pensionwatchbudget 2014 in his 2014 budget, the chancellor announced very significant changes to...
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PENSIONWATCH 1
PENSIONWATCHJanuary 2015GATWICK AIRPORT PENSION PLAN (GAPP) NEWSLETTER
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19112
Gatwick Airport Limited
Gatwick Airport Identity
Pension Plan_REVERSE
Steve R
24.09.10
Mark Tosey
Hamish Campbell
Simon Gore
Mac Illustrator CS3
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Welcome to PENSIONWATCH
Welcome to the latest Gatwick Airport Pension Plan newsletter.
I’m pleased to introduce you to this latest update from the Plan Trustee.
Pensions have been in the news a lot in the last year. George Osborne announced in the Budget pension changes which are “the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921”. This is quite a statement, but the changes do dramatically increase the scope to take pension benefits in different ways. The impact for defined benefit (DB) schemes, such as the Plan, is perhaps less than for defined contribution (DC) schemes but it is still significant. Further information is set out on page 5. As always, we recommend that if you are thinking of making changes to your pension arrangements you should take financial advice.
This newsletter also provides an update on the Plan’s funding position. The Trustee has recently completed its three-yearly full review of the funding level and the Company has agreed to continue contributing 25.6% of salary per annum in respect of the benefits being earned by current employees. We are pleased to report that the funding position remains strong when compared to the average pension scheme.
As always, we hope you find this newsletter useful and informative. We have been working with our advisers to improve the communication to members. This year we have redesigned the active member benefit statement and launched a Plan website (http://gapp.lcp.uk.com). Please continue to send any suggestions for how we can communicate better with members to Michael Routh, Secretary to the Trustee.
Finally, I am sad to inform you that Gordon Crowe has retired as a trustee director owing to ill-health. Many of you will know Gordon, who has been involved with the Plan since it was first set up following the purchase of the airport by GIP, firstly as Employee Relations manager and latterly as a trustee director. We are all very grateful for his input, and I’m sure you will wish to join me in thanking him for his work with the Plan over the last few years. We wish him all the best.
With best wishes for 2015.
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Robert HergaChair of Trustee
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CURRENT DIRECTORS AND ADVISERS
Current directors
Company-nominatedRobert Herga (Chair)General Counsel
Paul InstoneHead of Finance Operations
Vacancy
Member-nominatedTad FlorkiewiczAirport Security Officer
Chris KnowlesFire Service Watch Manager
Marcus StantonHead of Product and Capital Development
Current advisers
Scheme ActuaryMoray R G Sharp FFA
Actuarial and investment advisersLane Clark & Peacock LLP
Legal advisersTravers Smith LLP
Investment managersLegal & GeneralBaring Asset ManagementCapital InternationalRuffer LLP
AdministratorsLane Clark & Peacock LLP
AuditorBDO LLP
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Benefit statementsIf you are a member of the Plan who is still accruing benefits you should by now have received your annual benefit statement.
You will notice that the format of the benefit statement has changed this year. The aim was to make the statements clearer and easier to read (while still containing the information required by law). If you have any feedback regarding the new statements then please let us know.
Your annual benefit statement contains important information about how your pension is building up. It contains an indication of the pension you have earned up to the statement date, and also an indication of the pension you could receive if you remain in service up to your Normal Pension Date.
Please read your statement when you receive it and check the information at the top of the statement (such as your date of birth) is correct. If you think any of the information held by the Plan is incorrect then please contact the administration team.
Reviewing your money purchase AVC investmentsThere are a small number of members in the Plan who have money purchase AVCs with Friends Life (this option was available in the BAA Pension Scheme until 2006). If you are one of these members, then it is important to frequently review your investment choices to ensure they are still appropriate. In particular, members invested in the Friends Life Cash Fund should be aware that in the current era of very low interest rates, while this fund aims to protect capital, the investment returns are close to zero.
There are a wide range of funds in which you can choose to invest. For details please contact the administration team or visit the Friends Life website. If you are planning on making changes to your AVCs investment or contribution choices then we suggest you speak to a financial adviser (you can find a local financial adviser on unbiased.co.uk).
Member websiteWe have also launched a Plan website. It aims to help members resolve queries and find out Plan information more easily. The website can be found at the address below:
http://gapp.lcp.uk.com/
The information on the website will build up over time. If there is anything further you would like to see on the website please let us know.
PLAN NEWS
30 September 20130
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400
600
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1000
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1600
Num
ber o
f mem
bers
1485
30 September 2014
198
1408
238178140
Membership
Over the past year the membership profile of the Plan has changed, as shown in the chart below:
PENSIONWATCH 5
Budget 2014In his 2014 Budget, the Chancellor announced very significant changes to pension rules. Most of these are designed to increase the flexibility and choice for pension scheme members.
The impact for defined benefit (DB) schemes, such as the Plan, is perhaps less than for defined contribution (DC) schemes but it is still significant.
A reminder that a “DC” pension is a pension savings account where what you get is wholly dependent on the contributions paid in and the investment returns earned (rather than a “DB” pension where what pension you get is worked out using a formula based on service and salary).
More choice and flexibility for “DC” pensions From April 2015, people with DC pensions will have much more choice about how they take their pension benefits. For example, they won’t have to purchase an annuity (a pension for life normally bought from an insurance company). If they wish, they can take all their pension benefits from any age from (currently) 55, in one lump sum, or spread their pension money over a period of time with full flexibility, subject, in all cases, to income tax rules.
The impact on Plan membersThe direct impact for DB schemes (like the Plan) is more limited.
However, the Government has announced that DB pension scheme members will be able to take advantage of this increased choice and flexibility by transferring their pension to a DC pension arrangement (however, pensions already in payment cannot be transferred in this way). Before considering such a transfer you should note that a decision to transfer from a DB scheme to a DC arrangement cannot be reversed, and fundamentally changes the nature of your retirement benefits. It is important to seek independent financial advice (and from April 2015 independent financial advice will be a legal requirement for transfers over £30,000).
Changes to minimum pension ageCurrently, the earliest age that most pension benefits can be drawn other than owing to ill-health is age 55 (although members of the Plan who joined the BAA Pension Scheme before April 2006 have a protected right to draw benefits any time from age 50, provided they do so directly from the point of leaving service). Pensions drawn early are reduced to reflect the longer period for which they will be paid.
The Government has now decided to raise the the minimum age at which pensions can be drawn from 55 to 57, although this will not come into effect until 2028. It is expected that thereafter the minimum pension age will be set 10 years earlier than the state pension age.
State pension ageThe Government has proposed increasing the State Pension Age to 68 in the in the mid-2030s (as opposed to the currently legislated for mid-2040s). A further increase to 69 in the late-2040s has also been proposed. To calculate when you will reach your State Pension age, based on the current laws, go to: https://www.gov.uk/calculate-state-pension
PENSION NEWS
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INVESTMENT UPDATE
This came through in the Plan’s assets. Positive investment returns and more contributions from Gatwick Airport and Plan members continued to swell the numbers!
Overall, a cheerier outlook for the global economy and falls in volatility helped the financial markets. However, the growth story remains mixed as some countries look to be moving forwards, whilst others are facing fresh setbacks.
The positive headlines were:
� US and UK economic data showed improvements, with increasing economic growth in both countries. As a result, US politicians reduced – with a view to ending – the flow of “easy money” (quantitative easing) into the economy.
� Interest rates remained low across the developed world as central banks continued to provide tailwinds for economic growth – this appears to be working in some cases.
� The European central bank began to implement measures to boost the growth of the European economies.
� Emerging markets performed much better this year, although performance has been very mixed at country level.
However, some areas have slightly held back the wider recovery:
� Japanese, European and some emerging market economic data disappointed, with investors concerned by how the respective economies were progressing more slowly than anticipated.
� Investors continue to be concerned by the very real prospect of the Eurozone entering a deflationary environment.
� Growth in the Chinese economy seems to be slowing down, reducing demand for a range of world goods, from oil to luxury cars.
� A harsh winter (especially in the US) led to concerns over global growth on the whole, as spending and consumption faltered with the severe weather.
� Geopolitical risks increased, caused by the conflicts in Ukraine and the rapid advance of Isis in Iraq and Syria.
Generally speaking, shorter term setbacks, although important to be aware of, do have less of an impact on long-term investors such as the Plan.
Over the last year, the Trustee has continued to increase its emerging markets multi-asset fund allocation, moving the allocation towards its strategic benchmark.
Towards the end of the year, there were some departures of senior personnel at Barings. As a result of these, the Trustee is in the process of reviewing its allocation with Barings, bearing in mind that investment decisions such as this need to be considered thoroughly and suitable action taken.
The current investment strategy is summarised in the pie-chart below.
The year to 30 September 2014 was reasonably good for financial markets, and investors have been encouraged by an improving global economy.
20%
Index-linked gilts (L&G)
Diversified Growth (Ruffer)
Diversified Growth (Barings)
UK Equities (L&G)
Overseas Equities (L&G)
20%
20%
20%
15%
15%
10%
Emerging Market Multi-Asset (Capital)
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INVESTMENT UPDATE (CONT’D)
The performance of each of the Plan’s investments is shown in the table below.
Asset class Performance over year to 30 September 2014
Index-linked gilts (L&G) 13.0%UK equities (L&G) 6.2%Overseas equities (L&G) 12.5%Diversified growth (Ruffer) 3.1%Diversified growth (Barings) 3.7%Emerging market multi-asset (Capital) 3.1%Plan Total 7.3%
The performance figures above illustrate strong performance over the year from the traditional asset classes (equities and bonds), building on the performance over the previous year. All the assets produced positive returns and the Plan outperformed the aggregate figure for the separate managers’ benchmarks of 6.5%.
The Plan’s assets are spread across the asset classes shown. The index-linked gilts form the “low risk” part of the portfolio. There is an allocation to equities to allow the Plan to benefit from the higher potential return expected from equities over the longer-term. However, equity markets tend to be relatively more volatile and higher-risk compared to most other assets. Therefore, the Plan also invests in diversified growth funds and the emerging market multi-asset fund.
Investing in diversified growth funds is one way for the Plan to reduce its reliance on the equity markets, whilst still seeking a higher investment return than gilts. The diversified growth managers are allowed to invest in a wide range of assets (such as equities, bonds and commodities), and switch quickly between these asset classes to take advantage of market conditions as they change.
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SUMMARY FUNDING STATEMENT
We use independent advisers to help us to monitor the Plan’s finances, and this statement summarises the results of the recently completed actuarial valuation of the Plan as at 30 September 2013 and provides you with a snapshot of the Plan on 30 September 2014.
The valuation as at 30 September 2013 gave a funding surplus of £12m. However, largely due to falling interest rates over the year, at 30 September 2014 there is a shortfall of £7m. Further details are given on the next page.
A snapshot of the Plan On 30 September 2014
Target level of assets: £322 million
Actual assets were £7m less than this.
The chart shows that the shortfall on 30 September 2014 was £7m. The Plan’s financial position has therefore worsened by £19m over the year since the valuation. This is largely due to falls in interest rates over the year, which increases the target level of assets we need to hold now to meet payments in the future. This was partially offset by favourable returns on the Plan’s assets.
We expect that the funding position of the Plan will fluctuate over time as financial and investment market conditions change. So long as Gatwick Airport pays the necessary contributions any shortfall will not prevent benefits continuing to be paid in full.
Results of the actuarial valuation At 30 September 2013
Target level of assets: £272 million
Actual assets were £12m greater than this.
In your last Summary Funding Statement we indicated there was shortfall as at September 2012 of £1m. The Plan’s position therefore improved by £13m during 2013. This was due to a change in the assumptions used to calculate the target level of assets, offset in part by less favourable market conditions.
The Trustees of the Gatwick Airport Pension Plan regularly produce a Summary Funding Statement, like this one, to give you an update on the Plan’s funding position.
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Plan assets Target level of assets
Surplus/(Deficit)
284 272
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0
-50
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Plan assets Target level of assets
Surplus/(Deficit)
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AssumptionsThe Trustee employs an independent expert, the Scheme Actuary, to provide regular checks on the Plan’s finances. These regular check-ups involve calculating a target level of assets.
The target level of assets is the amount that is expected to be enough to continue to pay out all the pensions that members have already built up in the Plan.
Nobody knows exactly how much money will be needed to pay everybody’s pensions. This will depend on how long members live, the level of inflation, and the returns earned on the Plan’s investments, amongst other factors. The Company stands behind the Plan and is obliged to ensure that ultimately the Plan can pay all members’ benefits.
Assets of the FundThe assets of the Plan come from contributions paid by members and by the Company, together with investment growth.
The assets of the Plan are held separately from the Company and the Plan’s Trustees are responsible for investing this money, after taking professional advice.
The assets are held in a common fund – they are not held in separate pots for each member.
Pensions are paid to retired members out of this common fund.
Your questions answered
What if the Plan has to wind-up?The Company and the Trustee do not intend to wind up the Plan. However, we do monitor the impact on the Plan in the event of a wind-up. In this case, responsibility for paying members’ pension benefits would be transferred to an insurance company.
The most recent estimate provided by our independent advisers looked at the position on 30 September 2013. This estimate showed that the Company would have had to make an additional final contribution of about £230m to make sure all members’ pensions could be paid in full by an insurance company. This is larger than the shortfall shown above, as is common amongst similar UK pension schemes, and reflects among other things a substantial margin for risk since, unlike the Trustee, an insurance company would not be able to request additional contributions from the Company if investment returns turned out not to be as high as expected.
This would only have an impact on members in the extreme event that the Company became insolvent and could not afford to pay the required contribution
Is my pension protected?The Government has set up the Pension Protection Fund which provides pension scheme members with added security should their employer become insolvent and unable to pay the final contribution. If the Plan were to enter the Pension Protection Fund, the amount members receive may be less than the pension benefits built up for them in the Plan. The Pension Protection Fund rules are complex. The amount they will pay depends on the rules of the scheme, whether a pension is already being paid, a member’s age and the type of pension benefit.
More information and guidance about the Pension Protection Fund is available at pensionprotectionfund.org.uk or by contacting the Pension
Protection Fund, Renaissance, 12 Dingwall Road, Croydon, Surrey, CR0 2NA (tel 0845 600 2541).
When will I receive further updates? We will continue to monitor the position closely over the coming years and update you regularly as to progress against our funding target. In particular, we will send you Summary Funding Statements on a regular basis.
Is there anything else I need to know?Regulations require us to confirm to you that the employer has not taken any money out of the Plan in the last 12 months and that the Pensions Regulator has not intervened to modify the Plan Rules or impose a Schedule of Contributions. We can confirm that none of these events has occurred.
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YOUR NOTES
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CONTACT US
If you have any questions about your benefits in the Plan or for general information about the Plan then please contact the pensions team at LCP on:
Gatwick Airport PensionsLane Clark & Peacock LLP95 Wigmore StreetLondonW1U 1DQ
020 7439 2266
Or visit the Plan’s website:
http://gapp.lcp.uk.com/
For any queries relating to payroll deductions, please contact MyHR on:
0800 1114501
If you have any comments on this newsletter or suggestions for future editions, please pass these to Michael Routh, Secretary to the Trustee.
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19112
Gatwick Airport Limited
Gatwick Airport Identity
Pension Plan_REVERSE
Steve R
24.09.10
Mark Tosey
Hamish Campbell
Simon Gore
Mac Illustrator CS3
—
—
Outlined
100%
INFO