K Angliss (telent Warwick), R Dargie (telent Warwick), K Johns (pensioner), I Marshall (pensioner), R Mills (pensioner), R Pittock (deferred), S Requena-Rueda (pensioner), C Purchase (pensioner), C Walton (pensioner - a number of points raised by Chris Walton were tabled during the meeting via the Secretary).
Michelle Halcrow and Peter Harris (of Field Force) have resigned from the PCC. Both were Actives. The possibility of replacing them was discussed later under AOB.
Peter Dronfield asked for an agenda item at the next meeting to elect a deputy PCC chairman and secretary.
Peter Olney asked if the minutes could be issued earlier next time. Otherwise, they were accepted without further comment.
Re para 3 of section 5, it was noted that the correspondence relating to R Beeston, K Gabler and R Grand had not been circulated to PCC reps.
Also in section 5, although copies were handed out to the deferred PCC reps, Xafinity Paymaster were not yet prepared to extend Club Together to deferred pensioners. Peter Dronfield said that he had positive feed back from pensioners – they liked it.
Re para 7, Vic Webster thought that Graham Allen should be able to review the April 2008 Report + Accounts at the next meeting. The secretary to note as an agenda item.
Re section 10, Chris Walton wished to amplify the minute, saying that the document he had specifically referred to was ‘Details of Trustee liability insurance’. The PCC website only had a summary. Pat Moloney said that he would get the full document and circulate it to the MNDs.
Vic added that on indemnity insurance, there was a document waiting to go out to past directors, which explains what has changed. It affects those who had retired in the 6 years to 5 April 2008. Peter Harris is producing this in consultation with SPT’s legal adviser.
Chris Walton thought that there ought to be a document on the PCC web site regarding the current location of funds. Pat Moloney said that this was on the MNDs disc, but he was unsure if it was on the PCC disc. It was also in the Report and Accounts for anyone to see.
Chris now joined the meeting. Peter Dronfield gave his thanks to Chris and the MNDs on reaching the solution to the board composition as outlined in the June 2008 newsletter.
Chris said that he would give further details on the newsletter, and review where we go from here. He made reference to agreements made at a meeting of the 11th April 2008.
John Kerr asked did this mean that if telent was sold on, the Plan independence would be preserved? Chris said yes. Tony Cobbe also noted that the three Company Nominated Directors (CNDs) did not have to be company employees (NB This is not a change).
| Independents | appointed nominees | period of tenure |
|---|---|---|
| Bridge Trustees (chair) | Chris Holden | 2 years |
| Law Debenture | Eddie Thomas | 3 years |
| Temple Trustees* | John Chaplin | 4 years |
| * were Burgess Salmon | ||
MNDs
John Leaney, Vic Webster and Pat Moloney.
(It was noted that the 1year extension of the MNDs tenure soon expires, with an October election required).
CNDs
Dennis Badman, Ross Reason and Mike Surrey (he will be leaving telent in due course)
Chris listed the current priorities for further discussion with Pension Corporation/telent as Covenant, Conditions for Buyout, Investment Strategy and Longevity Hedging.
He added that the three yearly Funding Valuation had been commissioned a year early as at April 2007. Watson Wyatt has produced the proposed basis for the valuation, and it now needs agreement on the assumptions. The theoretical completion deadline has passed, but tPR has agreed an extension. Tony Cobbe asked if there was anything here for members to worry about? Chris said no, it was just the usual ongoing dialogue about assumptions.
On Investment Governance, Chris highlighted three priorities
Chris said that a Bulk Purchase Annuity (BPA) was not practical under current conditions. There is not quite enough money (including with the Escrow). However, it remains a potential aim in the medium to long term that the possibility of a partial move to a BPA (for example for deferreds only, say) would raise significant issues around maintaining equity between members.
Tony Cobbe noted that during the recent tenure of the Independent Trustees, SPT had paid all of their costs. Now who pays? – answer telent/PC.
Colin Clark asked if Giles Orton and Sarah Jeffrey-Gray still had any involvement. Chris said that as both were directors of their companies, they did have legal responsibilities.
Vic asked what happened if any of the three existing independents did not stand for re-election after their fixed term of office ended? Chris said that we are now in a transitional phase, and some of the independent directors may not continue. However, this was not a problem. Any replacements would come from tPR’s panel.
Pat Moloney thought that everything the board of SPT wanted to achieve in independence has been achieved, and he proposed a vote of thanks to Chris Holden. The motion was carried unanimously. Chris said that he had a team of good helpers.
Chris Holden left the meeting at this point.
A detailed report (available to the PCC reps) was presented by Vic Webster and covered seven Board meetings since the March PCC meeting. (Secretary Note. Significant points from these meetings were covered by Chris Holden, as minuted in Section 6, so are not repeated here.) John Leaney then added
John also reported on the Admin Committee work (three meetings). He noted that Xafinity Paymaster had achieved all its service level targets.
He also noted that the three MNDs had met with the Pensions Minister Mike O’Brien with a view to the government making further provisions to protect pensions schemes.
Tony Cobbe asked if it was possible to get a copy of the telent annual report. Pat Moloney said that there was nothing he had seen of concern in it at the moment. It was thought that it would be useful if the PCC reps could have a copy, although there was some debate on how far such a copy could be distributed or viewed.
Pat Moloney said that the Pensions Minister had said that the government wanted to make changes on private equity takeovers, but this could not be retrospective with telent.
Pat said that he had met Thorn MNDs. Their scheme was a small one, in surplus and even more mature than ours. PC had put their own people on the Board, which had resulted in conflicts. Ongoing dialogue was thought useful. Pat had been unable to track down the Thresher MNDs. It was not known if PC had taken over any other schemes.
Swaps Clarification
This was presented by Peter Harris.
Why do we use Swaps?
Types of Swap
In either or both cases, we may end up paying the counter party less or more than they pay us. This does not matter, as the purpose of Swaps is to protect against changes in interest rates and inflation.
Peter then showed two charts explaining how this worked.
Mick Elliott was told by Peter that we had been involved with Swaps since 2005, following the Ericsson deal. The question was how to get to where we wanted to be in future years with minimal risk, with the assets then left. It is believed that we have done more than most other pension plans regarding the use of Swaps.
Colin Clark wondered how the people we swapped with made money. Peter Harris said that it was not necessarily a case of making money, it was a case of swapping risk. For example, on our asset swaps we had fixed cash flows which we wanted to swap away whereas Tescos was a business which might want fixed cash flows to pay bondholders.
Steve Radford left at this point.
David Collinson joined the meeting. He said he wanted to focus on updates since the last meeting, and how the insurance market generally was developing.
Pensions Corporation main general developments
Re SPT
Insurance Market generally
It was queried how telent get money from the Escrow. Peter Harris said
Chris Walton, in his absence through the secretary, raised a point from the last meeting. He noted that David had defended PC taking a return on their investment, justified by their risk in buying telent. Chris thought that before any money could flow back to the employer, the benefits had to be checked and raised to the maximum permitted. He regarded Pension Trusts as Charities established to pay Pensions to Members, not as investments for entrepreneurs. In these circumstances he would welcome any initiatives to change the law, such as recently announced by Unite, to stop Investors making short term gains by taking assets from pension funds.
Peter Harris said in response that the Trust Deed and Rules says that if the benefits of the members have been fully secured, then money can flow back to the company.
Dave Sawyer said that this was just the cold position. He thought that Chris had been making more of a moral statement. In the past, surpluses were used to enhance benefits.
David Collinson said that pensions schemes were set up by voluntary act by good employers. There was a guaranteed level of benefit and fixed employee contributions. This meant that the employer had to make up the difference if there was any shortfall in the fund, with the employer carrying investment and longevity risk. Also, as legislation had developed, more and more employer commitments, previously voluntary, had become compulsory. John Kerr sympathised with the PC legal point, but he thought that pensioner inflation was now higher than official cost of living figures, so there was a moral point here.
David Collinson added that there was never any expectation that money would come from the main Plan fund to the company, but only from the Escrow.
Peter Olney asked why not run a parallel investment portfolio? David thought this was not helpful. Peter Harris added that we were always looking for options for different investments from different sources.
Peter Olney also thought that diversification was OK up to a point, but then increased costs meant it was not worthwhile. Vic thought that if there were too many managers, two managers might be buying the same investment, hence increasing correlation, i.e. reducing diversification.
John Kerr noted that as telent was our sponsor, we should be interested in them. David Collinson said that PC were very keen to support telent and wanted it to grow bigger and do well. They had already made one acquisition.
Vic asked if PC had known about recent and planned pensions regulations, would they still have bought telent? David said that with hindsight, they would have spent more time with the Trustees.
Peter Olney asked how the usefulness of Watson Wyatt was measured? David said that it depended on what was looked at. It was not easy to measure the performance of investment consultants.
The PCC review subcommittee recommendations on the above had been drafted and emailed to PCC reps on the 8 July.
Peter Olney asked whether it was the changes or what the constitution was all about which was important? Peter Harris said that the subcommittee had reviewed the PCC constitution and had proposed changes which were now being debated, as follows.
Nomination of members to serve on the PCC
On the five members who were required to support a PCC nominee, the debate was whether or not they should come from the same geographical area as the nominee. The subcommittee view was that they should.
Tony Cobbe asked if there could be some initial facility on the PCC web site to put out feelers for support. Peter Harris said that he believed that the constitution should remain as proposed, but that Tony’s suggestion could be built into the process.
MNDs tenure
The most contentious item related to the extension of the MNDs tenure for a further year from last October. Mick Elliott said he was in a minority on the subcommittee, as the PCC’s mandate last year, following the one year extension from October 2007, had been to elect MNDs in October 2008 for three years. He thought we should stick with that. This led to considerable debate in the PCC about the timing of the MNDs election relative to the election of PCC members, as well as to what would happen if the situation arose that, for whatever reason, a sitting MND ceased to be a PCC member.
In the end, there was an overwhelming vote by the PCC to elect MNDs for a four year term from October 2008. It was also agreed by the PCC that if for whatever reason, an MND could not complete his four year term (for example ceasing to be a PCC rep), then it would be at the discretion of the PCC members to ask him to stay on to complete his term.
Issue of Minutes
Peter Harris said that it was the Pensions Office responsibility to ensure that in the draft minutes produced by the secretary, matters were factually recorded, and that matters, which should not be in the public domain, were removed.
Vic asked how Peter Harris would know how accurate the draft minutes were when he was not always full time in a PCC meeting. Peter said that while he couldn’t know if the minutes were an accurate record of what had been said if he had not been present, he could help by correcting factual errors, for example misinterpretations of pensions law.
Tony Cobbe thanked the subcommittee for their work.
Peter Harris asked for this agenda item to be deferred to the next meeting.
Agenda item for next meeting –
Gavin Martin asked Peter Harris if the approved version of the minutes could be displayed on site notice boards.
John Leaney noted that we had lost two active PCC reps, and so were down to seven actives. He thought that it was difficult to cover everyone in the field for actives, so could we have a re-election to replace them? Peter Harris said that under the constitution, the target number of members was 24, with 8 from each category. If a group could not fill 8 places, then it would be filled from other categories of members. As the PCC was currently in excess of 24 members, there wasn’t a requirement for an election at this time. He also noted that if we looked at relative number of plan members, the deferreds were less heavily represented than actives.
The next PCC meetings are scheduled for Wednesday 8 October 2008, and 7 January 2009.
The venue will be at telent Warwick.
Ken Buckley
4 August 2008
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