spotlighton pensions spotlighton pensions - MMC UK Pensions

6Last year, the Government commissioned AlanPickering, former National Association of PensionFunds Chairman, to review whether the increasingreluctance of employers and individuals to makeadequate pension provision could be addressed bysimplification of the system. The resulting reportcovers a range of issues from minor administrativeirritations to major barriers and, with the Sandlerreport on retail savings, and the Myners report, couldinfluence the Government's reform agenda.The Pickering ReportIn his 82 page report issued on 11 July 2002, AlanPickering’s objective was to identify ways to make iteasier for employers to provide good quality pensionsfor their employees, easier for commercial providersto sell appropriate products to appropriate people,and easier for individuals to accumulate pensionbenefits. His report considers the detail of the 1995Pensions Act and offers suggestions for reforms tosignificant parts of the underlying structure, forinstance the abolition of the current level ofguaranteed pension increases and spouses’ pensions.He offers a vision of an approach to regulation basedon professional judgement and a regulator focused onpractical outcomes rather than compliance that endsup just box ticking.The Government has considered the proposals andresponded in a Green Paper in December 2002. TheGreen Paper also covers wider pensions issues, whichit is hoped will include detailed proposals for thereplacement for the Minimum Funding Requirementwhich applies to final salary pension schemes like theMarsh Mercer Pension Fund and for simplifyingInland Revenue restrictions on pension schemes.We will report on the Green Paper in our next editionof Spotlight.Some of the simple changes can be implementedrelatively quickly within existing legislation. However,the more substantial changes need new legislation.Following on from this, some quick changes could takeplace during the 2002/3 parliamentary year, whichcould come into effect from 2004. Other changeswould take at least a year longer.The changingworld of pensions -A summary of recent reportsdesigned to reform thepensions industryThe Sandler ReportIn parallel with the Pickering Report, the SandlerReview of Medium and Long-Term Retail Savings hasrecommended reforms to the retail savings systemdesigned to make it simpler and more customerfriendly. The new products suggested by Sandler areintended to bring the stakeholder pension approach -low charges and user friendliness - to other savingssuch as unit trusts and ISAs. The Review wasrecommended by Myners in his review of institutionalinvestment.The Government announced this Review, headed byRon Sandler, on 18 June 2001, with a remit to"identify the competitive forces and incentives thatdrive the (retail saving) industries concerned, inparticular in relation to their approaches toinvestment and, where necessary, to suggest policyresponses to ensure that consumers are well served.The Myners ReportThe Myner's Review, published in 2001, makes anumber of recommendations about how trustees ofpension funds might improve their investmentdecision-making process. The Government has takenforward most of these recommendations and hasencapsulated them in a Code of Best Practice forpension schemes. The emphasis is on ensuring thattrustees have the right skill set and decision-makingstructures. Trustees need to have clear objectives fortheir schemes and an appropriate and welldocumented strategy in place for achieving theseobjectives. In a similar vein, trustees should setexplicit goals for the fund managers which theirscheme uses.

The Fund already complies with most of theprinciples which form the Code of Best Practice. TheInvestment Committee is also considering furthersteps which it could take in order to comply moreclosely with the Code.We will keep you up to date with progress andreaction in future editions.New option -For Additional VoluntaryContributionsThe Trustee introduced a new option for theinvestment of Additional Voluntary Contributionsfor members in October 2001. The new optionoperates on a ‘manager of managers’ basis, and isoverseen by Escher UK, a leading player in thismarket. The funds are therefore called TEAMS (theEscher Asset Management Scheme).This new option is an additional retirement planningvehicle for Final Salary benefit members which allowsyou to save for your retirement. It is a long-terminvestment designed to provide you with an incomewhen you decide to take the benefits, usually at thesame time that you take the benefits from the MarshMercer Pension Fund.You may choose from a range of TEAMS funds set outopposite. You may choose to invest in just one or acombination of funds.✭ TEAMS UK Equities 2% Outperformance Fund✭ TEAMS Overseas Equities 2% Outperformance Fund✭ TEAMS Global Equities 2% Outperformance Fund✭ TEAMS UK Equities 1% Outperformance Fund✭ TEAMS Overseas Equities 1% Outperformance Fund✭ TEAMS Global Equities 1% Outperformance Fund✭ TEAMS UK Equities Tracker Fund✭ TEAMS Overseas Equities Tracker Fund✭ TEAMS Global Equities Tracker Fund✭ TEAMS UK Bond Fund✭ TEAMS Fixed Interest Tracker Fund✭ TEAMS Index-Linked Tracker Fund✭ TEAMS Cash FundThe fund(s) in which you choose to invest yourcontributions will depend on your personalcircumstances, your retirement plans and the degreeof risk you are prepared to take.All the funds are managed by a range of externalinvestment fund managers that are appointed byWinterthur Life on the recommendation of EscherUK. The investment managers’ performance isregularly monitored and reviewed by Escher UK andfrom time to time (when considered appropriate), theunderlying managers will be changed.Performance objectives are set for each fund, whichthe fund managers should aim to achieve, beforededucting fees, measured over rolling three-yearperiods.If you would like further information about the newAVC option please contact the Pensions Departmentusing the details on page 18.The Trustee has also been reviewing whether allhistorical AVC arrangements remain appropriate andwill be contacting you directly if you have AVCs withany of the previous providers.7

Financial highlights -Trustee’s report and financial summaryfor the 12 months to 31 December 2001Membership NumbersFinal Salary benefits Money Purchase benefitsActive membership at 1 January 2001 9,059 1,025Active membership at 31 December 2001 8,333 1,652Pensioners at 1 January 2001 (including spouses’ and orphans’ pensions) 4,295 -Pensioners at 31 December 2001 4,389 -Members with deferred benefits at 1 January 2001 9,404 -Members with deferred benefits at 31 December 2001 9,916 -TOTAL 22,638 1,6528Reviewing the situation -Transfer payments into the Fund fromother pension arrangementsThere is currently an embargo on receiving transfers into the Funddue to the uncertainty of the "Williamson" case.Once the case is fully resolved, we will make an announcement ofany decision to restart accepting transfers and on what basis. It isnot yet clear how long the issues will take to resolve.Following its resolution, a review of the transfer-in basis will beundertaken, and any changes will be announced to all employees.

Fund AccountINCOME £’00032% Employer’s contributions received - (23,207)18% Members’ contributions received - (12,978)1% Transfer-in from other pension schemes - (823*)6% Other income - (4,656)43% Investment income - (31,110)*Transfers received prior to current embargoEXPENDITURE £’000970% Benefits payable - (52,008)2% Life assurance premiums - (1,278)15% Transfers-out to other pension schemes - (11,411)0.5% Refunds of contributions - (266)0.5% Reinstatement of State Scheme benefits - (416)12% Fees and expenses*- (9,166)*Reflects the transparency in showing investment managers’ feesfollowing the change from the Comman Investment Fund as well asthe merger and harmonisation costs attributable to the Fund.Movement in the net assets of the FundEXPENDITURE £’000Net assets at 1 January 2001 1,749,232Revenue surplus for the year (1,771)Change in market value of investments (162,424)NET ASSETS AT 31 DECEMBER 2001 1,585,037

Investment newsFinal Salary benefitsAs at 31 December 2001 the assets of the Marsh Mercer Pension Fund were managed in the following proportions:10Investment Manager Proportion of assets %Baillie Gifford & Co 5.7Deutsche Asset Management Ltd 12.6Henderson Global Investors Limited 6.1UBS Global Asset Management Ltd (formerly Phillips & Drew) 6.4Legal & General Investment Management Ltd 32.9Putnam Investments Limited 26.2Schroder Investment Management (UK) Ltd 3.3SG Asset Management UK Ltd 5.8Northern Trust Global Cash Funds Plc 0.5Other 0.5Until 31 August 2001, Baring Asset Management Limited managed an Active UK Fixed Income portfolio.Henderson Global Investors Limited were appointed in their place.The total value of the assets of the Fund, as at 31 December 2001, was £1,585 million and were allocated inthe following proportions:UK Equities 38.5%Overseas Equities 25.1%UK and Overseas Bonds 35.1%Cash/Others 1.3%TOTAL 100.0%The Trustee has delegated all its investment decision responsibilities to the Investment Committee. The Trusteemonitors decisions made by the Committee which reports quarterly on investment activity and performance.External investment managers are responsible for the day to day management of the Fund’s assets, which includesfull discretion on stock selection and sector allocation, consistent with guidelines included in the managementagreement.

Investment performanceto 31 December 2001The performance of each of the investment managers, andthat of the Total Fund, is measured by Russell/Mellon CAPS(an independent investment monitoring service) and TheNorthern Trust Company.The Fund is made up from three sections: Marsh(approximately 33%), Sedgwick (57%) and Mercer (10%).Each of the sections has a different asset allocationrequirement, which is determined by the maturity of theindividual ‘fund’ and the level of risk deemed appropriateby the Trustee.The Fund’s performance for the year ending 31 December2001 was -7.42%. The returns for the total fund, andindividual sections, were as follows:12 months to 31.12.01 Inception to 31.12.01*Fund Benchmark Fund Benchmark(%) (%) (% p.a.) (% p.a.)Total Fund -7.4 -7.1 - -Marsh -8.6 -9.0 12.1 11.6Sedgwick -7.0 -6.8 3.9 2.7Mercer -11.3 -11.6 7.4 7.5* 1.1.89 for Marsh, 1.10.99 for Sedgwick, 1.4.97 for Mercer.Money Purchase benefitsThe investment performance of the various funds within theFund for the year to 31 December 2001, is set out in thetable below. Money Purchase members have a choice of fiveinvestment funds:Active Global Equity -14.6%Passive Global Equity -13.8%Passive Fixed Interest Gilts -0.9%Passive Index Linked Gilts -1.6%Cash 4.9%Source: Russell/Mellon CAPS for Passive and Cash funds; MercerInvestment Consulting for Active Global Equity Fund.Market comment for 2001✭✭✭✭✭✭✭Concerns over world economic growth, particularly theslowdown in the US economy, were the main economicfactors prevalent over the year. Global stock markets fellheavily and as a result interest rates were slashed acrossthe globe. In the US interest rates were cut 11 times from5.5% to 1.75% in an effort to revitalise the economy. Theevents of 11th September only served to depress economicsentiment and stock markets further, in particular airlinecompanies, many of which struggled to stave off bankruptcy.Towards the end of the year however, there were signs thatthe rate of decline in the economy had slowed with the USeconomy exhibiting a robust bounce back in equitymarkets during the final quarter and buoyant levels ofconsumer spending.The UK economy began the year relatively well withunemployment reaching a 25 year low and national debthitting historical low levels. The UK’s two tier economybecame increasingly evident, however, with consumerspending booming and manufacturing in decline, partiallycaused by the strength of sterling. A series of interest ratecuts brought interest rates down to 4% towards the end ofthe year. However, despite high levels of consumerconfidence and spending, GDP growth levelled off andunemployment began rising.All major equity markets produced negative returns to thesterling investor over the year. In the UK the FTSE AllShare Index returned –13.3% over the year. Informationtechnology and telecom stocks were the clear losers, whereasdefensive stocks such as oil and mining performed well.Overseas markets did not prove any better, with the FTSE-AWWorld (ex UK) index producing a return of –14.1% insterling terms and –13.6% in local currency terms. The USfell by –10.7% in sterling terms and –12.8% in dollar termsover the year. European equity markets fared slightlyworse falling by –20.3% for the sterling investor and–17.7% in local currency terms. Again it was technologycompanies which were hardest hit and the defensivecompanies which produced the strongest returns.Japanese stocks were among the worst performing as themarket lost –27.5% in sterling and –18.8% in localcurrency terms, emphasising the fall in the Yen. PacificBasin stocks (excluding Japan) escaped the worst of themarket falls returning –0.6% in sterling and 1.2% in localcurrency terms. The region benefited as increasedliquidity pushed a sharp rebound in the market during thefourth quarter.Bonds provided a relatively safe haven from the volatilityand uncertainty of equity markets, with corporate bondsproducing the strongest returns. Bond markets werefurther supported by the easing of regulations and thegeneral drop in global interest rates.✭ Property and cash produced positive returns over the period.11

12The Trustee ......Trustee boardCompany Appointees✭✭✭✭✭✭✭Hady Wakefield (Chair)William Rosoff (appointed 26 February 2002,replacing Francis Bonsignore)Brendan BrownStephen MatanleGordon PollockPhilip Gregory (appointed 1 January 2003,replacing Rob White-Cooper who has retired)Graham Wardle (appointed 12 September 2002,replacing Anne Kershaw)Elected Members✭✭✭✭Stephanie BakerOliver CrispinGraham BurgessClare Owen......... and its advisersFund ActuaryJonathan Bernstein FIA, of Mercer Human ResourceConsultingAuditorsDeloitte & ToucheInvestment managersBaring Asset Management Limited✭✭✭✭✭✭✭✭Deutsche Asset Management LtdLegal & General Assurance (Pensions Management)LimitedBaillie Gifford & CoPutnam Advisory Company IncSchroder Investment Management UK LtdSociété Générale Asset Management UK LtdUBS Asset Management Limited (formerly Phillips& Drew Limited)Company Secretary to the Trustee – Toni FosterLegal AdvisersLinklaters & AllianceFund AdministratorJanet Jasper, FPMI Pensions ManagerFund ConsultantsMercer Human Resource ConsultingInvestment CustodianThe Northern Trust CompanyBankerNational Westminster Bank PlcLife Assurance CompanySwiss Life UK plc

The Pensions Forum...A reminder of its roleA strong link ……..The Pensions Forum was set up in October 2000 toreplace the Marsh Trustee Advisory Committee (the"TAC"). Janet Jasper was appointed as Chairman atthis time. The main role of the Pensions Forum, asdefined in the Terms of Reference, is to act as a linkbetween employees and the Trustee.It acts as a sounding board for the reaction ofemployees to pensions policy and provides feedbackfrom Fund members on pension issues. The objectiveis to ensure that members' voices are heard and alsoto harness existing knowledge, experience andexpertise.…… and an influential roleThe role of the Forum is to:✭ seek clarification of specific aspects of pensionbenefits and fund management raised byemployees and pensioners;✭✭✭provide a forum in which a broad cross section ofFund members and pensioners can discuss itemsof interest and present views to the Company orthe Fund Trustee as appropriate;assist in developing a wider understanding ofpension matters by advising the Company and thePensions Department on the effectiveness ofexisting communications and the kind ofinformation that should be passed on to members;discuss changes in legislation and pensionspractices and how they might affect members ofthe Fund.Generally the Forum is expected to work to improvecommunication by ensuring that questions andproblems raised by members are directed, asappropriate, to the Pensions Department, the Trusteeor to the HR office or line manager for the businessconcerned.The role of a Forum member complements that of theTrustee. The Trustee representatives are appointed toensure that the Trust Deed and Rules are properlyapplied; the Forum’s views can have an influence onpensions policy to be reflected by the Rules, throughsuggestions and advice that are fed back to theTrustee and the Company.Who to contact whenIf you would like to contact a member of the PensionsForum regarding a pensions issue, please use thefollowing email address:PensionsForum.uk@mercer.comWe will then forward your query to the appropriatePensions Forum representative for attention. However,if you would like to address your query to a particularmember, please name them.Who's on the ForumThe current membership of the Pensions Forum isas follows:ELECTED MEMBERSMr John Ashbolt (Mercer Pensioner)✭✭✭✭✭✭✭Mr Matthew Drake (Marsh Active)Mr Michael Harvey (Mercer Active)Ms Jenny Massey (Marsh Pensioner)Mrs Kirstie Nicholls (Mercer Active)Mr Gordon Reid (Marsh Active)Mr Paul Wotherspoon (Mercer Active)COMPANY APPOINTED MEMBERSMs Janet Elms (HR Director, Marsh)✭✭Mrs Janet Jasper (Pensions Manager, MarshMercer Pension Fund)✭ Mrs Frances Wood (HR Director, Mercer)13

14Pensions Forum ReportWe detail below the first report of the Pensions Forumwhich covers the period from inception to 31December 2001."In March, the Pensions Forum attended a valuableTrustee training day organised by Mercer. TheForum’s quarterly meetings reviewed and discussednumerous matters relevant to its interests, includingthe Fund’s valuation and investment performance, theStatement of Investment Principles, reinstatementsfollowing opt out and mis-selling of personal pensions,stakeholder pensions, dependants’ pensions, andadministration service levels.The Pensions Forum became involved in improvingthe communications that originate from the PensionsDepartment.Toward the end of the year a CommunicationsWorking Party was established to review thecommunications strategy of the Pensions Departmentto ensure that all classes of members receiveappropriate and sufficient communications. Membersof the working party at 31 December 2001 wereJenny Massey, and Paul Wotherspoon. Mattersdiscussed during the period included liaison with themembership as a whole, the Marsh Mercer PensionFund website and annual Pensions Departmentcommunications, e.g. AVC announcements. Membersof the Communications Working Party also had aninput into Spotlight, the newsletter for members ofthe Marsh Mercer Pension Fund, and have been askedto give feedback on communications material.In order to facilitate the way in which members cancontact a Pensions Forum representative, a dedicatedemail address was set up. A member of the Forumresponded to queries as appropriate.Pensions Forum representatives are regularly keptinformed of current pensions issues via a quarterlypaper. Any changes in legislation, such as pensionsharing on divorce, have been discussed in relation totheir effect on the Fund. Other topics that have beendiscussed are the removal of the Minimum FundingRequirement and the impact of the Myners Report.The Pensions Forum had endeavoured to raiseimportant issues with the Trustee and will continueto do so.We have also put together a table showing theattendance record of each Trustee and ForumRepresentative at the meetings which took place overthe last year, as shown opposite.As always, it is inevitable that not all members areable to attend every meeting, particularly whenurgent last minute business requirements takeprecedent, or in Kirstie’s case where a very welcomenew member of the family arrives!However, input is received and feedback given foreach meeting.

Pensions Forum meeting attendancePensions Forum Representative 1/2/02 23/4/02 17/7/02 30/10/02Janet Jasper (Chairman) ✓ ✓ ✓ ✓John Ashbolt (Pensioner) ✓ ✓ ✓ ✓Jenny Massey (Pensioner) ✓ ✓ ✓ ✓Christopher Boyes (Marsh) ✓ ✓ ✓ LCMatthew Drake (Marsh) ✓ BT BT ✓Gordon Reid (Marsh) ✗ JS ✓ ✓Kirstie Nicholls (Mercer) ✗ ✓ ML MLMichael Harvey (Mercer) ✗ ✓ ✓ ✓Paul Wotherspoon (Mercer) ✓ ✓ WC ✓Janet Elms (Marsh Co) ✗ ✗ A WCFrances Wood (Mercer Co) A ✓ ✓ ✓A = Alternative Attended ML = Maternity LeaveJS = Jury Service AL = Annual leaveBT = Business Trip WC = Work CommitmentsLC = Left Company15Trustee meeting attendanceTrustee 12/12/01 13/3/02 12/6/02 19/9/02Hady Wakefield ✓ ✓ ✓ ✓Francis Bonsignore (resigned 2/02) N/A N/A N/A N/ABrendan Brown ✓ ✓ ✓ ✓Stephen Matanle ✓ ✗ ✓ ✗Gordon Pollock ✓ ✗ ✓ ✓Rob White-Cooper ✗ ✓ ✓ ✓Anne Kershaw (resigned 9/02) ✓ ✓ ✓ N/AStephanie Baker ✓ ✓ ✓ ✓Oliver Crispin ✓ ✓ ✓ ✓Graham Burgess ✗ ✓ ✓ ✗Clare Owen Y ✗ ✗ YWilliam Rosoff (appointed 02/02) N/A ✓ ✓ ✗Graham Wardle (appointed 09/02) N/A N/A N/A ✓

Changes behindthe scenes -A profile of the Marsh MercerPension Fund PensionsAdministration TeamThe pensions administration team which runs theMarsh Mercer Pension Fund has needed to beexpanded due to increased workloads. It has beenbuilt up by the addition of more administrationsupport, and has been strengthened by the appointmentof a Deputy Pension Manager, Kevin Scott. We arepleased to welcome these new faces, but sad to saygoodbye to Michael Maguire, who left at the end ofAugust 2002.The current structure of the UK Pensions Departmentis as follows:Toni FosterJanet JasperPensionsManagerJean SimpkinsPA/SecretarySecretary tothe TrusteeKevin ScottLiz Palmer16Deputy PensionsManagerSecretary/AdministratorGeorgina GoldingOperationsManagerSarah BaronCommunicationsManagerAndrew CharmanPensionsAdministrationManagerKathlyn ThomasAccountsAssistantSimon DennisonSystemsAdministratorDavid JacobsTeam LeaderAntony KingSue GrovesSenior PensionsSpecialistSenior PensionsSpecialistDonald StonePaul PowellJenny ShekJay TailorRodney NewmanDaniel KemsleyAdministratorAdministratorAdministratorAdministratorAdministratorAdministrator

Pensioner ConsultantsIn addition to the dedicated Pensions Department, the Company has appointed a team of Pensioner Consultantswho are responsible for maintaining contact with pensioners of the Fund who have retired from active service. They are:AreaSouth London, Southern Home Counties, South of England, West CountryNorth/East London, Northern Home Counties, South Midlands, South/Mid WalesNorfolk, Suffolk, Essex, Cambridgeshire, South Lincolnshire, North East Outer LondonNorth Midlands, North Wales, North of EnglandScotlandPensioner ConsultantBill BardenNigel ChampionMike WensleyVincent ThomasRobert WalkerThe main role of a Pensioner Consultant is to:✭✭✭make contact with pensioners on a regular basis (perhaps every couple of years) and visit them where possible;highlight to the Trustee any special needs that pensioners may have;respond to pensioner enquiries.17The Company also has a number of pensioner visitors to support the Pensioner Consultants in their role. Thesevolunteers concentrate on telephone-based contact with pensioners and visiting a limited number of pensioners.

Keeping in touch -Useful informationand contact points18Your Expression of Wish FormHave you ever wondered what would happen shouldyou die during your working life? All the time thatyou are working and contributing to the Fund, youautomatically benefit from the security of lifeassurance cover. Should you die during this time, amultiple of your salary will become payable.But who to? It is actually up to the Trustee to decidewho should receive the lump sum, but obviously theywish to be guided by each member’s personal wishes.You should make the Trustee aware of these by fillingin and returning an ‘Expression of Wish Form’.The existence of an Expression of Wish Form isinvaluable in these circumstances. It allows theTrustee to pay the lump sum, normally tax-free,quickly at a crucial time when those you leave behindmay be facing financial hardship.It is important that you keep this form up-to-date atall times, not only to reflect any changes within yourpersonal circumstances – for instance if you marry orhave children, remarry or divorce – but also if any ofthe people you have nominated change their name oraddress.If you do not fill in a form or keep it up-to-date, thepayment may have to be made to your estate and istherefore likely to become subject to both long delaysand tax.New forms are enclosed with this edition of Spotlighton Pensions for active, contributing members only.However, forms are available from the PensionsDepartment at the address shown on this page.The Marsh Mercer Welfare TrustThis trust fund is entirely separate from the PensionFund and is available to all employees and pensioners.Awards are made to help employees and pensionerswho are faced with financial hardship. Should youfeel that the Trust could assist you, you should applyin the first instance to your Human ResourceRepresentative if you are a current employee or toyour Pensioner Consultant (see page 17) if you are apensioner. The Trust Administrator is Mrs JeanSimpkins who is based in the Pensions Department inSackville House.Further informationIf you would like any further information regardingany topic in this newsletter, you should contact SarahBaron at the following address: Marsh Mercer PensionFund, Sackville House, 143-149 Fenchurch Street,London EC3M 6BN.E-mail address: pensions.dept.uk@mercer.comNew e-mail addressesFollowing the rebranding of Mercer Human ResourceConsulting Limited in April 2002, the e-mailaddresses for all Pensions Department and PensionsForum Representatives has changed. Instead of the e-mail addresses ending "@uk.wmmercer.com", theynow end with "@mercer.com".Please use the new e-mail address whenever youcontact the Pensions Department or a Pension ForumRepresentative.