Severn Trent Pension Scheme - PRAG
Severn Trent Pension Scheme - PRAG
Severn Trent Pension Scheme - PRAG
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Spotlight<br />
on pensions<br />
June 2009<br />
The newsletter for members of the <strong>Severn</strong> <strong>Trent</strong> <strong>Pension</strong> <strong>Scheme</strong><br />
(<strong>Pension</strong> Choices section)
Welcome<br />
02<br />
Welcome to the 2009 issue of Spotlight<br />
on <strong>Pension</strong>s, the annual newsletter for<br />
<strong>Pension</strong> Choices members of the <strong>Severn</strong><br />
<strong>Trent</strong> <strong>Pension</strong> <strong>Scheme</strong>.<br />
We are committed to improving communications<br />
with you, which is one reason that this issue<br />
has been redesigned. The new look aims to<br />
make the information about the <strong>Scheme</strong> much<br />
clearer and easier to read. We hope you find it<br />
informative and interesting.<br />
It has certainly been an interesting – and<br />
challenging – year for your <strong>Scheme</strong>, and for<br />
pension funds in general. You should have<br />
received a letter earlier this year, updating<br />
you on the <strong>Scheme</strong>’s investment position as at<br />
31 December 2008 and other developments.<br />
Turn to pages 6-9 for the updated position as<br />
at 31 March 2009. Stock market volatility<br />
remains a concern and I would like to reassure<br />
you that we are in very close contact with<br />
our investment advisers so that we can react<br />
quickly and proactively should the need arise.<br />
(On page 7, we also tell you a bit more about<br />
the processes we follow in making these<br />
important investment decisions.)<br />
If you have any comments on this new look<br />
Spotlight on <strong>Pension</strong>s, please do get in touch<br />
with us (our contact details are on page 16).<br />
Mike Anthony<br />
Chairman of the Trustee Board
Inside<br />
Money & membership page 4<br />
highlights from the Report & Accounts<br />
Spotlight on investments page 6<br />
<strong>Scheme</strong> noticeboard page 10<br />
the latest updates from the <strong>Scheme</strong><br />
<strong>Pension</strong>s news page 12<br />
developments in the pensions world<br />
Trustee and advisers page 15<br />
Contact us page 16<br />
30
Money and membership<br />
Over the past year<br />
to 31 March 2009,<br />
the net assets of<br />
the <strong>Pension</strong> Choices<br />
section of the<br />
<strong>Scheme</strong> increased<br />
by £3.2m to £7.8m<br />
(31 March 2008:<br />
£4.6m).<br />
* The <strong>Scheme</strong> operates<br />
SMART pensions. SMART<br />
is designed to reduce the<br />
National Insurance costs<br />
for you and the Company.<br />
Your take-home pay is<br />
reduced by the amount<br />
of your contributions and<br />
the Company pays these<br />
contributions directly into<br />
the <strong>Scheme</strong>. This means<br />
that members participating<br />
in SMART do not pay<br />
normal contributions.<br />
4<br />
<strong>Scheme</strong> accounts - income & expenditure<br />
for the 12 months ended 31 March 2009<br />
2009<br />
£’000<br />
2008<br />
£’000<br />
Income<br />
Employer contributions 3,547 2,245<br />
Additional 166 107<br />
Life assurance only 527 338<br />
Member contributions<br />
Normal* 5 4<br />
<strong>Scheme</strong> additional 151 105<br />
Individual transfers in 35 98<br />
Total paid in 4,431 2,897<br />
Expenditure<br />
Benefits paid (35) (118)<br />
Bulk transfer to Biffa (1,960)<br />
Total paid out (35) (2,078)<br />
Net additions from dealings with members 4,396 819<br />
Change in market value (1,206) (142)<br />
Bank interest 39 30<br />
Net increase in fund during the year 3,229 707<br />
Net assets as at 1 April of previous year 4,549 3,842<br />
Net assets as at 31 March 7,778 4,549
Membership statistics<br />
<strong>Pension</strong> Choices was introduced in 2004 and since April 2006 it is the only scheme available to new<br />
employees. <strong>Pension</strong> Choices’ membership statistics are shown below.<br />
2009 2008<br />
Active members 1,264 873<br />
Deferred members 86 49<br />
<strong>Pension</strong>ers 3 1<br />
Total 1,353 923<br />
2009<br />
5
Spotlight on investments<br />
The Trustee has<br />
chosen a range of<br />
investment funds<br />
for <strong>Pension</strong> Choices<br />
members, managed<br />
by Legal & General,<br />
which it believes<br />
offers a suitable mix<br />
of investment styles<br />
and strategies.<br />
Investment update<br />
Performance<br />
The table below shows the performance of the <strong>Pension</strong> Choices investment funds against their benchmarks<br />
over 12 months, three years and five years (to 31 March 2009).<br />
The equity funds have fallen sharply over the last 12 months, in line with stock markets around the<br />
globe. The AAA-AA-A Corporate Bond Fund and Over 5-Year Index-Linked Gilts Fund have also fallen<br />
over the last 12 months, although to a lesser extent than the equity funds. Only the Cash Fund increased<br />
in value over the last 12 months.<br />
Fund<br />
Actual<br />
12 months<br />
% pa<br />
Benchmark<br />
12 months<br />
% pa<br />
Actual<br />
3 years<br />
% pa<br />
Benchmark<br />
3 years<br />
% pa<br />
Actual<br />
5 years<br />
% pa<br />
UK Equity Index Fund -29.2 -29.3 -10.2 -10.2 1.4 1.4<br />
Benchmark<br />
5 years<br />
% pa<br />
World (ex UK) Equity Index Fund -19.2 -19.3 -6.9 -6.9 2.6 2.6<br />
Ethical Global Equity Index Fund -21.4 -21.1 -9.0 -8.9 N/A N/A<br />
AAA-AA-A Corporate Bond Fund* -2.9 -3.3 -2.6 -2.7 1.7 1.7<br />
Over 5-Year Index-Linked Gilts Fund -2.9 -2.8 4.2 4.2 5.4 5.5<br />
Cash Fund 3.9 3.7 4.8 4.8 4.7 4.7<br />
6<br />
* The AAA-AA-A Corporate Bond Fund was replaced by the Pre-Retirement Fund on 24 March 2009. The performance information for the<br />
Pre-Retirement Fund will be provided in future investment updates.
Pre-Retirement Fund<br />
The Trustee regularly reviews the investment options available<br />
to <strong>Pension</strong> Choices members. Earlier this year, in consultation<br />
with its investment advisers, it decided to introduce a new<br />
fund which is suitable for members approaching retirement:<br />
the Pre-Retirement Fund.<br />
This fund has replaced the AAA-AA-A Corporate Bond Fund<br />
as a FreeModel option and has also replaced the Over 5-Year<br />
Index-Linked Gilts Fund in LifeModel.<br />
The Pre-Retirement Fund invests in a similar way to the<br />
AAA-AA-A Corporate Bond Fund, but aims to provide a level<br />
of return that will enable your account to keep pace with<br />
the changes in the cost of buying a non-index-linked annuity<br />
(annuity rates). It does this by typically investing in low risk<br />
bonds issued by corporations and the Government.<br />
Revisiting the Myners Principles<br />
In March 2000, the Chancellor of the Exchequer asked<br />
Paul Myners, the then-Chairman of Gartmore Investment<br />
Management plc, to carry out a review of institutional<br />
investment in the UK. In his report, Myners found shortcomings<br />
in the expertise and organisation of investment decision-making<br />
by pension fund trustees. He suggested a Code of Best Practice<br />
(the ‘Code’) for UK pension fund investment, expressed as a set<br />
of principles for trustees to follow.<br />
Although the Code is voluntary, the Trustee Directors of the<br />
<strong>Severn</strong> <strong>Trent</strong> <strong>Pension</strong> <strong>Scheme</strong> have put a great deal of effort<br />
into ensuring the <strong>Scheme</strong>’s investment procedures are in line<br />
with the Myners Principles.<br />
Mike Anthony, the Trustee Chairman, explains: “As Trustee<br />
Directors, we take our responsibility of looking after your<br />
pension savings very seriously. Working with a team of<br />
professional advisers, we ensure that we follow the Code,<br />
which sets out best practice across a whole range of related<br />
issues: investment decision making; measuring performance;<br />
transparency and member communication, to name just a<br />
few. Whenever we take an investment decision, we refer<br />
back to the Myners Principles to ensure that we are doing the<br />
best possible job for our members.”<br />
7
Spotlight on investments.......<br />
Is it time to review<br />
your investment choices?<br />
When you joined <strong>Pension</strong> Choices, you were given the choice<br />
of investing your contributions using either FreeModel (where<br />
you make some of the investment decisions) or LifeModel<br />
(where you leave all of the decision making to the <strong>Scheme</strong>’s<br />
investment manager).<br />
Here is a reminder of how LifeModel works:<br />
• You tell us when you want to retire (your Target<br />
Retirement Age).<br />
• In the early days, when you are more than 10 years away<br />
from your Target Retirement Age, your contributions are<br />
invested in equity funds (eg, company shares), with the<br />
aim of maximising the growth of your personal account.<br />
• During the 10-year period before you reach your chosen<br />
retirement age, your investments will be gradually switched<br />
out of shares and into bonds.<br />
• In the final three years, your contributions are switched into<br />
the Cash Fund, so that at your retirement 75% is invested<br />
in the Pre-Retirement Fund and 25% in the Cash Fund.<br />
8<br />
Things to consider<br />
LifeModel aims to minimise the impact of a downturn in<br />
the stock markets on your pension when you are nearer<br />
your Target Retirement Age, by switching your personal<br />
account over to less volatile investments such as bonds<br />
and cash in the 10 years before you retire (known as the<br />
‘lifestyling period’).<br />
However, if stock markets rise in the 10 years before you<br />
retire, this can mean that your account will not be as large as<br />
it would otherwise have been.<br />
Also, if you enter this ‘lifestyling period’ at a time when share<br />
prices are low (as they are now), then you will to some extent<br />
be ‘locking in’ the losses to your account caused by the<br />
stock market falls. On the other hand, you will be giving your<br />
account some degree of protection against further falls in the<br />
stock market.<br />
The Trustee has set up LifeModel in a way it believes will<br />
work well for the majority of <strong>Pension</strong> Choices members,<br />
but it may not be the best option for your individual<br />
circumstances. If you are unsure whether LifeModel is<br />
the right strategy for you, we recommend you speak to an<br />
independent financial adviser.
.. continued<br />
Moving out of equities?<br />
Given the recent stock market falls, you may be tempted<br />
to switch your personal account out of equities and into<br />
lower-risk investments, such as bonds and cash (some of<br />
which, after all, delivered positive growth in the past year).<br />
However, it is important to remember that your pension is<br />
a long-term investment. Unless you are close to retirement,<br />
the return on equities has historically tended to be higher<br />
than that from bonds and cash over the medium to long term.<br />
A knee-jerk reaction to stock market falls, such as moving out of<br />
equities into cash, may not be in your best long-term interests.<br />
Want to know more?<br />
The secure member website for <strong>Pension</strong> Choices was launched last year and is a great source of information<br />
about the <strong>Scheme</strong>. You can go online to view your investment choices and find out the latest value of your account.<br />
If you’ve not already registered to use the website, please contact Capita Hartshead:<br />
https://addvantage.capitahartshead.co.uk/severntrent tel: 0114 229 8234<br />
You can also find out more about your investment choices by logging onto Legal & General’s website:<br />
www.lgim.com/clientsite<br />
user name: severntrent_member<br />
password: severntrent<br />
9
<strong>Scheme</strong> noticeboard<br />
A better way to buy your pension<br />
A new service has been developed by Capita Hartshead<br />
to improve the way that members will go about buying<br />
an annuity (pension) with their personal accounts when<br />
they retire.<br />
Although the majority of <strong>Pension</strong> Choices members are still<br />
some way from retirement, we do have a number who will be<br />
drawing their pension in the next few years. The new process<br />
will give members more choice as to the type of annuity<br />
they buy, and will also hopefully make it a much smoother<br />
transition into retirement. The cost of this service will be<br />
met by the Trustee.<br />
Now, for the first time, members nearing retirement can<br />
shop around for the best deal, rather than being restricted<br />
to buying an annuity from a pre-selected panel of insurance<br />
companies. In fact, Capita Hartshead will do the shopping<br />
for you!<br />
Once bought, the annuity is in your name. The insurance<br />
company will have sole responsibility for paying your pension<br />
and you will have no further legal connection with the <strong>Severn</strong><br />
<strong>Trent</strong> <strong>Pension</strong> <strong>Scheme</strong>.<br />
10<br />
At retirement, you have the option to take up to 25%<br />
of the value of your personal account as tax-free cash.<br />
If you choose this, your annuity (pension) will be smaller.<br />
Your annuity options<br />
When you buy an annuity, you can tailor it to suit your<br />
personal circumstances. The most common options are:<br />
• Income for others on your death.<br />
(For example, a pension for your spouse or partner.)<br />
• Guaranteed minimum length of payment.<br />
You could buy a pension which is guaranteed for a<br />
minimum period, say five years. If you die within those<br />
first five years, any unpaid pension would be paid out as<br />
a lump sum. The pension would always be payable for<br />
the rest of your life.<br />
• Increases to your pension.<br />
You may specify increases to your pension each year at<br />
a fixed rate (for example, 3% or 5%) or linked to the<br />
rate of inflation.
Top up your pension pot<br />
In light of the ups and downs we’ve seen in<br />
investment markets recently, the following<br />
statement may surprise you: the more you<br />
can put aside for retirement now, the better.<br />
There are two reasons for this:<br />
1. You can buy more with your money.<br />
(Continuing to invest when prices are lower means that you<br />
can buy more ‘units’ than before, so that if and when the<br />
markets stabilise and rise again, the value of your pension<br />
savings may increase even more.)<br />
2. The snowball effect of compound interest.<br />
(It works like this: you invest your money and it earns a<br />
return. The next year, you earn a return on both your<br />
original investment and on the return you made in the first<br />
year. And so on, and so on… So, £1 invested today would<br />
be worth £3 in 20 years, but in 40 years’ time it would<br />
have grown to £10*.)<br />
One way to put aside more for your retirement is by making<br />
‘Additional Voluntary Contributions’ (or AVCs). The main<br />
advantage of AVCs is that they are taken off your pay before<br />
tax is calculated (so you pay less tax), plus any money you<br />
make from investing them also attracts tax relief.<br />
If you’d like to find out more about AVCs, please contact the<br />
<strong>Scheme</strong> administrator, Capita Hartshead, or the in-house<br />
Group <strong>Pension</strong>s Department.<br />
* Based on 6% growth rate. The value of any investment can go up and down<br />
and is not guaranteed.<br />
11
<strong>Pension</strong>s news<br />
Changes to pensions tax relief<br />
If you earn £150,000 or more a year (from all sources, including<br />
total earnings, pension, investment and rental income), you may<br />
be affected by the Chancellor’s announcement that he intends to<br />
restrict tax relief on pension contributions.<br />
Tax relief will taper to 20% for incomes between £150,000<br />
and £180,000. Details of these measures are subject to<br />
consultation, although the intention is they will come into<br />
force in April 2011.<br />
To prevent those likely to be affected by the change from<br />
increasing their contributions or benefits before the finalised<br />
restrictions take effect in April 2011, new anti-avoidance<br />
legislation applied with immediate effect from 22 April 2009.<br />
This applies to those individuals who:<br />
• Have an income of £150,000 or more, and<br />
• Change the pattern of their usual pension saving, and<br />
• Whose overall annual pension saving is more than<br />
£20,000 (the special annual allowance).<br />
High earners who do not vary their pension arrangements<br />
before 5 April 2011 should, therefore, not be affected<br />
by the new charge in 2009/10 and 2010/11. However,<br />
any increases in pension provision, say, through a one-off<br />
contribution or an increase to existing contributions may be<br />
subject to a new charge in 2009/10 and 2010/11.<br />
If you think you might be affected by this change, we<br />
recommend you speak to an independent financial adviser<br />
– especially if you are planning to pay a one-off contribution<br />
into the <strong>Scheme</strong>, or vary your Additional Voluntary<br />
Contributions (AVCs).<br />
Further information is available on the HM Revenue<br />
& Customs website: http://www.hmrc.gov.uk/budget2009/<br />
pensions-individuals-1550.htm<br />
Are you planning to retire early?<br />
If so, remember that the Government has increased the<br />
minimum retirement age from 50 to 55, with effect from<br />
6 April 2010. This means that, aside from retiring early due<br />
to ill-health, you may not access your retirement savings<br />
before age 55 if you retire after 6 April next year.<br />
12
The tax benefits of having a pension<br />
For most people, a pension is among the most<br />
tax-efficient ways to save for retirement. That’s because the<br />
company takes your pension contributions from your pay<br />
before it is taxed – so every £1 you pay into the <strong>Scheme</strong><br />
will actually only cost you 80p (if you are a basic rate<br />
taxpayer), and only 60p if you are a higher rate taxpayer.<br />
Tax band and rate<br />
Income band<br />
Starting rate 10%* £0 - £2,440<br />
Basic rate 20% £0 - £37,400<br />
Higher rate 40% £37,400-£149,999<br />
Increased higher rate 50% £150,000+<br />
(from April 2010)<br />
* From 2008-2009 the 10% starting rate now only applies to income produced<br />
from savings. If your taxable income is higher than the starting rate maximum,<br />
then the 10% starting rate will not actually apply to any savings you have.<br />
Future-proof your financial planning<br />
Financial planning is not something you do once and then<br />
forget about… it’s an ongoing process that you need to keep<br />
under review frequently, and certainly when your personal<br />
circumstances change (for example, if you get married or<br />
have children).<br />
When you’re planning for your retirement, remember that<br />
<strong>Pension</strong> Choices is fully contracted in to the State Second<br />
<strong>Pension</strong>. That means, in addition to the annuity you will<br />
be able to buy with your personal account, you will also be<br />
entitled to the following State benefits when you reach State<br />
pension age:<br />
• A basic flat rate retirement pension (currently £95.25<br />
a week for a single person), providing you have paid a<br />
required amount of National Insurance contributions; and<br />
• An earnings-related pension. The State Second <strong>Pension</strong><br />
(S2P) was introduced in April 2002 to replace the State<br />
Earnings Related <strong>Pension</strong> <strong>Scheme</strong> (SERPS), but it will<br />
gradually move to a flat rate scheme.<br />
13
.<br />
More information<br />
If you want to know more about pensions in general, the following are useful<br />
sources of information:<br />
Financial Services Authority<br />
The <strong>Pension</strong> Service<br />
The <strong>Pension</strong>s Regulator<br />
HM Revenue & Customs<br />
Independent financial advice<br />
www.fsa.gov.uk<br />
www.thepensionservice.gov.uk<br />
www.thepensionsregulator.gov.uk<br />
www.hmrc.gov.uk/pensionschemes<br />
www.unbiased.co.uk<br />
Looking for advice?<br />
By law, no-one within <strong>Severn</strong> <strong>Trent</strong>,<br />
nor the Trustee, can give you specific<br />
investment advice. You should not take<br />
any information or explanation that<br />
they give you as such. If you would<br />
like financial advice, you should speak<br />
to an independent financial adviser<br />
(IFA). You can find one in your area by<br />
going online to www.unbiased.co.uk.<br />
(You should bear in mind that an<br />
IFA may charge for any advice given.)<br />
The Financial Services Authority<br />
also produces various guides.<br />
These are available on their website<br />
www.moneymadeclear.fsa.gov.uk under<br />
‘guides’ or by calling 0300 500 5000.<br />
14
Trustee & Advisers<br />
The <strong>Scheme</strong> Trustee<br />
The <strong>Scheme</strong> is run by a corporate Trustee, <strong>Severn</strong> <strong>Trent</strong><br />
<strong>Pension</strong> <strong>Scheme</strong> Trustees Limited. The Trustee’s role is to<br />
ensure that the <strong>Scheme</strong> is run properly at all times and in the<br />
best interests of all members and beneficiaries, and that the<br />
investment and administration of the <strong>Scheme</strong> complies with<br />
the <strong>Scheme</strong> rules and current law.<br />
The current Directors of the Trustee are:<br />
Independent Chairman<br />
Member Nominated Directors<br />
Employer Nominated Directors<br />
Company Secretary<br />
Mike Anthony<br />
(Capital Cranfield<br />
Trustees Limited)<br />
Sue Allcock, Paul Heer<br />
Gwyneth Lister,<br />
Rob Mabbott, Fiona Smith<br />
John Heather<br />
Professional advisers<br />
The Trustee is ultimately responsible for the running of the<br />
<strong>Scheme</strong> but has appointed a number of professional advisers<br />
to provide expertise when needed. As a matter of good<br />
governance the Trustee regularly reviews its own effectiveness<br />
and also assesses the performance of its advisers.<br />
The <strong>Scheme</strong>’s advisers are:<br />
Investment manager<br />
Investment adviser<br />
Auditor<br />
<strong>Scheme</strong> actuary<br />
Legal adviser<br />
Legal & General Assurance<br />
(<strong>Pension</strong>s Management) Ltd<br />
A Green<br />
Deloitte Total Reward<br />
& Benefits Ltd<br />
PricewaterhouseCoopers<br />
GJ Mitchell, Watson Wyatt<br />
Slaughter and May<br />
<strong>Scheme</strong> administrator<br />
Capita Hartshead<br />
15
Contact us<br />
If you’d like to get in touch, there are a number of ways you can do so:<br />
Capita Hartshead (the <strong>Scheme</strong> administrator)<br />
0114 229 8234<br />
st.pensionchoices@capita.co.uk<br />
Capita Hartshead<br />
257 Ecclesall Road<br />
Sheffield S11 8NX<br />
Group <strong>Pension</strong>s Department<br />
0121 722 4456/4847<br />
group.pensions@severntrent.co.uk<br />
Group <strong>Pension</strong>s<br />
<strong>Severn</strong> <strong>Trent</strong><br />
2297 Coventry Road<br />
Birmingham B26 3PU<br />
Group <strong>Pension</strong>s Manager: David Carr<br />
Assistant <strong>Pension</strong>s Managers:<br />
Sue Smith, Pam Stirk and Lai Yip<br />
You can also find out more about your <strong>Scheme</strong> on our member website:<br />
https://addvantage.capitahartshead.co.uk/severntrent<br />
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