpensions.co.uk. We suggest that you attend a presentation before calling the helpline as this should cover many of your questions. The consultation period starts Now is the time to understand what the proposals mean for you. To help you, in this pack you will find detailed information including Q&As. A personal illustration will follow as soon as possible to employees who are members of the Scheme. You can also find information on the Scheme website including modellers and information about the proposed new DC Plan. www.metalboxpensions. co.uk/consultation Roadshow presentations are being arranged. Review of feedback More information will be announced throughout the consultation. The Company and the Trustee will consider all the feedback and will decide whether the proposed changes are to go ahead. Call the helpline on 0800 093 1463 The helpline will be run by Wealth at Work and will open on 19 October. The helpline opening hours are: Monday Thursday 8am to 7pm Friday 8am to 5pm Saturday 10am to 1pm 1 April 2019 Implementation date This is when the changes would go ahead if the Company s proposals are adopted. DC Scheme 11
Further information More information is available. Modellers Use the modellers at www.metalboxpensions.co.uk/ consultation to see the impact of: Different contribution rates Different investment returns Taking your retirement benefits at different ages Taking your DC benefits in different ways at retirement Helpline 0800 093 1463 The helpline opening hours are: Monday Thursday 8am to 7pm Friday 8am to 5pm Saturday 10am to 1pm The helpline is being run by Wealth at Work. You can call the helpline to get further information about the proposals, ask questions and provide your feedback. The helpline will open on 19 October 2018. Visit the website www.metalboxpensions.co.uk/consultation Visit the consultation section of the pensions website for: Q&As updated during consultation DB deferred and DC modellers Information about the Aon Master Trust Other consultation documents Roadshow Presentations will be held at all sites. These will be hosted by your HR team with help from Wealth at Work. There will be a face-to-face presentation about the proposed changes and you will also have the opportunity to ask questions and provide your feedback. Details of the times and locations of the presentations will be available by 11 October and will be posted to www.metalboxpensions.co.uk/consultation and factory notice boards. 2018_104720_DC Please note that neither Wealth at Work, the Company, nor the Trustee is able to provide financial advice. You can find details of independent financial advisers in your area at www.unbiased.co.uk. If you wish to get financial advice about these proposals this would be at your own expense. i The Pensions Regulator If you have any concerns about this consultation you may contact the Pensions Regulator at www.thepensionsregulator.gov.uk 12 DC Scheme