BBC PENSION SCHEME 2016 SUMMARY REPORT

There have been significant changes to the UK pension landscape during 2016 including the introduction of new State pension benefits. The performance of financial markets was mixed in 2015/16 and the value of the Scheme’s investments has remained broadly similar to that at the end of the previous year.

During the year the Trustees began preparations for the Scheme’s latest actuarial valuation. The Scheme must have a full valuation every three years and this one examines the funding position as it stood on 1 April 2016. We will let you know the result of this assessment in due course.

The Trustees are encouraged, following the publication of the Government’s White Paper on the future of the BBC under a new Royal Charter, that we will be able to continue to rely on the BBC’s support for the Scheme’s funding. We will look at how the structure of the Trustee Board may change with the end of the BBC Trust and the proposals for a new unitary BBC Board.

The EU Referendum vote to leave the EU has already affected financial markets and the political landscape of the UK. The Trustees and their executive team are monitoring developments affecting the Scheme closely and will continue to work with the BBC to protect benefits.

Our thanks to the many of you who completed our customer survey. I am delighted that overall levels of satisfaction with the service from the Pension and Benefits Centre remain high. Workloads for the Centre last year were heavy as they helped eligible members to consider their pension options. Over the coming year, we are planning improvements which will make it easier for you to access pension information.

This year we said farewell to two Trustees, Andy Baker and Graham Ellis, both of whom made a valuable contribution to the Board and the Finance and General Purposes Committee. Thank you also to Joy Moore, who stepped down as Chief Executive Officer (CEO). In their place, I would like to welcome Martyn Freeman and Rostam Kilgour to the Trustee Board as well as John Cullen who has taken over as CEO.

We are always interested in your views so please write to me care of the Pension and Benefits Centre or email me at mypension@bbc.co.uk if you have any comments or suggestions for any topics which you would like us to feature in future issues.

WELCOME to this year’s Summary Report from the Trustees, which gives an overview of the key facts and figures taken from the Annual Report for the year to 31 March 2016.

Bill Matthews, Chairman of the Trustees

NEWS FROM THE TRUSTEESPENSI NS2 16

FINANCES AND INVESTMENTSScheme worth £12.9 billionInvestment return 2.2%

PENSION NEWS YOUR TRUSTEES

RUNNING THE SCHEME – A TEAM EFFORT

HELP WITH YOUR PENSION

WHAT’S INSIDE2

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Finances Accounts summary

Opening net assets of the Scheme at 1 April 2015 £12.9bn

Total income £0.4bn

Total expenditure (£0.5bn)

Change in market value of investments £0.1bn

Closing net assets of the Scheme at 31 March 2016 £12.9bn

Value of the Scheme

Investment updateThe Scheme has £12.9 billion invested in a mix of equities, bonds and other assets to provide benefits for over 50,000 members. Ensuring the Scheme’s investments deliver an appropriate level of risk and reward is a demanding task. The Trustees take advice from their investment consultant and the Scheme Actuary when deciding on policy and consult the BBC.

To help the Scheme meet its long-term commitment to members, the Trustees and the BBC have in place a Journey Plan that links our overall investment strategy with our funding position. The Trustees’ aim is that the Scheme is fully funded by 2026.

What happened to investments during the year?Market returns were mixed during 2015/16, especially when compared with the previous few years. The UK equity market returned a small loss over the year (-3.9%).

The yield on long-term UK gilts remained unchanged at 2.3%. The yields on gilts and bonds are important for the Scheme because they are used to estimate the cost of providing members’ benefits. The Scheme has a liability-driven investment strategy which is in place to protect the Scheme from falling bond yields. A drop in bond yields makes the Scheme’s benefits (or liabilities) more expensive. That said, this trend also increases the value of the Scheme’s bonds.

The financial and investment information shown in this Report is taken from the Trustees’ Annual Report & Accounts for the year to 31 March 2016. These were audited by PricewaterhouseCoopers whose audit opinion was without qualification. You can access the full Annual Report & Accounts on our website: bbc.co.uk/mypension1996 2006 2010 2011 2012 2013 2014 2015 2016

£8.2bn£7.9bn

£4.6bn

£8.9bn £9.3bn

£10.3bn£10.8bn

£12.9bn £12.9bn

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Scheme performanceLast year’s overall economic conditions meant that the return on the Scheme’s investments was 2.2% for 2015/16 (compared with a return of just over 20% for 2014/15). Although this was behind the Scheme’s benchmark for 2015/16 (which was 2.4%) the Scheme outperformed its benchmark over the last three years, as the chart shows.

To give you a longer term perspective, since 1978 the Scheme’s annual return has been an impressive 11%. However bond yields are far lower now than they were in 1978, so future returns are likely to be lower.

The Scheme’s current investment strategy is to seek investments that match the increase in the cost of providing benefits. The liability-driven investment strategy, introduced by the Trustees to protect the Scheme from shifts in interest rate changes, means that the Scheme is now over £1 billion better off than if it had not protected its investments in this way.

The Scheme has also benefited from reasonably strong returns on its UK property, infrastructure and private equity investments this year. The rise of the Dollar against Sterling during the year increased the value of its US investments as well.

Another significant development during the year was the fall in the price of oil and other commodities. Although the Scheme has little direct investment in oil, gas and the like, it does have a limited amount of investments in commodity-related businesses, as well as in emerging markets, both of which performed poorly last year.

Investment returns over 1 and 3 years

Scheme Benchmark* WM universe (net)**

* Proxy Liability Benchmark using gilts plus 0.5% basis, as calculated by Willis Towers Watson.

** The WM universe (net) is a benchmark that measures the performance of a large sample of UK pension schemes.

More information about the Scheme’s finances and investments is available at: bbc.co.uk/mypension

To reduce the Scheme’s overall level of risk during 2015/16, the Scheme continued to buy investments with the potential for stable, long-term returns, such as UK corporate bonds, infrastructure investments and properties with long leases.

The Scheme reduced its equity exposure when the market was high but also benefited from rebalancing back into equity markets when they were low, both in August 2015 and February 2016.

2015/16 3 years

2.2% 2.4%

0.5%

9.2%

6.8%6.4%

How the Scheme’s investments have changed since 2006

Cash Bonds Alternatives including property Equities

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

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80

60

40

20

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100

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Find out more about the allowances in our leaflet at http://downloads.bbc.co.uk/mypension/en/aa_and_lta.pdf

Tapered Annual Allowance are you affected? You can check whether you are affected by the new tapered Annual Allowance by using the Willis Towers Watson app called AA IncomeCalc. You can download it for free from the Apple Store or Google Play.

Tax changesThe new tax year saw changes to the two allowances for pension tax relief, the Lifetime Allowance and the Annual Allowance.

Lifetime Allowance Annual Allowance

Reduced to £1m from £1.25m.

If you had pension savings of more than £1m on 5 April 2016 you should consider applying for protection against the reduction.

From April 2016 it is reduced if your adjusted income is over £150,000. Adjusted income is your taxable income from all sources plus the value of any pension contributions. The Annual Allowance is reduced by £1 for every £2 that adjusted income exceeds £150,000 down to a minimum of £10,000 for adjusted income of £210,000 or more.

As a guideline, the full amount of the new State Pension in the financial year 2016/17 is £155 a week. However the amount you actually receive if you qualify for the new State Pension this year may be more or less than this. This is because the DWP will calculate each person’s new State Pension using the higher of:

• what is payable under the old rules (including Basic and Additional State Pension); or

• what is payable under the new rules.

The State Pension you will receive will depend on the number of years of NI contributions you have paid. Typically at least 10 years are needed to qualify for a partial payment of the new State Pension, with 35 years required to qualify for the full amount.

The amount payable under the new rules will be adjusted to reflect the period of reduced NI contributions for people who were contracted out before April 2016.

You can obtain an estimate of your State pension at gov.uk/yourstatepension

For more information on the new State pension visit gov.uk/yourstatepension

Watch a short film about contracting out and the new State pension at youtube.com/PensionTube

The Lifetime Allowance is the amount of pension savings you can build up in total across your career without a tax charge.

The Annual Allowance is the amount of pension savings you can build up in a year with tax relief. It is normally £40,000.

New State Pension and the end of contracting out The new State Pension is paid to those reaching State Pension Age (SPA) from 5 April 2016. It replaced the Basic and Additional State Pension (State Second Pension and SERPS).

Anyone who reached SPA before 6 April 2016 is not affected by this change. Your SPA depends on your date of birth and whether you are a man or a woman. A SPA calculator can be found at gov.uk/yourstatepension

Until 5 April 2016 it was possible to contract out of the Additional State Pension. Both Old and New Benefits Members of the Scheme were contracted out. So members and the BBC paid reduced National Insurance (NI) contributions, with members earning a lower Additional State Pension because a broadly equivalent amount of pension would be paid as part of their BBC pension.

Contracting out was only possible for members who were accruing pension in another pension scheme, such as the BBC Pension Scheme. This means that the other scheme covered the reduction in State Pension (and frequently provided substantially more).

From 6 April 2016 contracting out ended, so it is no longer possible to pay reduced rate NI contributions.

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BBC PENSION SCHEME 2016 SUMMARY REPORT

Back row: Left to right – Martyn Freeman, David Gallagher, Kevin Carter, Grant Cassidy, Ken MacQuarrie.

Front row: Left to right – Rostam Kilgour, Bill Matthews, Leslie Huss-Smickler, Anne Bulford.

Protect your dependantsOne of the most important things you need to tell the Trustees is how you would like your benefits to be paid on your death.

There are two forms that you should consider completing:

An Expression of Wish form tells the Trustees the person(s), charity or organisation that you wish them to consider paying any lump sum death benefits to on your death. Lump sum death benefits payable from the Scheme are held by the Trustees under a discretionary trust, which means that the Trustees decide to whom the benefits are payable. As the lump sum benefit is paid under a discretionary trust it does not form part of your estate and is therefore free of inheritance tax.

A Nominated Dependant form. If you are unmarried and not in a civil partnership, or you are separated from your spouse or civil partner, then you may be able to nominate a dependant to receive a pension similar to that which would be payable to a spouse or civil partner following your death.

You can find out more about the Scheme’s benefits payable on death at bbc.co.uk/mypension.

You can download the form(s) from the Scheme website (bbc.co.uk/mypension). After completing your form you can email it to the Pension and Benefits Centre at mypension@bbc.co.uk or send it to:

Pension and Benefits Centre Broadcasting House Cardiff CF5 2YQ Pensions built up to date (but not yet in

payment) by CAB 2006 active and deferred members were increased by 1.2% and for CAB 2011 members the increase was 0.2%.

2016 pension increases Pensions in payment were increased by the following percentages from 1 April 2016:

Career Average Benefits 2011 (CAB 2011)

Old and New Benefits 1.2% 0.2%

Career Average Benefits 2006 (CAB 2006) 1.2%

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Running the Scheme – a team effortA word from John CullenJohn joined the BBC as Chief Executive Officer (CEO) of the Scheme in March. We asked John about his previous experience, his new role and the future challenges facing the Scheme.

What’s your background?I’ve worked for over 35 years in pensions in a wide range of roles and organisations including unions and industry-wide schemes. I am a Fellow of the Pensions Management Institute. I feel very privileged to join the BBC; it’s a unique and vital organisation for the UK and internationally.

How do you support the Trustees?My main focus is to represent the Trustees in their interactions with the BBC, their advisers and regulators. The second aspect is supporting the in-house pension team to ensure that the Scheme is administered to the highest standards and cost effectively. A key part of my role is to work with the Trustees and the pension team towards the Scheme’s goals of long-term security and self-sufficiency.

What are the main tasks for this year?The Scheme’s next full funding check – the three-yearly actuarial valuation – is currently underway. This is a major piece of work which involves calculating the current funding position and, if necessary, agreeing a revised schedule of contributions with the BBC.

What are your first impressions of the Scheme?I am already very impressed with the quality of the Scheme’s in-house team. This is a team of 34 people based in Cardiff and London. Their detailed knowledge of the Scheme and pensions law, combined with their expertise in IT, investment and administration, helps achieve high levels of service for members. The in-house team maintain the bbc.co.uk/mypension site which gives you access to general Scheme information; the team also produce this Report, member statements and other communications. You can talk to a member of the team via the pension service line (see page 8).

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Left to right – David Wall, Ian Cutter, John Cullen, Sandra Phillips and James Duberly.

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Beware of pensions scams Beware of schemes offering you loans, or access to funds from your Scheme pension before age 55 (except in cases of ill-health), or lump sums greater than the normal limits. The Pensions Regulator and HM Revenue & Customs (HMRC) are warning pension savers about ‘pension liberation’, which can leave you with lower savings and a higher tax bill.

HMRC will currently tax payments that are not made within its pension rules at 55%, and there may be other penalties too. Once your pension is transferred, you cannot undo it. In addition, some pension liberation schemes charge large fees. These schemes can be set up in this country or overseas, and may also provide misleading information. If we send you a transfer value quotation, we will also send you a warning leaflet from the Pensions Regulator about pensions liberation. More information is available at:

thepensionsregulator.gov.uk/individuals/dangers-of-pension-scams.aspx

Remember: if in doubt, check with the pension service line and take independent financial advice!

Managing our investments James Duberly, Director, Pensions Investments, leads a team who manage a wide range of assets from government bonds to private equity and property with a high level of governance. James supports the Investment Committee in deciding the overall strategy and selecting its investment managers. Recently the investment team has set up a subsidiary company to strengthen governance further.

Administering the Scheme and communicating with membersIan Cutter, Head of Pension Shared Services, is responsible for pension administration services. His team liaise with members about their benefits – you may have spoken to some of the team who work on the service line – and with the pensioner volunteers around the country, who maintain contact with the pensioners in their area. The team also make sure that best use is made of available technology. Ian is currently working to bring more self-service online access to members.

Managing our money David Wall, Head of Finance, leads the finance team who process all the Scheme’s financial transactions including payments to over 23,000 pensioners. They also account for the Scheme’s investments and produce the Scheme’s Annual Report & Accounts. They are currently working on projects to further streamline the accounting processes.

Trustee Secretary

Sandra Phillips, Trustee Secretary, provides support to the Trustees. She helps the Trustees meet the legal requirements on governance. This includes organising Trustee meetings and appointments and taking minutes. You may have seen mailings from Sandra asking for Trustee nominations from members or pensioners as and when there’s a vacancy for a member-nominated or pensioner Trustee.

Our executive team

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Help with your pension

ProsperoProspero is available to all Scheme pensioners (and spouses or dependants). It contains news about the Scheme, pensioners, former colleagues and developments at the BBC.

To view Prospero online visit: bbc.co.uk/mypension

An audio version is also available for those with visual impairments by calling the pension service line on 029 2032 2811 or email mypension@bbc.co.uk

N E W S • M E M O R I E S • C L A S S I F I E D S • Y O U R L E T T E R S • O B I T U A R I E S • C R O S P E R O

The newspaper for BBC pensioners

J u n e 2 0 1 6 • I s s u e 3

Attenborough at 90Page 2

Life before AuntiePage 6

Reporting on the referendumPage 3

Apollo 13 rememberedPage 8

Answering your questionsIf you have a question about the Scheme or your pension, please call the pension service line.

The pension service line is open between 8:30 and 17:30, Monday to Friday on: 029 2032 2811

If you would rather write to the team, please email: mypension@bbc.co.uk or send a letter to: Pension and Benefits Centre Broadcasting House Cardiff CF5 2YQ

Before you contact us though, do remember that there is plenty of information about the Scheme at: bbc.co.uk/mypension 2016 Pensioners’ Liaison Meeting

This year’s Pensioners’ Liaison Meeting will be held on Tuesday 18 October 2016 from 11:00 – 13:00 at:

The Radio Theatre Broadcasting House Portland Place London W1A 1AA

If you attend, you can put questions about the Scheme to the Chief Executive Officer, a Scheme Trustee and members of the pension executive.

Spaces are limited and will be booked on a ‘first come, first served’ basis. To book a place, call the pension service line on: 029 2032 2811

Need advice?Speak to a financial adviser. You can find details of impartial financial advisers in your area at unbiased.co.uk

Neither the BBC nor the Trustees can advise you what to do.