Spotlight 6 (PDF 1008 Kb) - MMC UK Pensions

MMC UK Pension FundSpotlightTake6on pensionsDecember 2005Welcome... to Spotlight 2005This has been a busy and complicated year for theTrustee of the Fund with the application of the 2004Pensions Act and the Company’s review of the futurebenefit structure.As a result of the Company’s deliberations all active finalsalary benefits members have received details about theproposal to move to a career revalued pensionarrangement and to change the early retirement termsand the level of pension increases for pension earnedfrom 1 April 2006. These proposed changes have comefrom the Company and, as your Trustee, we will besending you information about what the finalisedchanges will be in the New Year, following the end of theconsultation period. If you are an affected member, youmay be interested to look up some of the questions andanswers which relate to the Trustee on the FAQs postedon the intranet. The proposed changes will onlyimpact on pension earned after 31 March 2006, sothey do not affect the benefits of current pensionersor deferred pensioners.In this Spotlight we also take a look at what A-Daymeans along with some further Government initiativeson pensions and some other changes that are beingmade to the factors used in calculating your benefits, aswell as the usual financial summary and investmentnews (including a review of the most recent Report andAccounts as at 31 December 2004).If you have any comments or suggestions for futureissues of Spotlight, or you would like a copy of theformal Report and Accounts please contact the Trusteeusing the address on page 11.Hady WakefieldChairman of MMC UK Pension Fund Trustee Ltd

Insidethis issue010203030405060910Welcome –Welcome to “Spotlight on Pensions –Take 6”, our regular round-up of newsand views from the Trustee.Countdown to A-Day –On 6 April 2006 the UK’s pension systemwill undergo its most radical overhaul for50 years.Government initiatives in 2005 –New measures to increase pensionscheme security.The BIG debate –How to combat pensioner poverty.Financial highlights –The Trustee’s Report to Members for theyear ending 31 December 2004, includinga review of the membership numbers andaccounts for the last financial year.Changes to the Fund’s factors –Results of the review of the Fund’sactuarial factors.Investment news –Information on the Fund’s investments,including performance for the year ending31 December 2004.The Trustee and advisers –Who is on the current Board and detailsof the experts who provide professionaladvice.The Pensions Forum –Details of current Forum members andhow to contact them.Countdownto A-DayA-Day is the 6 April 2006 and is the date when theUK’s pension system will undergo its most radicaloverhaul of the past 50 years. Pension legislation will,literally, change overnight, with all existing pensionrules changing from that date.With the introduction of different types of pensionschemes over the years, the UK currently has eightdifferent sets of rules governing pensions. The aim ofthe new legislation is to simplify the system and toencourage greater pension investment.In summary, the changes are as follows:●●●●●●●there will be one simplified set of tax rules toapply to all pension arrangements.a member will be allowed to accumulate totalpension across all their pension arrangements tothe value of £1.5 million - the Lifetime Allowance.Anything above the Lifetime Allowance will besubject to a ‘recovery charge’ of 25% if taken aspension income or 55% if taken as cash.there will be wider choice of investment options.the current limits on pension contributions will bereplaced by an annual allowance (£215,000 p.a.for 2006/2007).income tax relief will be available on personalcontributions up to 100% of earnings (restrictedto the annual allowance above).the tax-free cash sum will now be 25% ofthe value of a member’s benefit (up to theLifetime Allowance) irrespective of the type ofpension plan.there will be new retirement options with norequirement to buy an annuity at age 75.A-Day will affect the Fund and details of this will besent to you soon. You are advised to take independentfinancial advice if you wish to explore this issue further.11Keeping in touch –Useful information and contact points.2

Governmentinitiatives in 2005Many of you will be aware of the changes in pensionslegislation and this year has seen the start of two of theGovernment’s major new initiatives from the Pensions Act2004. They are both aimed at improving the financialsecurity of company pension schemes and are:●●The appointment of a new Pensions RegulatorLaunch of the Pension Protection Fund (which wasexplained in the last edition of Spotlight)The Pensions Regulator’s job is to tackle risks to thesecurity of members’ benefits. The Pensions Regulatorcan do this by asking for information about the pensionfund, the company and its plans.If the Pensions Regulator considers that pension promisesare at risk as a result of a company buy-out, restructure orsale of the company, it may issue a contributions notice ora financial directions notice under which shareholders, aparent company or other investors may be required tomake payments to the scheme.TheBIG debateThe current state pension age of 60 for women is due tobe increased to 65 by the year 2020. This will bring it inline with men and will be phased in from the year 2010.After a visit to the USA in September of this year, the nowex-Work and Pensions Secretary David Blunkett said thata further rise in the state pension age should beconsidered. The Chancellor Gordon Brown also said thatthe UK must have a national debate about raising the statepension age.The Pensions Commission which has been reviewing theUK private pension system and long-term savings, issuedits second report at the end of November – unfortunatelynot in time for the publication of Spotlight. It is expected,based on the recommendations of its first report last year,that the commission will also suggest that people have towork longer.The Commission’s First Report explained that faced withthe increasing proportions of the population aged over 65,society and individuals must choose some mix of fouroptions. Either:● Pensioners becoming poorer relative to the rest ofsociety; or● Taxes/National Insurance contributions devoted topensions rising; or● Savings rising; or● Average retirement ages rising.The option of poorer pensioners is the least attractiveand some combination of higher taxes/NationalInsurance contributions, higher savings and/or lateraverage retirement age will be required.The Commission has stated that the way forward mustinvolve some mix of:● Successful revitalisation of the voluntary system;● Significant change to the state system;● Increased compulsion.These options have been the focus of the PensionsCommission since the publication of its initial report. A fullupdate on the Commission’s autumn report will beincluded in a future issue of Spotlight.To take part in the National Pensions Debate you can giveyour views on-line at www.dwp.gov.uk/debate.3

FinancialhighlightsThe Trustee’s report and financial summary for the twelve months to 31 December 2004 issummarised for you over the next few pages.Membership Numbers24,000 -22,000 -20,000 -Final Salary BenefitsAs at 31 December 2003As at 31 December 20043,000 -2,750 -2,500 -Money Purchase Benefits2,5983,07618,000 -16,000 -14,000 -12,000 -2,250 -2,000 -1,750 -1,500 -10,000 -1,250 -8,000 -7,396 6,8321,000 -8596,000 -4,692 4,93310,937 11,351 23,025 23,116 2,109 2,217 489750 -4,000 -500 -2,000 -250 -0 -ActivemembershipPensioners(including spouses’and children’spensions)Memberswith deferredbenefitsTotals0 -ActivemembershipMembers withdeferredbenefitsTotalsFund AccountIncome62.3%10.3%0.1%2.0%25.3%Expenditure80.8%2.0%3.5%0.2%0.4%13.1%4£’000● Employer contributions received 107,371● Member contributions received 17,727● Individual reinstatements resultingfrom SIB claims 247● Other income 3,264● Investment income 43,634£’000● Benefits payable 69,453● Life assurance premiums 1,718● Transfers-out to other pension schemes 2,985● Refunds of contributions 213● Reinstatement of State Scheme benefits 325● Fees and expenses 11,255

Movement in the net assets of the Fund£’000Net assets at 1 January 2004 1,921,355Change in market value of investments 153,259Net income over expenditure 86,294Net assets at 31 December 2004 2,160,908Changes to theFund’sfactorsFollowing the completion of the actuarial valuation, and inline with its past practice, the Trustee has reviewed thecontinuing appropriateness of the actuarial factors used inthe Fund. Recent falls in gilt yields and increased lifeexpectancies have served to increase the value placed oneach £1 p.a. of pension. As a result, the Trustee hasdecided to amend a number of the Fund’s factorsaccordingly.The changes are likely to affect different members tovarying degrees. In particular, early retirement factors forcurrent employees and deferred pensioners are likely to begenerally slightly less generous than previously. However,commutation factors, which are used to convert pensioninto cash at retirement, have been made more generous.The changes will take effect from 1 April 2006. In order toreduce the potential impact on members who are veryclose to retirement, the Trustee has decided that allmembers who have requested, or have already received,a retirement quotation by the time of publication of thisSpotlight for a retirement date between 1 April 2006 and30 June 2006 will receive two quotations, reflecting boththe existing and the new factors. The member will then beallowed to choose either of the two quotations. Allretirement quotes requested after 31 December 2005 willbe based solely on the existing factors for retirement datesbefore 1 April 2006 and on the new factors for retirementdates thereafter.If you are considering retiring in 2006 and are uncertainabout which factors will apply to your benefits, you shouldcontact the Fund’s administrator. Contact details areshown on page 11.As you may be aware, the actuarial profession is currentlyreviewing the way in which transfer values should becalculated by trustees and is expected to issue furtherguidance about these calculations in 2006. Given thisuncertainty, the Trustee has decided to retain the Fund’sexisting transfer value factors for the time being, and toreview these factors in 2006 when the outcome of theactuarial profession’s review is known.Given the proposed benefit changes due to come intoeffect from 1 April 2006, the Company is currentlyreviewing the Fund’s Flexible Defined Benefit AdditionalVoluntary Contribution rates that will apply from 1 April2006. Details of any changes to these rates will becommunicated to you separately.Members are reminded that when exercising optionsunder the Fund, it is advisable to consider takingindependent financial advice.5

Investment newsFinal Salary benefitsThe Fund is made up of three sections, each investedslightly differently depending on the needs of themembership. The approximate split of the assets is asfollows: Marsh (35.6%), Sedgwick (51.4%) and Mercer(13.0%). Overall, the assets for the Fund were invested withthe following investment managers at 31 December 2004.Investment ManagerProportionof assets %Aegon Asset Management UK plc 6.0Alliance Captial 5.5Baillie Gifford & Co 8.9Deutsche Asset Management Ltd 13.7HG Capital Investment Managers Limited 0.1Harbourvest Partners VII 0.1The rest of the Fund’s assets are actively managed whichmeans that the investment manager picks out marketsand industries showing potential growth. The aim is tooutperform the general market by choosing the right areasfor investment.As you can see from the pie chart below the assetsare invested in a broad mix of equities, bonds and aninvestment in long lease property to further diversify theinvestment pool. An investment was made in December2004 for the extra contributions of £47 million paid in bythe Company to help boost the Fund’s financial health.Legal & General InvestmentManagement Ltd 26.9Putnam Investments Limited 21.0Schroder Investment Management (UK) Ltd 8.8Marathon Asset Management 6.1Standard Life Investments Limited 2.8Equity Cash 0.1The Investment Committee of the Trustee spends a lotof time assessing what the right balance is for theinvestments within each section and overall for the fund.The Committee is currently undertaking a review of theinvestment strategy as part of the actuarial valuationand any changes to the mix of investments or approachwill be reported in a future issue of Spotlight.At the moment, approximately 26.9% of the Fund’sassets are managed passively. This means that theseassets are invested in all the companies quoted on aparticular market or index e.g. the FTSE (Financial TimesStock Exchange) All-Share Index in the UK. The result isthat the investments are spread widely across a wholerange of different companies and industry sectors. Theaim of an index fund is to match the return of thatparticular index. The investment manager is not trying todo better than the index, but equally, the investmentmanager should do no worse.● UK Equities 24.5%● Overseas Equities 32.6%● UK Bonds & Overseas Bonds 39.8%● Property 2.7%● Cash/Others 0.4%Investment performance to31 December 2004The Fund outperformed the benchmark by 0.9% during2004 giving a return of 10.2% compared to thebenchmark return of 9.3%. The performance of eachinvestment manager is measured by The Northern TrustCompany and the returns for the individual sections for theyear to 31 December 2004 are as follows:Fund % Benchmark % DifferenceMarsh 10.2 10.1 +0.1%Sedgwick 9.6 9.3 +0.3%Mercer 10.4 10.3 +0.1%Investment comment2004 turned out to be a better year than expected with UKbonds performing well. Almost half of the equity returnscame in the last quarter of the year following the USpresidential elections and the easing of oil prices.Economic and corporate earnings growth was gooddespite some concerns about rising US interest rates,policy changes in China and a strong euro.6

Money Purchase benefitsMembers of the Money Purchase (Defined Contribution)section of the Fund now have access to 12 investmentfunds for their individual accounts. The eight new fundswhich were introduced recently are:FUNDWHAT IT DOESLegal & General – Passive ManagementIndex funds aim to eliminate the risk of poor share selection and deliver returns that are close to market returns.They do this by investing in most of the companies within the relevant market measured by the index.Ethical Global Equity IndexUK Equity IndexOverseas Equity FundThe Fund is designed to capture the returns of the FTSE4Good Global Index.FTSE4Good is an index series for socially responsible investment, which wasdesigned with the support of UNICEF, the United Nations Children’s Fund, and usesdata provided by EIRIS, the Ethical Investment Research Service. The FTSE4GoodAdvisory Committee is responsible for the management of the FTSE4Good selectioncriteria and for undertaking the review of all FTSE4Good Indices.The FTSE4Good Index excludes completely, companies that are significantly involvedin tobacco production, the manufacture of whole weapons systems or strategic partsor services for nuclear weapon and those who operate nuclear power stations ormine/process uranium. When deciding whether to exclude companies outside thesesectors, FTSE4Good classify companies based on their impact on the environment.The Fund aims to capture the returns of the UK equity market. It tracks the FTSEAll-Share Index and is invested only in UK equities.This Fund aims to capture the total returns of North American, European (ex-UK),Japanese and Asia Pacific (ex-Japan) equities as represented by the FTSE WorldIndices, while maintaining the Fund’s distribution within control ranges determined bythe Trustees.Threadneedle – Active ManagementActive managers use in-depth research and market experience to pick out markets and industries showing potentialgrowth. The aim is to outperform the general market by choosing the right areas for investment.Global Equity 60/40 FundOverseas Equity FundUK Equity FundHigh Alpha FundCorporate Bond FundInvests in a spread of equities across the UK and abroad. The aim is to bring in areturn of 1.5% or more above the benchmark for each market index.Invests in a range of pooled pension funds giving a balanced overseas portfolio.The aim is to bring in a return of 2% or more above the benchmark.Primarily invested in the UK this fund aims to produce a return of 1% - 1.5% or moreabove the FTSE All-Share Index.Investing in UK equities, this fund aims to achieve 2% or more above the FTSEAll-Share Index.Investing mainly in corporate bonds issued by UK companies, this fund aims toachieve a return of 0.5% above the iBox Sterling non-Gilt Index.7

InvestmentperformanceThe investment performance of the various funds(gross of fees) within the Money Purchase Section for theyear to 31 December 2004 is set out in the table below:Legal & General (passive)Fund Benchmark% %Global Equity 60:40 11.7 11.6Index FundOver 15 year Gilts Index 8.3 8.4Over 5 year Index linked 9.0 9.0Gilt IndexReviewing your investmentsIt’s always a good idea to reassess where your money isinvested on a regular basis. The Fund gives you theopportunity to move your money around so that you areactively involved in choosing the investments that you feelcomfortable with.You can switch your investments twice a year and theCompany will pick up the administration cost for this. Anymore changes in a year and you will need to pay thecharges for moving your money. The application form forswitching can be downloaded from the websitewww.pensions.uk.mmc.com and your money will bemoved to the new fund the following month.Cash Fund 4.3 4.4DB Equity Pool (active) 12.2 11.7For the new funds there is a six month investmentperformance report to the 31 December 2004 asfollows:Fund Benchmark% %Legal & General (passive)Ethical Global Equity Index 4.5 4.2UK Equity Index 9.8 9.7Overseas Equity Fund 13.1 13.0Threadneedle (active)Global Equity 60/40 Fund 8.7 8.3Overseas Equity Fund 7.0 6.2UK Equity Fund 10.1 9.7High Alpha Fund 8.8 9.7Corporate Bond Fund 7.5 7.08

The Trustee...Trustee board...And AdvisersCompany Appointees Elected MembersHady Wakefield (Chairman) Wendy Beaver, MercerMatt Bartley, MMC Oliver Crispin, MarshPeter Felton, Mercer Stuart Faloon, MercerMike Jones, Marsh Andrew Fewster, MarshPhilip Gregory, MarshGordon Pollock, MercerLinda Shepherd, MercerCompany Secretary to the Trustee – Toni Foster, FCISFund ActuaryAuditorsInvestment ManagersLegal AdvisersPensions ManagerFund AdministratorFund ConsultantsCustodiansBankerLife AssuranceJonathan Bernstein FIA ofMercer Human ResourceConsulting LimitedDeloitte & Touche LLPAegon Asset Management UK plcAlliance Capital LimitedBaillie Gifford & CoDeutsche Asset ManagementLimitedHarbourvest Partners, LLCHG Capital InvestmentManagers LimitedLegal & General Assurance(Pensions Management) LimitedMarathon Asset ManagementLimitedNorthern Trust Global CashFunds PlcPutnam Investments LimitedSchroder Investment ManagementUK LimitedStandard Life Investments Limited(Private Equity)Standard Life Investments Limited(Long-Lease Property)Threadneedle Pensions Limited(appointed 1 July 2004)UBS Global Asset Management(UK) LimitedLinklatersKevin Scott APMIMercer Human ResourceConsulting LimitedMercer Human ResourceConsulting LimitedThe Northern Trust Companyand PFT LimitedNational WestminsterBank plcLegal & General Group plcScottish Equitable plcCanada Life LimitedGenerali Employee Benefits UKUNUM Limited9

The PensionsForumThe Pensions Forum acts as a link betweenemployees and the Trustee.The current members of the the Pensions Forum are:Sarah Pearse HR Director, Mercer Company appointee, joint chairJanet Elms UK HR Director, Marsh Company appointee, joint chairJohn Ashbolt Mercer Pensioner ElectedNicholas Bacon Active member of Marsh ElectedGraham Burgess Active member of Mercer ElectedJenny Massey Marsh Pensioner ElectedChris Merry Active member of Marsh ElectedClare Owen Active member of Mercer ElectedKevin Scott Pensions Manager Company appointeeSimon Thurgood Active member of Marsh ElectedPaul Wotherspoon Active member of Mercer Elected10Who to ContactIf you would like to contact a member of the PensionsForum regarding a pensions issue, please use thefollowing email address:PensionsForum.uk@mercer.comPensions Forum Representives24/03/05 09/09/05John Ashbolt Nicholas Bacon Graham Burgess WC WCJanet Elms Andrew Fewster (appointed to Trustee board 06/06/05) N/AJenny Massey Chris Merry AL Clare Owen WC WCSarah Pearse WC WCKevin Scott Simon Thurgood (appointed 06/06/05) N/A Paul Wotherspoon Trustee meeting attendance16/12/04 09/03/05 06/06/05 11/10/05Matt Bartley (appointed 04/04/05) N/A N/A Wendy Beaver S Oliver Crispin Stuart Faloon AL Peter Felton (appointed 01/07/05) N/A N/A N/A Andrew Fewster (appointed 06/06/05) N/A N/A AL* Philip Gregory Mike Jones WC WCGordon Pollock WC Linda Shepherd (appointed 22/04/05) N/A N/A Hady Wakefield (Chair) A = Alternative Attended ML = Maternity Leave JS = Jury ServiceAL = Annual leave BT = Business Trip WC = Work CommitmentsA = Alternative Attended - ML = Maternity Leave - JS = Jury Service - AL = Annual Leave -BT = Business Trip - WC = Work Commitments - S = Sickness - *arranged prior to appointmentWe will then forward your query to the appropriatePensions Forum representative for attention. However, ifyou would like to address your query to a particularmember, please name them.The following tables show the attendance record of eachTrustee and Forum Representative at the meetings whichhave taken place over the period since the last edition ofSpotlight was produced.As always, it is inevitable that not all members are able toattend every meeting. However, input is received andfeedback given for each meeting.

Keeping intouchuseful information and contact pointsYou can contact the administrator of the MMC UKPension Fund at:MMC UK Pension FundPO Box 476Westgate House52 WestgateChichester PO19 3WZEmail: mmcpensions.uk@mercer.comTel: 0845 6000293Further informationIf you would like any further information regarding anytopic in this newsletter, you should contact Sarah Baronat the following address:MMC UK Pension FundTower PlaceLondon EC3R 5BUEmail: sarah.e.baron@mercer.comFax: 01243 522001The Marsh MercerWelfare TrustThis Trust fund is entirely separate from the Pension Fundand is available to all employees and pensioners. Awardsare made to help employees and pensioners who arefaced with financial hardship. Should you feel that theTrust could assist you, you should apply in the firstinstance to your Human Resource representative if youare a current employee, or to your Pensioner Consultantif you are a pensioner. The Trust Administrator, BarbaraClarke, is retiring at the end of the year. From21st December 2005, the responsibility for administeringthe Welfare Trust will change to the Marsh HumanResources Department at Tower Place. You can write tothe administrator at the following address:Marsh Mercer Welfare TrustMarsh Human Resources Department6th FloorTower Place EastTower PlaceLondon EC3R 5BUThis newsletter is written in general terms and is notintended to modify the MMC UK Pension Fund or alter inany way the benefits you are entitled to under the Fund.In the event of this newsletter conflicting in any way withthe Trust Deed and Rules then the Trust Deed and Ruleswill prevail. If you wish to see a copy of the Trust Deedand Rules they are available for inspection and youshould contact Sarah Baron at the above address toarrange a time to do this..11

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