Hess UK Pension Plan - PRAG

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Pension Q&A’s Some of us may remember the old days when the subject of “pensions” was rarely mentioned in the media but life is very different now. Here are some pointers through the pensions maze: How are the Company’s contributions to the Plan worked out? The Trustees commission regular actuarial valuations of the Plan’s assets and liabilities. Based on these valuations, the Trustees will agree with the Company how much should be contributed. The amount of the Company’s contributions may go up or go down following such actuarial valuations. How does increasing life expectancy affect the Plan? All the evidence indicates that people born more recently tend to live longer. According to a recent study, once men born in 1980 reach age 60, they are expected to live on average for another 33 years whereas men reaching age 60 this year (i.e. born in 1950) are expected to survive for an average of 29 years. Please note that these are merely averages, some people will live for longer and others for less. Allowing for increased life expectancy makes pension plans more expensive simply because the pensions are likely to be paid for a longer period. Very roughly, each extra year of life expectancy that we assume for the Plan’s membership will add a further £5 million to the amount needed to support the pension rights that have already been earned. How can the Plan afford to pay out the “death in service” benefits? The cash value of the life assurance lump sums and dependant’s pensions that would be paid if every in-service member of the Plan died is around £280 million! At first sight, there might appear to be a problem because this is considerably more than the £200 million currently held by the Plan. However, there are no grounds for concern because the Plan does not rely on its own resources to pay the death in service benefits; instead, these benefits are insured and so the sums paid out by the Plan are reclaimed from the insurer. This explains why the Plan restricts a member’s death in service benefits to the level for which insurance cover has been secured; only very few members have any such restriction and each is individually informed. 10 Trustees’ Report 2010
While on the subject of life assurance … please remember to update your Beneficiary Nomination Form if your personal circumstances change. In the event of a member’s death, the Trustees would use this form to help decide who should be paid the benefits. You can get a new form for this purpose from your local Human Resources department. What would happen if the Plan were wound-up? The Company would have to pay into the Plan enough money to enable all members’ accrued benefits to be completely secured with an insurance company. If the Company did not have enough money to do this then the Parent Company Guarantee provided by Hess Corporation would be activated. Only if Hess Corporation was unable to pay in the extra funding would members receive less than their accrued benefits. At the extreme, the Pension Protection Fund (“PPF”) might be able to take over the Plan and pay compensation to members. For more information, visit the PPF’s website at www.pensionprotectionfund.org.uk. What happens if I leave Hess? Provided you’ve completed at least two years’ membership, the pension that you have earned up to when you leave will remain in the Plan until you choose to have it paid – at any age between 60 and 65. After leaving, the pension will be increased each year to help maintain its real value. Alternatively, you can choose to have the cash value of your pension paid over to another approved pension arrangement – this could be a personal pension or the pension scheme of your new employer. Everyone who leaves Hess is promptly sent full details of their preserved pension rights; all the Trustees ask of you is to keep the Plan’s administrators informed of any change to your address. Why does the Plan invest in Hedge Funds? Around a quarter of the Plan’s portfolio is invested in hedge funds and so they have an important role in the Trustees’ overall investment strategy. The first point to emphasise is that there is a very wide variety of Hedge Funds and that the specific funds used by the Hess Plan are all at the cautious end of the range; further, very detailed due diligence is carried out by the Trustees’ investment consultants and lawyer before any new Hedge Fund manager is selected. The main aim of investing in Hedge Funds is to increase the diversification of the Plan’s portfolio because these funds can still provide a relatively good return when equity markets generally are falling. Can my Hess pension be shared on divorce? Yes. Couples can divide between themselves the pension rights that they have earned up to the time of the divorce. Pensions are divided by means of a formal “pension sharing order” or, more usually in Scotland, by a negotiated agreement between the parties. When a pension entitlement in the Hess Plan is shared, part of the value of the member’s pension is transferred to an external pension arrangement for the benefit of the ex-spouse. A briefing note with full details about how the Plan operates pension sharing is available on request from the Plan’s administrator. Trustees’ Report 2010 11
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Hess UK Pension Plan - PRAG

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