members’ report 2020 - towers watson · 2020. 9. 16. · willis towers watson. contact details...

SG UK DEFINED BENEFIT PENSION SCHEME (THE SCHEME)

MEMBERS’ REPORT 2020

Welcome to the 2020 annual members’ report in which we bring you the latest Scheme news as well as developments in the wider pensions market.

CONTENTS 2 Scheme facts and figures

3-4 Investment performance 2018–2019

5-6 Funding position of the Scheme

7 Coronavirus – what does it mean for my pension?

8 Recap: Guaranteed Minimum Pensions

9 Planning for your retirement

10 Protect your savings

11 Useful support with your pension

12 Resources and contacts

David Paterson Chairman of the Trustee of the SG UK Defined Benefit Pension Scheme

OVERVIEW OF THE FUNDING POSITIONThe triennial actuarial valuation as at 31 December 2019 is currently in progress and is expected to be completed in the latter part of 2020. As a result of the derisking programme of recent years, the assets have held up well relative to the liabilities, so far in 2020 and the Scheme remains well funded.

The Trustee has access to daily estimates enabling it to monitor the Scheme’s financial performance. The Bank will continue to be required to make contributions as per the agreement made at last valuation until the new strategy is agreed.

If you have any comments or questions about this year’s report, please contact our administration team, Willis Towers Watson. Their contact details are on page 12.

THE PAST YEAR AND LOOKING AHEADAt this time of writing, we are currently living in unprecedented and uncertain times and we hope that you and your loved ones are keeping safe and well.

We also wanted to reassure you that the Scheme continues to operate as normally as possible. The Trustee has assessed our business continuity plans, pension payments continue to be made and the administration team is focused on processing important member actions, like bereavement processes and payments, and supporting members retiring.

The Trustee is also continuing to manage the Scheme’s investments, in line with our long-term aim of ensuring members’ benefits can be met, both now, and into the future.

We also continue to be in regular close contact with the Bank to understand the impact of the situation as it develops and to ensure they can continue to support the Scheme and its members, as needed. Read further information on page 7.

Reflecting on 2019, it was a positive year across all asset classes. Political and economic events in the past year – including increased clarity regarding Brexit – left investors feeling more confident in the outlook for the UK as well as the benefit to global economic prospects of the slight easing of global trade tensions.

As members will be aware, the emergence of COVID-19, since January, has completely changed the outlook. Markets have fallen as economies go into lockdown and there is the prospect of a deep recession. We will pull out of it, but these are uncertain times.

Read the asset performance summary on page 4.

SCHEME FACTS AND FIGURES THE YEAR AT A GLANCEHere is a summary of the Scheme’s Report and Accounts for the year ending 31 December 2019.

£mValue of the Scheme’s assets as at 1 January 2019 689.6

+ Contributions and other income received 0.2

+ Net return on investments 102.9

- Benefits paid and expenses 27.6

Value of the Scheme’s assets as at 31 December 2019 765.1

MEMBERSHIP PROFILE

HOW THE SCHEME’S ASSETS ARE INVESTED The distributions of Scheme assets as at 31 December 2019 is shown in the chart below.

WHAT WE MEAN BY…Diversified growth funds invest in a mix of different types of asset classes (and individual investments within those asset classes) to reduce exposure to any one type of risk. They aim to produce returns higher than cash but are less risky than equities.

Liability Driven Investment (LDI) funds aim to match the Scheme’s current and future liabilities. They are therefore an important asset for DB pension schemes. LDI funds mainly invest in UK government bonds and interest rate derivatives.

1,233

Deferred members Pensioners

2019

2018

2,267

2,3071,074

1,159 1,108

In 2019 the Scheme’s membership fell slightly as shown in the graph below.

Key

LDI portfolio

Corporate bonds

Diversified growth funds

Synthetic equities

Absolute return bonds

Emerging market multi-asset

Property

Private equity

Note: There are no active members remaining in the Scheme.

31.4%

2.0% 3.6% 2.3%0.4% 0.4%

57.4%

2.5%2.5%

23.0%

5.4%

4.6%0.7% 0.5%

45.5%12.7%

7.6%

Asset allocation as at 31 December 2018Asset allocation as at 31 December 2019

WANT TO KNOW MOREMore information about the figures on these pages can be found in the Scheme’s Report and Accounts. This is available through the Scheme’s administrators, Willis Towers Watson. Contact details are provided on page 12.

2 – SG Members’ Report 2020

INVESTMENT PERFORMANCE 2018–2019The Trustee’s main aim is to ensure members receive the benefits they are entitled to from the Scheme, and that the Scheme has the funds available to pay these benefits when they are due. The Trustee appoints independent investment managers to manage the Scheme’s investments according to their specific briefs and assesses their performance against agreed benchmarks.

The table below sets out how our Scheme has performed against its benchmark over the calendar years 2018 and 2019, and over the three and ten year periods to 31 December 2019.

2018 20193 years 10 years

% per year

Scheme assets -2.7% 13.7% 5.4% 8.6%

Benchmark* -1.1% 15.0% 6.4% 8.1%

* Scheme asset and benchmark returns have been calculated by BNY Mellon up to 31 December 2011 and by Lane Clark & Peacock (LCP) from 31 December 2011.

* The benchmark return has been calculated by applying the Scheme’s actual asset allocation and the underlying investment manager benchmarks. Scheme asset returns shown are after the deduction of fees with the exception of the BlackRock LDI, corporate bond and synthetic equity portfolios, the performance of which has been estimated using the monetary returns reported by BlackRock.

CHANGES TO THE INVESTMENT PORTFOLIODuring the course of 2019, the Trustee undertook the following changes to the investment portfolio:

• Over 2019, the Scheme’s funding level improved significantly which allowed the Trustee to reduce the investment risk by switching assets from the Scheme’s return-seeking portfolio to the matching portfolio. These de-risking switches took place in July and September 2019 increasing the proportion of the Scheme’s assets invested in the matching portfolio from 75% to around 92% at the end of 2019. As part of the de-risking switch in July 2019, the Trustee decided to fully disinvest from one of the Scheme’s diversified growth managers (Invesco).

• In May 2019, the Scheme reduced its allocation to the Aberdeen Standard corporate bond fund by transferring part of the Aberdeen Standard corporate bond fund to the BlackRock QIF. This action was taken to reduce concentration risk within the Aberdeen Standard corporate bond fund.

• Throughout the year, disinvestments required for cash flow purposes were funded from the cash in the LDI portfolio managed by BlackRock and the Kames absolute return bond fund. There were returns of capital from Pantheon and Partners Group throughout the year. Both of these long-term illiquid investments are in run-off, and these proceeds were also used to fund cash outflows.

Following the de-risking actions taken by the Trustee during 2019, the Scheme’s investments were defensively positioned and expected to provide sufficient investment return to meet all the Scheme’s liabilities on an ongoing funding basis with a degree of certainty. This defensive positioning also means that the Scheme’s funding position is holding steady despite the economic and market turmoil from the Coronavirus pandemic, at the time of writing.

Over the year to 31 December 2019, global growth prospects deteriorated, with both the IMF and the OECD revising downwards their expectations for growth in 2020. That said, many markets rose over the year in anticipation of stronger growth later in 2020 and the Scheme assets delivered a return of 13.7% over 2019.

However, as noted earlier the emergence of COVID-19 means that the global economy faces a recession over coming months. Given the uncertainty financial assets have fallen in value and remain volatile.

SG Members’ Report 2020 – 3

SUMMARY OF ASSET PERFORMANCE IN 2019

Over the year, the Scheme’s developed market equity portfolio (which utilises financial derivatives as opposed to physical exposure) produced a return of 20.8%. Developed market equities performed strongly over 2019, reflecting investors’ response to easier monetary conditions and hopes for improvements in the trading and fiscal outlook.

EQUITY PERFORMANCE

PERFORMANCE OF BONDSThe overall backdrop for bonds was supportive, with the Bank of England maintaining the base rate at 0.75% and Brexit-induced uncertainty for much of the year pushing back the likely timing of any future rate rises. These factors, coupled with falling global growth expectations as well as continued high demand from risk-averse investors for safe haven assets, caused both nominal and inflation-linked gilt yields to fall and consequently prices to rise. Yields did rise towards the end of the year, reflecting an increase in investor confidence in the outlook for the UK as well as the benefit to broader economic prospects of the slight easing of global trade tensions. The Scheme’s LDI portfolio (held within the BlackRock QIF), which utilises leverage, returned 8.6% over the year.

Sterling corporate bonds also performed strongly, aided by the fall in both government bond yields and in investment grade credit spreads over the period. The Scheme’s allocation to the BlackRock and Aberdeen Standard corporate bond funds returned 10.9% and 15.6% respectively. The Scheme’s allocation to the Kames absolute return bond fund returned 1.7%.

Overall the Scheme’s matching portfolio returned 16.3%, reflecting what was a positive year across all asset classes.

PERFORMANCE OF THE SCHEME’S OTHER ASSETSAt the aggregate level, UK property posted modest gains over the year to 31 December 2019, with healthy rental income managing to offset the fall in capital values seen in some sectors. The Scheme has exposure to international property through its holding with Partners Group.

The Scheme’s diversified growth fund investment with Ruffer delivered 8.6% over the year. Ruffer’s allocation to asset classes, such as equities, contributed to performance whilst its UK index-linked bond holdings delivered mixed performance over the year. Ruffer also benefited from selling off some of its duration assets over the year.

The Scheme also had a separate allocation to emerging market equities and bonds via the emerging market multi-asset portfolio with L&G, which returned 12.4% over the year. Like developed markets, emerging market equities performed strongly over 2019 as a whole, although returns were generally more volatile. For emerging market bonds (denominated in both local and hard currencies), yields, which are inversely related to prices, fell over the course of 2019. The strong returns generated were due to supportive US monetary policy, a less volatile and somewhat lower US Dollar, the decision by several emerging market central banks to lower their own interest rates, and the end-year easing of trade tensions.


FUNDING POSITION OF THE SCHEME

At least every three years, the Scheme’s actuary carries out a funding valuation to work out whether there is enough money in the Scheme to pay all the benefits promised to members as they become due. This triennial valuation is currently in progress with an effective date of 31 December 2019.

The most recent formal funding valuation of the Scheme was undertaken as at 31 December 2016 and showed:

Assets (the investments) £738.6 million

Liabilities (the amount needed to provide benefits) £736.9 million

Surplus (surplus of assets that are required to provide benefits) £1.7 million

Funding level 100.2%

RESULTS OF THE LAST ACTUARIAL VALUATION

THE BANK’S CONTINUED SUPPORTThe Bank continues to support the Scheme and in light of these 2016 results, it agreed to:

• Pay additional contributions into the Scheme if the funding level falls below certain levels as agreed between the Bank and the Trustee;

• Cover the cost of all of the Scheme’s administration expenses and levies (including the Pension Protection Fund levy). These are met directly by the Bank and not paid from the Scheme; and

• Work with the Trustee to determine the long-term financing strategy of the Scheme in a low risk framework.

HOW IS THE AMOUNT OF MONEY THE SCHEME NEEDS WORKED OUT? We obtain regular valuations of the benefits earned to date by members. Using this information, we determine whether there is a deficit or surplus in the Scheme – this is the difference between the value of the Scheme’s assets and the money expected to be needed to meet the benefits that members have built up to date. This is calculated using assumptions about the future that are agreed between the Bank and the Trustee.

The Scheme is now closed, and members are no longer accruing benefits. As the recent valuation found the Scheme was in surplus, the expectation at that date was that there was enough money to pay all benefits accrued while the Scheme was open.


THE POSITION ON WINDING UPAt 31 December 2016, the Scheme would have had enough money to secure around 74% of members’ benefits with an insurance company (which it would need to do on a winding-up).

Providing this information does not mean that the Bank is thinking of winding up the Scheme. The Bank has reaffirmed its commitment to the Scheme, and we receive regular reassurances from the Bank regarding its financial strength and continued commitment to the Scheme.

The ‘winding up’ position is, however, a piece of information we are required by law to provide you with. We are also required to report whether any repayment out of the Scheme has been made to the Bank during the year. We can confirm that no such payment has been made.

FUNDING POSITION OF THE SCHEME (CONTINUED)

WHAT DOES ‘WINDING UP’ MEAN?Our aim is to have enough money in the Scheme to pay pensions now and in the future, but this largely depends on the Bank carrying on in business.

If the Bank goes out of business or decides to stop paying for the Scheme, it must pay in enough money to provide all the benefits built up by members, via an insurance company. This is known as the Scheme being ‘wound up’.HOW HAS THE SCHEME PERFORMED

OVER THE LAST YEAR?The actuarial valuation as at 31 December 2019 is currently in progress and is expected to be completed in the latter part of 2020.

In the meantime, the Trustee has access to regular estimates and works closely with its advisors to enable it to monitor the Scheme’s financial performance.


This page includes answers to some of the questions you might have during this time, given the ongoing Coronavirus global pandemic.

CORONAVIRUS – WHAT DOES IT MEAN FOR MY PENSION?

If you are already receiving your pension, the Scheme will continue to operate as normally as possible with pensions paid as usual. It is not directly affected by market falls and the cash flow to pay pensions is carefully managed. Any annual increases will also apply as usual.

If you are yet to take your pension, your benefits are calculated in line with the Scheme Rules and are not directly affected by market volatility.

The administration team continues to focus on processing important member actions, like bereavement processes and payments, and supporting members retiring.

IS MY PENSION AFFECTED?

The Trustee takes managing the Scheme’s assets very seriously, taking professional advice and making medium to long-term decisions on how to invest. We take a diversified approach to investing the Scheme assets and this helps to maintain the security of your Scheme benefits.

The Scheme’s investment strategy looks to balance the need to pay benefits when due with a degree of growth. The Trustee had undertaken a number of actions over the last few years to ensure the investment portfolio has a significant proportion of defensive assets which has helped the Scheme to withstand the current market turmoil from the pandemic at the time of writing.

HOW ARE YOU MANAGING THE SCHEME’S INVESTMENTS?

We continue to be in regular close contact with the Bank to understand the impact the pandemic is having and to ensure they can continue to support the Scheme and its members, as needed.

WORKING WITH THE COMPANY

Unlike your Scheme benefits, any AVCs you have are affected by market performance – and the impact on their value as a result of recent market falls will depend on the specific fund(s) in which you are invested. If you have seen a fall in value, please remember that unless you are close to retirement, pension savings are a long-term investment and markets generally recover over time. What is important is that you regularly review your AVC investments to ensure they are suited to your circumstances and plans for retirement. If you are concerned about your AVCs, particularly if you’re approaching retirement, we encourage you to get independent financial advice. You can find a regulated financial adviser at moneyadviceservice.org.uk/directory.

WHAT ABOUT MY ADDITIONAL VOLUNTARY CONTRIBUTIONS (AVCs)?

WHAT IF I HAVE A QUESTION? The Scheme’s administrator, Willis Towers Watson, can help and have business contingency plans in place to comply with any public health guidance, including working from home.

All enquiries will be logged and tracked, but please bear with them as there may be delays at the current time. During this time, it will help our Administrators if you email them (at the usual email address found on page 12). Please include your month of birth, post code and the last 4 characters of your National Insurance Number in your email.

If you can’t send Willis Towers Watson an email, please call on the usual number found on page 12 (between 9am & 5pm, Monday to Friday) but please bear in mind waiting times may be longer than normal.

• Make sure we can get in touch. Ensure your contact details are up to date and if you have previously provided nominee details, please also make sure these are up to date.

• Watch out for scams. Be extra cautious about promising investment offers right now. There’s a good chance they are a scam and you could lose most or all of your pension savings through tax charges, scammers’ fees and losses on fake or unsuitable investments. Further details on protecting your savings can be found on page 10.

WHAT DO I NEED TO DO?You do not need to take any action. This update is for information only. However, it is a good idea to review your pensions savings regularly and to understand the options available to you.

Also, think carefully about the right time to make any changes, taking financial advice if appropriate.


http://moneyadviceservice.org.uk/directory

A Guaranteed Minimum Pension (GMP) is a minimum pension the Scheme has to provide to members to replace the pension they would have built up in the State Earnings Related Pension Scheme (SERPS).

In October 2018, the High Court ruled that GMPs must now be equalised for men and women and the Department for Work and Pensions and other industry bodies have published guidance over the last few months to help schemes with GMP equalisation.

As we mentioned in last year’s Report, there are two aspects of GMPs the Trustee is assessing:

• That the Scheme’s records are correct and reconciled with HM Revenue & Customs’ records.

• How any GMP built up between 17 May 1990 and 5 April 1997 should be equalised between men and women.

WHAT’S A GMP?

WHAT’S HAPPENING WITH THE SCHEME’S GMPs?

RECAP: GUARANTEED MINIMUM PENSIONS

Both these processes require detailed calculations and checking. The Trustee and their advisers are continuing to work hard to complete both tasks. We will send anyone potentially affected an update in due course.


ONGOING AT RETIREMENT SUPPORTToday, people have more options for their retirement than ever. Subsequently, decision-making at retirement has become more complex.

That’s why the Trustee and the Bank have provided additional retirement support to help members make decisions that are well-informed and, ultimately, right for them.

If you are over 55 and have not yet taken your benefits from the Scheme, the online retirement modeller released in the summer of 2019 is available for all members. This will help you to plan your financial future, and properly prepare for it. It is easy to use, interactive, and shows you the potential income you could get from each option. It can also be tailored to take account of your preferences and individual circumstances.

Deciding how to take your benefits is an important decision and the Trustee and the Bank have appointed an impartial financial adviser – WPS Advisory Limited – to help you understand your options in more detail and provide you with financial advice.

The Bank will pay for you to receive one session of financial advice with WPS Advisory. However, please note that neither the Bank nor the Trustee are themselves in a position to give financial advice and are not making any recommendations to you.

If you have any queries relating to this or your retirement benefits, please contact the Scheme administrators, Willis Towers Watson (contact details are on page 12). Equally, please note that the Scheme administrators by law cannot provide you with any advice about which options are most suitable for you.

PLANNING FOR YOUR RETIREMENT

RECAP: GUARANTEED MINIMUM PENSIONS


Your retirement savings provide you with an income when you retire. Make sure you protect your retirement savings by being wary of scammers and keeping these actions in mind.

If you receive an out-of-the-blue call or communication about your retirement savings, it’s likely to be a scam. As of January 2019, cold-calling in relation to pensions is generally illegal, other than in specific circumstances. This won’t necessarily stop scammers from calling, but an unexpected offer from a company you’ve not dealt with before may be illegal – and is likely to be high risk or a scam. Remain cautious and ensure you’ve got all the facts before interacting with any person who cold-calls.

If you suspect a scam, you can report this to Action Fraud at www.actionfraud.police.uk or by calling 0300 123 2040.

PROTECTYOUR SAVINGS

1. REJECT UNEXPECTED PENSION OFFERS

2. MAKE SURE YOU KNOW WHO YOU’RE DEALING WITH

3. TAKE YOUR TIME, AND DO YOUR RESEARCH Take your time to do all the checks you need – even if this means turning down a seemingly great deal. You can get impartial free advice from the Money and Pensions Service.

Check the Financial Services Register (https://register.fca.org.uk) to make sure that anyone offering you advice or other financial services is FCA-authorised. If you don’t use an FCA-authorised firm, you also won’t have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme. So, you’re unlikely to get your money back if things go wrong. Always use the contact details provided on the FCA Register to ensure you’re speaking to the right people.


http://www.actionfraud.police.uk

USEFUL SUPPORT WITH YOUR PENSIONGETTING FINANCIAL ADVICEPensions and investments are complicated and by law, neither the Bank nor the Trustee can give you financial advice. If you want to speak to a financial adviser make sure the adviser you choose is authorised and regulated by the Financial Conduct Authority (FCA).

THE MONEY AND PENSIONS SERVICEThe Money and Pensions Service is an independent non-profit organisation that provides free information, advice and guidance on many pension topics for company, personal and State schemes.

0300 123 1047 (Monday to Friday, 9am to 5pm)

www.pensionsadvisoryservice.org.uk

11 Belgrave Road, London SW1V 1RB

PENSIONS AND RETIREMENT PLANNINGFor State Pension information visit www.gov.uk/check-state-pension. This is a useful source of information for State Pensions including a State Pension estimator tool and how to register for a State Pension forecast.

THE FINANCIAL CONDUCT AUTHORITYFind out more about pension products on offer, your rights and how to protect your pension at www.fca.org.uk

PENSION TRACING SERVICEContact the Pension Tracing Service if you have lost track of a previous pension.

0800 731 0193 (Monday to Friday, 8am to 6pm)

www.gov.uk/find-lost-pension

The Pension Service 9, Mail Handling Site A, Wolverhampton WV98 1LU

CITIZENS ADVICE BUREAUThe Citizens Advice Bureau provides free, confidential advice on issues around buying goods or services.

0345 404 0506

www.citizensadvice.org.uk

AGE UKThe charity Age UK has a very user-friendly website packed full of information and valuable resources on subjects including health, money, travel, care and work. The site also holds a range of factsheets and guides and covers topical areas in the news where older people are affected, and a fortnightly newsletter is published which may be of interest. In addition to the website, the charity runs a helpline service that can provide advice and guidance on a range of queries.

0800 055 6112

www.ageuk.org.uk

THE UNIVERSITY OF THE THIRD AGE (U3A)The U3A is an organisation for retired or semi-retired people wanting to take up educational, creative and leisure opportunities. Local branches of U3A are spread out across the country, and the membership draw upon each other’s knowledge, experience and skills to provide interesting and informative sessions for fellow members. U3A branches operate as charities in their own right and are run entirely by volunteers. The learning which takes place through the U3A is purely for pleasure – there are no assessments or qualifications involved.

www.u3a.org.uk

MONEY SAVING EXPERTYou may be familiar with Martin Lewis – also known as the Money Saving Expert – who appears on regular television and radio slots with tips on how to save money. The Money Saving Expert website is packed full of articles, news and deals to help you as a consumer. It also includes a user forum, where you can register with the site to ask other members questions on a variety of topics, both money-related and otherwise. The site produces a weekly email, to which users can subscribe free of charge, to keep in touch with the latest deals and money matters.

www.moneysavingexpert.com


http://www.gov.uk/check-state-pension

http://www.gov.uk/check-state-pension

WHO IS LOOKING AFTER THE SCHEME?THE CORPORATE TRUSTEE

SG UK DB Trustee Company Limited

Trustee Directors:

David Paterson (Chairman – Independent)

Sarah Linstead (Employer Nominated)

Bruce Pomford (Employer Nominated)

Mark Robson (Employer Nominated)

John Tuke (Member Nominated)

Paul Wiltshire (Member Nominated)

HOW TO CONTACT USIf you have a question about the Scheme or would like a copy of its Report and Accounts or any other Scheme documents, please contact our administrators by:

[email protected]

0170 760 7610

SG UK Defined Benefit Pension Scheme, Willis Towers Watson, PO Box 545, Redhill, Surrey RH1 1YX

PROTECT YOUR DEPENDANTSAre your Expression of Wish details up to date? If not, please ask our administrators for a new form. The Trustee needs an up-to-date Expression of Wish form in order to make an informed decision about how your death benefits are paid. Please note that the Trustee is not legally bound by your wishes but will be guided by your form.

RESOURCES AND CONTACTS


members’ report 2020 - towers watson · 2020. 9. 16. · willis towers watson. contact details...

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