R Dargie (telent Coventry), M Halcrow (telent Coventry), Peter Harris (Field Force), R Hartt (Field Force)
John Leaney welcomed two of the three the Independent Trustees (ITs) to the meeting. Apologies were received from the third IT, the Law Debenture Pension Trust Corporation (represented by Eddie Thomas)
Giles Orton introduced himself. His background was legal and disputes. Together with Sarah they were going to cover
Sarah Jeffrey-Gray introduced herself. Sarah has been a pensions lawyer since the early 1990s, and is an independent professional trustee of a number of pension funds. She then went on to cover events since 19/10/2007 to date. The key points she made were:
Sarah explained that Law Debenture was also a director of SPT. Previously Eddie Thomas had fulfilled this role but had now moved to fulfil the role of Independent Trustee. David Felder was now acting for Law Debenture on the Board of SPT. No conflict of interest arose nor was envisaged as the objectives of SPT and the ITs are fully aligned as trustees of the Scheme.
The appointment by the Pensions Regulator of the ITs was made very quickly. Roy Mills thought there had been a lack of communication since then. Sarah noted that various methods had been considered, bearing in mind the small number of actives, so it was decided to ‘post' on the telent pensions web site an introduction to themselves (October). Another statement was released after their positions were confirmed. There is a Newsletter on the verge of being issued. This will be the first direct communication for some members. It was suggested that perhaps the pensions web site could be opened up to receive input from members. Giles Orton said there was concern on how to cover elderly pensioners who did not have email access. Vic suggested use of council libraries, or perhaps a relative or friend could help. Perhaps the Newsletter could say this.
Roy Mills referred to compliance issues, and wondered whether or not current law entirely covered the present situation. This was in the context that the law required member selection of a certain number of Trustees. Sarah said that on the procedural side, the Pensions Regulator had the power to appoint one or more independent trustees to an occupational pension scheme and that it also had power to make that appointment on the basis that the independent trustee(s) had exclusive powers i.e. excluding MNDs. The ITs duty was to comply with the Regulator's order which appointed them.
Roy said he was still trying to determine the relationship between the old trustees and the ITs. There was some feeling that SPT, including the MNDs had just been cast aside. Pat said that as an MND, he felt that the ITs have very much kept SPT informed on what they were doing, including how the ITs operated, and how any existing committees interacted.
Sarah said that whilst the Regulator had vested all powers in the ITs, they had quickly delegated the day to day running to SPT. Ultimate responsibility for the Plan lies with the ITs for the period of their appointment. There was IT attendance at Investment Committee meetings. Other committees were unchanged. Sarah agreed with Peter Olney that legal responsibility for investments was ultimately with the ITs. If/when the six month period expires, powers would automatically revert back to the old SPT Board.
Mick Elliott wondered if PC were a Limited Liabilty company in Guernsey? Sarah said that the company acquiring telent is a Guernsey based company ultimately owned by PC, but the legal sponsor of the Plan remains telent which is a UK mainland company. Colin Clark asked if telent was sold off, what then? Sarah said the pension Plan remained a UK scheme. The Trustee would need to agree to another sponsoring company assuming responsibility for the Plan. Pat asked if during any possible disposal of telent, there was any possibility of the pension Plan being offshored? Sarah and Giles could not see how this could be done. The Plan would remain UK Plan subject to English law.
Tony Cobbe asked if there was any situation where the PCC could go to the Pensions Regulator over the head of the Trustee? Sarah said that any member could go to the Regulator. In response to John Kerr, Sarah added that the Pensions Regulator cannot change the SPT constitution, but does have the power to continue with the ITs (generally for a finite time). Gavin Martin presumed that we must have a sponsor. Giles answered that the sponsor (telent) can only change with the trustee agreeing, but the ownership of telent can be changed without any control from the trustee. Pat said that if telent sold off its engineering function, he thought there would just be a shell telent which was still the sponsor, but with no assets or business. [Post meeting note – this would be an event that would have to be reported to the Pensions Regulator by the sponsor and the sponsor might seek advance clearance from the Regulator]
Giles Orton then continued the presentation, covering the following.
Giles noted that:
These combined represented a clear potential conflict of interest, which was a key reason for the application to the Regulator.
Going forward discussions were underway with the Regulator to secure the independence of the trustee. These would not necessarily be complete by April and if they were not it was likely that the tenure of the ITs would be extended.
Mick Elliott asked if Governance was covered in the recent Pensions Act. Giles said it only covered the appointment of the one third MNDs to the board, leaving the other two thirds as either company nominated or independent or a combination, and the ITs have no powers to change this. Giles added that the ITs can, however, stop any changes being made which might be adverse to members.
Dave Sawyer asked if there was any limit on how long the ITs appointment could be extended by? Sarah and Giles answered no. It was within the Regulator's power. Peter Harris (TPO) noted the reasons for the application to the Regulator included concerns about (1) the power of telent to change the articles of SPT and (2) their power to appoint directors to the board. He said he would be astonished if telent still had those powers after the ITs had gone.
Giles noted that it was no secret that PC were in business to make money from pensions and not electronics. PCs plans for the GEC 1972 Plan were not yet clear. Also the ITs were waiting for PC to say what proposals they had on the covenant, so that the three yearly Actuarial Valuation could be performed. This has been brought forward to April 2007, with results planned for April 2008.
Roy Mills noted members were afraid that if PC changed the actuarial assumptions, then it might appear that we were getting a better return, and then PC could take money out of the Plan. Giles said this was why the Actuarial Valuation had been brought forward. Roy asked if the ITs would set the actuarial assumptions? Giles said yes, but the Regulator can have the final say if there was disagreement. Any deficit has to be reviewed by the Regulator. Sarah added that this would be the Plan's first “Scheme Specific” valuation under the Pensions Act 2004, which requires prudence on the part of the Trustee(s) in setting assumptions. Also, mortality may have changed again since the last valuation.
John Kerr referred to the difference between the inflation limits pertaining to annual pensions increases in payment, noting that our scheme allowed up to 5%, but the government legal limits were only up to 2.5%, so could the 5% be changed down to affect our scheme? Giles said that this was not very significant to the funding of the Plan, as the 2.5% limit can only be applied to benefits accruing as from the date of change (not retrospectively), so it would only be a marginal change, as most Plan members were pensioners or deferreds.
Giles noted that PC have a lot of investment expertise, and the ITs are willing to listen to any of PC's ideas and any critique they may have on Watson Wyatt- it is their duty to do so. If PC think the investment strategy can be improved, the ITs will be pleased to consider suggestions, but the ITs have the final decision. PC have said that they had no plans to take this investment management role themselves.
Ian Marshall asked how then can PC take money out of the Plan, - what are they in it for? Giles said that it looked as if PC were prepared to play a long game. John Kerr said a major concern was when investments went wrong, and PC lost money from the Plan. Giles said that PC would only get their money from the escrow if the funding position improved significantly, but the ITs do not see that they could accelerate this prospect other than by taking more risk, which they are reluctant to do.
Tony Cobbe asked if there had been any real change in the investment strategy since October? Giles said only minor changes, which were instigated by the trustees.
On BPA, Giles noted that going to an insurance company to buy benefits was only attractive if we can get there with a well managed insurance company. This is a growing competitive market, which is now being explored. The ITs are looking at the market to see what is available. By spring, the ITs want to compare against each other (1) current strategy, (2) PC proposals, (3) buy out annuities. The latter might include looking at Pension Investment Corporation (PIC), an FSA approved insurance company who were a subsidiary of PC. Peter Olney questioned why our assets might be better elsewhere? Giles said because we were an ‘elephant supported by a mouse', then the ITs were looking to see what other products there were.
Colin Clark asked if an annuity was protected in the same way as is given by the PPF? Giles said annuities were protected by the FSA, and he did not know of any related failures. Remember that the PPF does not secure 100% benefits. Roger Pittock referred to Equitable Life, but Giles pointed out that they were still paying their annuities.
Dave Sawyer asked if PC could change the trustees now without reference to the ITs? Sarah said that telent could, except for the MNDs. Peter Harris (TPO) added that the SPT articles allowed for up to fifteen on the board, but stated his belief that for telent to change the board at this point could be viewed as confirming some of the concerns which lead to the appointment of the ITs. It was therefore highly unlikely to occur. Vic Webster added that one company nominated director has resigned, and not yet been replaced.
Chris Purchase asked what was the cost of the ITs. He was told of the order of £0.5M, borne by the fund, admin costs by telent.
The ITs said that they would welcome another meeting with the PCC
This was presented by Pat Moloney.
Pat noted that since the last PCC meeting, there had been Trustee meetings on 29th Oct, 15th Nov and 5th Dec. The main points that he raised were as follows.
There had only been a few calls to Pensions Office on the SBS transfer to Blackrock.
Pat noted that the meeting with the MPs, which also involved the unions, had discussed a possible increase from one third to 50% MNDs on the board. Also raised was the point that the law should be clearer about Independent Trustees being truly independent, and not company appointed. They hoped to meet Mike O'Brien again in the next month.
John Leaney noted that SPT and the ITs were working with telent Pensions Office to publish a members' communication newsletter. This will include articles from the ITs and PC, and also on the PCCs appointment, the SBS transfer and the annual Report and Accounts.
The ITs (Giles Orton and Sarah Jeffrey-Gray) left at this point, as did Colin Clark.
This was given by David Collinson and John Coomber, both partners in PC, by telephone conference link. David Collinson said that he is an actuary and is in the Liabilty Acquisition part of the PC. Prior to being with PC, he had been a partner at Watson Wyatt and had worked there for nineteen years. John Coomber said he is also the telent plc chairman. He was also a Director and Chief Executive Officer of Swiss Re Group.
Their presentation included the following topics. Related slides were later distributed to the PCC reps.
During the presentation, PC made the following points.
After the presentation, questions were taken from the PCC reps.
Peter Olney was concerned because he had read that J C Flowers (a leading PC investor) were being sued for $200M in the USA for reneging on a mortgage deal.. John Coomber commented that the dispute related to the contractual terms of the offer.
PC were asked why they did not talk with the Trustee before the telent acquisition process started. David acknowledged that it was a fair criticism. Their only idea was for a good outcome for telent and the Plan members.
Mick Elliott asked if Plan funds went into surplus, would an increase in member benefits follow, or would PC just take the escrow? PC said that their first objective is to get the Plan as secure as possible, and they did not want to commit either way on benefit improvements. He added that PC and its investors are there for the long term, and not for short - term gains.
Peter Eykelenboom asked if there were any plans to combine our funds with other funds, or remain free standing? David said there was no specific plan for this, but these sorts of options were under review. John added that this would require the approval of the Trustee.
Peter then asked if the PCC would remain as it is at present? Peter Harris (TPO) said yes.
Katy Angliss asked how PC were going to improve the investment strategy? PC said that this is being discussed with the Trustee. The goal was to take away risks, such as how to hedge away inflation and longevity - big risks. Also it was better not to have all our eggs in one basket. Peter Harris (TPO) added that the Investment Committee had already gone a long way towards this, by taking away 80% of the risk. On the uncertainty of longevity, PC said that they drew on several sources, such as our own Plan experience, published tables, postcode analysis etc. John Kerr noted that PC seemed to be saying that they would use innovative risks to manage the scheme better, but surely innovative solutions bring more risk? PC replied they were not reckless.
PC were asked why the trustees of Thorn were replaced? David Collinson said that of the five Thorn trustees, two MNDs remain, one was the MD of the sold company (so had to be replaced), one was effectively appointed by the the former Thorn owner), and the other was due to retire in 2007 anyway. Since then, an independent has been added. For the GEC Plan, we still have the three independents and PC are in discussion with the Regulator as to what happens after April 2008. John Coomber noted that PC liked the balance of our current Trustee structure of three independents, three company nominated and three MNDs.
Peter Olney referred to an Ed Truell press statement which seemed to suggest that 80% of our investments would be put in short term money markets. Dave Collinson questioned the source of this and said that investment was the Trustee responsibility. Also, if things went wrong, telent would then have to pay in more contributions, reducing the value of telent.
Roger Pittock referred to PCs offer to telent, which said that protection was given to telent employees, actives and pensioners. Did this include deferred pensioners? PC said yes.
Vic Webster noted that as telent had the right to hire and fire the three independents, how could we be sure of their true independence from telent and PC? PC said that all trustees had a responsibility to the members of the Plan which overrode their other interests.
Peter Harris (TPO) asked a question which had been submitted to him in writing - what was the attraction of telent to PC? PC said that the business was interesting and well run. The pensions scheme was very interesting as was the escrow, It was attractive to a company with PC's aspirations. PC also noted that telent could not be separated from the Plan, unless someone comes up with a suitable replacement for the covenant. PC liked the company as a business model, and wanted it to succeed.
Peter Olney asked what would happen if escrow release came into being and then later it was found out there was not enough money in the Plan? PC said that there was still some way to go to reach the 105% target for Escrow release. The Escrow agreement was clear that money could be released at 105% funding but the precise mechanisms that could be put in place at this point needed to be discussed.
Dave Sawyer referred to the trade off between risk and return, noting that PC had said they believed that they could help the Trustee to invest with low risk and high return – is this possible? PC said this was a difficult question to answer by phone.
Peter Harris (TPO) said that the investment committee had implemented a sound investment strategy, but were interested in improving it, as there was no guarantee that they had the optimal strategy, and that what may be optimal now would change over time. PC said that they were not aiming to increase the level of return, they were comfortable with that, but were looking for ways to reduce risk. Katy Angliss added that if PC were not aiming to increase the return, then how is PC making its money? PC replied their aim is to reach 105% funding at some time in the future so that money would then flow from the escrow. Their ownership of telent provides the covenant and security for the Plan. Gavin Martin wondered how, if things did not go too well, could telent, a small company, support the Plan? Was there any more money behind CILP 5? PC said none to CILP 5, but for PC as a whole there is. The telent covenant continues. Anything beyond is for discussion with the trustees.
Mick Elliott asked if PC followed UK mainland law? PC said they complied with legal requirements.
PC concluded by saying that they looked forward to open ongoing dialogues with the PCC.
The conference connection with PC was then terminated.
Peter Olney noted that PC made sharp changes in their statements. He was incredulous of their statement that they were looking for slow steady improvement.
Roy Mills observed that it looked that there would not be any short term changes, and the Pensions Regulator would see it as a plus if PC left everything in place. But even so, David Collinson and John Coomber could themselves be replaced!
Peter Harris (TPO) noted that there was a fundamental difference with Thorn and Threshers. They had been in crisis at the time of acquisition, and PC could well have been viewed as a white knight.
Tony Cobbe asked if the MNDs had been in contact with Thorn and Threshers? Pat Moloney said they would do so. Action Pat Moloney
Dave Sawyer asked if the value of the Plan funds plus escrow gave over 105% funding, could all of the excess over 105% be released? Peter Harris (TPO) said yes, to the extent that sufficient funds were in the escrow, but thought this was not likely in the short term with the present gap between now and 105% funding. The trustees' plans are to achieve a similar level of funding excluding insurance company profits by 2021.
Graham Allen was unable to attend today, but the R & A document is now available on the telent pensions website. Graham is willing to attend the next PCC meeting to go through it. Action Graham Allen
Pat asked the PCC reps to go through the R & A before hand and come to the next meeting with any questions. Action PCC reps
Agreed
Tony Cobbe asked what progress had been made on the admin matters he had raised at the last meeting. Peter Johnson said that a number of documents were about to go onto the TPO web site for PCC members access, although he did not know how this would work. Graham Allen had been actioned two days ago. Tony said he wanted to see a list of
Vic said he had a list of such documents, with yes/no status. Tony added that he would readily chase through those documents not being made available to us.
Peter Johnson took an action to chase up the situation now with Peter Harris and Graham Allen. Action telent pensions office (Peter Johnson)
(Post meeting notes. Vic emailed his list to all PCC reps after the meeting. On the 15th Jan, Pat Moloney emailed all PCC reps saying that he was compiling all agreed documents on a CD for each MND to hold, with a subset CD also for the chairman and secretary to hold. Peter Johnson then emailed a website address with access to key plan documents to the committee) Action Pat Moloney
Tony asked if the chairman/secretary would write to the ITs and ask them what documents they had, so at least we would know what we needed? Action Peter Dronfield/Ken Buckley
Vic asked whose responsibility it was to follow actions through? Mick suggested that four weeks before any future PCC meeting, the secretary sent out an actions list reminder. Action PCC secretary (Ken Buckley)
The secretary to note documents status to be an agenda item at the next meeting.
Tony congratulated the MNDs and trustee chairman Chris Holden on getting the ITs appointed so quickly, but he said he was now concerned about the subsequent silence. Pat said that it had been difficult to communicate with the PCC reps because everything from PC is labelled confidential. Tony said he was not suggesting breaking confidentiality, but just looking for some indication of what was going on, even if it was just notification of what meetings were being attended. Pat said that he shared the PCCs concern about lack of progress with PC, but it has not happened yet.
Vic Webster noted that pension fund members have access to the secretary/chairman through the pensions office web site. He wondered if that was enough? Pat asked if perhaps MNDs/PCC reps should be added. It was then asked if pensions office could host a list of PCC reps email addresses, such as xxxxyyyyPCC@telentpensions.co.uk. A further suggestion was that the telent server be equipped with a distribution list such that any mail sent to PCCreps@telent.com was automatically distributed to the PCC reps' latest notified e-mail addresses. Action Peter Johnson
Peter Eykelenboom asked if there was some way that the PCC could add weight to extending the ITs tenure? Also could the PCC throw weight behind the appointment of true independent trustees? Keith Johns proposed that we should write to the ITs thanking them and saying we would add our weight to support their extension. Also, it was proposed that we write to PC to thank them for their presentation and hope for continued dialogue.Actions Peter Dronfield
The next PCC meeting was scheduled for Wednesday 12th March 2008.
Future meetings were provisionally scheduled for 9th July 2008, 8th October 2008 and 7th January 2009. Venues to be determined.
Ken Buckley
28th January 2008
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