the university of birmingham pension and assurance scheme › finance › pensions › ... · 3 the...

The University of Birmingham Pension and Assurance Scheme

Annual report

Year ended 31 March 2015

Registration number (Registrar of Occupational and Personal Pension Schemes) 10141520

The University of Birmingham Pension and Assurance Scheme Annual report For the year ended 31 March 2015

Contents pages Trustees and Scheme Advisers 1 - 2 Trustees’ Report 3 - 12 Independent Auditor’s Report 13 Independent Auditor’s Statement about Contributions 14 Fund Account 15 Net Assets Statement 16 Notes to the Financial Statements 17 - 23 Schedule of Contributions 24 - 26 Actuarial Certificates 27 - 28 Investment Report 29 - 32

1

The University of Birmingham Pension and Assurance Scheme Trustees and advisers Year ended 31 March 2015 Trustees: S Battle N Constantinou (Member Nominated Trustee)

N Cotton (Member Nominated Trustee) J Craggs (Chairman)

G B Evans (Member Nominated Trustee) H Paver C P Rickwood

R M Halton (resigned 31 July 2014) R Sondhi (appointed 1 August 2014, resigned 1 August 2015) D Davies (appointed 1 August 2015) N Sutheran (Member Nominated Trustee) (appointed 1 August 2015)

Scheme Secretary: T G Fuery The University of Birmingham Birmingham B15 2TT Actuaries and Consultants: Towers Watson Three Brindleyplace Birmingham B1 2LN Bankers: Lloyds Bank plc 142 Edgbaston Park Road Edgbaston Birmingham B15 2TY Auditor: BDO LLP 31 Chertsey Street Guildford

Surrey GU1 4HD Investment Managers: Royal London Asset Management Limited 55 Gracechurch Street London EC3V 0UF BlackRock Life Limited 12 Throgmorton Avenue London EC2N 2DL

Standard Life Investments Limited 1 George Street Edinburgh EH2 2LL Comgest Asset Management International Limited 46 St. Stephen’s Green Dublin 2 Ireland

2

The University of Birmingham Pension and Assurance Scheme Trustees and advisers Year ended 31 March 2015

BlueBay Asset Management LLP 77 Grosvenor Street London W1K 3JR Solicitors: Squire Sanders (UK) LLP Rutland House 148 Edmund Street Birmingham B3 2JR Custodians: JP Morgan Worldwide Securities Services (Royal

London Asset Management Limited and BlackRock Life Limited) 1 Chaseside Bournemouth BH7 7DA Citibank London (Standard Life Investments Limited) 3 Hanover Square London W1S 1HD RBC Dexia Investor Services Ireland Limited (Comgest Growth Plc) George’s Quay House 43 Townsend Street Dublin 2 Ireland Brown Brothers Harriman (Luxembourg) SCA (Bluebay LLP Asset Management) 2-8 Avenue Charles de Gaulle BP 403 L-2014 Luxembourg

3


Trustees’ report Year ended 31 March 2015

1 Outline of the Scheme

The Scheme is a defined benefit scheme providing pension benefits based on final salary at retirement as well as death-in-service benefit to employees of The University of Birmingham. The membership of the Scheme is contracted out of the State Earnings Related Pension Scheme under the provisions of the Pension Schemes Act 1993. The Scheme is a registered scheme under section 150 of the Finance Act 2004 and benefits from the favourable tax treatment previously afforded to exempt approved UK pension schemes. The Scheme is currently closed to new members and its status as a closed scheme is reviewed annually by the Trustees and the principal employer (The University of Birmingham). 2 Trustees

The following have served as Trustees during the year: S Battle

N Constantinou (Member Nominated Trustee) N Cotton (Member Nominated Trustee) J Craggs (Chairman) G B Evans (Member Nominated Trustee) H Paver C P Rickwood R M Halton (resigned 31 July 2014) R Sondhi (appointed 1 August 2014, resigned 1 August 2015) 3 Trustee matters The Trustees have given careful consideration to the Pension Schemes Act 1993 and the Pensions Act 1995 and in consultation with the Scheme’s advisers have taken all necessary steps to ensure compliance. 4 Appointment of Trustees In accordance with the Occupational Pension Schemes (Member-nominated Trustees and Directors) Regulations, four of the Trustees are nominated by the members under the rules notified to the members of the Scheme, to serve for a period of four years. The member-nominated Trustees may be removed before the end of their four-year term only by agreement of all of the remaining Trustees, although their appointment ceases if they cease to be active members of the Scheme. In accordance with the trust deed, the principal employer, The University of Birmingham, has the power to appoint and remove the other Trustees of the Scheme.

4

The University of Birmingham Pension and Assurance Scheme Trustees’ report Year ended 31 March 2015

4 Appointment of Trustees (continued) At least one of the three of the University's nominated trustees is a lay member of Council; two are lay Council members or appropriate lay individuals who may have a pensions or investment background that will contribute to the work of the Trustee body; the fourth Trustee is a senior employee of the University. The composition of the member nominated Trustees is that two of the four representatives could be pensioner members of the Scheme. Future elections of member nominated Trustees will be conducted amongst both active and pensioner members of the Scheme. Deferred members will not be included in the nomination or election process.

In accordance with the requirements of the Pensions Act 2004 regarding the appointment of Member Nominated Trustees (MNTs) the Trustees have established a process for the nomination, selection and appointment of MNTs to ensure compliance. During the year, one of the four Member Nominated Trustees (MNTs) passed away. Following this, the Trustee board is currently one Member Nominated Trustee short, an exercise to appoint a new MNT is currently being undertaken. The Scheme is reliant on the work of the Trustees in ensuring that its responsibilities are correctly fulfilled.

5 Trustees’ responsibilities statement The financial statements, which are prepared in accordance with UK Generally Accepted Accounting Practice, are the responsibility of the Trustees. Pension Scheme regulations require the Trustees to make available to Scheme members, beneficiaries and certain other parties, audited financial statements for each Scheme year which: show a true and fair view of the financial transactions of the Scheme during the Scheme year and of the amount and disposition at the end of the Scheme year of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the Scheme year; and contain the information specified in the Schedule to the Occupational 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 Schemes’’. The Trustees have supervised the preparation of the financial statements and have agreed suitable accounting policies, to be applied consistently, making any estimates and judgments on a prudent and reasonable basis. The Trustees are also responsible for making available certain other information about the Scheme in the form of an Annual Report.

5

The University of Birmingham Pension and Assurance Scheme Trustees’ report

Year ended 31 March 2015

5 Trustees’ responsibilities statement (continued) The Trustees are 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 Scheme by or on behalf of the employer and the active members of the Scheme and the dates on or before which such contributions are to be paid. The Trustees are also responsible for keeping records in respect of contributions received in respect of any active member of the Scheme and for monitoring whether contributions are made to the Scheme by the employer in accordance with the Schedule of Contributions. Where breaches of the Schedule occur, the Trustees are required by the Pensions Acts 1995 and 2004 to consider making reports to The Pensions Regulator and the members. The Trustees also have a general responsibility for ensuring that adequate accounting records are kept and for taking such steps as are reasonably open to them to safeguard the assets of the Scheme and to prevent and detect fraud and other irregularities, including the maintenance of an appropriate system of internal control.

6 Contribution rates The contribution rates during the year were: By members: From 6.8% of pensionable earnings By University: 14.0% of pensionable earnings Additional and special contributions are being made by the principal employer in respect of augmentation of certain benefits to individuals, and to ensure that the Minimum Funding Requirement is met as detailed in the Schedule of Contributions. The Scheme introduced a revised benefit structure from 1 August 2006 as part of the response to meeting the deficit identified in the Actuarial Valuation of 31 December 2004. The revised structure provides for four different levels of benefit, of which three have age related contributions. The revised benefit structure applies to service after 1 August 2006 only, with benefits before that date being secured on the former 60ths basis. Each member has the right to change options every five years commencing from 1 August 2006 and they are allowed three changes in total during their membership of the Scheme.

6


6 Contribution rates (continued) The following schedule details the contribution rates applicable to each of the four benefit options: University of Birmingham Pension and Assurance Scheme (‘BPAS’) Membership Options Option 1 Option 2 Option 3 Option 4

Under 25 6.8% 7.3% 8.7% 10.5% 25 – 29 6.8% 7.5% 9.1% 11.3% 30 – 34 6.8% 7.6% 9.5% 12.1% 35 – 39 6.8% 7.8% 9.9% 12.8% 40 – 44 6.8% 7.9% 10.3% 13.5% 45 – 49 6.8% 8.1% 10.7% 14.2% 50 – 54 6.8% 8.3% 11.1% 14.9% 55 – 59 6.8% 8.4% 11.4% 15.5%

60 and over 6.8% 8.5% 11.7% 16.1%

7

The University of Birmingham Pension and Assurance Scheme Trustees’ report

Year ended 31 March 2015 Summary of Contributions paid in the year

During the year, the contributions paid to the Scheme were as follows:

£’000 Due under the schedule of contributions Employers’ contributions - ordinary

1,449

- additional - augmentation

4,300 100

Employees’ contributions - ordinary 903 6,752

Not due under the schedule of contributions Employees’ contributions - AVCs

16

Total contributions paid to the Scheme

6,768

All ordinary contributions due to the Scheme from members and from participating employers were paid in full within the timescale required by the Schedule of Contributions certified by the Actuary on 27 February 2014. Additional employer contributions of £4.3m, falling due on 1 August each year, commenced in 2010, with a final payment falling due on 1 August 2030.

There have been no refunds made to the principal employer in the year (2014: £nil).

7 Membership

(a) Total members 31

March 2015

31 March 2014

No No Contributing members 493 537 Deferred members 1,962 2,010 Pensioners 2,207 2,185 4,662 4,732 (b) Contributing members No No At 1 April 2014 537 Less: Leavers (11) Retired with pension (31)

Deaths (2) (44) At 31 March 2015 493

8


7 Membership (continued) (c) Deferred members These are members who have left service but have elected to have their benefits

retained within the Scheme until they become payable. No No At 1 April 2014 2,010 New deferred members 11 2,021 Less: Pensions becoming payable (47)

Subsequently Transferred (3) Full commutation of pensions (6) Death in deferment (3) (59) At 31 March 2015 1,962 (d) Pensioners No No At 1 April 2014 2,185 Contributing members who have retired 31 Deferred members becoming payable 47 Spouses’ pensions becoming payable 32 110 2,295 Less: deaths (88) At 31 March 2015 2,207 There are 185 pensioners for whom the Scheme has totally discharged its liabilities by the

purchase of annuities from Legal & General. In addition, there are a further 5 pensioners for whom the Scheme has purchased annuities with Re-Assure. These pensioners are not included in the above figures.

9


8 Scheme benefits (a) Pensions increase

The Scheme increases pensions in excess of the Guaranteed Minimum Pension by the same rate as the State Pension. The increase in April 2014 was 1.2%. In addition, for members with service between 1 August 2006 and 10 April 2011, an increase of 2.3% was applicable for that portion of their pension. Deferred benefits are increased as prescribed in the Scheme rules. There were no discretionary increases awarded during the year. (b) Transfer values All transfer values paid were calculated in accordance with the methods and assumptions determined or approved by the Actuary and offered at full-cash equivalent of early leaver’s non-discretionary rights in the Scheme. Transfers into and out of the Scheme are shown in the membership statistics and the monetary values involved are shown in the financial statements, which are found later in this report. No discretionary benefits were added to transfer values. 9 Investment

The investments of the Scheme comprise Stock Exchange Investments, Cash, Property, Unit Trusts, Forward exchange contracts and swaps. The Scheme’s Investment Managers are listed on page 1. The Managers have full power to buy and sell on a discretionary basis. The Trustees, through the Pension Fund Management Sub-Committee, meet the Managers at least twice a year to review the portfolio in detail, to seek advice from the Managers as to future prospects and also to consider the Investment Managers’ performance. The Trustees also inform the Managers of any changes to the Scheme or its objectives which may affect investment criteria. The general aims laid down by the Trustees for the guidance of the Managers are to secure the maximum total return over the projected life of the Scheme consistent with the degree of prudence which the Trustees and Managers ought to observe. Additional information regarding the composition of the investment portfolio is contained in the Investment Reports set out on pages 29 to 32 and note 10 to the financial statements. All the assets of the Scheme are in the safekeeping of the Custodians, who are listed on page 2. Assets are registered in the nominee name of the Custodians under a designation unique to the Scheme. The investments are considered to be marketable. In accordance with the requirements of section 35 of the Pensions Act 1995, the Trustees have produced a Statement of Investment Principles which governs investment policy. A copy is available on request from the Pensions Office at the address of the Scheme Secretary shown on page 1. There were no departures from the Statement of Investment Principles during the year.

10


Trustees’ report Year ended 31 March 2015

10 Expenses

The Scheme bears the full cost of administration, including costs incurred in buying and selling investments, and the fees and expenses of the investment managers. The investment managers receive a fixed management fee for their services to the Scheme together with performance related payments. 11 Preparation and audit of financial statements

The 2015 financial statements, set out later in this annual report, provide an overview of the Scheme’s income and expenditure, and its investments. They have been prepared and audited in accordance with regulations made under Sections 41(1) and (6) of the Pensions Act 1995.

12 Administration

The day to day administration of the Scheme is carried out by The University of Birmingham Pensions Section, whose address for enquiries from Members and Pensioners is: Pensions Manager The University of Birmingham Birmingham B15 2TT [email protected] Members are entitled to inspect copies of documents giving information about the Scheme. In some circumstances, copies of documents can be provided but a charge will be made for copies of the Trust documents (Deed and Rules) and of the actuary’s report. All personal data held electronically or in paper format in respect of members of the Scheme (and where relevant their dependants and beneficiaries) is processed for the purposes of record maintenance and benefit provision in accordance with the eight principles of the Data Protection Act 1998 (the 1998 Act). The Trustees are registered under the 1998 Act as “Data Controller”. Any enquiries about the Scheme, including requests from individuals for information about their benefits, should be sent to the Pensions Manager.

13 Actuarial valuation and statement

M Faulkner, FIA, of Tower Watson, the independent actuary to the Scheme, completed his actuarial valuation, based on the value of the fund at 31 March 2013 in February 2014. The last actuarial valuation of the Scheme carried out as at 31 March 2013 found that the net assets of the Plan were not sufficient to cover the accrued liabilities of the Plan. The funding level on the ongoing basis at that date was 83%, equivalent to a deficit of £60.9m. The latest schedule of contributions and certificates from the actuary are reproduced later in the report on pages 24 to 28. The next valuation is due as at 31 March 2016. 14 Employer-related investment

There were no employer-related investments during the year. Details of related party transactions are set out in note 15 to the financial statements.

11


15 Closure of the Scheme to new members

At a meeting of The University of Birmingham Council held on 27 March 2002 the University, as Principal Employer, resolved that new members of staff eligible to join the Scheme would, with effect from 1 August 2002 and until otherwise determined by the Principal Employer, no longer be offered membership to the Scheme by the University. The Trustees were informed accordingly.

16 Pension Tracing Services

The pension tracing function is carried out by the Pension Tracing Service of the Department of Works and Pensions (DWP), and the levy collection function is managed in Brighton by the Pensions Regulator. The DWP’s Pension Tracing Service can be contacted as follows: Pension Tracing Service The Pension Service Whitley Road Newcastle upon Tyne NE98 1BA (Tel: 0845 600 2537) 17 The Pensions Advisory Service (TPAS) This is an independent voluntary organisation with local advisers who are experts in pension matters. It was established to provide free advice at any time to pension fund members and their dependents who have problems concerning pension rights. TPAS can be contacted at: TPAS 11 Belgrave Road (Tel: 0845 601 2923) London SW1V 1RB (Email: [email protected]) 18 Pensions Regulator The Pensions Regulator is the regulator of work-based pensions in the UK, with wide and flexible powers under the Pensions Act 2004. The powers of the Pensions Regulator include the ability to: Issue improvement notices and third party notices, allowing the regulator to ensure

problems are put right; Freeze a scheme at risk, while the regulator investigates; Disqualify trustees who are judged not fit and proper to carry out their duties; and To collect more detailed scheme information The Pensions Regulator can be contacted at: Napier House Trafalgar Place (Tel: 01273 811 800) Brighton BN1 4DW (Email: [email protected])

12


19 Disputes Resolution Procedure Under the Pensions Act 2007 there is a requirement for the Scheme to set up its own formal procedures for resolving any dispute with the Trustees. They are to be used when a Member or potential beneficiary has a dispute which has not been satisfactorily resolved informally. At any stage of the dispute the individual can refer to TPAS for informal help. Once the disputes resolution procedure is complete, the matter can be pursued through the office of the Pensions Ombudsman, the Pensions Regulator or ultimately through the Courts. 20 Pensions Ombudsman The Pensions Ombudsman investigates the complaints of injustice caused by maladministration and dispute of fact or law with the Trustees, Managers or employers. The Pensions Ombudsman 11 Belgrave Road (Tel: 020 7834 9144) London SW1V 1RB (Email: [email protected])

This report, including the investment report set of on pages 29-32 was approved by the Trustees on Signed for and on behalf of the Trustees C P Rickwood Trustee G B Evans Trustee

13

The University of Birmingham Pension and Assurance Scheme Independent auditor’s report to the Trustees of The University of Birmingham Pension and Assurance Scheme We have audited the financial statements of The University of Birmingham Pension and Assurance Scheme for the year ended 31 March 2015 which comprise the fund account, the net assets statement and the related notes. 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 Scheme’s Trustees, as a body, in accordance with the Pensions Act 1995. Our audit work has been undertaken so that we might state to the Scheme’s Trustees 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 Trustees, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Trustees and the auditor As explained more fully in the Trustees’ Responsibilities Statement set out on pages 4 and 5, the Scheme’s Trustees are responsible for the preparation of financial statements which show 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 Financial Reporting Council’s (FRC’s) Ethical Standards for Auditors. Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statements In our opinion the financial statements: show a true and fair view of the financial transactions of the Scheme during the year ended

31 March 2015, and of the amount and disposition at that date of its assets and liabilities, other than the liabilities to pay pensions and benefits after the end of the year;

have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

contain the information specified in Regulation 3 of, and the Schedule to, the Occupational

Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, made under the Pensions Act 1995.

BDO LLP Statutory auditor Guildford United Kingdom Date BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)

14

The University of Birmingham Pension and Assurance Scheme Independent Auditor’s Statement about Contributions to the Trustees of The University of Birmingham Pension and Assurance Scheme We have examined the Summary of Contributions to The University of Birmingham Pension and Assurance Scheme for the Scheme year ended 31 March 2015 which is set out in the Trustees’ Report on page 7. This statement is made solely to the Scheme’s Trustees, as a body, in accordance with the Pensions Act 1995. Our audit work has been undertaken so that we might state to the Scheme’s Trustees those matters we are required to state to them in an auditor’s statement and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trustees, as a body, for our audit work, for this statement, or for the opinions we have formed. Respective responsibilities of the Trustees and the auditor As explained more fully in the Trustees’ Responsibilities Statement, the Scheme’s Trustees are responsible for ensuring that there is prepared, maintained and from time to time revised a Schedule of Contributions showing the rates and due dates of certain contributions payable towards the Scheme by or on behalf of the employer and the active members of the Scheme. The Trustees are also responsible for keeping records in respect of contributions received in respect of any active members of the Scheme and for monitoring whether contributions are made to the Scheme 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 about contributions Our examination involves obtaining evidence sufficient to give reasonable assurance that contributions reported in the 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 Scheme and the timing of those payments under the Schedule of Contributions. Statement about contributions payable under the Schedule of Contributions In our opinion, contributions for the Scheme year ended 31 March 2015 totalling £6,752,000 as reported in the summary of contributions and payable under the Schedule of Contributions have in all material respects been paid at least in accordance with the Schedule of Contributions certified by the Scheme actuary on 27 February 2014. BDO LLP Statutory auditor Guildford United Kingdom Date BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)

15

The University of Birmingham Pension and Assurance Scheme Fund account for the year ended 31 March 2015

Notes 2015 2014 £’000 £’000 Contributions and benefits: Contributions 3 6,768 7,014 Other income 4 35 5

6,802 7,019

Benefits 5 10,884 10,227 Payments to and on account of leavers 6 304 693 Other payments 7 53 66 Administrative expenses 8 453 753

11,694 11,739

Net withdrawals from dealings with members (4,892) (4,720)

Returns on investment: Investment income 9 4,835 4,272 Change in market value of investments 10 39,028 4,639 Investment management expenses 11 (596) (800) Foreign exchange differences (275) 48

Net returns on investments 42,992 8,159

Net increase in the fund during the year 38,100 31,408

Net assets of the Scheme at 1 April 2014 299,735 296,296

Net assets of the Scheme at 31 March 2015 337,835 299,735 The notes on pages 17 to 23 form part of these financial statements.

16

The University of Birmingham Pension and Assurance Scheme Net assets statement at 31 March 2015 Notes 2015 2014 £’000 £’000 Investment assets 10 340,860 304,590 Investment liabilities (5,838) (8,287) Net investment assets 335,022 296,303 Current assets Current liabilities

13 13

2,866 (53)

3,567 (135)

Net assets of the Scheme 337,835 299,735

The financial statements summarise the transactions of the Scheme and deal with the net assets at the disposal of the Trustees. They do not take account of obligations to pay pensions and benefits which fall due after the end of the Scheme year. The actuarial position of the Scheme, which does take account of such obligations, is dealt with in the Trustees' Report and the Technical Provision statement from the actuary included in the Annual Report and these financial statements should be read in conjunction with them. The notes on pages 17 to 23 form part of the financial statements. These financial statements were approved and authorised for issue by the Trustees on Signed on behalf of the Trustees: C P Rickwood Trustee G B Evans Trustee

17

The University of Birmingham Pension and Assurance Scheme Notes to the financial statements For the year ended 31 March 2015 1 Basis of preparation

The 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, and with the guidelines set out in the Statement of Recommended Practice, Financial Reports of Pension Schemes (Revised May 2007).

2 Accounting policies

The principal accounting policies are as follows:

a. Investments and cash deposits (i) Fixed interest securities, index-linked securities and UK equities traded through the

London Electronic Stock Exchange Trading Service (SETS) are valued on the basis of the latest SETS trading price at the year end date, adjusted, where applicable, by accrued interest. Other fixed interest securities, index-linked securities and equities are valued at bid market prices at the year end date adjusted, where applicable, by accrued interest. Pooled investment vehicles are valued at the bid price quoted by the investment managers. Market values listed in overseas currencies are translated into sterling at the rates of exchange ruling at the year end date.

(ii) Unit trusts, property unit trusts and managed funds are valued at bid market prices at the year end date.

(iii) Cash deposits in overseas currencies are translated into sterling at the relevant rates of exchange ruling at the year end date.

b. Investment income

Income from investments in listed shares, unit trusts and fixed interest stocks are dealt within these financial statements on an accruals basis.

c. Transfer values

Transfer values represent the capital sums either received in respect of newly-joined members from the pension schemes of their previous employers or paid to the pension schemes of new employers for members who have left service. Transfer values are accounted for on a cash basis and are included in the financial statements on the basis agreed by the actuaries.

d. Benefits

Refunds on withdrawal and single cash sums on retirement are accounted for on an accruals basis based on the date of leaving or retirement.

e. Contributions

Current service and other contributions are accounted for on an accruals basis and are in accordance with the Schedule of Contributions certified by the actuary.

18

The University of Birmingham Pension and Assurance Scheme Notes to the financial statements For the year ended 31 March 2015 2 Accounting policies (continued) f. Additional voluntary contributions

Additional voluntary contributions are deducted from employee’s earnings in accordance with their wishes and are paid directly to Friends Provident Pensions Limited. The contributions are invested by Friends Provident Pensions Limited with each member having a separate fund.

g. Administration expenses

All costs of administering the Scheme are borne by the Scheme and are accounted for on an accruals basis.

h. Annuities

Annuity policies are included at nil value in the financial statements as the liability of the Scheme to these members is effectively discharged by the purchase of these policies to provide pension increases and other purchased in prior years to provide the pension before increases. Amounts received from insurance companies are included under investment income.

i. Foreign currencies

Income received in foreign currency is translated into sterling at the exchange rate ruling on the date of receipt. Assets and liabilities in foreign currencies are expressed in sterling at the rates of exchange ruling at the year-end. Surpluses and deficits arising on conversion or translation of investments are dealt with as part of realised and unrealised investment gains and losses.

3 Contributions

2015 2014 £’000 £’000

From employers Normal 1,449 1,575 Augmentation 100 154 Additional 4,300 4,300 5,849 6,029 From members Normal Additional voluntary

903 16

985 -

Total contributions 6,768 7,014

Normal contributions due for the year are at the rate recommended by the actuary. As per the Schedule of Contributions, certified on 27 February 2014, £3,820,000 of additional contributions were made by the employer in respect of the deficit and £480,000 of additional contributions in respect of a lump sum contribution in respect of future accrual.

19

The University of Birmingham Pension and Assurance Scheme Notes to the financial statements For the year ended 31 March 2015 4 Other income 2015 2014 £’000 £’000

Claims on term insurance policies 35 5 5 Benefits

2015

2014 £’000 £’000

Pensions payable 9,861 9,372 Payments on retirement of members - commutations 931 761 Payments on death of members – lump sums 92 94 10,884 10,227 6 Payments to and on account of leavers 2015 2014 £’000 £’000

Individual transfers to other schemes 304 693 7 Other payments 2015 2014 £’000 £’000

Premiums on term insurance policies 53 66 8 Administrative expenses 2015 2014 £’000 £’000

Actuarial fees 163 330 Administration expenses 278 407 Audit fees 12 16 453 753

20

The University of Birmingham Pension and Assurance Scheme Notes to the financial statements For the year ended 31 March 2015 9 Investment income

2015

2014 £’000 £’000

Income from fixed interest securities 4,220 3,705 Income from index-linked securities 348 168 Interest receivable (7) 83 Annuity income 274 316 4,835 4,272 10 Investments

Value at 1 April 2014

Purchases at cost

Sales proceeds

Change in

market value

Value at 31 March

2015 £’000 £’000 £’000 £’000 £’000 Fixed interest securities

71,147

72,307

(75,594)

8,927

76,787

Index-linked securities 43,168 182,100 (179,760) 8,845 54,353 Pooled investment vehicles 180,455 33,321 (33,235) 24,637 205,178 Derivatives contracts AVC investments

950 474

- 16

- (25)

(3,396) 15

(2,446) 480

296,194 287,744 (288,614) 39,028 334,352 Cash deposits 109 670 296,303 335,022 The changes in market value of investments during the year comprises all profits and losses realised on sales of investments during the year together with gains and losses arising from the revaluation in the market value of investments held at the year end. Sales proceeds include indirect investment managers’ fees. It also includes the investment income re-invested in the funds during the year. The companies managing the investments are registered in the United Kingdom and Ireland. Transaction costs These costs are included in the cost of purchases and sales proceeds. Direct transaction costs include costs charged directly to the Scheme such as fees, commissions, stamp duty and other fees. Indirect costs are incurred through the bid-offer spread on investments within pooled investment vehicles. The amount of indirect costs is not separately provided to the Scheme. 2015 2014 Fixed interest

£’000 £’000

UK Quoted securities 73,110 63,786 Overseas Quoted securities 3,677 7,361 76,787 71,147

21

The University of Birmingham Pension and Assurance Scheme Notes to the financial statements For the year ended 31 March 2015 10 Investments (continued) 2015 2014 Index-linked

£’000 £’000

UK Quoted securities 54,160 42,999 Overseas Quoted securities 193 169 54,353 43,168 Pooled investment vehicles

UK – non property 128,109 118,060 Overseas – non property 77,069 62,395 205,178 180,455 Derivative contracts - Assets Forward Foreign Exchange 3,393 8,177 Swaps - 1,060 3,393 9,237 Derivative contracts - Liabilities Forward Foreign Exchange (3,383) (8,119) Swaps (2,456) (168) (5,838) (8,287) Net Derivative Contracts (2,446) 950 AVC investments 480 474 Cash deposits 670 109 Total investments 335,022 296,303 Derivatives The Trustees have authorised the use of derivatives as part of the investment strategy for the pension scheme. The breakdown of the derivative assets and liabilities at the year end is shown below: Forward foreign exchange Settlement date Currency Currently Aggregate Aggregate Bought sold asset liability £’000 £’000 1 to 3 months GBP USD 3,393 - 1 to 3 months EUR GBP - (939) 1 to 3 months USD GBP - (2,444)

3,393 (3,383)

22

The University of Birmingham Pension and Assurance Scheme Notes to the financial statements For the year ended 31 March 2015 10 Investments (continued) Swaps Type of Expiration Notional Notional Asset Liability Contract currency Principal £’000 £000 £‘000 RPI swaps 2-15 years GBP 21,000 - (1,009) RPI swaps 16-20 years GBP 27,000 - (1,447)

- (2,456) AVC Investments The Trustees hold assets, which are separately invested from the fund, in the form of individual insurance policies securing additional benefits on a money purchase basis for those members electing to pay additional voluntary contributions. Members participating in this arrangement receive an annual statement confirming the amounts held in their account and the movements during the year. The aggregate amount of AVC investments at the year end is shown below: 2015 2014

£’000 £’000

Friends Life 480 474

Insurance Policies The Trustees hold insurance policies that secure pensions payable to specified beneficiaries. These policies remain assets of the Trustees but, as is permitted under current regulations and accounting practice, the Trustees have decided that these policies need not be valued in the Net Assets Statement. 11 Investment management expenses

2015

2014

£’000 £’000

Administration, management and custody 406 508 Other advisory fees 190 292

596 800

23

The University of Birmingham Pension and Assurance Scheme Notes to the financial statements For the year ended 31 March 2015 12 Concentration of investments The following investments account for more than 5% of the Scheme’s total net assets as at 31 March 2015.

2015

2015

£’000 %

BlackRock – Adv Strat A Class BlackRock – Aquila Life BGL Dev Fundamental Standard Life – Global Absolute Return BlackRock – Aquila Life GBL Min Volatility Bluebay – Global funds SBC

32 30 27 30 21

9.4 8.8 8.0 8.9 6.2

ComGest – Growth Emerging Market 24 7.1 13 Net current assets

2015 2014 £’000 £’000 Current assets:

Prepayments 14 24 Other debtors 4 78 Investment income receivable 1,259 1,295 Cash at bank 1,589 2,170 2,866 3,567 Current liabilities: Accrued expenses 53 135 53 135 Net current assets 2,813 3,432 14 Investment commitments At 31 March 2015, there were no investment commitments (2014: £nil). 15 Related party transactions The following related party transactions arose during the year: Administration and accountancy services were provided by the principal employer, The University of Birmingham. Fees payable by the Scheme in respect of these services amounted to £147,100 for the year (2014: £146,300). Amounts outstanding at the year end in respect of such services amounted to £nil (2014: £nil). The following Trustees were also members of the Scheme during the year: N Constantinou G Evans N Cotton J Walmsley During the year, N Constantinou and N Cotton were active members of the Scheme and G Evans and J Walmsley were pensioners.

24

The University of Birmingham Pension and Assurance Scheme Schedule of Contributions Name of Scheme: The University of Birmingham Pension and Assurance Scheme Schedule Number: 3 Period covered: 1 August 2013 to 1 August 2030 Date of Schedule (for reference purposed): 27 February 2014 This schedule has been prepared by the Trustees to satisfy the requirements of section 227 of the Pensions Act 2004 after obtaining the advice of Martin Faulkner, the Actuary to the University of Birmingham Pension & Assurance Scheme (“the scheme”). The Trustees have discussed and agreed this Schedule with the University of Birmingham. 1 Contributions by the employers

Contributions on behalf of each participating employer (collectively referred to as “the employers”) shall be paid on the following basis, subject to review at future actuarial valuations:

1.1 Contributions

At the rate of 14% of active members’ Pensionable Earnings.

Further payments on behalf of those members who have chosen to partake in the salary sacrifice arrangement. These contributions are dependant on the benefit option chosen by each member and their age at 1 August 2006 (the date of implementation of this scheme design). The rate of Pensionable Earnings is highlighted below for each age band and option.

University of Birmingham Pension and Assurance Scheme (‘BPAS’) Membership Options Option 1 Option 2 Option 3 Option 4

Under 25 6.8% 7.3% 8.7% 10.5% 25 – 29 6.8% 7.5% 9.1% 11.3% 30 – 34 6.8% 7.6% 9.5% 12.1% 35 – 39 6.8% 7.8% 9.9% 12.8% 40 – 44 6.8% 7.9% 10.3% 13.5% 45 – 49 6.8% 8.1% 10.7% 14.2% 50 – 54 6.8% 8.3% 11.1% 14.9% 55 – 59 6.8% 8.4% 11.4% 15.5%

60 and over 6.8% 8.5% 11.7% 16.1%

Annual payments of £4.3m on 1 August each year from 2013 to 2030 inclusive. These payments include an allowance for the additional contributions required to meet the cost of future accrual over and above the contribution rates outlined above. The table below shows how the additional contributions can be broken down between regular and deficit contributions.

25

The University of Birmingham Pension and Assurance Scheme Schedule of Contributions

Year Lump Sum Contributions in respect

of future accrual (£m)

Lump Sum Contribution in respect of deficit

contributions (£m)

Total contributions

(£m)

2013 0.50 3.80 4.30 2014 0.48 3.82 4.30 2015 0.47 3.83 4.30 2016 0.45 3.85 4.30 2017 0.44 3.86 4.30 2018 0.43 3.87 4.30 2019 0.41 3.89 4.30 2020 0.40 3.90 4.30 2021 0.39 3.91 4.30 2022 0.37 3.93 4.30 2023 0.36 3.94 4.30 2024 0.34 3.96 4.30 2025 0.32 3.98 4.30 2026 0.30 4.00 4.30 2027 0.27 4.03 4.30 2028 0.24 4.06 4.30 2029 0.22 4.08 4.30 2030 0.19 4.11 4.30

1.2 Other contributions In addition to the contributions shown above, the University shall pay the following:

Additional contributions as may be required under the Trust Deed and Rules in specific circumstance, for example to cover augmentations.

Such other contributions as may from time to time by agreed by the Trustees and the University.

2 Contributions by active members 2.1 In respect of those members who have not elected to participate in the salary sacrifice

arrangement, active members pay contributions at the rate of Pensionable Earnings shown in the table in section 1.1 dependant on the benefit option chosen and age at 1 August 2006 (the date of implementation of this scheme design).

2.2 This schedule does not cover the University’s commitment to pay across to the Trustees

any Additional Voluntary Contributions made by the members. 3 Due dates of payment 3.1 Member contributions shall be deducted from members’ pay and paid to the Scheme by

the University no later than 19 days after the end of the calendar month in which they were deducted from pay.

3.2 Regular contributions from the University shall be paid to the Scheme no later than 19

days after the end of the calendar month in which they were deducted from pay. 3.3 Deficit contributions shall be paid within five working days of the due dates set out in the

recovery plan dated 27 February 2014.

26

The University of Birmingham Pension and Assurance Scheme Schedule of Contributions (continued) Signed on behalf of the Trustees of the University of Birmingham Pension and Assurance Scheme Name: Tim Fuery Position: Secretary to the Trustees Signed: Tim Fuery Date: 27 February 2014 Signed on behalf of the University of Birmingham Name: Gillian Ball Position: Director of Finance Signed: Gillian Ball Date: 27 February 2014

27


Actuary’s certification of the schedule of contributions

Name of Scheme : The University of Birmingham Pension and Assurance Scheme Adequacy of rates of contributions

1 I hereby certify that, in my opinion, the rates of contributions shown in this schedule of contributions are such that the statutory funding objective on 31 March 2013 could have been expected to be met by the end of the period specified in the recovery plan.

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 dated 27 February 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 Scheme’s liabilities by the purchase of annuities, if the Scheme were wound up. Signature: Martin Faulkner Date: 27 February 2014 Martin Faulkner Fellow of the Institute and Faculty of Actuaries Towers Watson Limited

28


Actuarial certification for the purposes of regulation 7(4)(a) of the Occupational Pension Schemes (Scheme Funding) Regulations 2005.

Name of Scheme: The University of Birmingham Pension and Assurance Scheme Calculation of technical provisions I certify that, in my opinion, the calculation of the Scheme’s technical provisions as at 31 March 2013 is made in accordance with regulations under section 222 of the Pensions Act 2004. The calculation uses a method and assumptions determined by the Trustees of the Scheme and set out in the Statement of Funding Principles dated 27 February 2014. Martin Faulkner Towers Watson Limited Fellow of the Institute and Faculty of Actuaries Three Brindleyplace 27 February 2014 Birmingham B1 2LN

29


INVESTMENT REPORT FOR THE YEAR ENDED 31 MARCH 2015 The assets of the Scheme, with the exception of Additional Voluntary Contributions (“AVC”), have been managed during the year under review by the investment managers; BlackRock Advisors (UK) Limited (BlackRock), Royal London Asset Management Limited (RLAM), Standard Life Investments (Standard Life), Comgest Asset Management International Limited (Comgest) and Bluebay Asset Management LLP (Bluebay). During the year under review the Trustees agreed to invest 3.9% of the Scheme’s total assets in Standard Life’s Global Focused Strategies (“GFS”) Fund (a diversified growth fund), by reallocating part of the Scheme’s existing 8.3% strategic allocation in market capitalisation weighted global equities. Initial investment took place on 15 July 2014. There is a degree of delegation of responsibility for investment decisions. The Scheme's investment strategy is agreed by the Trustees after taking appropriate qualified advice. Subject to complying with the sectors, the day to day management of the Scheme’s assets, including full discretion for stock selection, is the responsibility of the investment managers.

The Scheme’s target asset allocation agreed strategy, which specifies the target proportions of the Scheme’s assets that should be invested in the principal market is set out in the table below:

Asset Class Investment Manager

Target Allocation %

31 March 2014 31 March 2015

Global Equities (Market Capitalisation) BlackRock 8.4 4.5 Global Equities (Fundamental Indexation) BlackRock 8.3 8.3 Global Equities (Minimum Volatility) BlackRock 8.3 8.3 Emerging Markets Equities Comgest 7.0 7.0 Total Equities 32.0 28.1 Corporate Bonds RLAM 20.0 20.0 Inflation-Linked Government Bonds RLAM 20.0 20.0 Total Bonds 40.0 40.0 Currency Hedging BlackRock 3.0 3.0 Diversified Beta BlackRock 9.0 9.0 Diversified Growth (GARS) Standard Life 9.0 9.0 Diversified Growth (GFS) Standard Life - 3.9 Multi Asset Credit Bluebay 7.0 7.0 Total Alternatives 28.0 31.9 Total 100.0 100.0 Note: The Scheme also holds a number of Inflation Swaps, managed by RLAM, to provide an element of inflation rate protection for the Scheme.

There is no automatic rebalancing within the Scheme’s investment arrangements (RLAM actively manages the split between corporate bonds and inflation-linked bonds). Assets are rebalanced from time to time by the Trustees, who routinely monitor the Scheme’s actual asset allocation.

With the exception of the assets held in the segregated bond portfolio managed by RLAM, the Scheme’s assets are invested entirely in pooled funds designed to take advantage of the tax exemptions applicable to UK pension schemes.

30

The University of Birmingham Pension and Assurance Scheme INVESTMENT REPORT FOR THE YEAR ENDED 31 MARCH 2015 (continued) Investment principles The Trustees have produced a Statement of Investment Principles (SIP) in accordance with Section 35 of the Pensions Act 1995. A copy of the SIP is available on request. The main priority of the Trustees when considering the investment policy for the Scheme is to ensure that the promises made about members' pensions are fulfilled. The Myners Review and Code of Best Practice The Myners principles codify best practice in investment decision making. While they are voluntary, pension fund trustees are expected to consider their applicability to their own fund and report on a 'comply or explain' basis how they have used them. The principles were initially published in 2001 following a Government sponsored review of institutional investment by Paul Myners, which found shortcomings in the expertise and organisation of investment decision making by pension fund trustees. In March 2008 the Government consulted on proposals to update the Myners principles. This led to the publication of a revised set of six principles for DB schemes in October 2008, together with the establishment of an Investment Governance Group (IGG) to oversee the industry led framework for the application of the principles. While there are now only six DB principles, in place of the original ten, their scope is largely unchanged. The principles continue to emphasise the essentials of investment governance, notably the importance of effective decision making, clear investment objectives and a focus on the nature of each scheme's liabilities. The principles also require that trustees include a statement of the scheme's policy on responsible ownership in the Statement of Investment Principles and report periodically to members on the discharge of these responsibilities. The Trustees consider that their investment policies and their implementation are broadly in keeping with the revised principles. The Trustees will review their compliance with the principles from time to time. Responsible Investment and Corporate Governance The Trustees believe that good stewardship and environmental, social and governance (ESG) issues may have a material impact on investment returns. The Trustees have given the Investment Managers full discretion when evaluating ESG issues and in exercising rights and stewardship obligations attached to the Scheme's investments. Similarly, the Scheme's voting rights are exercised by its investment managers in accordance with their own corporate governance policies, and taking account of current best practice including the UK Corporate Governance Code and the UK Stewardship Code. Equity managers who are authorised in the UK are expected to report on their adherence to the UK Stewardship Code on an annual basis. Custodial Arrangements With the exception of the segregated assets managed by RLAM, the Scheme invests entirely in pooled funds. The investment managers of the pooled funds are responsible for appointing the custodians used by the funds. The custodians are responsible for the safe keeping, monitoring and reconciliation of documentation relating to the ownership of listed investments.

31

The University of Birmingham Pension and Assurance Scheme INVESTMENT REPORT FOR THE YEAR ENDED 31 MARCH 2015 (continued) For the segregated mandate managed by RLAM, the Trustees have appointed JP Morgan Worldwide Securities Services as custodian. The Trustees understand that the records and procedures of the custodians are routinely subjected to scrutiny by external auditors and regulatory authorities and that the custodians accept complete responsibility for financial loss as a result of negligence or fraud. Review of Investment Performance The investment returns of the Funds in which the Scheme invests, for periods to 31 March 2015 were as follows:

Fund Investment Manager

1 Year 3 Years

Fund

(%)

Index

(%)

Fund

(% p.a.)

Index

(% p.a.)

Global Equities (Fundamental Indexation) BlackRock 15.0 14.5 n/a n/a

Global Equities (Minimum Volatility) BlackRock 24.7 24.2 n/a n/a

Global Equities (Market Capitalisation Indexation)

UK Equities BlackRock 6.7 6.6 10.7 10.6

US Equities BlackRock 26.4 26.5 19.1 19.1

Europe (ex UK) Equities BlackRock 7.6 7.4 14.3 14.2

Japan Equities BlackRock 26.7 26.9 12.5 12.5

Asia-Pacific (ex Japan) Equities

BlackRock 10.4 10.5 7.3 7.3

Emerging Market Equities1 Comgest 21.7 12.8 8.6 2.8

Aggregate Bonds RLAM 17.9 17.8 10.9 9.4

Currency Hedging BlackRock 24.7 25.2 27.6 28.1

Diversified Beta BlackRock 12.1 0.72 7.7 0.82

Diversified Growth GARS Standard Life 10.9 0.7 7.3 0.8

GFS3 Standard Life n/a n/a n/a n/a

Multi Asset Credit Bluebay 2.8 7.5 n/a n/a

Total Scheme 16.0 13.2 10.5 8.6 Source: Investment managers and Mercer. Gross of investment manager fees. Figures subject to rounding. 1 The Fund in which the Scheme invests is USD denominated, Mercer has converted the fund and index performance into Sterling terms. 2 6 month LIBOR used as a benchmark by the Trustees. The MSCI World Total Return Net GBP Hedged Index, the Fund’s official benchmark, returned 18.5% over the 12 months to 31 March 2014. 3 No long term performance available. The Scheme’s initial investment took place on 15 July 2014. For the since inception period (15 July 2014 – 31 March 2015) the Fund and benchmark performance was 6.8% and 0.2% respectively.

Market commentary Both growth and defensive assets delivered positive returns over the 12 month period to 31 March 2015, with many of the world’s central banks continuing to ease monetary policy. Strong economic growth at the start of the 12 month period slowed somewhat over the six months leading to 31 March 2015. The sharp fall in commodity prices in the second half of 2014 led to increased market volatility. Most pension schemes will have seen an increase in liability values as bond yields fell over the 12 month period.

32

The University of Birmingham Pension and Assurance Scheme INVESTMENT REPORT FOR THE YEAR ENDED 31 MARCH 2015 (continued) Performance was positive both for growth and defensive assets, with long dated government bonds outperforming the equity market. In the UK, economic growth remained strong throughout the year, as the Office for National Statistics revised the real GDP growth rate for 2014 from 2.6% to 2.8%, the fastest calendar year growth rate since 2006. The annual inflation rate fell to zero in February 2015. Whilst economic growth in the UK has been strong, growth was strongest in the US which led to a US Dollar rally against Sterling and most other currencies. Sterling, however, appreciated against the Euro and the Japanese Yen. Emerging market assets underperformed their developed counterparts as falling commodity prices and the rising US Dollar affected a number of countries in this region significantly. Equities At a global level, developed markets, as measured by the FTSE World Index, returned 18.8%. At a regional level, over the 12 months to 31 March 2015, emerging markets returned 16.3%, as measured by the FTSE AW Emerging Markets index. European markets returned 7.5%, as indicated by the FTSE World Europe ex UK index. At a country level, UK stocks, as measured by the FTSE All Share index, returned 6.6%. The FTSE USA index returned 26.5%, while the FTSE Japan index returned 27.1%. Equity market total return figures are in Sterling terms over the 12 month period to 31 March 2015. Bonds Returns on UK Government Bonds, as measured by the FTSE Gilts All Stocks index, recorded growth of 13.9%, while long dated issues, as measured by the corresponding Over 15 Year index, recorded growth of 27.0%. The yield for the FTSE Gilts All Stocks index fell over the year from 3.0% to 2.0%. The FTSE All Stocks Index-Linked Gilts index returned 18.6%, whilst the corresponding Over 15 year index returned 28.1%. Corporate debt, as measured by the Bank of America Merrill Lynch Sterling Non-Gilts index, returned 13.3%. Bond market total return figures are in Sterling terms over the 12 month period to 31 March 2015. Property UK property investors continued to benefit from the improving property market. Over the 12 month period to 31 March 2015, the IPD UK All Property index returned 18.3% in Sterling terms. The three main sectors of the UK property market each recorded strong positive returns over the period (retail: 13.4%; office: 22.9%; and; industrial 22.7%). Currencies Over the 12 month period to 31 March 2015, Sterling fell 11.0% against the US Dollar, from $1.667 to $1.485. Sterling appreciated 3.7% against the Yen, from ¥171.69 to ¥178.03, and also appreciated against the Euro by 14.3%, from €1.21 to €1.38, over the same period.

the university of birmingham pension and assurance scheme › finance › pensions › ... · 3 the...

Documents