P Eykelenboom (Pensioner), A Lilley (who has now left the company)
Graham Allen from the Pensions Office conducted a review of the Report and Accounts (R & A), which (back to 1999) were available on the Pensions Office web site. He noted that as well as financial coverage to April 2006, the R & A also reported on later events up to October, in particular the Ericsson transfer. Graham then went through the R & A page by page, with the following comments added.
On page 3, he noted that the Investment Managers list had expanded, because the Investment Strategy had been looked at very closely in the last year. He also noted that two of the listed directors had resigned since October – A J Barker and N E Wignall.
On page 4, he emphasised that as a result of the Ericsson transaction, telent had made a special contribution of £185m into the Plan, which was sufficient to cover the whole of the ongoing deficit of the Plan as indicated by the results of the Actuarial Valuation of the 5 April 2005. Also the further sum of £490m had been set aside by telent under an Escrow arrangement as a contingency against any future adverse experience of the Plan. Graham added that he thought that the lack of member enquiries concerning the state of the Plan was an indicator that the members had recognised the financial good health of the Plan, following the Ericsson deal - particularly when compared to other pension plans.
On page 6, Chris Walton queried the 2.8% rate used for the inflation assumption, as he thought pensioner inflation was arguably now nearer 9%. Graham replied that it was up to the actuary to take a long-term view of inflation and advise the Trustee. In setting the rate the Trustee considers the actuary’s long term view of inflation and the requirement in the Plan TD&R to increase pensions in line with LPI. Everything in the valuation requires that an assumption be made, and the biggest problem facing pension schemes is increasing life expectancy. The swaps put in place by the Trustee as part of its investment strategy actually negate the effects of inflation for approximately 80% of the fund.
Mick Elliott wondered with the merging of financial companies globally, was there enough difference between the actuaries and investment consultants that we used? Graham said that he believed there is. In answer to further questions, he noted that it is harder to change actuary than investment consultants and that there are positive benefits in having the same firm give both actuarial and investment strategy advice as the funding position and investment strategy are closely interlinked. It was also confirmed that the Trustee would continue to use the same actuary if the outsourcing of Pensions Office goes ahead.
Ken Buckley asked what was the Discount Rate used in the assumptions. Graham answered that in the future, interest earned in the meanwhile can be discounted against money to be paid out. It was noted that a lower discount rate of 4.9% was used for pensioners, rather than the 7.3% for pre retirement. In reality, there are now so few in the pre retirement category that this figure has much less impact than the post retirement discount rate. Vic Webster added that changing the discount rate had a significant effect on funding.
On page 13, Vic observed that only once since 1997 had there been a discretionary increase over RPI in the annual pension increase (an extra 0.2% in 1998).
On page 22 (note 6), Graham noted that Administration Expenses were significantly up at £3.6m (£2.7m in 2005). This was largely due to the Pension Protection Fund (PPF) levy. The PPF levy should not be as much next year, as it is now a risk based figure, and the availability of the Escrow and changes in investment strategy have reduced the risk on the Plan. Also, under Note 5, the increase from £2.0m to £3.4m in Transfer Values Paid was demand driven and may have been affected by the reduction in numbers of staff employed by telent resulting from the Ericsson deal.
Vic was told that costs incurred on the Plan due to the Fortress negotiations had been paid by telent, although it was sometimes hard to say where the line was drawn.
On page 31, under Contingent Asset, Graham noted that the Escrow money is not in the fund value of £2.731 billion. It is in the telent balance sheet. It was also noted that as at the 10th October 2006, the Escrow fund had grown to £502.1m. Chris Walton asked how close were we to reaching the 105% funded level – if we went over, say just temporarily, would we lose Escrow money? Graham said that we are still significantly short of this level and withdrawals from the escrow to telent could only happen if SPT believed that the members’ benefits were genuinely secure – for example if an insurance company buyout had taken place.
Graham left the meeting at this point.
Mick Elliott requested that between the first and second sentences of para 3 should be added ‘He had also asked (from Peter Harris) for a breakdown per site per company of pensioners and deferreds’.
Mick again referred to para 3, reminding Peter Harris that he was still requesting to see a breakdown of members per site as above, as well a precis of the new pensions legislation as affecting PCCs and MNDs.
Referring to para 12, it was noted that a paper on the effects of age discrimination was being prepared for the Board.
Report and Accounts for year ending 5 April 2006.
This was presented by Pat Moloney.
He reported on the Trustee meeting of the 5 December. Subjects covered included:
Vic noted that it is still undecided whether or not the Board should go back up to twelve directors. Mick queried the mechanics of changing the numbers of directors in each category, and how the numbers in each category were linked.
Regarding the proposals for PCC/MND selection/election, it was noted that the legislation driving this does not now need to be implemented until the end of 2007. Pat said he was producing a related paper for the Board. Mick again emphasised that it was important to see a précis of the legislation. Mick also noted the need to prevent a situation where all pensioners and deferreds might come from one former site, as the PCC would not then be representative. It was agreed that the subcommittee needed to look closer at this. Peter Dronfield wondered what the term of office would be for the new MND/PCC scheme. Vic presumed it would stay at four years.
Mick wondered what would happen to the PCC/MND elections due next mid year – would the new procedure be finalised in time if we do not know fully the new legislation? It was agreed that the target was to have the new procedure by March 2007.
Vic said that as regards the outsourcing of the telent Pensions Office (tPO) to Paymaster, contractual negotiations were ongoing as to the respective responsibilities of Paymaster and the remaining smaller tPO. A signature of understanding had been expected by the 19 December (but might now be in January). This would be geared up to a transfer of staff on the 1 February, with a formal contract by the end of March 2007.
Mick asked what differences members would notice. Dawn said none. It would be the same address, same contact numbers. It had also been agreed with Paymaster that Pensions Office staff would attend PCC meetings.
Pat said that a paper had been received by the Board regarding the Credited Interest being fixed at 2.5%, the point being that those members with SBS investments were not getting a fair deal. There was still £35m in SBS, which Pat personally thought was because of apathy, so the possibility of setting up a forced transfer to a cash based fund was being looked at. Mick was told that legislation allows for this. Chris was concerned about peoples’ fears that they do not want to take on any risk.
As regards the paper on the Ill Health process, the question had been raised were we within the rules regarding any ambiguity in paying out Ill Health pensions to deferreds. Vic said it needed looking at in much more detail before any decision was made.
It was reported that the transfer papers have now been signed for the transfer of funds between the telent and Ericsson Plans. This paperwork is currently with Mercers to pass onto telent. Sean Leahy said that employees with a permanent Ericsson position as at the 6 December 2006 would be able to transfer their deferred pension to Ericsson. He added that there are a minority of Ericsson people who have not secured a permanent position with them who might lose out a bit.
Dawn handed out a note on this process. It covered
There was no time for discussion. Any comments would be raised at the next meeting.
The progress on the new arrangements had already been covered at the meeting. However, Vic added that he presumed that the PCC would carry on with the existing arrangements until the new ones are in place. He stressed that Coventry HR need now to elect new Active PCC reps under the present arrangements.
Sergio said that he was being made redundant this week, and as from January, he would be a pensioner rep on the PCC.
Ian Wood and Sean Leahy said that this would be their last PCC meeting, as they had made the decision to go for a full transfer. The PCC reps thanked Sean and Ian for their services to the PCC.
The next PCC meeting was scheduled for Wednesday the 7 March at Coventry, 10.30am.
(John Leaney subsequently booked the usual dining room conference room.).
Ken Buckley
4 January 2007
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