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Pension FundReport and Financial Statements 2017

Pension FundReport and Financial Statements for year ended 28 February 2017

1 Trustee Directors, Managers and Professional Advisers3 Trustee Report13 Actuary’s certification of Schedule of Contributions14 Independent Auditor’s Report to the Trustee15 Fund Account15 Net Assets Statement16 Notes to the Financial Statements23 Independent Auditor’s Statement about Contributions24 Summary of Contributions payable in the year25 Compliance Statement

Registration No. 10007558

Bank of England Pension Fund Report and Financial Statements 2017 1

Trustee Directors, Managers and Professional Advisers

TrusteeBE Pension Fund Trustees LimitedTrustee DirectorsJohn Footman Bank-appointed (Chairman) Lionel Price Bank-appointed (Deputy Chairman) Alan Ball Unite-nominated (resigned 30 April 2017) Christopher Bennell Pensioner-nominated Ragveer Brar Member-nominated David Collins Bank-appointedStephen Collins Bank-appointed (resigned 28 April 2016)Neal Hatch Bank-appointed Joanna Place Bank-appointed Nicola Veall Member-nominated

Investment Sub-CommitteeMembersLionel Price Trustee Director (Chairman)Ragveer Brar Trustee Director Stephen Collins Trustee Director (resigned 28 April 2016)John Footman Trustee DirectorNeal Hatch Trustee DirectorNicola Veall Trustee Director

Attends by invitationRommel Pereira Finance Director

Trustee Directors and Managers

John Footman Alan Ball Christopher Bennell Ragveer Brar

David Collins Stephen Collins Neal Hatch Joanna Place

Lionel Price Nicola Veall

2 Bank of England Pension Fund Report and Financial Statements 2017

Trustee Directors, Managers and Professional Advisers continued

Pension Trustee Support Unit (PTSU)

Secretariat

Geoff Winn Secretary

Steve Blackman Pension Administration Manager

Pension Trustee Support UnitBank of EnglandThreadneedle StreetLondonEC2R 8AHTelephone: 020 7601 4671/4148Email: [email protected]@bankofengland.co.uk

Geoff Winn

Steve Blackman

Professional Advisers

Fund ActuaryStuart Southall FIAPunter Southall Limited11 StrandLondonWC2N 5HR

Independent AuditorCrowe Clark Whitehill LLPSt Bride’s House10 Salisbury SquareLondonEC4Y 8EH

Legal AdviserSacker & Partners LLP20 Gresham StreetLondonEC2V 7JE

Investment ManagerLegal & General Assurance(Pensions Management)LimitedOne Coleman StreetLondonEC2R 5AA

Fund AdministratorEquiniti Pension SolutionsSutherland HouseRussell WayCrawleyWest SussexRH10 1UH

Investment ConsultantsPunter Southall InvestmentConsulting Limited11 StrandLondonWC2N 5HR

Medical AdviserDr Peter WilliamsonBank of EnglandThreadneedle StreetLondonEC2R 8AH

Bankers and CustodianCustomer Banking DivisionBank of EnglandThreadneedle StreetLondonEC2R 8AH

AVC ProvidersThe Prudential AssuranceCompany LimitedLaurence Pountney HillLondonEC4R 0HH

The Standard Life AssuranceCompany LimitedStandard Life House30 Lothian RoadEdinburghEH1 2DH

The Equitable Life AssuranceSocietyWalton StreetAylesburyBuckinghamshireHP21 7QW

Professional AdvisersThere are written agreements in place between the Trustee and the Fund Advisers.


IntroductionThe Trustee of the Bank of England Pension Fund (‘the Fund’) presents its annual Trustee Report together with an Actuarial Certificate, Independent Auditor’s Report, Financial Statements and Notes, Independent Auditor’s Statement about Contributions, Summary of Contributions and Compliance Statement for the year ended 28 February 2017.

Constitution and GovernanceConstitution of the FundThe Fund is a defined benefit occupational pension scheme which provides benefits for employees of the Bank of England (‘the Bank’). The Fund is established under trust, with a corporate trustee and is governed by a Trust Deed and Rules. The Final Salary and Career Average Sections had been contracted-out of the State Scheme under the provisions of the Occupational Pension Schemes (Contracting-out) Regulations 1996. With the cessation of contracting-out from 6 April 2016, all active Members accruing pension from that point onwards are contracted-in (and pay higher National Insurance contributions).

The Fund was approved by the Commissioners of the Inland Revenue as a retirement benefits scheme for the purposes of Chapter 1, Part XIV of the Income and Corporation Taxes Act 1988 and is treated as an ‘exempt approved scheme’ for the purposes of that Act. As an approved scheme the Fund has been automatically registered under the regulations which took effect from 6 April 2006.

The TrusteeThe Fund is managed by the Trustee on behalf of the Members in accordance with the Trust Deed and Rules. The Trustee is BE Pension Fund Trustees Limited, a company set up solely to act as corporate trustee of the Fund. The directors of this Company are listed on page 1.

Under the Trust Deed of the Fund, up to eight Directors are appointed by the Bank and four are nominated by the Members (two by active Members, one by pensioners and one by Unite the Union). Member and pensioner-nominated Trustee Directors are appointed for up to two three-year terms, after which an election process is undertaken. In accordance with the Trust Deed, the Bank can at any time remove those Trustee Directors it has appointed.

During the year Stephen Collins resigned as a Trustee Director from 28 April 2016 on leaving the Bank. More recently Alan Ball resigned on 30 April 2017, and Unite the Union are currently canvassing for suitable candidates to replace him as the Unite-appointed Trustee Director.

The Trustee is responsible for the management and governance of the Fund. It usually meets at least four times per year with additional meetings as required. It has formed an Investment Sub-Committee (ISC) to oversee all investment matters and to make recommendations to the Trustee. There were four Trustee Board and three separate ISC meetings during the year under review, with one ISC meeting held jointly with a Board meeting. A Valuation Working Group oversees the triennial and interim valuations and makes recommendations to the Trustee. The Bank’s Finance Director is invited to all ISC and Valuation Working Group meetings.

There was one Valuation Working Group meeting in the year under review, to discuss and finalise the results and the Fund Actuary’s report to the Trustee on the interim valuation of the Fund as at 29 February 2016.

Legislative and regulatory developmentsThe Trustee Board works closely with its core advisers; the Actuary, Legal Advisers, Auditors and Administrators to ensure that any current or future changes that may affect the Fund are dealt with.

In line with the Statement of Contributions and a side letter dated 23 February 2015, the Bank paid contributions in the year of £68.3m (2015/16 £89.6m). The contributions paid in 2015/16 were higher because the Bank paid thirteen months contributions in that year to align the contributions payable with the scheme year.

The Trustee has monitored the various Codes of Practice and related guidance material published during the year by the Pensions Regulator and other regulatory bodies, to ensure that the Fund and its administration are compliant and operate in line with best industry practice.

Trustee TrainingPension legislation and best practice requires that the Trustee is regularly briefed. This is achieved through training and meetings with the Fund’s specialist advisers on a regular basis.

Trustee Report


As well as formal development activities, the Trustee keeps abreast of developments in the pension field through updates at regular Trustee meetings, circulars posted on the Trustee governance system (eShare), online newsletters and seminars provided by its advisers. In addition, a dedicated training session was held for the Trustee Directors on 20 October 2016 with its Actuarial adviser and Investment Manager.

Investment strategyThe investment strategy aims to provide a high degree of certainty in the financial position of the Fund, both for Members and the Employer.

The long-term investment objectives of the Fund are:

(i) To acquire low risk, government-guaranteed assets or high quality supranational assets that will on an on-going basis provide as close a hedge to the cashflows of the Fund’s accrued liabilities as is practicable, having regard to transaction costs.

(ii) To limit the risk of assets failing to meet the liabilities over the long term.

The strategic objectives of the Fund and the benchmark for the allocation of the Fund’s assets are reviewed at least triennially and more frequently if the circumstances require. A review is carried out 18 months after each full actuarial valuation, taking advice as the Trustee considers necessary, and after discussion with the Bank.

The strategic asset allocation is driven by the financial characteristics of the Fund, in particular the Fund’s liabilities, the security of the Bank’s covenant and the risk tolerance of the Bank and the Trustee.

The Trustee seeks to achieve the Fund’s objectives through investing in a mix of financial instruments, principally index-linked and fixed-interest gilts, HM Government guaranteed sterling bonds plus certain supra-nationals. This reflects the Bank’s stated preference that the Trustee should focus on risk-free investments that match the Fund’s liabilities.

The Trustee, together with the Fund’s administrators, will ensure that it holds sufficient cash to meet the projected benefit commitments as they arise. The Trustee’s policy is that there should be sufficient investments in liquid or readily realisable assets to meet cash flow requirements.

The distribution of the portfolio has been designed to provide an income substantially matching the expected liabilities of the Fund to Members. It cannot provide a perfect match for the Fund’s liabilities because there is insufficient granularity of assets available for investment; moreover, future payments to Members will also depend on non-financial aspects, in particular, how long Members live.

During the year Legal & General carried out various trades to align the investments held to the maturity of the pension liabilities and to maximise investment returns within the risk tolerances. In addition, further Network Rail bonds were added to the portfolio to achieve a slightly better yield pick-up. The investment agreement permits a maximum of 40% of the total assets to be held in quasi-governmental bond holdings.

The large increase to the value in assets, to £4.4bn, was primarily driven by the gilt-yield declining further during the year.

As the majority of the portfolio is invested in gilt-edged securities, the Fund does not have sufficient scope for socially-responsible investment or shareholder engagement.

Investment Sub-CommitteeTo ensure effective decision-making, the Investment Sub-Committee monitors and advises on investment issues. In the year under review, this Sub-Committee was chaired by Lionel Price and now comprises four Trustee Directors (see page 1) plus the Finance Director of the Bank (who is not a Trustee Director). The Sub-Committee oversees the investment management function and makes recommendations to the Trustee but it has no executive powers.

Custody arrangementsUnder the Investment Management and Custody Agreement, primary custodial services are provided by the Bank’s Customer Banking Division. In accordance with normal practice, securities are registered in the name of the Bank’s own nominee company, but with the Fund identified as the beneficial owner. Where appropriate, the primary custodian is authorised to delegate responsibility for custodial and banking services to other custodian banks.

Trustee Report continued


Distribution of InvestmentsThe distribution of investments at the start and end of the year is shown above.

Employer-related investmentsThere were no employer-related investments within the meaning of Section 40 (2) of the Pensions Act 1995 held at any time during the year.

Investment management of assetsLegal & General has been the primary investment manager since 17 July 2007. The investment objective is to match the projected liability cash flows as updated by the Trustee from time to time.

The following table shows the valuation and asset allocation of those assets held by Legal & General at the start and end of the year:

28 February 2017 29 February 2016

£000 % of £000 % ofAsset class total investments total investments

UK fixed-interest gilts 400,462 9.1 351,467 9.5UK index-linked gilts 2,694,838 61.1 2,275,674 61.3UK corporate index-linked securities 1,307,476 29.6 1,048,902 28.3Overseas pooled investments 1,799 0.0 2,144 0.1AVCs 1,543 0.0 1,530 0.0Cash and other investment balances 10,440 0.2 31,369 0.8

Total 4,416,558 100.0 3,711,086 100.0

Value and distribution held by Legal & General (excluding accrued income)

28 February 2017 29 February 2016

Asset class £000 % £000 %

UK fixed-interest gilts 400,462 9.1 351,467 9.5UK index-linked gilts 2,694,838 61.2 2,275,674 61.5UK other index-linked securities: 1,307,476 29.7 1,048,902 28.4Cash 18 0.0 20,379 0.6

Total Assets 4,402,794 100.0 3,696,422 100.0

The Weighted Modified Duration* (for the bond portfolio and its liabilities) is:

Fixed-interest government bond portfolio — 13.71 years Index-linked government bond portfolio — 25.73 years Index-linked corporate bond portfolio — 19.29 years Total portfolio — 22.71 years

*Modified duration measures the sensitivity of an asset or liability to changes in interest rates (or inflation) and is broadly equivalent to the weighted average maturity of underlying cash flows.



The table below shows the absolute return on the portfolio managed by Legal & General during the year to 28 February 2017. It should be noted that the investment strategy now being followed is not designed to maximise return, but rather to maximise the probability that the Fund will be able to meet its liabilities in all future economic and financial conditions.

*The return is the percentage change in value plus gross distributions.

The Trustee monitors the performance of the assets against the calculated liabilities of the Fund on a quarterly basis. This is to ensure that the investment portfolio is being managed to meet the liabilities, which is the investment objective. The investment performance measured on this basis was as follows:

Asset class

Change in value of assets during the

year (%)*

Change in value of assets — three years annualised (% per annum)*

Fixed interest portfolio: UK Fixed Interest Gilts 8.5 8.2

Total 8.5 8.2

UK Index-Linked Portfolio: Index-Linked Gilts 22.8 10.3 Other UK Index-Linked Securities (Quoted & Unquoted corporate)

19.4 8.6

Total 20.3 9.6

Liability typeChange in value of liabilities

during the year (%)

Inflation-linked 21.3Fixed 8.1

Total 20.1


Risk managementThe Trustee Board has responsibility for internal controls and risk management. The Trustee is committed to identifying, evaluating and managing risk to the Fund and to implementing and to maintaining control procedures to reduce significant risks to an acceptable level.

In order to meet this responsibility a Risk Register has been developed. The purpose of the Risk Register is to:

• highlightthescopeoftheriskstowhichtheFundisexposed;

• rankthoserisksintermsoflikelihoodandimpact;and

• identifymanagementactionsthatareeithercurrentlybeing taken, or that it is believed should be taken, in order to mitigate the identified risks to an acceptable level.

The Risk Register is reviewed by the Trustee Board at each quarterly meeting and is updated at least annually.

The main risks to which the Fund is exposed are:

Mortality risk — the assumptions adopted by the Trustee Directors make allowance for future improvements in life expectancy. However, if life expectancy improves at a faster rate than assumed, that would result in greater payments from the Fund and consequently increases in the Fund’s liabilities. In liaison with the Bank, the Trustee reviews the Fund’s mortality experience at each annual valuation, and assumptions about future mortality are updated at each formal triennial valuation to minimise the risk of under-estimating the Fund’s obligations.

Investment risk — the Fund invests the vast majority of its assets in a portfolio of UK Government bonds as the changes in the value of the bonds most closely match the movements in the Fund’s liabilities. There are risks that it does not match the liabilities closely enough, or that as it matures the Trustee cannot reinvest the assets at the assumed rates. The Trustee Directors review the structure of the portfolio on a regular basis to minimise these risks.

Credit risk — this is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

Market risk — this comprises currency risk, interest rate risk and other pricing risks.

• Currencyrisk:theriskthatthefairvalueorfuturecashflows of a financial asset will fluctuate because of changes in foreign exchange rates. This risk is largely negated as the investments held are 99.9% held in sterling-denominated holdings.

• Interestraterisk:theriskthatthefairvalueorfuturecash flows of a financial asset will fluctuate because of changes in market interest rates.

• Otherpricerisk:theriskthatthefairvalueorfuturecash flows of a financial asset will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.

Yield risk — a fall in government bond yields will increase both the Fund’s assets and liabilities. As the scheme’s liabilities, on the funding basis used to calculate the Bank’s contributions to the Fund, are greater than its assets, the liabilities would be expected to grow by more in monetary terms, increasing the deficit in the Fund.

Inflation risk — the majority of the Fund’s liabilities increase in line with inflation and so if inflation is higher than expected, the liabilities will increase. The Fund’s investment strategy is to hold Government bonds that are linked to RPI so this risk is greatly mitigated.

Liquidity risk is divided into two types — funding liquidity risk (cash flow risk) and market liquidity risk (asset risk).

• Funding(cashflow)liquidityriskiswhentheFundhasanegative cash flow position that cannot be realised to meet its regular payments. While most of the assets in the Bank of England Pension Fund investment portfolio are readily saleable, there are some, such as quasi-government bonds which are not as easily sold down to meet the monthly cash flow requirements. The Trustee Board has identified investments such as Network Rail bonds as having a degree of liquidity risk, but these assets are not due to mature until at least 2027.



• Market(asset)liquidityriskisassetilliquidity.Thisisaninability to easily exit a particular investment. For example, certain investments cannot be disinvested immediately. Due to the current investment strategy being highly concentrated in Government issued Index-linked and fixed income bonds, there are very few investments in the investment portfolio which are unsaleable or would require a lengthy period of staged disinvestment to exit.

Statement of the Trustee’s ResponsibilitiesThe financial statements are the responsibility of the Trustee. Pension scheme regulations require the Trustee to make available to Fund Members, beneficiaries and certain other parties, audited financial statements for each Fund year which:

• showatrueandfairviewofthefinancialtransactionsofthe Fund during the Fund year and of the amount and disposition at the end of that year of the assets and liabilities, other than liabilities to pay pensions and benefits after the end of the Fund year, in accordance with the applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice); and

• containtheinformationspecifiedintheScheduletoTheOccupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, including a statement whether the financial statements have been prepared in accordance with the Statement of Recommended Practice ‘Financial Reports of Pension Scheme’.

The Trustee has supervised the preparation of the Financial Statements and has agreed suitable accounting policies, to be applied consistently, making any estimates and judgements on a prudent and reasonable basis.

The Trustee is also responsible for making available certain other information about the Fund in the form of an Annual Report.

The Trustee is responsible under pensions legislation for ensuring that there is prepared, maintained and from time to time revised, a Schedule of Contributions showing the rates of contributions payable towards the Fund by or on behalf of the Bank and the active Members of the Fund and the dates on or before which such contributions are to be

paid. The Trustee is also responsible for keeping records of contributions received in respect of any active Member of the Fund and for monitoring whether contributions are made to the Fund by the Bank in accordance with the Schedule of Contributions. Where breaches of the Schedule occur, the Trustee is required by law to report these to the Pensions Regulator and to the Members.

The Trustee also has a general responsibility for ensuring that adequate accounting records are kept and for taking such steps as are reasonably open to it to safeguard the assets of the Fund and to prevent and detect fraud and other irregularities, including the maintenance of an appropriate system of internal control.

Administration and other professional support servicesAdministration of the Fund is delegated by the Trustee to the Human Resources (HR) Services Division of the Bank, and the Bank has sub-delegated the administration to a third-party provider, Equiniti Pension Solutions. The pension administration service was contracted to Equiniti Pension Solutions in 2012, and in 2015 the contract was extended by a further four years. The services provided to the Pension Fund and its Members continues to be well managed and within the service-level agreement.

The administration of the Fund includes keeping Members’ records and the calculation and payment of Members’ benefits. The responsibility for the Bank’s pensions policy and the operation of day-to-day pension administration remains with the Bank.

The PTSU supports the Trustee in carrying out its responsibilities for governance, including relationships with the external investment manager and other advisers. This Unit also provides secretarial services to the Trustee in a formal corporate capacity.

The Finance Division of the Bank maintains the financial records of the Fund and produces the Annual Financial Statements. The Trustee has a service-level agreement in place with the Finance Division and this Agreement is monitored regularly to ensure compliance and periodically reviewed to ensure that it remains appropriate.

Legal & General continued to be the primary investment manager. Stuart Southall as the Fund Actuary (assisted by his team at Punter Southall) continues to provide actuarial advice and assistance and Punter Southall Investment


Consulting Limited continue as investment advisers to the Fund. Custody of the Fund’s assets was provided by the Customer Banking Division of the Bank.

Service-level agreements are in place with Legal & General and Equiniti Pension Solutions, and with the Bank’s Finance and Customer Banking Divisions. During the year, the Trustee Board carried out annual review meetings with all its key advisers, and the PTSU meets quarterly with the Equiniti Pension Solutions management team to review the services provided prior to the quarterly formal meetings with the Trustee Board. In addition, the PTSU meet with the administration team at Equiniti Pension Solutions monthly to review the service provisions and any small project matters on a regular basis. As in previous years, the Bank met the cost of providing these services to the Trustee, except for any investment management, banking or custody services costs, which were met by the Fund. The Trustee keeps all the costs associated with the running of the Fund under close review.

Preparation and Review of Financial StatementsThe Trustee confirms that the Financial Statements have been prepared and audited in accordance with regulations made under Sections 41(1) and (6) of the Pensions Act 1995. In addition, the report is fully compliant with the Statement of Recommended Practice (2007) requirements as issued by the Pensions Research Accountants Group (PRAG). The Independent Auditor’s Report on the Financial Statements appears on page 14. The Independent Auditor’s Statement about Contributions appears on page 23. The Financial Statements themselves, and notes thereon, are on pages 15–22.

Information to MembersAll employees are provided with a Career Average section booklet, which summarises the main benefits for Members. The booklet is also available on the Bank’s intranet. Individual benefit statements are provided to all serving Members (as part of their Total Reward Statement) and updated three times a year. Information to all other Members is on request. All Members have access to the Pension Fund Update report (a summary version of this document) as well as the annual Summary Funding Statement.

All Members are advised of the functions of the Pensions Ombudsman, the Pensions Advisory Service and The Pensions Regulator. Members have also been informed that the Fund is registered with The Pension Tracing Service, under registration number 10007558.

The Trust Deed and Rules may be seen in the office of the PTSU. Any enquiries relating to the management of the Fund should be addressed to that Unit. Enquiries about individual Member benefit entitlements should be directed to Equiniti Pension Solutions at [email protected] or on 01293 604119.

mailto:bankofengland%40equiniti.com?subject=



Membership of the Final Salary SectionActive

MembersDeferred

Members (salary link)

Deferred members

Pensioners Dependants receiving

allowances

Total

At 1 March 2016 – 903 4,007 5,750 1,285 11,945

Adjustments – – – (4) – (4)New deferred pensioners – (39) 39 – – –Deaths – – (3) (190) (85) (278)Ceased allowances – – – – (6) (6)Full commutations – – (10) (1) (1) (12)Retirements – (30) (165) 195 – –Transfers out – – (54) – – (54)New allowances – – – – 83 83

At 28 February 2017 – 834 3,814 5,750 1,276 11,674

Membership numbers reflect benefits payable; some Members are in receipt of two benefits, eg pensioners who also qualify for spouse’s allowances.

Deferred members (salary link) are those members who ceased Final Salary accrual under the ‘One Bank Your Reward’ reforms, and now receive CARE pension accrual, but also retain a link to final salary in relation to their accrual to 1 April 2015.

* Leavers include members that left with less than two years’ pensionable service and were entitled to a transfer out.

Adjustments include, for example, late notification of changes in Member status since the end of the previous year, or pension credit Members.

Membership of the Career Average SectionActive

MembersDeferred

MembersPensioners Dependants

receiving allowances

Total

At 1 March 2016 3,964 519 26 6 4,515

Adjustments (6) (3) 1 – (8)New Entrants 614 – – 5 619New deferred pensioners (257) 257 – – –Retirements (23) (3) 26 – –Deaths (3) – – – (3)Full commutations – (3) – – (3)Leavers* (163) – – – (163)Transfers out – (9) – – (9)

At 28 February 2017 4,126 758 53 11 4,948


Finances of the FundThe Fund is one of the larger funded schemes in the United Kingdom and is mature in the sense that the number of pensioners and deferred pensioners is much greater than the number of current active Members.

The size of the Fund over the last five years is shown below:

Size of Fund at end-February Assets (£ millions)2017 4,438.02016 3,729.22015 3,594.72014 3,074.82013 3,140.0

Development of the Fund during the Fund yearThe number of pensions and allowances in payment from the Final Salary Section decreased slightly from 7,035 to 7,025. In the Career Average section, the active membership increased from 3,964 to 4,125 as this section is applicable to almost all new joiners to the Bank. There are no active members of the Court Scheme section, with deferred membership remaining at 3 and the number of pensioners and dependants reducing by 1.

The accounts for the year to 28 February 2017 are presented on pages 15–22. During the year the total net assets of the Fund increased from £3,729.2m to £4,438.0m. The market value of investments held increased by £718.1m (2016: £117.4m), which, less investment management charges of £1.7m (2016: £1.5m) and including the income from investments of £41.9m (2016: £41.8m) gave a total gain on investments of £758.3m (2016: £157.7m). Bank contributions in the year totalled £68.3m (2016: £89.7m).

Benefits payable to Members decreased during the year from £107.0m to £106.2m. Details of the annual increase

in pensions are given on page 25. Payments to leavers increased from £14.1m to £20.7m.

Report on Actuarial LiabilitiesUnder Section 222 of the Pensions Act 2004, every scheme is subject to the Statutory Funding Objective, which is to have sufficient and appropriate assets to cover its technical provisions. The technical provisions represent the present value of the benefits members are entitled to based on pensionable service to the valuation date. This is assessed using the assumptions agreed between the Trustee Directors and the Bank and set out in the Statement of Funding Principles, which is available to Members on request.

The most recent full actuarial valuation of the Scheme was carried out as at 28 February 2014. This showed that on that date:

The value of the Technical Provisions was: £3,106 millionThe value of the assets at that date was: £3,075 million

The method and significant actuarial assumptions used to determine the technical provisions are as follows:

MethodThe actuarial method used in the calculation of the technical provisions is the Defined Accrued Benefit Method.

Significant actuarial assumptionsDiscount interest rate: The discount rate for calculating technical provisions is set with reference to real yields available on index-linked gilts at the valuation date derived from yield curves published by the Bank and taking into account the profile of the Fund’s expected cashflows.

Future Retail Price inflation: The assumption for future increases has been set at 3.3% per annum.

Future Consumer Price inflation: The assumption for future increases has been set at 2.0% per annum.

Membership of the Court SectionActive Members Deferred

MembersPensioners Dependants

receiving allowances

Total

At 1 March 2016 – 3 16 10 29

Deaths – – – (1) (1)

At 28 February 2017 – 3 16 9 28



Pension increases: As per the RPI and CPI assumptions above. For deferred and pensioner CARE liabilities uncapped CPI increases are assumed and for Final Salary pensions and accruing CARE liabilities, uncapped RPI increases are assumed.

Pay increases: Under the Defined Accrued Benefit Method the rate of pay increases does not impact on the assessment of technical provisions, therefore no allowance has been made for pay increases in the technical provisions calculations.

Mortality: The mortality base table adopted is the S1PA table from Series 1 of the SAPS tables (based on the experience of members in Self-Administered Pension Schemes), centred in 2006. The probability of death in these tables is reduced by 19% for males and by 11% for females to reflect the higher life expectancy for Fund members compared to the table as a whole.

Results from the actuarial valuation as at 28 February 2014 as set out above, were detailed in the full report prepared by the Scheme Actuary, a copy of which is available to Members on request. A summary of the results of the actuarial valuation has been provided to Members through the annual Summary Funding Statement. Full details of the contributions payable can be found in the Schedule of Contributions, a copy of which is available to Members on request.

On the assumptions adopted, the Fund’s liabilities as at 28 February 2014 were valued at £3,106m, which when compared to the assets of the Fund of £3,075m, resulted in a funding deficit of £31m; the funding level having therefore improved to 99% compared to the 96% disclosed in 2011.

At the valuation date, there was no requirement for the Members to contribute to the Fund. The Actuary calculated the cost of future service benefits payable by the Bank of England from 1 March 2014 as 51.8% of Pensionable Earnings (allowing for real pay increases of 1.45% per annum), compared with 24.1% following the 2011 valuation (allowing for the then current public sector pay guidelines). As part of the 2014 valuation, it was agreed that the rate actually payable by the Bank would be calculated annually based on the appropriate single discount rate on the last day of February preceding the end of the Fund year and the membership at the same date. In addition, it was agreed that administration expenses, including the PPF levy, would be met directly by the Bank of England.

The next triennial actuarial valuation is due as at 28 February 2017 and this is in progress. A Summary Funding Statement will be sent to all members when the valuation has been concluded later this year.

The Actuary’s certification of the current Schedule of Contributions, as required by Section 227 of the Pensions Act 2004, appears on page 13.

John FootmanChairman

13 July 2017

Actuary’s certification of Schedule of Contributions

Name of scheme Bank of England Pension Fund

Adequacy of rates of contributions:

1 I certify that, in my opinion, the rates of contributions shown in this schedule of contributions are such that the statutory funding objective could have been expected on 28 February 2014 to be met by the end of the period specified in the recovery plan prepared on 29 August 2014.

Adherence to statement of funding principles

2 I hereby certify that, in my opinion, this schedule of contributions is consistent with the Statement of Funding Principles prepared on 29 August 2014.

The certification of the adequacy of the rates of contributions for the purpose of securing that the statutory funding objective can be expected to be met is not a certification of their adequacy for the purpose of securing the Fund’s liabilities by the purchase of annuities, if the Fund were to be wound up.

Name: Stuart M SouthallQualification: Fellow of the Institute and Faculty of Actuaries

3 October 2014

Punter Southall Limited11 StrandLondon RoadLondonWC2N 5HR


We have audited the financial statements of the Bank of England Pension Fund for the year ended 28 February 2017 which comprise the Fund Account, the Net Assets Statement and the related Notes set out therein.

The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Trustee, as a body, in accordance with The Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 made under the Pensions Act 1995. Our audit work has been undertaken so that we might state to the Trustee those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Fund and the Trustee as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the Trustee and auditorAs explained more fully in the Statement of the Trustee’s Responsibilities statement, the Trustee Directors are responsible for the preparation of the financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Fund’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Trustee Directors; and the overall presentation of the financial statements.

In addition, we read all the financial and non-financial information in the annual report, which comprises the Trustee Report, the Actuarial Certificates and the Compliance Statement, to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

OpinionIn our opinion the financial statements:

• showatrueandfairviewofthefinancialtransactionsoftheFundduringtheyearended28February2017,andoftheamount and disposition at that date of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the Fund year;

• havebeenproperlypreparedinaccordancewithUnitedKingdomGenerallyAcceptedAccountingPractice;and• containtheinformationspecifiedinRegulations3and3AoftheOccupationalPensionSchemes(Requirementto

obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, made under the Pensions Act 1995.

Crowe Clark Whitehill LLPStatutory AuditorLondon

13 July 2017

Independent Auditor’s Report to the Trustee of the Bank of England Pension Fund


Bank of England Pension FundFund Account for the year ended 28 February 2017

Statement of Net Assets (available for benefits) as at 28 February 2017

The accompanying notes on pages 16–22 form an integral part of these Financial Statements.

The Financial Statements summarise the transactions of the Fund and deal with the net assets at the disposal of the Trustee. They do not take account of obligations to pay pensions and benefits which fall due after the end of the Fund year. The actuarial position of the Fund, which does take account of such obligations, is dealt with in the Trustee Report included in the Annual Report, and these Financial Statements should be read in conjunction with them.

The Financial Statements on pages 15–22 were approved by the Trustee on 13 July 2017 and signed on its behalf by:

John Footman Lionel Price Geoff WinnChairman Deputy Chairman Secretary

2017 2016Notes £000 £000

Contributions and BenefitsContributions receivable 3 68,281 89,691 Transfers into the scheme 3 9,171 8,236

77,452 97,927

Benefits payable 4 106,248 107,021 Payment to and on account of leavers 5 20,712 14,086

126,960 121,107

Net withdrawals from dealings with members (49,508) (23,180)

Returns on investmentsChange in market value of investment 6 718,077 117,421 Investment income 7 41,927 41,836 Investment management expenses 9 (1,700) (1,512)

Net returns on investments 758,304 157,745

Net increase in the fund during the year 708,796 134,565

Net assets of the Fund at the beginning of the year 3,729,223 3,594,658

Net assets of the Fund at the end of the year 4,438,019 3,729,223

2017 2016Notes £000 £000

Investment assetsFixed interest securities 10 400,462 351,467 Index-linked securities 10 4,002,314 3,324,576 Pooled investment vehicles 10 1,799 2,144 AVC Investments 10 1,543 1,530 Other investment balances 10 10,440 31,369

Total investments 4,416,558 3,711,086

Cash 15 11,655 10,233 Other assets 15 10,878 8,912 Current liabilities 16 (1,072) (1,008)

Net assets of the Fund at the end of the year 4,438,019 3,729,223


Notes to the Financial Statements

1) Basis of preparationThe Financial Statements have been prepared in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, Financial Reporting Standard 102 — the Financial Reporting Standard applicable in the UK and Republic of Ireland issued by the Financial Reporting Council and with the guidance set out in the Statement of Recommended Practice (SORP) (revised November 2014).

2) Accounting policiesThe following principal accounting policies have been applied consistently in the preparation of the Financial Statements.

InvestmentsQuoted investments are valued on the basis of the bid price on the relevant exchange.

Unquoted investments are included at fair value based on valuations provided by fund managers or their third-party agents.

Accrued interest is excluded from the market value of fixed-interest securities and index-linked securities but is included in investment income receivable.

Pooled investment vehicles are valued at bid market prices at the year-end date, where available, or at net asset value.

Investment incomeIncome from fixed-interest, index-linked securities, cash and short-term deposits is accounted for on an accruals basis.

Income from any pooled investment vehicles which distribute income is accounted for on the date stocks are quoted ex-dividend/interest.

The change in market value of investments during the year comprises all increases and decreases in the market value of investments held at any time during the year, including profits and losses realised on sales of investments and unrealised changes in market value. In the case of pooled investment vehicles which are accumulation funds, change in market value also includes income, net of irrecoverable withholding tax, which is reinvested in the Fund.

Foreign currenciesAssets and liabilities in foreign currencies are expressed in sterling at the rates of exchange ruling at the year end.

Foreign currency transactions are translated into sterling at the spot exchange rate at the date of the transaction.

Gains and losses arising on conversion or translation are dealt with as part of the change in market value of investments.

ContributionsEmployer’s contributions are paid annually at the beginning of each financial year, and are recognised based on the due date set out in the Schedule of Contributions. Employer’s deficit funding contributions are accounted for when received.

Additional voluntary contributions from the Members are accounted for on an accruals basis in the month they are deducted from the payroll.

BenefitsWhere Members can choose whether to take their benefits as a full pension or a lump sum with a reduced pension, retirement benefits are accounted for on an accruals basis on the later of the date of retirement and the date the option is exercised.

Other benefits are accounted for on an accruals basis on the date of retirement, death or leaving the Fund as appropriate.


Transfer valuesTransfer values represent the capital sums paid to other pension schemes for Members who have either left the Fund or are subject to pension sharing orders. Individual transfers are accounted for when paid and pension sharing orders are accounted for based on the date of the court order.

Transfers in are accounted for when cash is received from another pension provider.

Administration expensesAdministration expenses are paid for by the Bank of England.

Investment management expensesInvestment management expenses are accounted for on an accruals basis and are paid for by the Fund. They are calculated as a percentage of the net asset value held by Legal & General, the investment managers. Transaction costs are included in the cost of purchase and sale proceeds. Transaction costs include costs charged directly to the Fund such as fees, commissions, stamp duty and other fees.

3) Contributions receivable

2017 2016£000 £000

From Employers

Normal 68,254 89,600

From Members (AVCs)Added years 27 39 Money Purchase – 52

68,281 89,691

Transfers in 9,171 8,236

9,171 8,236

The Bank of England pays the full contributions required to fund the benefits by March of the current financial year. In line with the Schedule of Contributions a normal contribution at the rate of 31.5% (2016: 38.8%) of pensionable earnings. Money purchase AVCs are invested separately from the Fund’s main asset. Contributions being made directly to AVC arrangements in 2016 were operated by The Equitable Life Assurance Society, The Prudential Assurance Company Limited and The Standard Life Assurance Company (also see Note 13). Added years AVCs relate to the purchase of additional pensionable service by members that entered into a contractual agreement prior to 11 May 2006. This agreement was withdrawn after that date.

The Fund has not permitted transfers in from other approved schemes since 2006. However, for a limited period of one year from 1 April 2015, as part of the pension proposals from the One Bank – Your Reward consultation, ex-FSA employees were permitted to transfer their FCA Defined Contribution funds into the Career Average section of the Fund.


Notes to the Financial Statement continued

4) Benefits payable

2017 2016£000 £000

Pensions payable 95,887 95,839 Commutations 9,501 10,151 Payment on death of members 737 826 Taxation where lifetime or annual allowance exceeded 123 205

106,248 107,021

5) Payments to and on account of leavers

2017 2016£000 £000

Transfers out 20,712 14,086

20,712 14,086

6) Reconciliation of investments

2016

Purchases at cost

Sales proceeds

Change in MV

2017

Note £000 £000 £000 £000 £000

Fixed-interest securities 10 351,467 90,529 (61,766) 20,232 400,462 Index-linked securities 10 3,324,576 359,681 (379,498) 697,555 4,002,314

Pooled investment vehicles 10 2,144 – (415) 70 1,799 AVC investments 10 1,530 – (207) 220 1,543

3,679,717 450,210 (441,886) 718,077 4,406,118

Other investment balances 14 31,369 10,440

3,711,086 718,077 4,416,558

The change in market value of investments comprises realised and unrealised gains and losses during the year. It also includes increases in separately invested AVC funds, whether arising from interest, bonuses, or change in the value of underlying investments.

Transaction costs incurred during the year amounted to £nil (2016: £nil). In addition to any transaction costs, indirect costs are incurred through the bid-offer spreads on investments within pooled investment vehicles. The amount of indirect cost is not separately provided to the Fund.

The following investments have a value representing more than 5% of the net assets of the Fund as at the year-end date:

£000

Network Rail index linked 1.375% 22/11/2037 338,008

Treasury index linked 0.125% 22/03/2068 259,342Network Rail index linked 1.125% 22/11/2047 231,316

There was no stock on loan at the year end.

Some £1.8m (2016: £2.1m) representing 0.1% (2016: 0.1%) of net assets was invested in pooled investment vehicles, which may not be readily realisable. The entire holding was in pooled investment vehicles operated by a US-registered company.


7) Investment income 2017 2016

£000 £000

Fixed interest securities

UK public sector 12,249 11,667

12,249 11,667

Index-linked securitiesUK public sector 18,587 20,939 UK corporate 11,018 9,137

29,605 30,076

Interest receivableInterest on cash deposits 73 93

73 93

Total income 41,927 41,836

8) TaxationThe Scheme is a registered Pension Scheme under Chapter 2 of Part 4 of the Finance Act 2004 and is therefore exempt from income tax and capital gains tax. The tax charge in the Revenue Account represents irrecoverable withholding taxes arising on investment income.

9) Investment management expenses

2017 2016£000 £000

External investment management charges 1,700 1,512

1,700 1,512

10) Investments

2017 2016Note £000 £000

Fixed interest securities

UK public sector 400,462 351,467

Index-linked securities UK public sector 2,694,838 2,275,674 UK corporate 1,307,476 1,048,902

Total index-linked 4,002,314 3,324,576

Pooled investment vehicles Overseas private equities 1,799 2,144

Total pooled investment vehicles 1,799 2,144

AVC Investments 13 1,543 1,530 Other investment balances 14 10,440 31,370

Total investments 4,416,558 3,711,087


11) Investment fair value hierarchy

The fair value of financial instruments has been determined using the following fair value hierarchy:

Level 1 The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.Level 2 Inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.Level 3 Inputs are unobservable (ie for which market data is unavailable) for the asset or liability.

The table below shows the categorisation of the Fund’s assets:

As at 28 February 2017 Level 1 Level 2 Level 3 Total

Note £000 £000 £000 £000

Fixed-interest securities 10 400,462 – – 400,462

Index-linked securities 10 3,292,459 – 709,855 4,002,314 Pooled investment vehicles 10 – – 1,799 1,799 AVC investments 13 – – 1,543 1,543 Other investment balances 14 18 10,422 – 10,440

3,692,939 10,422 713,197 4,416,558

As at 29 February 2016 Level 1 Level 2 Level 3 Total

Note £000 £000 £000 £000

Fixed-interest securities 10 351,467 – – 351,467

Index-linked securities 10 2,765,468 – 559,108 3,324,576 Pooled investment vehicles 10 – – 2,144 2,144 AVC investments 13 – – 1,530 1,530 Other investment balances 14 20,379 10,990 – 31,369

3,137,314 10,990 562,782 3,711,086

12) Investment risksThe Trustee’s approach to risk management has been set out in the Trustee’s report (page 7). Further information on the credit and market risks the Fund is subject to are set out below:

i) Credit riskThe Fund is subject to credit risk because it directly invests in bonds and has cash balances. The Fund also invests in pooled investment vehicles and is therefore directly exposed to credit risk in relation to the instruments it holds in the pooled investment vehicles. The Fund is indirectly exposed to credit risks arising on the financial instruments held by the pooled investment vehicles.

Credit risk arising on bonds held directly is mitigated by investing in government bonds where the credit risk is minimal, or corporate bonds which are guaranteed by the Government, the total value of UK Government bonds was £3,095m (2016: £2,627m), those guaranteed by the UK Government £1,270m (2016: £1,007m) and the residual of £37m (2016: £42m) held in supranational bonds.

Cash is held at the Bank of England, and totalled £11.7m at 28 February 2017 (2016: £30.6m).

ii) Currency riskThe Fund is subject to currency risk because some of the Fund’s investments are held in overseas markets, via pooled investment vehicles. The value of these assets at the 28 February 2017 was £1.8m (2016: £2.1m).



iii) Interest rate riskThe Fund is subject to interest rate risk because some of its investments are held in bonds, pooled vehicles and cash. The Fund invests the vast majority of its assets in a portfolio of UK Government bonds as the changes in the value of the bonds most closely match the movements in the Fund’s liabilities. The value of investments in UK Government bonds was £3,095m at 28 February 2017 (2016: £2,627m).

iv) Other price riskThe Fund is only subject to other price risk in respect of the private equity pooled investment funds which were valued at £1.8m as at 28 February 2017 (2016: £2.1m).

v) Liquidity riskLiquidity risk is divided into two types: funding liquidity risk (cashflow risk) and market liquidity risk (asset risk).

• Funding(cashflow)liquidityriskiswhentheFundhasanegativecashflowpositionthatcannotberealisedtomeetitsregular payments. While most of the assets in the Bank of England Pension Fund investment portfolio are readily saleable, there are some, such as quasi-Government bonds which are not as easily sold down to meet the monthly cashflow requirements. The Trustee Board has identified such investments as Network Rail bonds as having liquidity risk, but these assets are not due to mature until at least 2025, so there are no current risks in this area.

• Market(asset)liquidityriskisassetilliquidity.Thisisaninabilitytoeasilyexitaparticularinvestment.Forexample,certain investments cannot be disinvested immediately. Due to the current investment strategy being highly concentrated in Government issued Index-linked and fixed income bonds, there are very few investments in the investment portfolio which are unsaleable or would require a lengthy period of staged disinvestment to exit.

13) AVC Investments

2017 2016£000 £000

Equitable Life 22 57

Standard Life 976 1,000 Prudential 545 473

1,543 1,530

AVCs provide money purchase benefits and are invested separately, securing additional benefits on a money purchase basis for those Members who elected to pay additional voluntary contributions. This option was closed to new savings following the One Bank – Your Reward arrangements taking effect on 1 April 2015, with a new contract-based Supplementary Pension Plan starting from this date.

Members participating in this arrangement each receive an annual statement up to the end of February confirming the amount held in their account



14) Other investment balances

2017 2016£000 £000

Investment income receivable 10,420 10,989

Investment cash 18 20,379

10,438 31,368

15) Current assets

2017 2016£000 £000

Sterling cash 11,655 10,233

Other assets 10,878 8,912

22,533 19,145

Other assets include amounts held by Equiniti Pension Solutions at the year-end for future pension payroll payments.

16) Current liabilities

2017 2016 £000 £000

Accrued benefits 180 254

Accrued expenses 892 754

1,072 1,008

17) Related party transactions

Administration services were provided by the Bank of England. The Pension Fund held cash amounting to £11.7m at the Bank of England at year end (2016: £10.2m). The third party administrator, Equiniti Pension Solutions, held £10.9m at the Bank of England at the year-end (2016: £8.9m).

The Chairman of the Trustee Board did not receive any remuneration for services provided in the year. No other Trustee Director received any remuneration for services during the year. Trustee Directors who are Bank employees are paid by the Bank. Their costs are not recharged to the Fund.

Mr D Collins, Mr Price and Mr Bennell are pensioner Members of the Fund and are in receipt of pensions from the Fund. Mr Hatch is a deferred pensioner. Following the proposals from the One Bank – Your Reward review, all former Final Salary Members who previously reached their 40-years maximum accrual, were then eligible to accrue a further Career Average pension from 1 April 2015. Mr J Footman and Ms Place have opted out of accruing pension benefit and receive a cash payment in lieu of pension. All other Trustee Directors are active Members who are accruing benefits in the Fund.

18) Contingent liabilities and commitments

a) Contingent liabilitiesOther than the liability to pay future pensions and allowances, there were no contingent liabilities of the Fund at 28 February 2017 (2016: £nil).

b) CommitmentsAt the year-end there were undrawn commitments to investment funds totalling £0.2m (2016: £0.2m).This represents the total of potential capital calls from overseas private equity holdings.


Independent Auditor’s Statement about Contributions to the Trustee of the Bank of England Pension Fund

We have examined the summary of contributions payable to the Bank of England Pension Fund, for the year ended 29 February 2017 which is set out on the following page.

This report is made solely to the Fund’s Trustee, as a body, in accordance with The Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 made under the Pensions Act 1995. Our work has been undertaken so that we might state to the Fund’s Trustee those matters we are required to state to them in an auditor’s statement about contributions and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Fund’s Trustee as a body, for our work, for this report, or for the opinion we have formed.

Respective responsibilities of the Trustee and the auditorAs explained more fully in the Statement of Trustee Responsibilities, the Fund’s Trustee is responsible for ensuring that there is prepared, maintained and from time to time revised a Schedule of Contributions which sets out the rates and due dates of certain contributions payable towards the Fund by or on behalf of the employer and the active members of the Fund. The Trustee is also responsible for keeping records in respect of contributions received in respect of any active member of the Fund and for monitoring whether contributions are made to the Fund by the employer in accordance with the Schedule of Contributions.

It is our responsibility to provide a Statement about Contributions paid under the Schedule of Contributions and to report our opinion to you.

Scope of work on Statement of ContributionsOur examination involves obtaining evidence sufficient to give reasonable assurance that contributions reported in the attached summary of contributions have in all material respects been paid at least in accordance with the Schedule of Contributions. This includes an examination, on a test basis, of evidence relevant to the amounts of contributions payable to the Fund and the timing of those payments under the Schedule of Contributions.

Statement about contributions payable under the Schedule of ContributionsIn our opinion contributions for the Fund year ended 28 February 2017 as reported in the summary of contributions and payable under the Schedules of Contributions have in all material respects been paid at least in accordance with the Schedules of Contributions certified by the Fund Actuary on 3 October 2014 and a side letter dated 23 February 2015 agreed by the Trustee and the Employer.

Crowe Clark Whitehill LLPStatutory AuditorLondon

13 July 2017


Bank of England Pension FundSummary of Contributions payable in the year

During the year, the contributions payable to the Fund were as follows:

Employee Employer £000 £000

Required by the schedule of contributions

From employers:Normal contributions – 68,254

Other contributions payableFrom members (AVCs):Added years 27 –

Total (as per Fund Account) 27 68,254

The Bank of England pays the full contributions required to fund the benefits by March of the current financial year. In line with the Schedule of Contributions, dated 3 October 2014, and a subsequent variation detailed in a side letter, dated 23 February 2015 and in force at the start of the year, a normal contribution for members of 31.5% (2016: 38.8%) of pensionable earnings as at 1 March 2016.

Signed on behalf of the Trustee:

John FootmanChairman

13 July 2017


Bank of England Pension FundCompliance Statement

The purpose of this Compliance Statement is primarily to disclose some additional information required by law but which is not considered to be of such significance to Members that it requires the more prominent disclosure afforded by inclusion in the Trustee Report.

TaxationThe Fund is a registered scheme under the Finance Act 2004. Although exempt from UK income and capital gains taxes, the Fund is unable to recover the tax credit on UK dividends.

Statement of Investment PrinciplesIn accordance with the Pensions Act 1995, the Trustee has produced a Statement of Investment Principles, which is reviewed at intervals of not more than three years. Copies are available on request from the Pension Trustee Support Unit.

Additional Voluntary Contributions (AVCs)Benefits are not linked to final salary. Members’ contributions are invested in a wide range of investments with Prudential Assurance Company Limited, Standard Life Assurance Company — or, in a few cases where Members decided not to participate in the bulk transfer in January 2002, with the Equitable Life Assurance Society. Explanatory information about AVCs is available from the AskHR team in Human Resources at the Bank of England on request.

As part of the ongoing management and governance of the AVC funds, as a result of AVC Members choosing to transfer their AVCs and when funds cease to receive contributions or are fully disinvested, the Trustee Board and their advisers shall withdraw these unused funds from the AVC range. In conjunction with the OBYR proposals and the governance of AVCs, it was decided that no new contributions could be made from 1 April 2015.

Statements are sent annually to Members with remaining AVC policies in respect of their contributions and the accumulation of their funds.

Final Salary Section and Court Scheme Section pension increasesPensions and allowances in payment are reviewed by the Court of Directors of the Bank at least annually and are normally increased in line with the rise in the Retail Prices Index in the year to May. They were increased by 1.4% from 1 July 2016 in line with the rise in the Index in the year to 31 May 2016.

The increase granted to deferred pensions during the period before they are brought into payment depends upon the date on which the deferred pension was granted:

a. those granted on or after 1 March 1985 are increased at the same rate as pensions in payment. (For those granted on or after 1 January 1991, increases will not be less than are required by the Social Security Act 1990.)

b. those granted between 1 March 1974 and 28 February 1985 (both dates inclusive) are increased at the same rate as pensions in payment for the proportion of pension which results from service since 1 March 1974; and at half that rate in respect of any earlier service provided total service was ten years or more.

c. those granted prior to 1 March 1974 do not receive an increase.

Career Average Section annual revaluationPensions and allowances in payment are decided by the Court of Directors of the Bank at least annually. Pensions accrued in the Career Average Section were increased by 1.3% from 1 April 2016, in line with the rise in the Retail Prices Index in the year to 31 January 2016.

Increases to deferred benefits and pensions in payment were increased by 0.3% from 1 April 2016, in line with the rise in the Consumer Prices Index in the year to 31 January 2016.


Compliance statement continued

Transfer ValuesTransfer values for Members leaving pensionable service during the year were calculated in accordance with the Pension Schemes Act 1993 (as amended by the Pensions Act 1995). No transfer values were reduced because of underfunding.

The Rules of the Fund have always provided that deferred pensioners may transfer the value of their benefits to another approved scheme at any time before any benefits have been paid from the Fund. For Members who left on or after 1 January 1986, transfer values may also be used to purchase annuity contracts issued in accordance with Section 32 of the Finance Act 1981, or to enhance approved personal pensions. The Trustee will also consider applications from those who left before that date. The Fund has not permitted transfers from other approved schemes since 2006. However, as part of the pension proposals from the One Bank – Your Reward consultation, ex-FSA employees have been permitted to transfer their FCA Defined Contribution funds into the Career Average section of the Fund, for a limited period of one year from 1 April 2015 only.

Since April 2016, the Pensions Regulator has enforced a requirement for any person wanting to transfer a defined benefit pension into a defined contribution arrangement; this can only proceed if they can provide evidence of independent financial advice.

Pensions Advisory ServiceAny query connected with the Fund should be referred to the Pension Fund Secretary, who will try to resolve it as soon as possible. Members and beneficiaries of occupational pension schemes who have problems concerning their scheme that are not satisfied with information or explanation given by the administrators or the Trustee Board can consult the Pensions Advisory Service (TPAS). A local TPAS adviser can usually be contacted through a Citizens Advice Bureau. Alternatively TPAS can be contacted at:

11 Belgrave RoadLondonSW1V 1RBTel – 0545 601 2923Website – www.pensionsadvisoryservice.org.uk

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