Pensions NewsFor all members and beneficiaries of the UK Power Networks Group of the ESPS
Working with UK Power Networks to ensure that the Scheme is run properly and benefits are paid as promised
ISSUE 13AUTUMN 2017
02 Wholooksafter yourpension?
03 Welcome
04GroupTrusteeNews
10 InvestmentUpdate
13TopicalNews
18NewsatSchemeLevel
19Usefulwebsites
19Contactus
WHAT’SINSIDE?...
AppointedGroupTrusteeDirectorsChris Degg, Director of Human Resources and Chairman Andrew Kluth, Head of Treasury Richard Roberts, Finance Director
ElectedGroupTrusteeDirectorsLiz Anderson, Pensioner Roger Barnard, PensionerNeil Freeman, Network Manager and PensionerHenry Golton, PensionerTim Izzard, PensionerBob Jackson, PensionerTerry Peel, Pensioner
IndependentTrusteeSteve Balmont, representing the Law Debenture Pension Trust Corporation PLC
WHOLOOKS AFTER YOUR PENSION?
02 03
ChrisDegg, ChairmanUK Power Networks Group of the ESPS
Welcome to the Autumn 2017 edition of Pensions News
I am sure you will agree with me that we live in uncertain times both politically and economically, and both at home and away. This makes the role of a pension scheme trustee particularly challenging, as it is difficult to foresee how political events or financial markets will affect your pension scheme – a crystal ball would be very helpful.
As Group Trustees, we look at the risks that face the Group and try to mitigate these where it makes sense to do so. The biggest risk by far is that our assets might not deliver the returns we expect. The investment portfolio is designed to be diversified on a global basis to protect against regional volatility (such as Brexit, for example) and also to be robust in a number of different economic scenarios (such as recession or low growth) while investing in a mix of different assets. Over recent months, we have made some tactical changes, but we are confident that the general positioning of the strategy remains appropriate.
We are pleased with the way that the Group is holding up in these uncertain times and believe that we have secured a good outcome for you in the 2016 valuation.
However, looking after the Group is a continuous process and we have agreed a number of strategic projects that we will work on ahead of the 2019 valuation process.
This edition focuses on the 2016 valuation results but also provides an update on the 2017 Trustee election and an article about how we assess our own performance as a Trustee Board.
You will see that we have made some changes to the presentation of Pensions News following feedback from the last edition. If you have any suggestions for future articles, please submit them using the contact details shown in the ‘Contact Us’ section.
I would like to thank the Group Trustees, as well as our excellent advisers, for all their diligence, hard work and support over the past year.
Kind regards
Welcome
ActuarialValuation31 March 2016
• Assessed the quality of the employer covenant, which the Pensions Regulator defines as “the extent of the employer’s legal obligation and financial ability to support the scheme now and in the future”. This assessment concluded that the covenant remains “Strong”, which is the highest rating available under the Pensions Regulator’s guidance.
• Updated the underlying valuation assumptions, both financial (for example, inflation expectations) and demographic (such as how long we expect members to live).
• Assessed the confidence we have in the investment strategy’s ability to deliver the returns we need.
We are pleased to confirm that the 2016 Actuarial Valuation of the Group was concluded earlier this year within the timeframe set by the Pensions Regulator. As part of the process we:
GROUPTRUSTEE NEWS
We also secured a change in the funding basis that we consider will provide greater security for members.
As you know, the principal objective of the Group is “to work with UK Power Networks to ensure that the Scheme is run properly and benefits are paid as promised”. We consider that part of this objective means reducing the Group’s dependency on UK Power Networks over time so that we achieve a state of self-sufficiency. Self-sufficiency can be described as a state in which the deficit has been eliminated and the Scheme is able to run a very low risk investment strategy.
Previously the Group was funded on the assumption that risk would reduce as people retire. This meant that there was a gap between the funding basis and the Group’s aspirational self-sufficiency objective and it was hoped that investment out-performance would bridge the gap.With increasing global uncertainty, we have wanted to close this gap to provide greater confidence that the Group will achieve self-sufficiency. We believe that this should be secured by the time the Group reaches its cashflow peak (when the highest proportion of pensions are in payment) which we consider to be most likely between 2026 and 2032. So, as part of the 2016 valuation discussions, we agreed a new funding basis with UK Power Networks that embeds this objective and provides a tangible plan for achieving self-sufficiency.
We trust that readers will take confidence from the valuation outcome and recognise the work undertaken by the Group Trustees to provide greater security for all members.
3533 35932657
Assets AssetsLiabs LiabsDeficit Deficit0
500
1000
1500
2000
2500
3000
3500
4000
Fundingpositionat31March2013
Fundingpositionat31March2016
Mill
ions
FundingPositionatthetwomostrecentvaluations
Insummary,thevaluationoutcomeachievesthefollowing:
• The funding deficit will be repaired 14 months earlier if the valuation assumptions are borne out in practice.
• The deficit repair contributions paid by UK Power Networks will continue at their previous level despite the reduction in the overall deficit.
3104
876489
04 05
TheGroupTrusteeshaveundertakenareviewoftheirgovernanceproceduresandagreedtointroduceapolicyofannualself-assessmentandtriennialTrusteeBoardassessment.
The objective of this policy, which is strongly supported by UK Power Networks as the Group’s sponsor, is to foster a culture within the Board of continuous performance improvement. The Board has already made significant progress in this area over recent years with the achievement of the Pensions Management Institute’s Continuous Professional Development accreditation in 2015 and 2016. However, the adoption of a formal policy will embed these positive behaviours within the framework of the Board’s activities.
AnnualSelf-AssessmentThis annual event will allow each of the Group Trustees (whether Company appointed or member elected) to reflect on his or her individual contribution to the effectiveness of the Trustee Board during the previous 12 months.
The assessment covers four key areas:
1.Commitment Have the obligations of the Group Trustee’s role
been discharged appropriately?2.Contribution Has the Group Trustee contributed in a way that
has enhanced the performance of the Board and furthered its objectives?
3.TrusteeKnowledgeandUnderstanding Has the Group Trustee further developed his or her knowledge and understanding of pensions law, scheme administration, scheme funding, and investment principles?4.FuturePersonalDevelopment What areas of Group activity would the Group Trustee like to focus on over the next year?
Formal Trustee review policyThis self-assessment will form the basis of a discussion with the Chairman each year. While the process has been designed to support two-way feedback, the onus is very much on the individual Group Trustee to reflect on how he or she has served members best interests and supported the Board in the achievement of its principal objective, which is: toworkwithUKPowerNetworkstoensurethattheSchemeisrunproperlyandbenefitsarepaidaspromised.
This review process is easily illustrated below:
2017membership election
06 07
Asyouknowfromearliercommunications,thetermofofficeofthreeElectedGroupTrusteeswillendon31December2017.
We previously mentioned that, following a review of its governance arrangements, the Board decided to align its constitution with the standard ESPS rules and have six elected and three appointed Group Trustees. As a result, we are seeking two Group Trustee Directors in the elections.
The response to the election campaign has been positive so far and we will update you with news of the successful candidates in the next issue of Pensions News.
TheGroupTrusteeswouldlikealleligiblememberstovoteinthisyear’selection.
You will already have received information on the candidates standing, as well as instructions on how to vote. Members have until 5:00pm on the 10 November 2017 to consider their choice of candidates and to record their votes.
GROUPTRUSTEE NEWS
TriennialBoardAssessmentYou will be aware from earlier editions of Pensions News that the Board reviewed its governance framework in 2015 and has recently been taking steps to refresh how it works.
As a result, the Board has decided to review all its activities and operations on a triennial basis. While we would not usually expect to need significant changes to the governance framework every three years, such reviews should be a good way to ensure that members of the Board are working together as a team in the most effective way possible and that the Board as a whole is acting corporately in accordance with the latest governance guidelines.Trustees to
undertake a self assessment of
their contribution to the Board
Chairman to hold annual 1:1 and personal development activities to be
agreed
Results and feedback to be collated by the
Secretariat and provided to the Chairman
TheGroup’sAnnualReportandFinancialStatementsfortheyearended31March2017werecompletedandsignedinJuly2017.
PricewaterhouseCoopers LLP, as the Group’s auditors, have confirmed that the Financial Statements show a true and fair view of the financial transactions during the year, and of the Group’s assets and liabilities at the year end, in accordance with all applicable accounting standards and regulations. Full copies of the document can be obtained from Pension Services, and current employees can view it on the UK Power Networks intranet.
Group Financial Statements for 2017Futurefocus
08 09
TheUKpensionssectorisalwaysdevelopingandchanging.Thiscanbetheresultofchangesinlegislationorofinnovationinthemarketplacethatcouldreduceunnecessaryrisktopensionschemesorimprovetheexperienceofourmembers.
The Board has been considering where best to focus its collective energy over the next few years and has identified a number of key projects that will be developed:• Continuedfocusonindividual
GroupTrusteeperformance It is essential that the skills and knowledge of the individuals that look after the Group are maintained. • ComplianceActivities A number of projects will fall under
this heading, including preparation for complex and potentially onerous new data protection legislation.
• ManagingRisk This project will investigate different
ways in which we can reduce the risk profile of the Group to further support our objective of self-sufficiency.
• MemberEngagement We will look at ways in which we
can improve communications with all Group members.
UpdatesontheseprojectsandtheworkbeingundertakenbytheGroupTrusteesandPensionServiceswillbeprovidedinfutureeditionsofPensionsNews.
GROUPTRUSTEE NEWS
GROUPTRUSTEE NEWS
Summaryofmembershipat31March
2017
9,351
2,738
2,350 1,348
ContributorsPensionersDependentsDeferred Pensioners*
Total membership 15,787
*Excludes 907 deferred pensioners who are only entitled to a frozen benefit equivalent to the relevant State Graduated Pension Scheme in respect of service prior to 1975.
£2,665.8 £2,735.0 £3,143.3 £3,116.5 £3,468.3
2013 2014 2015 2016 2017£0.0
£500
£1,000
£1,500
£2,000
£2,500
£3,000
£3,500Marketvalueasat31March2017in£m
Transactionsummaryoftheyearto31March2017
Whatwentin £mContributions receivable: Employers and members 96.5
Transfers in 0.0
Net increase in investments 409.1
Total 505.6
Whatwentout £mBenefits payable to members 147.9
Transfers to other schemes 5.9
Administrative expenses 0.0
Total 153.8
06 07
Investment returns
Latestinvestment news
Throughouttheyearended31March2017,theGroupTrustee’sinvestmentobjectivewasfortheassetstoproduceareturnof2.5%ayeargreaterthanthereturnonthepensionliabilitiesassessedbyreferencetotheyieldsavailableongovernmentbonds(otherwiseknownasgilts).
The Funding Committee receives reports from its investment advisers each quarter to monitor the Group performance against this long-term objective. Over the past year, there have been strong investment returns from a number of the investment managers. However, the returns on government bonds have been greater, such that the change in liabilities has exceeded the returns on assets. This is reflected in the returns as set out in the charts opposite.
The liability-matching portfolio now hedges 60% of the interest and inflation risks, an increase from 40% as at 31 March 2016. This has been achieved while reducing the proportion of assets allocated from 37.5% to 32.5% with a corresponding increase to the growth assets. The total assets are now targeting a return of 2.7% a year greater than the return on the pension liabilities.
AssetAllocationSeptember
2016
45%
1%15%
11%
8%
1%
19%
AssetAllocationJune2017
30%
20%
28%
8%
14%
Liability driven investment Gilts and cashDeveloped equityDiversified growth fundsCorporate bondsMulti asset creditHedge funds
10 11
INVESTMENTUPDATE
In order to achieve this revised target, the Funding Committee has also appointed two new investment managers as part of the increases to the allocations to diversified growth funds and hedge funds. The changes to the asset allocations since those reported in the spring edition of Pensions News can be seen in the charts opposite.
Asreportedlastyear,theFundingCommitteehasrevieweditslong-termobjectivesalongsidethetriennialactuarialresultsandhasmadeanumberofchangessincethefinancialyear-endtomaketheassetsworkharderwhilereducingrisks.
12.8 15.39.1
Return onassets
Change inliabilities
Targetreturn
17.7 20.213.0
Return onassets
Change inliabilities
Targetreturn
AnnualPerformancetoMarch2017
Annualised3-YearPerformance
Returnonassets This is the movement in the value of the assets over the year.
ChangeinliabilitiesThis is the movement in the present day value of the pension cashflows over the year. These are valued using the expected returns on gilts.
0%
0%
TOPICALNEWS
Summary Funding StatementEverythreeyearsafullActuarialValuationoftheGroupiscompleted.ThisrequirestheSchemeActuarytocarryoutdetailedcalculationsinordertoassessthefundingpositionoftheGroupusingassumptionswhichareagreedbetweentheGroupTrusteesandtheCompany.
The purpose of this statement is to provide you with a summary of the key results stemming from that valuation. In addition, the Group Trustees have also obtained an annual actuarial report as at 31 March 2017. These annual reports are provided to the Group Trustees in between valuation years to provide an estimate of changes in the Group’s funding position.
The results of both actuarial reports (which include additional voluntary contribution funds) are summarised below.
As can be seen, the Group’s technical provisions as at the 2016 valuation date were greater than the market value of the assets, with the funding deficit being £489m, which corresponds to a funding level of 86%. For reference, the funding level at the time of the previous valuation completed at 31 March 2013 was 75%. In order to remove this deficit, the Company has agreed with the Group Trustees that it will make payments of £65m a year payable from 1 April 2016 to 31 January 2024 (in addition to the contributions required to finance the ongoing accrual of current active members’ benefits).
Over the year to 31 March 2017, the Group’s technical provisions have increased as a result of the reduction in government bond yields during that period. The market value of the Group’s assets also increased, partly as a result of the deficit contributions received, although not to the same extent as the technical provisions. Consequently, the Group’s funding level has fallen from 86% to 84% over the year and the deficit has risen by £182m.
Please note that the figures shown above are snapshots at a particular date and that the Group’sfinances fluctuate all the time.
31March2016 31March2017
Marketvalueofassets £3,117m £3,468m
Technicalprovisions* £3,606m £4,139m
Deficit £489m £671m
Fundinglevel 86% 84%
*Technical provisions means the amount required in an actuarial valuation to make provision for the Group’s accrued liabilities.
12 13
TOPICALNEWS
Solvency BasisThefundinglevelsshownonthepreviouspagearemeasuredonanongoingbasis.Inthisstatement,wearerequiredtosetoutthepositioniftheGroupweretobediscontinued(thediscontinuancelevel).TherearenoplanswhatevertodiscontinuetheGroupbut,bylaw,wemustprovideyouwiththisinformation.
As at 31 March 2016 and 31 March 2017, if the full benefits of all members had to be provided by an insurance company (i.e. if the Group had been wound up or discontinued at that date), the Group’s assets could not have paid for the full benefits of all members. (The results shown below include additional voluntary contribution funds.)
These figures make it clear that, in the very unlikely event that the Group were to be wound up without sufficient assets to buy out all the benefits with an insurer, and the Company could not afford to make up the difference, members would be unlikely to receive the full benefits that they are entitled to expect.
The government created the Pension Protection Fund (PPF) to help UK pension scheme members who find themselves in this kind of situation. The PPF came into effect in April 2005 and pays a prescribed level of benefits to members of eligible UK pension schemes, which have been wound up because the sponsoring employer is insolvent and the scheme has insufficient assets to cover the cost of benefits for its members.
If the Group were to be wound up and go into the PPF, the pension you would receive from the PPF could be less than the full benefit that you earned in the Group. The actual outcome would depend on your age and on when your benefits were earned.
Further information is available on the PPF website at www.pensionprotectionfund.org.uk/Pages/homepage.aspx. Alternatively, you can write to the Pension Protection Fund at: Renaissance, 12 Dingwall Road, Croydon, Surrey, CR0 2NA.
If you are thinking of taking any action in relation to your pension as a result of this statement, you should consider taking independent financial advice before making any decisions.
Lastly, we need to tell you whether there have been any payments to the Company from the Group in the previous twelve months or whether the Pensions Regulator has needed to intervene in the running of the Group. We can confirm that no such payments have been made and there has been no intervention by the Regulator.
Ifyouwouldlikeacopyofthe2016valuationreportandaccompanyingdocuments,oracopyofthe2017actuarialreport,pleasecontactPensionServices.
SomeofyouhavechosentoreceivePensionsNewsbyemailinthefuture.
If you would now like to do this with the majority of your pension communications, please let Pension Services know your preferred email address and we will update our records accordingly. Please note that some information will continue to be sent through the post if it contains sensitive or personal data (for example, the annual pension increase letter.)
@Receive Pension communicationsvia email
PleaseemailPensionServicesatpensionservices@ukpowernetworks.co.ukfromyourusualemailaccountwith‘ESPSCommunications’asthesubjectheaderandwiththefollowinginformation:
• Your full name• Your National Insurance Number or Pension
Pay Number• The first line of your address
31March2016 31March2017Assets £3,117m £3,468m
Estimatedcostofbuyingoutliabilitieswithaninsurancecompany £4,711m £5,278m
Deficit £1,594m £1,810m
Discontinuancelevel 66% 66%
14 15
FORACTIVEOR DEFERREDMEMBERS
Active members often do not realise that they can make further pension savings by paying Additional Voluntary Contributions (AVCs).
According to the financial watchdog’s latest research, barely two-fifths (42%) of over 55s reckon they know how to spot an investment scam.
The FCA said one of the most popular methods used by fraudsters is to pressurise potential victims into making a quick decision on the investment ‘opportunity’.
The regulator found that more than half (53%) of over-55s believed acting quickly can be essential to obtaining a good deal, which it said demonstrates just how vulnerable people can be to the tactic.Investment fraud victims do not get off lightly either, losing £32,000 on average, according to figures from Action Fraud released last October.
Scams and how to protect yourself
16 17
As part of its ScamSmart campaign, the Financial Conduct Authority (FCA) has lifted the lid on some of the common tactics that investment fraudsters use to deceive those they target over the age of 55.
AccordingtotheFCA,thefivemostcommontacticsfraudstersuseare:
• Offering lucrative returns above the market rate and downplaying the risks of the investment.
• Using flattery to make potential victims feel good, such as praising them for being a knowledgeable investor.
• Saying the deal is only available to the target and asking them to keep it a secret.
• Claiming other clients have invested or ‘want in’ on the deal - a technique known as ‘social proof’.
• Putting them under pressure to invest in a time-limited offer.
‘Putthephonedown’
Nick Hewer, star of BBC1’s Apprentice and Channel 4’s Countdown, who is an active supporter of the campaign, advised investors to “just put the phone down” if they receive a cold call.
“As someone who has been approached by scammers myself, I know how hard it is to identify whether an investment offer is legitimate,” he said.
“They’re very clever, these people, playing psychological games to win over the trust of often vulnerable victims and that is why I’m working with the FCA to raise awareness of this troubling issue.”
‘If an offer seems too good to be true, then it usually is’
TheFCAofferedthreepointerstohelppeopletoavoidbecomingavictimofinvestmentfraud:
• Reject unsolicited contact about investments.
• Before investing, check the FCA Register www.fca.org.uk/scamsmart to see if the firm or individual you are dealing with is authorised and check the FCA Warning List of firms to avoid.
• Obtain impartial advice before investing.
The regulator recently revealed it had opened 521 enquiries into unauthorised firms between 1 December 2015 and 30 November 2016 – and subsequently opened 16 full investigations over the 12-month period. It also said that it had received 11,650 enquiries relating to scams from consumers in that time.
Formoreinformationvisitwww.gov.uk/government/consultations/pension-scamstoreadthegovernments’consultationresponseforpreventingpensionscams.
TOPICALNEWSFOR ACTIVE OR DEFERRED MEMBERS
Useful websitespensionwise.gov.uk– A free and impartial government service that helps you understand your pension options.
pensionsadvisoryservice.org.uk – A free and impartial guide for workplace and personal pensions.
gov.uk – The official UK government website for citizens. It includes useful information on pensions and retirement planning, money, tax and benefits.
The National Scheme AGM was held on Tuesday 23 November 2016. Copies of the minutes of the meeting are available from Pension Services.
The 2017 AGM date has been set for 29 November and further details will be included in the Autumn edition of Pensions News.
Pensions‘On the Road’
If you have any questions about your pension, please contact us at:
UKPowerNetworks,PensionServicesEnergyHouse,HazelwickAvenueCrawley,WestSussexRH101EX
Tel:03330090007Email:[email protected]
Contact us
The ever-popular Pensions ‘On the Road’ will continue in 2017 and 2018. The next scheduled dates are shown opposite and have been publicised inside UK Power Networks through the usual business channels. Current employees also have the option of arranging a telephone meeting if this is more convenient. Look out for further dates and venues in 2018.
11
Next edition...Meet the new Group Trustees and the Independent Trustee
What the new data protection legislation means for you
TOPICALNEWSFOR ACTIVE MEMBERS
Bury St Edmunds 15 November
Energy House 13 December
Hemel Hempstead 7 February
Fore Hamlet 13 March
Colchester 14 March
NationalAGMThisyear’sAnnualGeneralMeeting(AGM)ofthenationalschemewillbeheldonWednesday29November2017attheofficesofMayerBrownInternationalLLP,201Bishopsgate,London,EC2M3AFstartingat1pm.
The purpose of this AGM is to receive the scheme’s Annual Report and Financial Statements, the Auditor’s report, the report of the Scheme Trustee, and to conduct any business, including the consideration of any resolutions proposed by the scheme’s members.
If you wish to submit a written resolution to the Scheme Secretary, please do so by the 8 November 2017. Details of the agenda, resolutions, and notices may be obtained nearer the date on request from Pension Services.
Copies of the AGM minutes will be available upon request from Pension Services in early January 2018.
NEWSAT SCHEMELEVEL
18 19
Please note that if there is any inconsistency between the information contained in Pensions News and the Trust Deed and Rules of the Group or any overriding legislation, the Trust Deed and Rules and the legislation will prevail. While the Group Trustees are ultimately responsible for ensuring that your pension benefits are paid correctly and on time, neither they nor UK Power Networks can advise you on your personal financial arrangements. We recommend you to obtain independent financial advice before making any decisions about your entitlements under the Scheme.
