Severn Trent Pension Scheme - PRAG

Spotlight
on pensions
June 2009
The newsletter for members of the Severn Trent Pension Scheme
(Pension Choices section)

Welcome
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Welcome to the 2009 issue of Spotlight
on Pensions, the annual newsletter for
Pension Choices members of the Severn
Trent Pension Scheme.
We are committed to improving communications
with you, which is one reason that this issue
has been redesigned. The new look aims to
make the information about the Scheme much
clearer and easier to read. We hope you find it
informative and interesting.
It has certainly been an interesting – and
challenging – year for your Scheme, and for
pension funds in general. You should have
received a letter earlier this year, updating
you on the Scheme’s investment position as at
31 December 2008 and other developments.
Turn to pages 6-9 for the updated position as
at 31 March 2009. Stock market volatility
remains a concern and I would like to reassure
you that we are in very close contact with
our investment advisers so that we can react
quickly and proactively should the need arise.
(On page 7, we also tell you a bit more about
the processes we follow in making these
important investment decisions.)
If you have any comments on this new look
Spotlight on Pensions, please do get in touch
with us (our contact details are on page 16).
Mike Anthony
Chairman of the Trustee Board

Inside
Money & membership page 4
highlights from the Report & Accounts
Spotlight on investments page 6
Scheme noticeboard page 10
the latest updates from the Scheme
Pensions news page 12
developments in the pensions world
Trustee and advisers page 15
Contact us page 16
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Money and membership
Over the past year
to 31 March 2009,
the net assets of
the Pension Choices
section of the
Scheme increased
by £3.2m to £7.8m
(31 March 2008:
£4.6m).
* The Scheme operates
SMART pensions. SMART
is designed to reduce the
National Insurance costs
for you and the Company.
Your take-home pay is
reduced by the amount
of your contributions and
the Company pays these
contributions directly into
the Scheme. This means
that members participating
in SMART do not pay
normal contributions.
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Scheme accounts - income & expenditure
for the 12 months ended 31 March 2009
2009
£’000
2008
£’000
Income
Employer contributions 3,547 2,245
Additional 166 107
Life assurance only 527 338
Member contributions
Normal* 5 4
Scheme additional 151 105
Individual transfers in 35 98
Total paid in 4,431 2,897
Expenditure
Benefits paid (35) (118)
Bulk transfer to Biffa (1,960)
Total paid out (35) (2,078)
Net additions from dealings with members 4,396 819
Change in market value (1,206) (142)
Bank interest 39 30
Net increase in fund during the year 3,229 707
Net assets as at 1 April of previous year 4,549 3,842
Net assets as at 31 March 7,778 4,549

Membership statistics
Pension Choices was introduced in 2004 and since April 2006 it is the only scheme available to new
employees. Pension Choices’ membership statistics are shown below.
2009 2008
Active members 1,264 873
Deferred members 86 49
Pensioners 3 1
Total 1,353 923
2009
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Spotlight on investments
The Trustee has
chosen a range of
investment funds
for Pension Choices
members, managed
by Legal & General,
which it believes
offers a suitable mix
of investment styles
and strategies.
Investment update
Performance
The table below shows the performance of the Pension Choices investment funds against their benchmarks
over 12 months, three years and five years (to 31 March 2009).
The equity funds have fallen sharply over the last 12 months, in line with stock markets around the
globe. The AAA-AA-A Corporate Bond Fund and Over 5-Year Index-Linked Gilts Fund have also fallen
over the last 12 months, although to a lesser extent than the equity funds. Only the Cash Fund increased
in value over the last 12 months.
Fund
Actual
12 months
% pa
Benchmark
12 months
% pa
Actual
3 years
% pa
Benchmark
3 years
% pa
Actual
5 years
% pa
UK Equity Index Fund -29.2 -29.3 -10.2 -10.2 1.4 1.4
Benchmark
5 years
% pa
World (ex UK) Equity Index Fund -19.2 -19.3 -6.9 -6.9 2.6 2.6
Ethical Global Equity Index Fund -21.4 -21.1 -9.0 -8.9 N/A N/A
AAA-AA-A Corporate Bond Fund* -2.9 -3.3 -2.6 -2.7 1.7 1.7
Over 5-Year Index-Linked Gilts Fund -2.9 -2.8 4.2 4.2 5.4 5.5
Cash Fund 3.9 3.7 4.8 4.8 4.7 4.7
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* The AAA-AA-A Corporate Bond Fund was replaced by the Pre-Retirement Fund on 24 March 2009. The performance information for the
Pre-Retirement Fund will be provided in future investment updates.

Pre-Retirement Fund
The Trustee regularly reviews the investment options available
to Pension Choices members. Earlier this year, in consultation
with its investment advisers, it decided to introduce a new
fund which is suitable for members approaching retirement:
the Pre-Retirement Fund.
This fund has replaced the AAA-AA-A Corporate Bond Fund
as a FreeModel option and has also replaced the Over 5-Year
Index-Linked Gilts Fund in LifeModel.
The Pre-Retirement Fund invests in a similar way to the
AAA-AA-A Corporate Bond Fund, but aims to provide a level
of return that will enable your account to keep pace with
the changes in the cost of buying a non-index-linked annuity
(annuity rates). It does this by typically investing in low risk
bonds issued by corporations and the Government.
Revisiting the Myners Principles
In March 2000, the Chancellor of the Exchequer asked
Paul Myners, the then-Chairman of Gartmore Investment
Management plc, to carry out a review of institutional
investment in the UK. In his report, Myners found shortcomings
in the expertise and organisation of investment decision-making
by pension fund trustees. He suggested a Code of Best Practice
(the ‘Code’) for UK pension fund investment, expressed as a set
of principles for trustees to follow.
Although the Code is voluntary, the Trustee Directors of the
Severn Trent Pension Scheme have put a great deal of effort
into ensuring the Scheme’s investment procedures are in line
with the Myners Principles.
Mike Anthony, the Trustee Chairman, explains: “As Trustee
Directors, we take our responsibility of looking after your
pension savings very seriously. Working with a team of
professional advisers, we ensure that we follow the Code,
which sets out best practice across a whole range of related
issues: investment decision making; measuring performance;
transparency and member communication, to name just a
few. Whenever we take an investment decision, we refer
back to the Myners Principles to ensure that we are doing the
best possible job for our members.”
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Spotlight on investments.......
Is it time to review
your investment choices?
When you joined Pension Choices, you were given the choice
of investing your contributions using either FreeModel (where
you make some of the investment decisions) or LifeModel
(where you leave all of the decision making to the Scheme’s
investment manager).
Here is a reminder of how LifeModel works:
• You tell us when you want to retire (your Target
Retirement Age).
• In the early days, when you are more than 10 years away
from your Target Retirement Age, your contributions are
invested in equity funds (eg, company shares), with the
aim of maximising the growth of your personal account.
• During the 10-year period before you reach your chosen
retirement age, your investments will be gradually switched
out of shares and into bonds.
• In the final three years, your contributions are switched into
the Cash Fund, so that at your retirement 75% is invested
in the Pre-Retirement Fund and 25% in the Cash Fund.
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Things to consider
LifeModel aims to minimise the impact of a downturn in
the stock markets on your pension when you are nearer
your Target Retirement Age, by switching your personal
account over to less volatile investments such as bonds
and cash in the 10 years before you retire (known as the
‘lifestyling period’).
However, if stock markets rise in the 10 years before you
retire, this can mean that your account will not be as large as
it would otherwise have been.
Also, if you enter this ‘lifestyling period’ at a time when share
prices are low (as they are now), then you will to some extent
be ‘locking in’ the losses to your account caused by the
stock market falls. On the other hand, you will be giving your
account some degree of protection against further falls in the
stock market.
The Trustee has set up LifeModel in a way it believes will
work well for the majority of Pension Choices members,
but it may not be the best option for your individual
circumstances. If you are unsure whether LifeModel is
the right strategy for you, we recommend you speak to an
independent financial adviser.

.. continued
Moving out of equities?
Given the recent stock market falls, you may be tempted
to switch your personal account out of equities and into
lower-risk investments, such as bonds and cash (some of
which, after all, delivered positive growth in the past year).
However, it is important to remember that your pension is
a long-term investment. Unless you are close to retirement,
the return on equities has historically tended to be higher
than that from bonds and cash over the medium to long term.
A knee-jerk reaction to stock market falls, such as moving out of
equities into cash, may not be in your best long-term interests.
Want to know more?
The secure member website for Pension Choices was launched last year and is a great source of information
about the Scheme. You can go online to view your investment choices and find out the latest value of your account.
If you’ve not already registered to use the website, please contact Capita Hartshead:
https://addvantage.capitahartshead.co.uk/severntrent tel: 0114 229 8234
You can also find out more about your investment choices by logging onto Legal & General’s website:
www.lgim.com/clientsite
user name: severntrent_member
password: severntrent
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Scheme noticeboard
A better way to buy your pension
A new service has been developed by Capita Hartshead
to improve the way that members will go about buying
an annuity (pension) with their personal accounts when
they retire.
Although the majority of Pension Choices members are still
some way from retirement, we do have a number who will be
drawing their pension in the next few years. The new process
will give members more choice as to the type of annuity
they buy, and will also hopefully make it a much smoother
transition into retirement. The cost of this service will be
met by the Trustee.
Now, for the first time, members nearing retirement can
shop around for the best deal, rather than being restricted
to buying an annuity from a pre-selected panel of insurance
companies. In fact, Capita Hartshead will do the shopping
for you!
Once bought, the annuity is in your name. The insurance
company will have sole responsibility for paying your pension
and you will have no further legal connection with the Severn
Trent Pension Scheme.
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At retirement, you have the option to take up to 25%
of the value of your personal account as tax-free cash.
If you choose this, your annuity (pension) will be smaller.
Your annuity options
When you buy an annuity, you can tailor it to suit your
personal circumstances. The most common options are:
• Income for others on your death.
(For example, a pension for your spouse or partner.)
• Guaranteed minimum length of payment.
You could buy a pension which is guaranteed for a
minimum period, say five years. If you die within those
first five years, any unpaid pension would be paid out as
a lump sum. The pension would always be payable for
the rest of your life.
• Increases to your pension.
You may specify increases to your pension each year at
a fixed rate (for example, 3% or 5%) or linked to the
rate of inflation.

Top up your pension pot
In light of the ups and downs we’ve seen in
investment markets recently, the following
statement may surprise you: the more you
can put aside for retirement now, the better.
There are two reasons for this:
1. You can buy more with your money.
(Continuing to invest when prices are lower means that you
can buy more ‘units’ than before, so that if and when the
markets stabilise and rise again, the value of your pension
savings may increase even more.)
2. The snowball effect of compound interest.
(It works like this: you invest your money and it earns a
return. The next year, you earn a return on both your
original investment and on the return you made in the first
year. And so on, and so on… So, £1 invested today would
be worth £3 in 20 years, but in 40 years’ time it would
have grown to £10*.)
One way to put aside more for your retirement is by making
‘Additional Voluntary Contributions’ (or AVCs). The main
advantage of AVCs is that they are taken off your pay before
tax is calculated (so you pay less tax), plus any money you
make from investing them also attracts tax relief.
If you’d like to find out more about AVCs, please contact the
Scheme administrator, Capita Hartshead, or the in-house
Group Pensions Department.
* Based on 6% growth rate. The value of any investment can go up and down
and is not guaranteed.
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Pensions news
Changes to pensions tax relief
If you earn £150,000 or more a year (from all sources, including
total earnings, pension, investment and rental income), you may
be affected by the Chancellor’s announcement that he intends to
restrict tax relief on pension contributions.
Tax relief will taper to 20% for incomes between £150,000
and £180,000. Details of these measures are subject to
consultation, although the intention is they will come into
force in April 2011.
To prevent those likely to be affected by the change from
increasing their contributions or benefits before the finalised
restrictions take effect in April 2011, new anti-avoidance
legislation applied with immediate effect from 22 April 2009.
This applies to those individuals who:
• Have an income of £150,000 or more, and
• Change the pattern of their usual pension saving, and
• Whose overall annual pension saving is more than
£20,000 (the special annual allowance).
High earners who do not vary their pension arrangements
before 5 April 2011 should, therefore, not be affected
by the new charge in 2009/10 and 2010/11. However,
any increases in pension provision, say, through a one-off
contribution or an increase to existing contributions may be
subject to a new charge in 2009/10 and 2010/11.
If you think you might be affected by this change, we
recommend you speak to an independent financial adviser
– especially if you are planning to pay a one-off contribution
into the Scheme, or vary your Additional Voluntary
Contributions (AVCs).
Further information is available on the HM Revenue
& Customs website: http://www.hmrc.gov.uk/budget2009/
pensions-individuals-1550.htm
Are you planning to retire early?
If so, remember that the Government has increased the
minimum retirement age from 50 to 55, with effect from
6 April 2010. This means that, aside from retiring early due
to ill-health, you may not access your retirement savings
before age 55 if you retire after 6 April next year.
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The tax benefits of having a pension
For most people, a pension is among the most
tax-efficient ways to save for retirement. That’s because the
company takes your pension contributions from your pay
before it is taxed – so every £1 you pay into the Scheme
will actually only cost you 80p (if you are a basic rate
taxpayer), and only 60p if you are a higher rate taxpayer.
Tax band and rate
Income band
Starting rate 10%* £0 - £2,440
Basic rate 20% £0 - £37,400
Higher rate 40% £37,400-£149,999
Increased higher rate 50% £150,000+
(from April 2010)
* From 2008-2009 the 10% starting rate now only applies to income produced
from savings. If your taxable income is higher than the starting rate maximum,
then the 10% starting rate will not actually apply to any savings you have.
Future-proof your financial planning
Financial planning is not something you do once and then
forget about… it’s an ongoing process that you need to keep
under review frequently, and certainly when your personal
circumstances change (for example, if you get married or
have children).
When you’re planning for your retirement, remember that
Pension Choices is fully contracted in to the State Second
Pension. That means, in addition to the annuity you will
be able to buy with your personal account, you will also be
entitled to the following State benefits when you reach State
pension age:
• A basic flat rate retirement pension (currently £95.25
a week for a single person), providing you have paid a
required amount of National Insurance contributions; and
• An earnings-related pension. The State Second Pension
(S2P) was introduced in April 2002 to replace the State
Earnings Related Pension Scheme (SERPS), but it will
gradually move to a flat rate scheme.
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.
More information
If you want to know more about pensions in general, the following are useful
sources of information:
Financial Services Authority
The Pension Service
The Pensions Regulator
HM Revenue & Customs
Independent financial advice
www.fsa.gov.uk
www.thepensionservice.gov.uk
www.thepensionsregulator.gov.uk
www.hmrc.gov.uk/pensionschemes
www.unbiased.co.uk
Looking for advice?
By law, no-one within Severn Trent,
nor the Trustee, can give you specific
investment advice. You should not take
any information or explanation that
they give you as such. If you would
like financial advice, you should speak
to an independent financial adviser
(IFA). You can find one in your area by
going online to www.unbiased.co.uk.
(You should bear in mind that an
IFA may charge for any advice given.)
The Financial Services Authority
also produces various guides.
These are available on their website
www.moneymadeclear.fsa.gov.uk under
‘guides’ or by calling 0300 500 5000.
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Trustee & Advisers
The Scheme Trustee
The Scheme is run by a corporate Trustee, Severn Trent
Pension Scheme Trustees Limited. The Trustee’s role is to
ensure that the Scheme is run properly at all times and in the
best interests of all members and beneficiaries, and that the
investment and administration of the Scheme complies with
the Scheme rules and current law.
The current Directors of the Trustee are:
Independent Chairman
Member Nominated Directors
Employer Nominated Directors
Company Secretary
Mike Anthony
(Capital Cranfield
Trustees Limited)
Sue Allcock, Paul Heer
Gwyneth Lister,
Rob Mabbott, Fiona Smith
John Heather
Professional advisers
The Trustee is ultimately responsible for the running of the
Scheme but has appointed a number of professional advisers
to provide expertise when needed. As a matter of good
governance the Trustee regularly reviews its own effectiveness
and also assesses the performance of its advisers.
The Scheme’s advisers are:
Investment manager
Investment adviser
Auditor
Scheme actuary
Legal adviser
Legal & General Assurance
(Pensions Management) Ltd
A Green
Deloitte Total Reward
& Benefits Ltd
PricewaterhouseCoopers
GJ Mitchell, Watson Wyatt
Slaughter and May
Scheme administrator
Capita Hartshead
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Contact us
If you’d like to get in touch, there are a number of ways you can do so:
Capita Hartshead (the Scheme administrator)
0114 229 8234
st.pensionchoices@capita.co.uk
Capita Hartshead
257 Ecclesall Road
Sheffield S11 8NX
Group Pensions Department
0121 722 4456/4847
group.pensions@severntrent.co.uk
Group Pensions
Severn Trent
2297 Coventry Road
Birmingham B26 3PU
Group Pensions Manager: David Carr
Assistant Pensions Managers:
Sue Smith, Pam Stirk and Lai Yip
You can also find out more about your Scheme on our member website:
https://addvantage.capitahartshead.co.uk/severntrent
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