A Cobbe (pensioner), M Elliott (pensioner), Peter Harris (Field Force), G Martin (Field Force), S Radford (deferred), R Robertson (pensioner), D Sawyer (deferred).
Richard Dargie (telent Warwick) was introduced, this being his first meeting as a PCC rep.
These were accepted without comment.
Peter Johnson asked if all of the PCC reps present had received his first PCC group addressed email which he had just set up. It appeared that they had.
As well as the February 2008 telent Pensions Newsletter sent to all members, it was noted that pensioners should have received the launch issue of the ‘club together’ magazine published by Xafinity Paymaster. Pat Moloney asked for PCC reps to give feedback on this at the next meeting (secretary to include as an agenda item).
Deferred PCC reps reported that they had not had a copy of “club together” and requested one be forwarded to them.
Peter Dronfield noted that he had received three emails from members about various issues. Pensions Office had responded to those from F. Beeston and K Gabler, with one from R Grand outstanding. (Peter Harris later agreed that Peter Dronfield could copy the responses to these emails to all PCC reps.)
John Leaney welcomed the Independent Trustees (ITs) to the meeting.
Sarah Jeffrey-Gray began with an update since the last PCC meeting, as follows.
- Delegation of day to day functions to SPT continues.
- Chris Holden has been involved in all IT meetings and meetings with PC since the ITs were appointed.
- Pat Moloney has also been involved in all recent IT meetings and meetings with PC.
- Exclusive powers are still retained by the ITs, specifically on conduct of negotiations with PC and investment.
- telent is now a private limited company, owned by a complex chain from PC down to telent. It remains the sponsoring company to the Plan.
Roger Pittock was told that meetings with PC were generally fortnightly, next tomorrow.
Giles Orton then continued with Future Governance Plans, as follows.
- The ITs aim is to co-operate to ensure an appropriate degree of entrenched independence for the future as well as MND entrenchment.
- Tracy Blackwell (PC investment/risk expert) attends investment committee meetings as an observer with tPR blessing.
Giles said that it looked as if the 3+3+3 split of directors would be maintained by PC.
Vic asked if the CNDs would be telent employees? Giles replied that telent/ PC had not yet said whom they might appoint as trustees.
Peter Olney expressed concern that there was a potential conflict of interest between the ITs and the Plan in that the ITs had a commercial interest in keeping their appointments. This might cause them to pay more attention to the requirements of tPR rather than Plan members. Giles said that they were still taking counsel on what was right for our scheme, and involving SPT and in particular its independent and member nominated directors in discussions whereas tPR also has to take a wider view, bearing in mind other schemes. Richard Dargie presumed that if the ITs didn’t perform, tPR would take then off their panel.
Chris Purchase asked the ITs how they found the attitude of PC. Giles said that they had dealt with a number of PC people, and a range of attitudes had been encountered.
Vic Webster asked how the ITs would go about entrenching the MNDs appointment. Giles/Sarah said that there were a number of routes, e.g. through SPT, Articles of Association, the MND selection process as well as through the formal Rules of the Plan –all of these needed to be meshed together.
Vic noted that the current method of appointing MNDs was through the PCC, so presumably the position of the PCC would have to be entrenched. Pat wondered if the PCC could become constitutionally a committee of SPT, rather than of telent, particularly now that most members were now pensioners. Peter Johnson said he would discuss this with Peter Harris.
Roy Mills noted that the status of the deferreds could perhaps be legally challenged, as they were only on the PCC with the agreement of telent.
Giles then went on to the Covenant. He thought that PC wanted to move things on with proposals to improve the Covenant. He also noted that PC think that the investment strategy could be improved, delivering higher returns for less risk, but was concerned that if all of the other pension plans for which they were responsible invested in the same way, and things went badly wrong with them, then the impact on PC might cause its Covenant to be imperilled.
Giles continued with progress on the Actuarial Valuation as at April 2007
- Preliminary results still on track for April 2008
- Much will depend on Covenant
He noted that the valuation assumptions would depend on the strength of the Covenant.
He then went on to Review Investment Strategy
- Initial proposals presented by PC
- Watson Wyatt continue to advise
It was noted that the Watson Wyatt model predicted a 75% probability of the scheme being fully self sufficient by 2021.
Peter Olney noted that the law requires that we take a year to year view which is rather volatile. It was noted that PCs belief was that targeting “Alpha” (investment return generated by manager skill rather than market movements) was an effective part of an investment strategy, but was dependent on the ability to select the right managers.
Giles thought that we may increase the interest rate and inflation protection through additional swaps (perhaps up to 90%), and also diversify our bonds, but it was hard to sell existing ones in the current market. Vic thought that it would be a costly business to alter our investment strategy now.
Giles concluded with Investigate BPA (Bulk Purchase Annuities) options
- Clear that full buy out not possible in current market
- Still considering partial buy out
He noted that a partial buy out might, for example, be a policy to cover only deferreds.
Sarah then continued, with What happens after 18th April 2008?
- ITs term expires on 18th April
- Project Plan extends to July 2008
- 3 months extension proposed by tPR for the ITs but opposed by PC/telent
- Taking advice on options
It was confirmed to Richard Dargie that if PC did not agree to an extension beyond the 18th April, this meant another Regulator tribunal (i.e. Determinations Panel). Sarah agreed with Vic Webster that the July plan date might then be delayed because of effort required with such Determinations Panel activity. Peter Dronfield asked if there was anything which the PCC could do to help with an extension. He proposed that we, as the PCC, should write to tPR, through the PCC chair, although Peter Olney had expressed some reservations with this
Action.Giles Orton noted that It was because of concerns with governance that the independent trustees (ITs) were appointed by tPR in the first place. Other matters, such as investments, were not a Regulator issue. In answer to Colin Clark, Pat Moloney added that the PC proposal was to replace the three existing SPT independent trustee directors with tPR appointed ITs. This might happen if governance issues were not sorted out, and would rip the heart out of the trustees and could help to further the PC agenda. Pat added that if the PC proposal was amended for the three ITs to be added to SPT, he would have no problem with that, recognising that it was a transition until other issues were sorted. John Leaney expressed his further concern that the three Regulator appointed ITs were actually companies, and not individuals, so might we lose continuity?
Peter Dronfield thanked Sarah and Giles, who left the meeting at this point, and said that he would like their report again at our next meeting – if they were still in situ.
Peter Harris (telent) and Graham Allen (Xafinity Paymaster) arrived at the meeting.
Graham presented the Report and Accounts, noting that the full R & A document is available on the web site http://www.telentpensions.co.uk/. He handed out a hard copy of the slides used, which covered
- Graham Allen’s own company profile
- What are the Report and Accounts for?
- The new layout used for the 2006/7 R & A
- Statutory Requirements of the R & A
- Additional Information provided
- Usefulness as a Historical Record.
- Financial Summary sheets
The following points were noted by Graham
- tPR had instructed SPT to pay the ITs out of Plan funds.
- There are now 300 fewer pensioners in payment than reported a year ago.·
- The Transfer Values paid out of £74.3k were mostly to Ericsson.
- The £19.5k loss shown as a line item regarding Swap Contract had caused some difficulty as it was not known how to show this, but in the end it was shown as a separate line item.
There was much discussion on the significance of the SWAPs line item in relation to the R & A, this not being fully understood.
Peter Harris agreed at the next PCC meeting to show his block diagram on SWAPs which should explain better.
There had been three meetings of the Board in 2008.
- 24/1 for ITs to update the Board on PC
- 4/2 to discuss the letter from tPR (proposed ITs extension)
- 27/2 Regular Meeting
There were also meetings of various committees.
Admin meeting of 8/2/2008. There had been a request from Xafinity Paymaster to permit XP access to pensioners post code data (up to the first section and first digit of the second section).
Audit Committee meetings 19/12/2007 and 6/2/2008 Chris Holden was appointed chair for the time being, required because the Law Debenture rep E Thomas is appearing at the moment for the ITs. Both meetings were to discuss the forthcoming audit of the GEC 1972 Plan for the year ending 5/4/2008.
Investment Committee Meetings 19/12/2007, 22/1/2008, 12&13/2/08, 20/2/2008 A table for the Funding Position of the last few months was presented. The committee had received a presentation on governance from Roger Urwin and Danny Truell of the Wellcome Trust.
Other matters
The level of Credited Interest was set at 2.5% for 2008/9, the required minimum.
The level of annual pension increase was set at 4.1%, matching RPI.
The scheme specific cap was raised to £117,295.
Pat said that he would contact Thorn and Thresher. He has so far met two Thorn MNDs. He noted that Thorn was a fund in surplus.
Katy Angliss left the meeting at this point.
This was given by David Collinson, who now joined the meeting.
He started by summarising PC’s objectives. These were to get the pension plan assets and Escrow to grow in value relative to liabilities, such that if the 105% funding level is achieved, then money can be released from Escrow. That is in PC interests and ultimately the telent company and shareholders.
Vic Webster noted that having paid around £400M for telent, PC’s aim seemed to be to cream money off the top of something to which PC had not contributed, whereas others such as GEC, Plan members, Ericsson have. David replied that
a) they would not withdraw money from the Plan itself
b) they had invested £400M in purchasing telent and in so doing had taken over the rights and responsibilities of the shareholders.
David then presented this slide.
Pat Moloney asked why if the 105% funding level were achieved does not some of the surplus go to members? David said that PC had put their money at risk in buying telent, and if things went badly, then telent may have to provide additional support to the Plan which would reduces PCs chances of earning a return. He added that PC was looking for a return on it investment, but as he had said at the previous meeting, the possibility of some increase in benefits had not been ruled out.
Roy Mills wondered about the actuarial assumptions which would be made in aiming for the 105% funding level. David said that only a gradual improvement towards this figure over quite a few years was expected. [Post meeting note from Pete Harris. The 105% funding level would, under the Escrow agreement, be determined by the Plan Actuary (who acts for the trustees), agreed by telent]
Colin Clark noted that there did not seem to be any provision to put money back into Escrow if having reached 105% funding, it then dropped below this level. Pat Moloney added that with the old telent, it had been expected that if 105% was reached, there would be some kind of buyout.
Chris Walton asked if investments went badly, would PC have back up assets? David said that PC had £900M of additional resources to what they had before, of which £400M has been spent on the telent purchase. He added that if there were problems, then telent would be first in line to put money into the Plan, then they would have to ask PC.
Peter Olney referred back to the last PCC meeting and to his question about Mr Flower. It appeared that some lines of credit were no longer available, so how much money did PC really have? David said that PC’s investors have given strong legal commitments all of which remain in place.
Richard Dargie asked how long in time were these arrangements with the investors? David replied that they were open ended. There was no fixed time when they would get their money back. The only time trigger was a long term but not open ended period at the end of which if investors’ funds had not been used, the commitment fell away.
Dave Kerr wondered what then is the investors’ expectation? David Collinson answered that PC were setting up a company which would provide a steady income stream for them. The investors were attracted to Ed Truell’s track record for investment returns.
David Collinson continued his presentation by noting that contra to member perception, PC believe that the same investment returns could be achieved at lower risk. They were also looking at how we might insure on longevity, thus taking away one of the risks. In addition they were interested in how the trustees might use PCs investment expertise.
Roger Pittock asked about the relationship with the ITs. David thought that after some initial difficulties, it was now pretty good.
Vic Webster asked why PC and telent opposed the tPR’s proposal to extend the ITs tenure for another three months after April 18th? David replied that PC think they have put forward proposals obviating the need for an extension, but he could not divulge current discussions with tPR.
Peter Olney asked who was in charge of the Investment Policy for PC, as at our January meeting, David had appeared to disagree with some of Ed Truell’s earlier statements. David replied that it was Tracey Blackwell and Mark Gull.
Ian Marshall said that if PC were so convinced that they could run the Plan with less risk, then why not guarantee pensions liabilities in the future? David reiterated that:-
- PC did not run the plan or the investment strategy, this was the responsibility of the trustees
- Any guarantee of pensions was basically linked to the amount of money available to the plan. The Plan already had its assets, the Escrow and telent’s covenant backing pensions. Any further security would be subject to discussions between the trustees, telent and PC.
David Collinson concluded his presentation and left the meeting at this point.
Pat Moloney reported that all three MNDs now had a CD documentation set, also Peter Dronfield and Ken Buckley had a reduced set. Pat asked anyone who wanted more details to contact himself.
Chris Walton asked if the documentation was what it said it was. He had opened a file and it looked wrong. Pat said that he was still going through to check. Also, if anyone knew of any other documents which they thought were needed, then tell Pat.
Peter Harris then went onto the Escrow agreement. He noted that the basic structure was governed by an agreement between SPT and telent. The Escrow is held by a custodian, appointed by telent after consultation with SPT.
Money flows out of the Escrow to the Plan in the event of any of
- The Plan being underfunded on an IAS19 basis (1)
- If the Plan being underfunded on a PPF basis (2)
- Telent and the trustee agree
- In the event of various adverse circumstances, e.g. the insolvency of telent.
Peter Harris said that as at March 31st 2007, it was 100% funded on an IAS 19 basis, and 103% on a PPF basis. The Escrow agreement did not allow for any movement of funds if the triennial actuarial valuation indicated an underfunding. It was possible in theory, however for the trustee and telent to agree a recovery plan in the event of such underfunding which included release of Escrow funds.
Money flows from Escrow to telent in the event of any of
- The Plan fund reaches 105% of buyout
- telent and the trustee agree
- After the adverse circumstances which lead to a release of funds to the Plan, there is any surplus after benefits have been bought out.
Peter then gave an overview of the contents of the Escrow document, listing the section headings. He concluded by saying that given the input of the Pensions Regulator, the PPF, the company’s lawyers and the trustees lawyers, members could have confidence in the security provided by the Escrow Agreement.
Peter Harris said that the existing Terms of Reference of the PCC dated from 2002 were out of date, and a draft update has now been produced. This includes coverage of how the PCC reps are now appointed. It has also been modified in format along the lines of the SPT terms of reference.
Peter Harris proposed that he would chair a PCC subcommittee which would finalise the document. It was agreed that the following PCC reps would be on this subcommittee.
M. Elliott, P Moloney, V Webster, P Eykelenboom, K Johns, J Leaney, R Pittock.
First meeting to be arranged -
Peter Harris referred to his memo of the 3rd March concerning a review of the external Pensions Office web site, as it was now somewhat out of date. He asked for any further suggestions from PCC reps to be sent to himself. Roger Pittock thought that old data should be archived rather than removed.
Peter then proposed that he would present an updated review at the July PCC meeting. He would send out an email reminder before the next meeting.
Referring to the Actuarial Valuation, Peter Harris noted that the two biggest variables were longevity and investment returns. Chris Purchase asked how mortality was determined. Graham Allen said it was based on a number of factors, including company past experience, advice from the scheme actuary, mortality tables etc. It was noted that one extra year of life added around 3% to Plan liabilities. The mortality assumption which underlay the October 2005 agreement which lead to the establishment of the Escrow equated to an average increase in life expectancy of around 4 years.
John Leaney reported that last week he attended a TUC ‘Pensions Champion Course’ . Subjects covered included
- Qualifications for State Pensions
- Calculation of State Pensions
- Future Government Pensions and Opt Outs to a Company Scheme
Pat Moloney added that any TUC members should be able to get free access to this course.
The next PCC meeting was scheduled for Wednesday 9th July 2008, as previously determined. The venue is to be determined.
Future meetings are provisionally scheduled for 8th October 2008 and 7th January 2009.
Ken Buckley
31st March 2008