pensions report spring 2012 · the trustee is required by law to produce a statement of investment...

Pensions Report Spring 2012For members of the Vodafone Group Pension Scheme

Contents

Scheme membership

Income and expenditure

2012 Budget – what the changes mean for you

Increase to the State Pension age

Investment strategy

Contact details

Scheme investments

Click here to enter

Valuation update

Valuation update (cont.)

Chairman’s introduction

Introduction from the Chairman of the TrusteesI am pleased to present you with this year’s Pensions Report for the Vodafone Group Pension Scheme (the Scheme). Inside you’ll find information about the Scheme financials and investments for the year ended 31 March 2011, as well as other developments in the Scheme and the pensions world more generally.

In the last report, we provided information on the Scheme’s actuarial valuation (financial healthcheck) carried out as at 31 March 2010. The results were positive, showing that the financial position of the Scheme had improved compared with the results of the previous valuation. In addition, Vodafone had provided additional security to the Trustee in order to further protect members’ benefits.

We are required to carry out a full valuation of the Scheme at least every three years, so later this year we will be starting our preparations for the valuation due at the end of March 2013. As you will see on pages 6 and 7, the Scheme’s funding position has deteriorated since last year, mainly due to a large increase in the value of the Scheme’s liabilities. This was the result of a reduction in interest rates, which are a key factor in the calculation of liabilities. However, with the strong support and cooperation we continue to receive

from Vodafone, we remain confident that the Scheme will remain well funded so that we can pay your retirement benefits.

I hope you enjoy reading this report. We would love to hear your feedback, which helps us to continue to improve our service to you. Please send feedback to Vodafone Pensions (contact details are on the back page).

John Adshead CBEChairman of Trustees

Contents

Scheme membership




Investment strategy

Contact details

Scheme investments

Valuation update



01


The money that comes into the Scheme (income) is used to pay members’ benefits and the expenses of running the Scheme (expenditure).

2011 (£000s) 2010 (£000s)

Value of Scheme at beginning of year 1,078,838 756,352

Plus: money coming into the Scheme (income)

Employer’s normal contributions 14 41,271

Employer’s special contributions 50,000 10,970

Member contributions (including AVCs) 7 6,199

Transfers in 69 117

Other income 402 126

Return from investments 74,879 299,390

Total income 125,371 358,073

Less: money going out of the Scheme (expenditure)

Benefits payable 17,354 29,254

Payments to leavers 3,975 2,286

Administration expenses 2,093 3,538

Other payments - 509

Total expenditure 23,422 35,587

Value of Scheme at end of year 1,180,787 1,078,838

Contents

Scheme membership




Investment strategy

Contact details

Scheme investments

Valuation update



02

Deferred members – people who have benefits in the Scheme but have not started to take them.

Pensioner members – people who are taking their benefits.

Scheme membership

Total 15,522

Total 15,575

Pensioners 1,796

Pensioners 1,758

Deferred 13,726

Deferred 13,817

Contents

Scheme membership




Investment strategy

Contact details

Scheme investments

Valuation update



03

2011 2010

Valuation update

To calculate if the Scheme has enough money to pay members’ benefits, a valuation is carried out every three years. The valuation looks at the amount of money the Scheme may need to pay out to members (liabilities) and the amount of money it has (assets).

The latest valuation

The Scheme’s last full actuarial valuation was carried out as at 31 March 2010. At this date, the Scheme was 87% funded, which means it would have been able to pay 87% of the benefits owed to members.

31 March 2011

31 March 2010

Funding level

92%Deficit £107m

Funding level

87%Deficit £167m

=

=

Liabilities £1,285m

Liabilities £1,243m

Assets £1,178m

Assets £1,076m

–

–

Contents

Scheme membership




Investment strategy

Contact details

Scheme investments

Valuation update



04

More up-to-date information

A formal valuation is carried out every three years. Between valuations, the Trustee monitors the financial position of the Scheme on a regular basis. Between 31 March 2010 and 31 March 2011, investment returns were better than expected. However, these were offset by the value of the Scheme’s liabilities also increasing (due to a fall in yields on UK Government bonds, which affects the calculation of the Scheme’s liabilities). The good news is that the funding position still improved due to the £50 million contribution paid in by Vodafone.

It is estimated that at 31 December 2011 the Scheme’s funding level had fallen to 68%. The fall was due to a further significant reduction in yields on UK Government bonds over the period since the end of March 2011, which led to a further rise in the value of the Scheme’s liabilities.

Similarly, the discontinuance (wind up) funding level as at 31 March 2011 was estimated to be 52%. This had also worsened at 31 December 2011 to approximately 43% due to falling interest rates, which again increased the value of the liabilities.

Some things you should know

There are a few things that pensions law states we need to confirm to members each year:

• There have been no payments to Vodafone from the Scheme in the last 12 months.

• The Pensions Regulator has not needed to use its powers to change the Scheme, give direction on working out its funding target or impose contribution rates on the Scheme.

If the Scheme started to wind up

Whilst it is not intended or expected that this will happen in the foreseeable future, if the Scheme were to discontinue, Vodafone would have to pay enough money into the Scheme for all members’ benefits to be bought through an insurance company. If Vodafone didn’t have enough money to pay benefits in full and the Scheme was eligible, the Pension Protection Fund would take over the Scheme and pay compensation to members, up to a limit.

Information about the compensation provided by the Pension Protection Fund can be found on the Pension Protection Fund’s website: www.pensionprotectionfund.org.uk

Valuation update (continued)

Contents

Scheme membership




Investment strategy

Contact details

Scheme investments

Valuation update



05

Investment strategyAs advised in the last report, the Trustee (after consulting with Vodafone) decided to introduce a liability-driven investment strategy in order to manage and reduce the risks involved with investing. This strategy means that over time, as the right market circumstances arise, the Scheme will increase the amount of investments it has in assets like UK Government bonds and corporate bonds. The investment return characteristics of these types of assets are expected to more closely match the pensions payable from the Scheme.

On the following page, you will see the Scheme’s investment mix and the target (also known as the benchmark) we are aiming towards. Over the last year, the Scheme has spread the investments it holds in equities to more areas by moving a portion into emerging markets. Over the coming months, the Scheme is also looking to widen the range of bond investments it holds by investing in more global bond markets.

In 2009/10, the Scheme put a strategy in place to protect its equity investments. This reduced some of the risk associated with the Scheme’s equity holdings by providing protection if these investments fall in value. The Trustee has recently agreed with Vodafone to continue this strategy for a further three years.

The Trustee is required by law to produce a Statement of Investment Principles (SIP), which is reviewed on an annual basis. A copy of the latest SIP is available on the pensions website at www.vodafonepensionsupdate.co.uk/documents/db/sip.pdf

Contents

Scheme membership




Investment strategy

Contact details

Scheme investments

Valuation update



06

Scheme investmentsThe Scheme’s long-term target for investing in different types of assets compared with its actual assets as at 31 December 2011 are shown below:

Asset class UK equities

Target

Target

Target

Target

Target

Actual

Actual

Actual

Actual

Actual

8.0%

31.6%

32.0%

0.0%

0.0%

Cash

UK Government bonds

Corporate bonds

0.3%

4.8%

7.6%

Overseas equities

55.7%

60.0%

Contents

Scheme membership




Investment strategy

Contact details

Scheme investments

Valuation update



07


The State Pension age (SPA) is the earliest age you can receive your State Pension. The SPA is set to increase to age 66 by 2020, with a further rise to age 68 planned to take place by 2046.

The changes to the SPA will be phased in over time and in the future men and women will have the same SPA.

What does this mean for me?

Your SPA is calculated using your date of birth. If you want to find out your SPA, use the SPA calculator at www.direct.gov.uk

The main reasons for the increase are the rising cost of providing pensions and the fact that people are living for longer.

2016

2018

2020

2034

2036

2044

2046

SPA for women to increase to age 65 between April 2016 and November 2018.

SPA will then increase to age 67 between 2034 and 2036.

SPA will gradually increase to age 66 for both men and women between December 2018 and 2020.

SPA will then increase to age 68 between 2044 and 2046.

Contents

Scheme membership




Investment strategy

Contact details

Scheme investments

Valuation update



08

New flat-rate State Pension

The Government has announced plans to introduce a flat-rate State Pension of £140 a week from 2016.

The new pension would replace the current basic State Pension and the State Second Pension (S2P). The flat rate will apply to people who have paid National Insurance for 30 years or more.

The plans are expected to be of most benefit to those on lower incomes who have made few or no contributions to the S2P.

Freeze on pensioners’ tax allowance

Age-related tax allowances for pensioners will be frozen from April 2013. Currently, pensioners have a more generous tax allowance than other taxpayers. For the 2012/13 tax year, over 75s can receive an income of up to £10,660, and those aged 65 to 74 up to £10,500, before paying tax.

From next April, these allowances will be frozen at their current level and will not be available to those who turn 65 after 5 April 2013.

Change to the Lifetime Allowance

The Lifetime Allowance (LTA) has been reduced from £1.8 million to £1.5 million for the 2012/13 tax year.

The LTA is the maximum value of benefits you can build up in approved pension schemes that can benefit from tax relief. If you exceed the limit you may be required to pay an additional tax charge on the amount over the LTA.

Most people will not be affected by the reduction in the LTA, unless they have pension savings of more than £1.5 million.

£2012 Budget – what the changes mean for you

Contents

Scheme membership




Investment strategy

Contact details

Scheme investments

Valuation update



09

Contact detailsIf you would like further information about the Scheme (including copies of the Statement of Funding Principles, Statement of Investment Principles, Schedule of Contributions, Annual Report and Accounts, or latest full Actuarial Valuation Report), please contact:

Vodafone Pensions www.vodafonepensionsupdate.co.uk

Towers Watson, PO Box 545, Redhill, Surrey RH1 1YX

Tel: 0800 917 1192

Email: [email protected]

Please also keep us updated if your details change, for example if you change address.

Contents

Scheme membership




Investment strategy

Contact details

Scheme investments

Valuation update



10

pensions report spring 2012 · the trustee is required by law to produce a statement of investment...

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