Trustee’s Annual Report and Financial Statements For the ... · For the Year Ended 31 March 2016...
Transcript of Trustee’s Annual Report and Financial Statements For the ... · For the Year Ended 31 March 2016...
The Bayer Group Pension Plan Plan Registration Number: 101826552
Trustee’s Annual Report and Financial Statements
For the Year Ended 31 March 2016
CONFIDENTIAL
Bayer Group Pension Plan Confidential
This report has been prepared by Capita Employee Benefits on the behalf of 1 Bayer Group Pension Plan
Contents Trustee and Advisors ........................................................................................................................................... 2
Trustee’s Report .................................................................................................................................................. 4
Plan Management ............................................................................................................................................ 4
Investment Matters ......................................................................................................................................... 17
Report on Actuarial Liabilities ......................................................................................................................... 23
DC Governance Statement ............................................................................................................................... 25
Independent Auditor’s Report ............................................................................................................................ 28
Independent Auditor’s Statement about Contributions ...................................................................................... 29
Fund Account ..................................................................................................................................................... 30
Statement of Net Assets available for benefits .................................................................................................. 31
Notes to the Financial Statements ..................................................................................................................... 32
Appendix 1: Summary Funding Statements ...................................................................................................... 54
SHCL Section .................................................................................................................................................. 54
BCSPF Section ............................................................................................................................................... 56
Group DB Section ........................................................................................................................................... 58
Appendix 2: Actuary's Certification of the Schedule of Contributions ............................................................... 60
SHCL Section .................................................................................................................................................. 60 BCSPF Section ............................................................................................................................................... 61 Group DB Section ........................................................................................................................................... 62
Appendix 3: DC Section Statement of Investment Principles............................................................................ 63
Bayer Group Pension Plan Confidential
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Trustee and Advisors
Principal Employer
Bayer plc, Bayer House, Strawberry Hill, Newbury, Berkshire, RG14 1JA.
Participating Employers
Bayer CropScience UK Limited
Trustee
Silver Birch Trustees Limited
Trustee Directors
Please note: The names of the Trustee Directors have been removed for information security reasons.
Secretary to the Trustee
Please note: The name of the Secretary to the Trustee has been removed for information security reasons.
Plan Administrator
Capita Employee Benefits – Group DB Section, BCSPF Section and SHCL Section
Fidelity Investments Life Insurance Limited – Defined Contribution Section (until 5 July 2016)
Plan Consultants
Lane Clark & Peacock LLP
Plan Actuary
Michelle Wright (from 28 June 2016)
Bob Scott (until 28 June 2016)
Lane Clark & Peacock LLP
Investment Advisor
Lane Clark & Peacock LLP
Communications Advisor
SHILLING
Bayer Group Pension Plan Confidential
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Trustee and Advisors (continued)
Investment Managers
Legal & General Investment Management Limited – Group DB Section, BCSPF Section and SHCL Section
Fidelity Investments Life Insurance Limited – Defined Contribution Section (until 5 July 2016)
CB Richard Ellis (“CBRE”) – Group DB Section, BCSPF Section and SHCL Section
BlackRock Advisors – Group DB Section, BCSPF Section and SHCL Section (until August 2015)
Additional Voluntary Contribution Providers
Friends Life (Group DB Section and BCSPF Section)
The Equitable Life Assurance Society (closed to new investments)
Phoenix Life Limited (Group DB Section only – closed to new investments)
Fidelity Investments Life Insurance Limited (available to all sections) (until 5 July 2016)
Investment Custodians
The Bank of New York Mellon Asset Servicing
Auditor
RSM UK Audit LLP (formerly known as Baker Tilly UK Audit LLP)
Legal Advisers
CMS Cameron McKenna LLP
Bankers
National Westminster Plc
Life Assurance Company
Canada Life Limited
Bayer Group Pension Plan Confidential
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Trustee’s Report
The Trustee (Silver Birch Trustees Limited) of the Bayer Group Pension Plan (the Plan) is pleased to present its
annual report together with the financial statements for the year ended 31 March 2016. The first part of this
report is a summary of the key aspects. Detailed reports are subsequently provided for each section.
Plan Management
Composition of the Trustee Board
A list of Board Directors is provided on page 2. There have been no changes to the Trustee Directors during the
year. There has been one resignation since the year end.
Company Designated Directors are appointed by the Principal Employer, serve on the Trustee Board for an
indefinite period and can be removed from office at any time by the Principal Employer. The board currently has
5 Company Designated Directors.
Member Nominated Directors (MNDs) are elected by the active and pensioner members, in accordance with the
Plan’s MND arrangements. The board currently has 3 MNDs.
There is one Independent Trustee Director on the Board, a role filled by BESTrustees (a firm of professional
trustees). The Independent Trustee Director is appointed by the Principal Employer and its term of office is for
the duration of its contract with the Principal Employer.
Key activities during the past 12 months
The Trustee Directors met four times during the period from 1 April 2015 to 31 March 2016. At the start of each
calendar year, the Trustee approves a Business Plan of activities it wishes to undertake to meet its objectives (in
addition to its statutory and regulatory obligations). The Trustee devoted particular time to reviewing its advisers,
the future of the Plan (see page 5) and its communication strategy.
The Trustee also delegates certain tasks to four Sub-Committees, in accordance with individual terms of
reference. The Sub-Committees are:
the Asset and Liability Sub-Committee (ALC) (previously the Investment Sub-Committee (ISC))
the Governance and Funding Sub-Committee (GFSC)
the Defined Contribution Sub-Committee (DCSC)
the Communications Sub-Committee (CSC)
Current membership of the Sub-Committees is listed below:
Trustee Director ALC GFSC DCSC CSC
X
X
X
X
X
X
X
X
X
Bayer Group Pension Plan Confidential
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Trustee’s Report (continued)
Plan Management (continued)
Pension Plan Structure
The Plan contains three Defined Benefit sections (Bayer Group Pension Scheme (Group DB), Bayer CropScience Pension Fund (BCSPF) and the SHCL Pension Scheme (SHCL)), which are all closed to new members, and a Defined Contribution section which remains open to new membership from employees of any participating company and is used as the participating employers’ vehicle for auto-enrolment.
At 31 March 2016 the Plan numbers were as follows:
ACTIVE MEMBERS PENSIONERS DEFERRED MEMBERS ALL
DB only
DC switch
DC only
DB only
DC switch
DB only
DC switch
DC only
TOTAL
SHCL 3 47 - 218 16 331 41 - 656
BCSPF 9 35 - 2,014 19 1,190 161 - 3,428
Group DB 28 124 - 1,432 11 1,596 75 - 3,266
DC only - - 681 - - - - 655 1,336
Total 40 206 681 3,664 46 3,117 277 655 8,686
Taxation Status
The Plan, established on 21 November 1959, is currently governed by a Trust Deed, dated 20 April 2009. The Plan is a registered pension scheme under Chapter 2 of Part 4 of the Finance Act 2004. The Trustee knows of no reason why this status may be prejudiced or withdrawn.
Prior to its cessation on 6 April 2016, members of the DB category were contracted-out of the State Second Pension Scheme (S2P). DC members participate fully in the State Scheme.
Changes to the Plan during the year
During the year a Deed of Amendment was signed to update the Trust Deed and Rules to reflect the abolition of short-service refunds.
Parent Company Guarantee
As part of the valuation of the Plan as at 31 March 2011, the Trustee agreed the terms of a legally binding
guarantee with Bayer AG, under which the German parent company will be responsible in certain circumstances
for making payments to the Plan should Bayer plc and Bayer CropScience Ltd not be able to do so. The
guarantee is dated 26 June 2012 and provides members with significant additional protection. There were no
changes to the guarantee following the 31 March 2014 valuation.
Bayer Group Pension Plan Confidential
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Trustee’s Report (continued)
Plan Management (continued)
The financial statements and reference terms within them
The financial statements on pages 30 to 53 have been prepared and audited in accordance with the regulations
made under Sections 41(1) and (6) of the Pensions Act 1995. They show that the value of the Plan decreased
from £1,452,605,000 at 31 March 2015 to £1,407,563,000 at 31 March 2016.
Reference to "the Company" throughout this document refers to the relevant Employer. For the BCSPF Section
this is Bayer CropScience Limited, for the SHCL and Group DB Sections this is Bayer PLC. For the DC Section
reference can be to either Bayer CropScience Limited or Bayer PLC, depending on the legal employing entity of
the relevant member(s).
Statement of Trustee’s Responsibilities
The financial statements, which are prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, are the responsibility of the Trustee. Pension scheme regulations require the Trustee to
make available to Plan members, beneficiaries and certain other parties, audited financial statements for each
Plan year which:
show a true and fair view of the financial transactions of the Plan during the Plan year and of the amount
and disposition at the end of the Plan year of its assets and liabilities, other than liabilities to pay
pensions and benefits after the end of the Plan year, and
contain the information specified in the Schedule to The Occupational Pension Schemes (Requirement
to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, including a statement
whether the financial statements have been prepared in accordance with the Statement of
Recommended Practice ‘Financial Reports of Pension Schemes’, and
contain the information specified in Regulations 3 and 3A of the Occupational Pension Schemes
(Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996.
The Trustee is responsible for supervising the preparation of the financial statements and for agreeing suitable
accounting policies, to be applied consistently, making any estimates and judgements on a prudent and
reasonable basis.
The Trustee is also responsible for making available certain other information about the Plan in the form of an
Annual Report.
The Trustee is responsible under pension legislation for preparing, and from time to time reviewing and if
necessary revising, a Schedule of Contributions showing the rates of contributions payable towards the Plan by
or on behalf of the Employer and the active members of the Plan and the dates on or before which such
contributions are to be paid. The Trustee is also responsible for keeping records in respect of contributions
received in respect of any active member of the Plan and for monitoring whether contributions are made to the
Plan by the Employer in accordance with the Schedule of Contributions. Where breaches of the schedule occur,
the Trustee is required by the Pensions Acts 1995 and 2004 to consider making reports to The Pensions
Regulator and to members.
The Trustee also has a general responsibility for ensuring that adequate accounting records are kept and for
taking such steps as are reasonably open to it to safeguard the assets of the Plan and to prevent and detect
fraud and other irregularities, including the maintenance of an appropriate system of internal control.
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Trustee’s Report (continued)
Plan Management (continued)
Change of Plan Actuary
Bob Scott resigned as Actuary to the Plan and was replaced by Michelle Wright, also of LCP. The resignation
statement provided by Bob Scott states ‘I know of no circumstances connected with my resignation that, in my
opinion, might significantly affect the interests of the Plan’s members, prospective members, or beneficiaries’.
The resignation of Bob Scott, and subsequent appointment of Michelle Wright, took place on 28 June 2016.
SHCL Section
Pension Increases
Pensions in payment, including Guaranteed Minimum Pensions (GMP), were reviewed in accordance with the
Rules of the Plan relating to the SHCL section. No discretionary increases were made.
The following increases were granted with effect from April 2015:
Pre-88 GMP Nil (Nil)
Post-88 GMP 1.2% (Statutory)
Pre-April 97 3.0% (Fixed 3.0% pa)
April 97 to April 03 3.0% (RPI, minimum 3%, maximum 5%)
Post-April 03 1.6% (RPI up to 5%)
Statutory increases on post-1988 GMPs are determined in accordance with Section 109 of the Pension
Schemes Act 1993 and are set out in a Statutory Instrument, which is usually issued in March. The increase is
determined as the increases in “prices” over the year to September, up to a maximum of 3%.
RPI Increases for non-GMP pensions are based on December RPI, which was 1.6% for the year to December
2014.
Transfer Values
Transfer values paid during the year were calculated and verified in the manner required by the regulations
made under section 97 of the Pension Schemes Act 1993. None of the transfer values paid were less than the
amount provided by the Regulations. No discretionary benefits were included in the calculations of transfer
values.
Financial Development and Actuarial Position
The funding position as at 31 March 2015 showed a surplus of £1m based on methods and assumptions agreed
between the Trustee and the Company contained in the Statement of Funding Principles.
Following the latest valuation of the Plan as at 31 March 2014 it was agreed that the Company would not be
required to pay deficit contributions in respect of the SHCL Section.
Bayer Group Pension Plan Confidential
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Trustee’s Report (continued)
Plan Management (continued)
SHCL Section (continued)
Membership
Details of the current membership of the SHCL section are given below:
Proportion of Total Membership 31/3/16 31/3/15
Total membership at the start of the year 664
Active members
Active members at the start of the year 51 8%
Adjustment to the b/fwd figure for late notification -
Retirements -
Left service with deferred benefits (1)
Active members at the end of the year 50 7%
Pensioners
Pensioners at the start of the year 228 34%
Adjustment to the b/fwd figure for late notifications 1
Members retiring during the period 10
Deaths (5)
Pensions in suspense (2)
Reinstatements 1
New spouse and dependant pensions 1
Pensioners at the end of the year 234 36%
Members with deferred benefits
Deferred members at the start of the year 385 58%
Adjustment to the b/fwd figure for late notifications -
New deferred members 1
Transfers out (3)
Deferred members becoming pensioners
(10)
Deaths (1)
Deferred members at the end of the year 372 57%
Total membership at the end of the year 656 100% 100%
The above figures include 104 members who are also members of the Defined Contribution Section.
Included within the pensioner numbers are 30 spouses and dependants (2015: 29).
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Trustee’s Report (continued)
Plan Management (continued)
BCSPF Section
Pension Increases
Pensions in payment, including Guaranteed Minimum Pensions (GMP), were reviewed in accordance with the
Rules of the Plan relating to the BCSPF section. No discretionary increases were made.
The following increases were granted with effect from April 2015 and January 2016:
Agrevo Category
Pre-88 GMP Nil (Nil)
Post-88 GMP 1.2% (Statutory)
Pre-April 04 3.0% (RPI, minimum 3%, maximum 5%)
April 04 to April 05 1.6% (RPI up to 5%)
Post-April 05 1.6% (RPI up to 2.5%)
CropScience Category
Pre-88 GMP Nil (Nil)
Post-88 GMP 0.0% (Statutory)
Pre-April 97 3.0% (Fixed)
Pre-April 04 0.7% (RPI up to 5%)
April 04 to April 05 0.7% (RPI up to 5%)
Post-April 05 0.7% (RPI up to 2.5%)
Statutory increases on post-1988 GMPs are determined in accordance with Section 109 of the Pension
Schemes Act 1993 and are set out in a Statutory Instrument, which is usually issued in March. The increase is
determined as the increase in “prices” over the year to September, up to a maximum of 3%.
RPI Increases for non-GMP pensions are based on December RPI (for the Agrevo Category), which was 1.6%
for the year to December 2014.
RPI Increases for non-GMP pensions are based on October RPI (for the CropScience Category), which was
0.7% for the year to October 2015.
Transfer Values
Transfer values paid during the year were calculated and verified in the manner required by the regulations
made under section 97 of the Pension Schemes Act 1993. None of the transfer values paid were less than the
amount provided by the Regulations. No discretionary benefits were included in the calculations of transfer
values.
Bayer Group Pension Plan Confidential
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Trustee’s Report (continued)
Plan Management (continued)
BCSPF Section (continued)
Financial Development and Actuarial Position
The funding position as at 31 March 2015 showed a deficit of £79m based on methods and assumptions agreed
between the Trustee and the Company contained in the Statement of Funding Principles.
Following the latest valuation of the Plan as at 31 March 2014 it was agreed that the Company would pay the
following deficit contributions in respect of the BCSPF Section of the Plan as follows:-
Amount Date
£19.7m 31 March 2016*
£11.0 m 31 March 2017
£11.0m 31 March 2018
£11.0m 31 March 2019
In accordance with this agreement, £19.7m* of deficit contributions were paid into the Plan by the Company
during the financial year.
Bayer Group Pension Plan Confidential
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Trustee’s Report (continued)
Plan Management (continued)
BCSPF Section (continued)
Membership
Details of the current membership of the BCSPF section are given below:
Proportion of Total Membership 31/3/16 31/3/15
Total membership at the start of the year 3,473
Active members
Active members at the start of the year 49 1%
Adjustment to the b/fwd figure for late notification -
Left service with deferred benefits (1)
Retirements (4)
Active members at the end of the year 44 1%
Pensioners
Pensioners at the start of the year 2,013 58%
Adjustment to b/fwd figure for late notifications 3
Members retiring during the period 51
New spouse and dependant pensions 23
Full commutations -
Pensions in suspense (7)
Reinstatements 4
Deaths (54)
Pensioners at the end of the year 2,033 59%
Members with deferred benefits
Deferred members at the start of the year 1,411 41%
Adjustment to b/fwd figure for late notifications (2)
Transfers out (10)
New deferred members 1
Deferred members becoming pensioners (47)
Deaths (2)
Full commutations -
Deferred members at the end of the year 1,351 40%
Total membership at the end of the year 3,428 100% 100%
The above figures include 215 members who are also members of the Defined Contribution Section.
Included within the pensioner numbers are 420 spouses and dependants (2015: 411).
Bayer Group Pension Plan Confidential
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Trustee’s Report (continued)
Plan Management (continued)
Group DB Section
Pension Increases
Pensions in payment, including Guaranteed Minimum Pensions (GMP), were reviewed in accordance with the
Rules of the Plan relating to the Group DB section. No discretionary increases were made.
The following increases were granted with effect from April 2015:
Pre-88 GMP Nil (Nil)
Post-88 GMP 1.2% (Statutory)
Section To April 1997 April 97 – April 04 April 04 – April 05 After April 05
Old Bayer Plan RPI, minimum
2.5%, maximum 5%
RPI, minimum
2.5%, maximum 5%
RPI, maximum 5% RPI, maximum
2.5%
Technicon RPI, minimum 4%,
maximum 5%
RPI, minimum 4%,
maximum 5%
RPI, maximum 5% RPI, maximum
2.5%
Miles (including
Senior Executives)
RPI up to 5% RPI up to 5% RPI up to 5% RPI up to 2.5%
All other DB Section
Members
RPI, minimum 3%,
maximum 5%
RPI, minimum 3%,
maximum 5%
RPI maximum 5% RPI maximum
2.5%
Section To April 1997 April 97 – April 04 April 04 – April 05 After April 05
Old Bayer Plan 2.5% 2.5% 2.3% 2.3%
Technicon 4.0% 4.0% 2.3% 2.3%
Miles (including
Senior Executives)
2.3% 2.3% 2.3% 2.3%
All other DB Section
Members
3.0% 3.0% 2.3% 2.3%
Statutory increases on post-1988 GMPs are determined in accordance with Section 109 of the Pension
Schemes Act 1993 and are set out in a Statutory Instrument, which is usually issued in March. The increase is
determined as the increases in “prices” over the year to September, up to a maximum of 3%.
RPI Increases for non-GMP pensions are based on September RPI, which was 2.3% for the year to September
2014.
Transfer Values
Transfer values paid during the year were calculated and verified in the manner required by the regulations
made under section 97 of the Pension Schemes Act 1993. None of the transfer values paid were less than the
amount provided by the Regulations. No discretionary benefits were included in the calculations of transfer
values.
Bayer Group Pension Plan Confidential
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Trustee’s Report (continued)
Plan Management (continued)
Group DB Section (continued)
Financial Development and Actuarial Position
The funding position as at 31 March 2015 showed a deficit of £40m based on methods and assumptions agreed
between the Trustee and the Company contained in the Statement of Funding Principles.
Following the latest valuation of the Plan as at 31 March 2014 it was agreed that the Company would pay the
following deficit contributions in respect of the Group DB Section of the Plan as follows:-
Amount Date
£1.3m 31 March 2016*
£4.7m 31 March 2017
£4.7m 31 March 2018
£4.7m 31 March 2019
In accordance with this agreement, £1.3m* of deficit contributions were paid into the Plan by the Company
during the financial year.
Bayer Group Pension Plan Confidential
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Trustee’s Report (continued)
Plan Management (continued)
Group DB Section (continued)
Membership
Details of the current membership of the Plan are given below:
Proportion of Total Membership 31/3/16 31/3/15
Total membership at the start of the year 3,313
Active members
Active members at the start of the year 161 5%
Adjustment to the b/fwd figure for late notifications -
Retirements (6)
Left service with deferred benefits (3)
Active members at the end of the year 152 5%
Pensioners
Pensioners at the start of the year 1,436 43%
Adjustment to the b/fwd figure for late notifications 5
Members retiring during the period 38
New spouse and dependant pensions 27
Pensions in suspense (8)
Deaths (57)
Full Commutations (5)
Reinstatements 7
Pensioners at the end of the year 1,443 44%
Members with deferred benefits
Deferred members at the start of the year 1,716 52%
Adjustment to the b/fwd figure for late notifications (4)
New deferred members 3
Transfers out (4)
Deferred members becoming pensioners (32)
Full commutations (4)
Deaths (4)
Deferred members at the end of the year 1,671 51%
Total membership at the end of the year 3,266 100% 100%
The above figures include 210 members who are also members of the defined contribution section.
Included within the pensioner numbers are 239 spouses and dependants (2015: 225).
Bayer Group Pension Plan Confidential
15
Trustee’s Report (continued)
Plan Management (continued)
DC Section
Membership
Details of the current membership of the DC section are given below:
Active Deferred
Total membership at the start of the period 877 826
Adjustment to the b/fwd figure for late notifications - 1
New entrants
160 -
Members leaving without vested benefits
(2) (5)
Members leaving with deferred benefits
(142) 142
Normal retirements
- -
Members taking early retirement
- (7)
Members taking late retirement
- -
Deaths (1) (1)
Transfers out - (26)
Opt outs (3) -
Other* (2) 2
Members at the end of the period 887 932
* The ‘other’ adjustments above in the deferred member category includes a number of non-vested leavers who
were reinstated during the year.
Bayer Group Pension Plan Confidential
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Trustee’s Report (continued)
Plan Management (continued)
Summary of Contributions
During the year, the contributions paid to the Plan by the Employers participating under the Schedules of
Contributions were as follows:
£’000 £’000
Contributions payable under the Schedules of Contributions
- Employer Normal 9,534
- Employer Deficit Funding 21,000
- Member Normal 166
30,700
Contributions payable not included in the Schedules of
Contributions
- Members’ Additional Voluntary 848
- Employer Augmentations 661
- Employer Other 205
1,714
Contributions receivable per Fund Account (Note 5) 32,414
With the exception of two additional employer contributions due for November 2015 (received late in January
2016), and two contributions to cover administrative expenses for the quarters ended 31 December 2015 and 31
March 2016 that were received late in July 2016, all other contributions were received in accordance with the
Schedules of Contributions. The Plan Actuary was made aware of all instances of late contributions and
determined there was no further action or reports to the regulator required.
Bayer Group Pension Plan Confidential
17
Trustee’s Report (continued)
Investment Matters
Overview
The Trustee, with the assistance of its appointed investment adviser, determines the overall investment strategy
for the Plan and sets out the broad policy to be adopted by each of the appointed fund managers.
Investment managers
The names of those who have managed the Plan’s investments during the year are listed on page 3. The Trustee
has delegated the day-to-day management of investment to its appointed fund managers. A written agreement
between the Trustee and each manager sets out the terms on which the manager will act.
The managers’ duties include the consideration of social, environmental or ethical issues in the selection,
retention and realisation of investments as well as voting and corporate governance in relation to the Plan’s
assets. The Trustee has reviewed each of the investment managers’ policies on these issues. The Trustee
believes that the policies adopted by the managers are consistent with their own views.
Investment principles
In accordance with Section 35 of the Pensions Act 1995, the Trustee has prepared a Statement of Investment
Principles which includes the Trustee’s policy relating to ethical investment and the exercise of the rights
attaching to investments. Any member may request a copy. This Statement may change from time to time
according to advice received from the investment manager or consultants.
Departures from investment principles
As at 31 March 2016 the Plan’s investments are not entirely in line with the current SIP. The Trustee is currently
in the process of drafting a new SIP.
Market Commentary
We include below a commentary on markets over the year to 31 March 2016.
Economic and market background
Over the twelve month period to 31 March 2016, global economic growth was positive but differed across the
major regions. As a consequence, global central banks’ monetary policies began to diverge during the year. In
December 2015, the Federal Reserve raised interest rates for the first time since 2006, albeit by a modest
amount. In contrast other central banks maintained or strengthened their monetary easing policies in order to
attempt to stimulate economic growth:
though the UK economy performed well over the twelve month period, the Bank of England reiterated its
commitment to keeping interest rates at low levels for longer;
facing deflation in the Eurozone, the European Central Bank (“ECB”) expanded its monetary policy
measures in February 2016 to include purchases of non-financial corporate bonds; and
in Japan, economic growth remained weak with inflation far below target levels. In January 2016, the Bank
of Japan adopted a negative interest rates policy for deposits, following the path of the ECB, the Swiss
National Bank and the Swedish Riksbank.
Bayer Group Pension Plan Confidential
18
Trustee’s Report (continued)
Investment Matters (continued)
Market Commentary (continued)
Economic and market background (continued)
The Chinese economy slowed over the twelve month period as it continued to transition from an export and
investment driven economy to an economy driven by domestic consumption. Measures taken by the Chinese
authorities to counter weaker growth included the devaluation of the yuan, a cut in interest rates and the
lowering of reserve requirements for banks.
Emerging markets experienced a particularly turbulent time, hit by the weakening of Chinese growth, lower and
volatile oil prices (which particularly impacted oil exporting nations) and a stronger US dollar against local
exchange rates. The Brazilian economy fell into recession, while Russia’s economy suffered due to the fall in
energy prices and western sanctions. By the end of the year there was a stark contrast between the growth
prospects of individual emerging markets.
Equity market performance
Equity markets experienced bouts of high volatility over the year, recording heavy losses during the third quarter
of 2015 and the opening weeks of 2016 but largely bouncing back in the subsequent periods as investors
reacted to economic data and company earnings releases. In aggregate over the twelve month period, the
Plan’s DB global equity portfolio fell by 8.5%.
US equities produced muted returns of 0.9% over the year in US dollar terms. Currency movements bolstered
returns for Sterling investors, as the dollar strengthened on the back of the US interest rate increase in
December and expectations of future increases. Whilst over this relatively short period the Plan’s 100% currency
hedge dampened returns, over the longer term the currency hedging is expected to reduce the volatility of the
Plan’s funding position.
UK equity returns were disappointing at -3.9% over the year, with particular weakness coming from the energy
and mining sectors. UK large-cap stocks also underperformed more domestically focused mid and small-cap
companies.
European equity markets suffered as concerns over the economic outlook and the potential impacts of deflation
outweighed the impact of ECB quantitative easing measures. Japanese equities were the worst performing
region over the last year returning -12.2% in local terms, as the strength of the yen raised concerns over the
earnings prospects for the country’s export led companies, despite unexpected rate cuts from the Bank of Japan.
Other Asia Pacific markets also fell heavily as the slowdown in the Chinese economy preoccupied investors.
Yields on government bonds continued their downward trend over the year to 31 March 2016 as investor
demand for safe haven government bonds remained high in a low growth and volatile environment for
investment markets. In general, this led to government bond assets increasing in value over the year (as seen in
the fixed interest gilt fund), but the Plan’s investments in index-linked gilts experienced a broadly flat return as
inflation was kept low. These portfolios are held for their liability matching, rather than return characteristics
however, so this is not a significant concern for the Trustee.
Returns on corporate bonds were muted over the period. Spreads on corporate bonds increased from record low
levels due to a decrease in investor demand: a combination of reduced future economic growth expectations
and volatility in growth asset markets. Against this backdrop, the L&G corporate bond portfolio returned -0.7%
over the year.
Bayer Group Pension Plan Confidential
19
Trustee’s Report (continued)
Investment Matters (continued)
Market Commentary (continued)
Property
Property performed strongly over the year, as the Plan’s DB portfolio returned around 6.3% with UK property
producing the strongest performance. Though the strength of returns began to moderate towards the end of the
year, property’s perceived “safe haven” status continued to attract investors in the volatile and uncertain
environment.
Rental income and capital growth contributed broadly equal amounts to overall property returns over the year,
with rent growing fastest in the office and industrials sectors.
Asset allocation
The day to day management of the Plan’s Defined Benefit sections’ investments has been delegated by the
Trustee to the investment managers.
Details of the Defined Benefit sections’ asset allocation benchmarks are provided in the table on the following
page.
Manager Asset Class Benchmark
SHCL
Section
Benchmark
(%)
BCSPF
Section
Benchmark
(%)
Group DB
Section
Benchmark
(%)
LGIM
Global Equities
(Hedged)
FTSE AW-World Index – GBP
Hedged 45.0 45.0 45.0
Corporate
bonds
iBoxx £ Non-Gilt (ex-BBB) over 15
Year Index 0.0 33.7 11.3
UK Gilts FTSE >15 year Index 22.5 0.0 0.0
UK Index-
Linked Gilts FTSE ILG >15 year Index 22.5 11.3 33.7
Property -
REITS
FTSE EPRA/NAREIT Global
Developed Real Estate Index
10.0 10.0 10.0
CBREI
Property - UK
segregated IPD All Balanced Property Fund Index
Property -
Global Alpha 10% per annum
Property -
Osiris IPD All Balanced Property Fund Index
The allocations shown in the table above are taken from the latest version of the Statement of Investment Principles, which was signed in June 2016. Within the global equity portfolio, the Trustee reduced currency risk by increasing the level of overseas currency hedging over the year. The Trustee also consolidated the Plan’s global equity arrangements to be invested entirely with LGIM.
Bayer Group Pension Plan Confidential
20
Trustee’s Report (continued)
Investment Matters (continued)
Details of the Defined Benefit sections’ actual asset allocation are provided in the table below.
SHCL Section BCSPF Section Group DB Section
Manager Asset Class 31 March
2015 (%)
31 March
2016 (%)
31 March
2015 (%)
31 March
2016 (%)
31 March
2015 (%)
31 March
2016 (%)
BlackRock Global Equities 45.0 - 41.4 - 44.0 -
LGIM
Global Equities 0.0 43.0 1.4 42.4 0.0 43.3
Corporate bonds - - 32.7 33.0 11.0 11.7
UK Gilts 21.8 23.5 - - - -
UK Index-
Linked Gilts 22.4 23.0 11.2 11.4 34.1 34.0
Property -
REITS 6.4 5.8 5.6 4.9 5.3 4.5
CBREI
Property - UK
segregated 0.0 0.0 0.7 0.0 0.3 0.3
Property -
Global Alpha 3.9 4.0 1.6 2.8 2.4 2.5
Property - Osiris - - 1.7 1.9 2.1 2.5
Cash 0.6 0.8 3.5 3.6 0.8 1.2
Source: Investment Managers. Table may be subject to rounding differences. The BlackRock equity funds were transferred
to the LGIM All World Equity (GBP Hedged) Fund over July 2015.
Review of investment performance
Given the long-term nature of a pension fund’s liabilities, the investment objective has been to maximise the
overall return from capital appreciation and income without a high-risk profile. The Trustee’s strategy is
contained in their Statement of Investment Principles and is continually monitored.
One Year
(% pa)
Three Year
(% pa)
Five Year
(% pa)
SHCL Pension Scheme -0.8 7.5 9.7
Bayer CropScience Pension Fund -2.2 6.9 8.7
Bayer Group Pension Plan -1.5 7.7 9.6
LGIM has successfully tracked the benchmark for each of the funds in which the Plan invests within reasonable tolerance
ranges over the year to 31 March 2016. The CBRE assets are actively managed and have generally lagged their
performance objectives over the year to 31 March 2016. However, over the longer term, the CBRE funds have broadly met
their target returns.
Bayer Group Pension Plan Confidential
21
Trustee’s Report (continued)
Investment Matters (continued)
Charges or lien
The Legal & General assets are held free from charge or lien except for the provision of a positive floating
charge and liens put in place by counterparties or custodians (please note this is normal practice within the
industry). The floating charge was put in place for the benefit of all policyholders. All clients were notified of the
change. This change was also discussed with the former Financial Services Authority, now known as the
Financial Conduct Authority and the Prudential Regulation Authority and it confirmed that it had no objections to
it. Legal & General believe that this method is similar to that adopted by most providers of insured pooled funds.
Defined Contribution Section
The day to day management of the section’s investments has been delegated by the Trustee to third party
investment managers.
The following DC funds were available to DC members during the financial year ended 31 March 2016: the
Bayer Long-Dated Gilt Fund, the Bayer Global Equity Fund, the Bayer Emerging Markets Equity Fund, the Bayer
Inflation Protection Fund, the Bayer UK Equity Fund, the Fidelity BlackRock Cash Fund, the Bayer Target Return
Fund, the Bayer Corporate Bond Fund and the Bayer Property Fund.
The availability of these funds enables members to make their own investment choices. In addition, for those
members who don’t want to choose which funds they invest in, but appreciate the importance of making active
investment decisions, the Plan also offers three life style options (5 years, 10 years and 15 years).
The aim of the lifestyle option is to provide the Members Retirement Account with a balance between good long-
term growth whilst smoothing out some of the highs and lows that come with investing solely in equities.
The lifestyle option uses a mix of diversified investments to provide increased pension certainty as the member
approaches retirement. All three options use the same seven funds – Bayer Group Equity, Bayer Target Return,
Bayer Inflation Protection, Bayer Corporate Bond, Bayer Long-Dated Gilt, Bayer Emerging Markets Equity Fund
and Fidelity BlackRock Cash Fund.
Investment Options
There are three lifestyle options for members to choose from which offer a five, ten or fifteen year switching
strategy. For the year to 31 March 2016, new contributions were invested in the nine investment choices
available.
The Trustee monitors the performance of the underlying funds on a quarterly basis through the DC Sub-
Committee and will continue to review the range of funds available to ensure that the Plan continues to meet the
needs of the membership as a whole.
For the year ended 31 March 2016, the investment assets of the DC section were valued at £91.9 million,
compared to £86.5 million as at 31 March 2015.
Bayer Group Pension Plan Confidential
22
Trustee’s Report (continued)
Investment Matters (continued)
The asset value and one year performance for the individual funds are provided below:
Value of Plan Investments
Fund Name
As at
31 March 2016
£’000
As at
31 March 2015
£’000
Bayer Long-Dated Gilt Fund 2,472 1,976
Bayer Global Equity Fund 39,794 39,233
Bayer Inflation Protection Fund 4,397 3,463
Bayer UK Equity Fund 6,023 6,135
Fidelity BlackRock Cash Fund 1,841 1,391
Bayer Target Return Fund 30,411 28,853
Bayer Corporate Bond Fund 2,045 1,606
Bayer Property Fund 1,408 674
Bayer Emerging Markets Equity Fund 3,513 3,171
Total 91,904 86,502
Note: The figures in the table are subject to rounding differences.
Defined Contribution Section investment performance
Fund Performance 1 Year Actual (%)
1 Year Benchmark (%)
3 Year annualised Actual (%)
3 Year annualised Benchmark (%)
5 Year annualised Actual (%)
5 Year annualised Benchmark (%)
Bayer Long-Dated Gilt Fund 4.0 4.0 8.5 8.6 11.0 11.1
Bayer Global Equity Fund (3.0) (2.7) 5.5 5.8 6.5 6.8
Bayer Inflation Protection Fund 1.8 1.9 5.5 5.6 9.6 9.8
Bayer UK Equity Fund (4.2) (3.9) 3.5 3.7 5.4 5.7
Fidelity BlackRock Cash Fund 0.4 0.4 0.3 0.4 0.4 0.4
Bayer Target Return Fund (2.0) 4.6 2.5 4.5 3.6 4.1
Bayer Corporate Bond Fund 0.3 0.4 4.6 4.9 6.8 7.0
Bayer Property Fund 11.5 10.6 13.6 13.0 9.2 8.8
Bayer Emerging Market Equity
Fund
(10.0)
(9.6)
(3.5)
(3.1)
N/A
N/A
Note: N/A means data for this period is not available. Figures above reflect the return on investment after the fund’s charges
have been deducted.
Bayer Group Pension Plan Confidential
23
Trustee’s Report (continued)
Report on Actuarial Liabilities
Under Section 222 of the Pensions Act 2004, every scheme is subject to the Statutory Funding Objective, which
is to have sufficient and appropriate assets to cover its technical provisions. The technical provisions represent
the present value of the benefits members are entitled to based on pensionable service to the valuation date,
assessed using the assumptions agreed between the Trustee and the Employer and set out in the Statement of
Funding Principles, which is available to Scheme members on request.
The most recent full actuarial valuation of the Scheme was carried out as at 31 March 2014. This showed that on
that date:
The value of the Technical Provisions was: £1,246 million
The value of the assets at that date was: £1,152 million
The method and significant actuarial assumptions used to determine the technical provisions are as follows (all
assumptions adopted are set out in the Appendix to the Statement of Funding Principles):
Method
The actuarial method to be used in the calculation of the technical provisions is the Projected Unit Method.
Significant actuarial assumptions
Discount interest rate: term dependent rates set by reference to the fixed interest gilt curve (as derived from
Bank or England data) at the valuation date plus an addition of 0.5% per annum.
Future Retail Price inflation: term dependent rates derived from the Bank of England fixed interest and index-
linked gilt curves at the valuation date.
Future Consumer Price inflation: term dependent rates derived from the assumption for future retail price
inflation less an adjustment equal to 0.9% per annum.
Pension increases: derived from the term dependent rates for future consumer price inflation allowing for the
caps and floors on pension increases according to the provisions in the Scheme’s rules.
Pay increases: general pay increases of 1.5% per annum above term dependent rates for the future retail price
inflation (NB not a significant assumption if few active members).
Mortality: for the period in retirement, standard tables SIPMA with a scaling factor of 98% for male active
members, 103% for male deferred members and 99% for male pensioner members and S1PFA with a scaling
factor of 103% for female active members, 107% for female deferred members and 111% for female pensioner
members.
Bayer Group Pension Plan Confidential
24
Trustee’s Report (continued)
Contact for Further Information
Members and trades unions recognised for the purposes of collective bargaining in relation to members are
entitled to inspect copies of documents giving information about the Plan. In some circumstances, copies of the
documents can be provided but a charge may be made for copies of the trust documents (Deed and Rules), the
Summary Funding Statement and the Actuary’s report.
Any complaints or enquiries about the Plan, including requests from individuals for information about their
benefits, should be addressed to:
C/o Secretary to the Bayer Group Pension Plan
Bayer House
Strawberry Hill
Newbury
Berkshire
RG14 1JA
Alternatively, Capita can be contacted via email at [email protected].
Signed for and on behalf of Silver Birch Trustees Limited:
Director
Director
Date:
Bayer Group Pension Plan Confidential
25
DC Governance Statement
Introduction
This statement has been prepared by the Trustee of the Bayer Group Pension Plan (“the Plan”) to describe how
the Trustee has met the new governance standards in relation to:
the default arrangement;
the requirements for processing core financial transactions;
charges and transaction costs borne by members; and
Trustee knowledge and understanding.
This statement covers the period from 6 April 2015 to 31 March 2016.
Default arrangement
Details of the objectives and the Trustee‘s policies in regards to the default arrangement are set out in the Plan’s
Statement of Investment Principles (“SIP”). The SIP is appended to the Trustee’s Annual Report and Financial
Statements.
The default arrangement was not reviewed during the period covered by this statement. It was last reviewed in
February 2015. The Trustee regularly monitors the performance of the default arrangement, and will formally
review it at least every three years or without delay following any significant change in legislation or the
demographic profile of the relevant members.
Requirements for processing core financial transactions
Processing of core financial transactions (eg investment of contributions, transfers within and into/out of the
Plan, and payments to/from members) is carried out by the administrators of the Plan, Fidelity International.
The Trustee is comfortable that the administrators have in place adequate internal controls to ensure that core
financial transactions relating to the Plan are processed promptly and accurately.
The Trustee regularly monitors the administrators’ performance, and based on information provided by the
administrators, is satisfied that over the period covered by this statement:
there have been no material administration errors in relation to processing core financial transactions; and
the requirements of regulation 24 of the Regulations have been met and all core financial transactions have
been processed within a reasonable timeframe.
Charges and transaction costs
For the purpose of this section “charges” are defined as the ongoing charges figures, which are the annual fund
management charges plus additional fund expenses (e.g. for custody, but excluding transaction costs). The
stated charges also include administration costs since members incur these costs.
The charges have been supplied by the Plan’s platform provider, Fidelity International.
Default arrangement
The default arrangement has been set up as a lifestyle approach, whereby members’ assets are
automatically moved between different investment funds as they approach their retirement date. Therefore,
the level of charges and transaction costs vary according to each member’s proximity to retirement and the
underlying funds they are invested in.
Bayer Group Pension Plan Confidential
26
DC Governance Statement (continued)
Charges and transaction costs (continued)
Over the period from 6 April 2015 to 31 March 2016, the level of charges within the default arrangement
varied between 0.21% and 0.65% pa.
Self-select funds
The level of charges for each self-select fund (including those used in the default arrangement) over the
period from 6 April 2015 to 31 March 2016 are set out in the table below. The funds that are used within the
default arrangement are highlighted in bold.
Fund charges – 1 year to 31 March 2016
Manager – Fund name: Charge (% pa)
Bayer Global Equity Fund 0.31
Bayer Emerging Markets Equity Fund 0.61
Bayer Target Return Fund 0.97
Bayer UK Equity Fund 0.30
Bayer Property Fund 0.99
Bayer Corporate Bond Fund 0.25
Bayer Long Dated Gilt Fund 0.20
Bayer Inflation Protection Fund 0.20
Bayer Cash Fund 0.20
As mentioned previously, the total annual charges do not include transaction costs. Transaction costs are those
incurred as a result of trading by the investment managers within each fund (e.g. buying and selling of
securities). The transaction costs do not include the costs to members of investing into and switching between
funds.
The Trustee has sought to obtain details on the transaction costs from the Plan’s investment managers; however
at the date of this statement all of the respective managers are unable to provide a detailed breakdown.
The Trustee will continue to monitor the position and work with the investment managers to obtain information on
transaction costs.
Value for money assessment
The general policy of the Trustee in relation to value for money considerations is set out below:
It is the Trustee’s policy to review all member borne charges on a regular basis and to aim to ensure that
members are obtaining value for money given the circumstances of the Plan. The Trustee’s note that value for
money does not necessarily mean the lowest fee, and the overall quality of the service received has been taken
into account in the value for money assessment.
The Trustee‘s assessment included a review of the performance of the Plan’s investment funds (after all
charges) in the context of their investment objectives, and consideration of the benefits of the Plan, for example
the quality of the administration and investment range, member communications, and Plan design.
Bayer Group Pension Plan Confidential
27
DC Governance Statement (continued)
Value for money assessment (continued)
Overall, the Trustee believes that members of the Plan are receiving good value for money. However, the
Trustee is currently working with the Company to consider if the trust based arrangement currently used by
members provides the best value for money and if alternative structures could better suit the Plan.
Trustee knowledge and understanding
The Plan’s Trustee is required to maintain appropriate levels of knowledge and understanding. During the period
covered by this statement, the Trustee has ensured its knowledge and understanding is up to date by:
Receiving and reviewing regular topical issues and legislative update bulletins;
Receiving training on items of business as required at Trustee and Committee meetings;
Providing details of any other training undertaken to be added to the Trustee training log;
Completing an annual knowledge and understanding assessment, which was used to identify any areas
where Trustees felt more training or support was required; and
New Trustees are also required to complete the Pensions Regulator’s Trustee Toolkit upon being
appointed.
Taking the knowledge of the Trustee, with the specialist advice received from the appointed professional
advisors (e.g. investment consultants, legal advisors), the Trustee believes it is well placed to properly exercise
its functions as Trustee of the Plan.
______________________________________________
Signed for and on behalf of the Trustee of the Bayer Group Pension Plan
Bayer Group Pension Plan Confidential
28
Independent Auditor’s Report to the Trustee of the Bayer Group
Pension Plan
We have audited the financial statements of the Bayer Group Pension Plan for the year ended 31 March 2016
on pages 30 to 53. The financial reporting framework that has been applied in their preparation is applicable law
and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including
FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”.
This report is made solely to the Plan’s Trustee as a body, in accordance with the Pensions Act 1995. Our audit
work has been undertaken so that we might state to the Plan’s Trustee those matters we are required to state to
it in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Plan and the Plan’s Trustee as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of the trustee and auditor
As explained more fully in the Statement of Trustee Responsibilities set out on page 6, the Plan’s Trustee is
responsible for the preparation of financial statements which show a true and fair view. Our responsibility is to
audit and express an opinion on the financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s
website at: http://www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion the financial statements:
- show a true and fair view of the financial transactions of the Plan during the year ended 31 March 2016,
and of the amount and disposition at that date of its assets and liabilities, other than the liabilities to pay
pensions and benefits after the end of the year;
- have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice; and
- contain the information specified in Regulation 3 of the Occupational Pension Schemes (Requirement to
obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, made under the Pensions
Act 1995.
RSM UK AUDIT LLP (formerly known as Baker Tilly UK Audit LLP)
Statutory Auditor
Chartered Accountants
25 Farringdon Street London
EC4A 4AB Date:
Bayer Group Pension Plan Confidential
29
Independent Auditor’s Statement about Contributions under
Regulation 4 of the Occupational Pension Schemes (Requirement to
obtain Audited Accounts and a Statement from the Auditor)
Regulations 1996, to the Trustee of the Bayer Group Pension Plan
We have examined the Summary of Contributions payable to the Bayer Group Pension Plan on page 16, in
respect of the Plan year ended 31 March 2016.
This statement is made solely to the Plan’s Trustee as a body, in accordance with the Pensions Act 1995. Our
audit work has been undertaken so that we might state to the Plan’s Trustee those matters we are required to
state to it in an auditor’s statement and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Plan and the Plan’s Trustee as a body, for our audit
work, for this statement, or for the opinions we have formed.
Respective responsibilities of trustee and auditor
As explained more fully on page 6 in the Statement of Trustee’s Responsibilities, the Plan’s Trustee is
responsible for ensuring that there are prepared, maintained and from time to time revised Schedules of
Contributions showing the rates and due dates of certain contributions payable towards the Plan by or on behalf
of the employer and the active members of the Plan. The Trustee is also responsible for keeping records in
respect of contributions received in respect of active members of the Plan and for monitoring whether
contributions are made to the Plan by the employer in accordance with the Schedules of Contributions.
It is our responsibility to provide a statement about contributions paid under the Schedules of Contributions and
to report our opinion to you.
Scope of work on statement about contributions
Our examination involves obtaining evidence sufficient to give reasonable assurance that contributions reported
on page 16 have in all material respects been paid at least in accordance with the Schedules of Contributions.
This includes an examination, on a test basis, of evidence relevant to the amounts of contributions payable to
the Plan and the timing of those payments under the Schedules of Contributions.
Statement about contributions payable under schedule of contributions
In our opinion the contributions for the Plan year ended 31 March 2016 as reported in the summary of
contributions on page 16 and payable under the Schedules of Contributions have in all material respects been
paid at least in accordance with the Schedules of Contributions certified by the actuary on 26 June 2012 and 30
June 2015.
RSM UK AUDIT LLP (formerly known as Baker Tilly UK Audit LLP)
Statutory Auditor
Chartered Accountants
25 Farringdon Street
London
EC4A 4AB Date:
Bayer Group Pension Plan Confidential
30
Fund Account
Defined benefit sections
Note
SHCL
2016
£’000
BCSPF
2016
£’000
Group DB
2016
£’000
Defined
contribution
section
2016
£’000
Total
2016
£’000
Total
2015
£’000
Contributions and benefits
Employer contributions 103 20,806 2,145 8,346 31,400 32,843
Employee contributions 15 10 8 981 1,014 819
Total contributions 5 118 20,816 2,153 9,327 32,414 33,662
Transfers in 6 - - - 586 586 623
Other income 7 - - 643 125 768 354
118 20,816 2,796 10,038 33,768 34,639
Benefits paid or payable 8 (2,752) (25,552) (17,094) (629) (46,027) (45,711)
Payments to and on account of
leavers 9 (159) (1,913) (1,408) (1,267) (4,747) (2,978)
Administrative expenses 10 (29) (118) (140) (4) (291) (887)
Other payments 11 - (1) (463) - (464) (677)
(2,940) (27,584) (19,105) (1,900) (51,529) (50,253)
Net (withdrawals)/additions from
dealings with Members
(2,822)
(6,768)
(16,309)
8,138
(17,761)
(15,614)
Returns on investments
Investment income 12 59 372 637 - 1,068 2,206
Change in market value of
investments
13
(1,030)
(14,670)
(9,251)
(2,478)
(27,429)
242,927
Investment management expenses 16 (85) (451) (384) - (920) (783)
Net returns on investments (1,056) (14,749) (8,998) (2,478) (27,281) 244,350
Net (decrease)/increase in the Plan
during the year
(3,878) (21,517) (25,307) 5,660 (45,042) 228,736
Net assets of the Plan at 1 April 24 111,685 684,559 569,998 86,363 1,452,605 1,223,869
Net assets of the Plan at 31 March 107,807 663,042 544,691 92,023 1,407,563 1,452,605
The accompanying notes on pages 32 to 53 are an integral part of these financial statements. These contain
details of the comparative figures for each of the sections.
Bayer Group Pension Plan Confidential
31
Statement of Net Assets (available for Benefits) As at 31 March 2016 Defined benefit sections
Note
SHCL
2016
£’000
BCSPF
2016
£’000
Group DB
2016
£’000
Defined
contribution
section
2016
£’000
Total
2016
£’000
Total
2015
£’000
Investment assets: 13
Pooled investment vehicles 17 107,496 640,921 539,536 91,904 1,379,857 1,420,056
AVC investments 19 - 425 1,687 - 2,112 2,339
Cash 175 749 558 - 1,482 7,065
Other investment balances - - - - - 280
Total investments 107,671 642,095 541,781 91,904 1,383,451 1,429,740
Current assets 22 205 21,423 3,664 140 25,432 23,939
Current liabilities 23 (69) (476) (754) (21) (1,320) (1,074)
Net assets of the Plan at 31
March
107,807 663,042 544,691 92,023 1,407,563 1,452,605
The financial statements summarise the transactions of the Plan and deal with the net assets at the disposal of
the Trustee. They do not take into account obligations to pay pensions and benefits which fall due after the end
of the Plan year. The actuarial position of the Plan, which does take account of such obligations, is dealt with in
the Report on Actuarial Liabilities included in the annual report on page 23 and these financial statements should
be read in conjunction with this.
The notes on pages 32 to 53 form an integral part of these financial statements. These contain details of the
comparative figures for each of the sections.
Signed and authorised for issue for and on behalf of Silver Birch Trustees Limited on:
2016
Director
Director
Bayer Group Pension Plan Confidential
32
Notes to the Financial Statements
1. General information
The Plan is an occupational pension scheme established under trust on 21 November 1959 to provide
retirement benefits to employees of Bayer plc and Bayer Crop Science UK Limited. The address of the
Plan’s principal office is Bayer House, Strawberry Hill, Newbury, Berkshire, RG14 1JA.
The Plan has three defined benefit sections and a defined contribution section. Members of the DB
sections are contracted-out of the State Second Pension Scheme (S2P). DC members participate fully
in the state scheme.
The Plan is a registered pension scheme under Chapter 2 Part 4 of the finance Act 2004. The Trustee
knows of no reason why this status may be prejudiced or withdrawn.
2. Basis of preparation
The financial statements have been prepared in accordance with the Occupational Pension Schemes
(Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, Financial
Reporting Standard 102 – The Financial Reporting Standard applicable in the UK and Republic of
Ireland issued by the Financial Reporting Council and with guidance set out in the Statement of
Recommended Practice (2015) with the exception of the valuation of annuity policies. This is the first
year FRS 102 and the Revised SORP have applied to the Scheme’s financial statements. The Trustee
has elected to early-adopt the changes proposed by the FRC in Amendments to FRS 102 – Fair Value
Hierarchy Disclosures to align the reporting standards more consistently with International Financial
Reporting Standards (IFRS).
3. Transition to FRS 102
Annuity policies were previously included in the Statement of Net Assets at nil value as permitted by the
Audited Accounts Regulations and the previous SORP. Under FRS 102 annuity policies are reported at
the value of the related obligation to pay future benefits funded by the annuity policy. The Trustees have
taken advice from their professional advisers and determined the annuity policies held by the Plan are
immaterial. The Trustees have therefore opted not to value these policies.
4. Accounting policies
The principal accounting policies of the Plan are as follows:
Contributions
Employee contributions, including AVCs, are accounted for by the Trustee when they are deducted from
pay by the Employer, except for the first contribution due where the employee has been auto-enrolled by
the Employer in which case it is accounted for when received by the Plan.
Employer normal contributions that are expressed as a rate of salary are accounted for on the same
basis as the employees’ contributions, in accordance with the Schedule of Contributions in force during
the year.
Employer augmentation contributions are accounted for in accordance with the agreement under which
they are payable.
Employer deficit funding contributions are accounted for on the due dates on which they are payable
under the Schedule of Contributions or on receipt if earlier with the agreement of the employer and
Trustee.
Bayer Group Pension Plan Confidential
33
Notes to the Financial Statements (continued) 4. Accounting policies (continued)
Contributions (continued)
Employer other contributions are accounted for in accordance with the agreement under which they are
payable.
Payments to members
Benefits are accounted for in the period in which the member notifies the Trustees of his decision on the
type or amount of benefit to be taken, or if there is no member choice, on the date of retiring or leaving.
Pensions in payment are accounted for in the period to which they relate.
Opt-outs are accounted for when the Plan is notified of the opt-out.
Individual transfers in or out of the Plan are accounted for when member liability is accepted or,
discharged which is normally when the transfer amount is paid or received.
Expenses
Expenses are accounted for on an accruals basis
Investment income
Income from cash and short term deposits is accounted for on an accruals basis.
Income from pooled investment vehicles is accounted for when declared by the fund manager.
Receipts from annuity policies are accounted for as investment income on an accruals basis.
Investments
The change in market value of investments during the year comprises all increases and decreases in the
market value of investments held at any time during the year, including profits and losses realised on
sales of investments during the year.
Investments are included at fair value as described below:
Unitised pooled investment vehicles have been valued at the latest available bid price or single price
provided by the pooled investment manager. Shares in other pooled arrangements have been valued at
the latest available net asset value (NAV), determined in accordance with fair value principles, provided
by the pooled investment manager.
With profit insurance policies (held as AVCs) are reported at the policy value provided by the insurance
company based on the cumulative reversionary bonuses declared and the current terminal bonus.
Presentation currency
The Plan functional and presentation currency is pounds sterling. Monetary items denominated in
foreign currency are translated into sterling using the closing exchange rates at the Plan year end.
Foreign currency transactions are recorded in sterling at the spot exchange rate at the date of the
transaction.
Bayer Group Pension Plan Confidential
34
Notes to the Financial Statements (continued)
5. Contributions
Contributions from members received during the year were paid in accordance with the Schedules of
Contributions agreed with the Employer and certified by the Actuary.
Defined benefit sections Defined
contribution section
2016 £’000
Total
2016 £’000
SHCL
2016 £’000
BCSPF
2016 £’000
Group DB
2016 £’000
Employer contributions
Normal 77 336 779 8,342 9,534
Deficit funding - 19,700 1,300 - 21,000
Augmentation - 639 22 - 661
Other 26 131 44 4 205
103 20,806 2,145 8,346 31,400
Employee contributions
Normal 5 1 2 158 166
Additional voluntary contributions 10 9 6 823 848
15 10 8 981 1,014
118 20,816 2,153 9,327 32,414
Defined benefit sections Defined contribution
section 2015
£’000
Total
2015 £’000
SHCL
2015 £’000
BCSPF
2015 £’000
Group DB
2015 £’000
Employer contributions
Normal 86 289 741 7,957 9,073
Deficit funding - 19,700 1,300 - 21,000
Augmentation - 754 679 - 1,433
Other 87 466 508 276 1,337
173 21,209 3,228 8,233 32,843
Employee contributions
Normal 5 1 5 145 156
Additional voluntary contributions 16 9 181 457 663
21 10 186 602 819
194 21,219 3,414 8,835 33,662
Bayer Group Pension Plan Confidential
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Notes to the Financial Statements (continued)
5. Contributions (continued)
Additional contributions from members include Additional Voluntary Contributions (AVCs) and added
years contributions whereby additional years of service are purchased for extra DB section benefits.
Augmentations relate to amounts paid by the sponsoring employers to cover the cost of early
retirements.
Other contributions relate to amounts paid by the sponsoring employers to cover the Plan’s
administrative expenses and PPF levies.
Life assurance expenses are now met directly by the employer. In previous years these expenses
have been paid by the Plan and reimbursed by the employer.
Following the finalisation of the actuarial valuation as at 31 March 2014, under a revised Schedule of
Contributions dated 25 June 2015, the company agreed to eliminate the Plan deficit over five years
with two payments of £21m on 31 March 2015 and 31 March 2016 and a further three payments of
£15.7m on 31 March 2017, 31 March 2018 and 31 March 2019. The instalment due on 31 March
2016 of £21m was paid into the Plan in accordance with the Schedule of Contributions. Deficit
funding relates to past service accrual.
6. Transfers in
Defined benefit sections Defined
contribution section
2016 £’000
Total
2016 £’000
SHCL
2016 £’000
BCSPF
2016 £’000
Group DB
2016 £’000
Individual transfers in - - - 586 586
Defined benefit sections Defined contribution
section 2015
£’000
Total
2015 £’000
SHCL
2015 £’000
BCSPF
2015 £’000
Group DB
2015 £’000
Individual transfers in - - - 623 623
Bayer Group Pension Plan Confidential
36
Notes to the Financial Statements (continued)
7. Other income
Defined benefit sections Defined contribution
section 2016
£’000
Total
2016 £’000
SHCL
2016 £’000
BCSPF
2016 £’000
Group DB
2016 £’000
Miscellaneous income - - 37 - 37
Claims on death in service insurance - - 606 125 731
- - 643 125 768
Defined benefit sections Defined contribution
section 2015
£’000
Total
2015 £’000
SHCL
2015 £’000
BCSPF
2015 £’000
Group DB
2015 £’000
Miscellaneous income - - - - -
Claims on death in service insurance - - - - -
Baysense members reinstatements - - - 354 354
- - - 354 354
The Baysense members reinstatement receipt in the prior year relates to an amount transferred from
the Group DB Section to the DC Section to purchase benefits for those members. This exercise was
completed during 2015.
Bayer Group Pension Plan Confidential
37
Notes to the Financial Statements (continued)
8. Benefits paid or payable
Defined benefit sections Defined
contribution section
2016 £’000
Total
2016 £’000
SHCL
2016 £’000
BCSPF
2016 £’000
Group DB
2016 £’000
Pensions 2,490 23,207 14,839 - 40,536
Lump sums on retirement 262 2,285 1,890 491 4,928
Death benefits - 60 260 112 432
Purchase of annuities - - 105 - 105
Taxation where annual/lifetime allowance exceeded
- - - 26 26
2,752 25,552 17,094 629 46,027
Defined benefit sections Defined contribution
section 2015
£’000
Total
2015 £’000
SHCL
2015 £’000
BCSPF
2015 £’000
Group DB
2015 £’000
Pensions 2,390 22,626 14,179 - 39,195
Lump sums on retirement 259 2,519 1,818 500 5,096
Death benefits - 1,150 47 141 1,338
Purchase of annuities - - - - -
Taxation where annual/lifetime allowance exceeded - - 82 - 82
2,649 26,295 16,126 641 45,711
Taxation arising on benefits paid or payable is in respect of members whose benefits exceeded the
lifetime or annual allowance and who elected to take lower benefits from the Plan in exchange for the
Plan settling their tax liability.
Bayer Group Pension Plan Confidential
38
Notes to the Financial Statements (continued)
9. Payments to and on account of leavers
Defined benefit sections Defined contribution
section 2016
£’000
Total
2016 £’000
SHCL
2016 £’000
BCSPF
2016 £’000
Group DB
2016 £’000
Refunds to members leaving service
- - - 5 5
Individual transfers out 159 1,913 1,408 1,262 4,742
159 1,913 1,408 1,267 4,747
Defined benefit sections Defined contribution
section 2015
£’000
Total
2015 £’000
SHCL
2015 £’000
BCSPF
2015 £’000
Group DB
2015 £’000
Refunds to members leaving service - - - 1 1
Individual transfers out - 1,381 609 987 2,977
- 1,381 609 988 2,978
10. Administrative expenses
Defined benefit sections Defined
contribution section
2016 £’000
Total
2016 £’000
SHCL
2016 £’000
BCSPF
2016 £’000
Group DB
2016 £’000
Independent trustee’s fees 1 3 26 1 31
Trustee Director expenses 1 3 10 1 15
Scheme administration levies 27 111 96 2 236
Other expenses - 1 8 - 9
29 118 140 4 291
Other than the expenses detailed above, all expenses are borne by Bayer plc and Bayer
CropScience Ltd. In previous years these costs have been borne by the Plan.
Bayer Group Pension Plan Confidential
39
Notes to the Financial Statements (continued)
10. Administrative expenses (continued)
Defined benefit sections Defined contribution
section 2015
£’000
Total
2015 £’000
SHCL
2015 £’000
BCSPF
2015 £’000
Group DB
2015 £’000
Administrators’ fees 5 24 23 1 53
Employer administration recharge 13 70 67 20 170
Independent trustee’s fees 3 15 14 1 33
Trustee Director expenses 1 8 7 2 18
Audit fees (3) (15) (14) (1) (33)
Actuarial fees 3 17 16 - 36
Legal and professional fees 3 19 18 19 59
Scheme administration levies 53 283 181 2 519
Member communication costs 1 5 5 7 18
Other expenses 1 1 4 8 14
80 427 321 59 887
11. Other payments
Defined benefit sections Defined contribution
section 2016
£’000
Total
2016 £’000
SHCL
2016 £’000
BCSPF
2016 £’000
Group DB
2016 £’000
Life assurance premiums - 1 463 - 464
Defined benefit sections Defined contribution
section 2015
£’000
Total
2015 £’000
SHCL
2015 £’000
BCSPF
2015 £’000
Group DB
2015 £’000
Life assurance premiums - 1 322 - 323
Baysense members reinstatement - - 354 - 354
- 1 676 - 677
For the ease of administration premiums for the Group life assurance policy are paid through the Group DB
Section of the Plan. This policy covers all members (including life-only members) of the Plan.
The Baysense members reinstatement receipt in the prior year relates to an amount transferred from the Group
DB Section to the DC Section to purchase benefits for those members. This exercise was completed during
2015.
Bayer Group Pension Plan Confidential
40
Notes to the Financial Statements (continued)
12. Investment income
Defined benefit sections Defined contribution
section 2016
£’000
Total
2016 £’000
SHCL
2016 £’000
BCSPF
2016 £’000
Group DB
2016 £’000
Pooled investment vehicles 57 361 441 - 859
Interest on cash deposits 1 11 4 - 16
Income from annuities 1 - 192 - 193
Gain on foreign exchange - - - - -
59 372 637 - 1,068
Defined benefit sections Defined contribution
section 2015
£’000
Total
2015 £’000
SHCL
2015 £’000
BCSPF
2015 £’000
Group DB
2015 £’000
Pooled investment vehicles 163 960 738 - 1,861
Interest on cash deposits 1 24 4 - 29
Income from annuities 2 - 188 - 190
Gain on foreign exchange 30 2 94 - 126
196 986 1,024 - 2,206
Income generated by the DC investments is not distributed, but is instead retained within the
investment fund and rolled into the unit price.
13. Reconciliation of net investments
SHCL Section
Value at 1 April
2015 £’000
Purchases at cost
£’000
Sales proceeds
£’000
Change in market
value £’000
Value at 31 March
2016 £’000
Pooled investment vehicles:
Quoted unit trusts 107,303 105,051
X
(107,973) (994) 103,387
Property unit trusts 3,966 2,653 (2,474) (36) 4,109
111,269 107,704 (110,447) (1,030) 107,496
Cash 296 175
111,565 107,671
Bayer Group Pension Plan Confidential
41
Notes to the Financial Statements (continued)
13. Reconciliation of net investments (continued)
BCSPF Section
Value at
1 April 2015
£’000
Purchases at cost
£’000
Sales proceeds
£’000
Change in market
value £’000
Value at 31 March
2016 £’000
Pooled investment vehicles:
Quoted unit trusts 636,344 644,937
X
(653,039) (17,515) 610,727
Property unit trusts 21,880 16,102 (10,603) 2,815 30,194
AVC investments 490 - (95) 30 425
658,714 661,039 (663,737) (14,670) 641,346
Cash 5,732 749
Other 152 -
664,598 642,095
Group DB Section
Value at
1 April 2015
£’000
Purchases at cost
£’000
Sales proceeds
£’000
Change in market
value £’000
Value at 31 March
2016 £’000
Pooled investment vehicles:
Quoted unit trusts 537,944 529,275 (545,594) (10,215) 511,410
Property unit trusts 26,099 8,955 (7,906) 973 28,121
UK unquoted unit trusts 18 - - (13) 5
AVC investments 1,849 6 (172) 4 1,687
565,910 538,236 (553,672) (9,251) 541,223
Cash 1,037 558
Other 128 -
567,075 541,781
Property unit trusts totaling £62,424k (2015: £51,945k) representing 4.4% (2015: 3.6%) of Plan net
assets are considered a long term investment by the Trustee. The funds held by the Plan are
considered illiquid in the short term as it may be difficult to sell the funds before the full investment
term. The Trustee has considered the valuation and concluded it appropriate to use the investment
manager’s valuation which reflects the current market conditions.
Bayer Group Pension Plan Confidential
42
Notes to the Financial Statements (continued)
13. Reconciliation of net investments (continued)
DC Section
Value at 1 April
2015 £’000
Purchases at cost
£’000
Sales proceeds
£’000
Change in market
value £’000
Value at 31 March
2016 £’000
Pooled investment vehicles:
Quoted unit trusts 84,438 14,004 (7,186) (2,601) 88,655
Property unit trusts 674 736 (120) 118 1,408
Cash fund 1,390 1,116 (670) 5 1,841
86,502 15,856 (7,976) (2,478) 91,904
DC Section split of Fidelity investments 2016 £’000
2015 £’000
Designated investment funds 90,189 85,170
AVC funds 1,715 1,332
91,904 86,502
The change in market value of investments during the year comprises profits and losses realised on
sales of investments during the year together with gains and losses arising from the revaluation in the
market value of investments held at the year-end.
Defined Contribution Section
For the Defined Contribution section, investments purchased by the Plan are allocated to provide
benefits to the individuals on whose behalf corresponding contributions are paid. The investment
manager holds the investment units on a pooled basis for the Trustee. The Plan administrator
allocates investment units to members. The Trustee may hold investment units representing the value
of employer contributions that have been retained by the Plan that relate to members leaving the Plan
prior to vesting.
AVCs received for DC members are invested alongside the Fidelity investments above and are
allocated to members. Allocated money purchase assets do not form a common pool of assets
available to members generally.
Bayer Group Pension Plan Confidential
43
Notes to the Financial Statements (continued)
14. Concentration of Investments
The following funds exceed 5% of the Plan’s net assets:
2016 2016 2015 2015
£’000 % £’000 %
Legal & General all World Equity Index GBP Hedged
563,175
40.02
-
-
Legal & General over 15y Index-Linked Gilts 285,135 20.26 295,084 20.31
Legal & General AAA AA A Bonds over 15y Index
282,450 20.07 286,626 19.73
Legal & General Global Real Estate Equity Index
62,964
4.47
75,896
5.22
BlackRock Aquila Life US Equity Index - - 212,101 14.60
BlackRock Aquila Life European Equity Index - - 87,781 6.04
BlackRock Market Weighted GBP Currency Hedging Fund
- - 68,128 4.69
15. Transaction costs
Transaction costs are incurred in the cost of purchases and sale proceeds. Direct transaction costs
include costs charged to the plan such as fees, commissions and stamp duty.
Indirect costs are incurred through the bid-offer spread as investments within pooled investment
vehicles and charges made within those vehicles.
The Plan has incurred costs of £624k during the year as a result of the transfer of assets from
BlackRock to Legal & General, see Note 16 below.
16. Investment management expenses
Defined benefit sections Defined contribution
section 2016
£’000
Total
2016 £’000
SHCL
2016 £’000
BCSPF
2016 £’000
Group DB
2016 £’000
LGIM 11 82 59 - 152
Bank of New York 12 13 13 - 38
CBRE - - 5 - 5
BlackRock 9 49 43 - 101
Transition expenses:
LGIM 24 144 127 - 295
BlackRock 29 163 137 - 329
85 451 384 - 920
Bayer Group Pension Plan Confidential
44
Notes to the Financial Statements (continued)
16. Investment management expenses (continued)
Defined benefit sections Defined contribution
section 2015
£’000
Total
2015 £’000
SHCL
2015 £’000
BCSPF
2015 £’000
Group DB
2015 £’000
LGIM 27 216 132 - 375
Bank of New York 1 2 1 - 4
CBRE - 12 2 - 14
BlackRock 33 191 166 - 390
61 421 301 - 783
Investment management expenses relate to the costs incurred in the administration, management and
custody of the assets of the Plan.
Investment management expenses incurred by the DC Section are not charged separately, but instead
are included in the unit price of each investment fund.
Transition expenses in the current year were incurred as a result of the bulk transfer of investment
assets from BlackRock to Legal & General between June and August 2015.
17. Pooled investment vehicles
The Plan’s investments in pooled investment vehicles at the year end comprised:
Defined benefit sections Defined
contribution section
2016 £’000
Total
2016 £’000
SHCL
2016 £’000
BCSPF
2016 £’000
Group DB
2016 £’000
Equity 46,355 281,350 235,476 49,331 612,512
Bonds 50,096 294,311 248,474 4,517 597,398
Cash 663 2,777 3,064 1,841 8,345
Diversified growth
- - - 34,807 34,807
Property 10,382 62,483 52,522 1,408 126,795
107,496 640,921 539,536 91,904 1,379,857
Bayer Group Pension Plan Confidential
45
Notes to the Financial Statements (continued)
17. Pooled investment vehicles (continued)
Defined benefit sections Defined contribution
section 2015
£’000
Total
2015 £’000
SHCL
2015 £’000
BCSPF
2015 £’000
Group DB
2015 £’000
Equity 50,264 293,334 249,987 48,540 642,125
Bonds 49,417 300,801 255,896 3,582 609,696
Cash 495 3,672 1,848 1,390 7,405
Diversified growth - - - 32,316 32,316
Property 11,093 60,417 56,330 674 128,514
111,269 658,224 564,061 86,502 1,420,056
18. Insurance policies
The legacy annuity policies relate to 39 individuals (2015: 42). The Trustees no longer purchase
annuities to meet Plan liabilities. Annuities are issued by Canada Life, Legal & General, Generali and
ReAssure. These are valued by the Plan Actuary. No collateral is held in relation to these assets.
The Trustee has determined these annuity policies are immaterial to the plan and have therefore
opted to not value the policies.
19. AVC investments - Defined Benefit Sections
Members are entitled to make additional voluntary contributions that are invested separately from the
Plan in the form of insurance policies, with-profits pension policies, and building society accounts, for
details of open AVC providers please refer to page 3. Members participating in this arrangement each
receive an annual statement made up to 5 April in each year, confirming the amounts held in their
account and the movements in the year. The aggregate amounts of AVC funds are as follows:
BCSPF
2016 £’000
Group DB 2016
£’000
Total 2016
£’000
Total 2015
£’000
Friends Life 36 771 807 892
The Equitable Life Assurance Society 389 916 1,305 1,447
425 1,687 2,112 2,339
AVC funds held with Fidelity are included in the DC Section of the Plan.
Bayer Group Pension Plan Confidential
46
Notes to the Financial Statements (continued)
20. Fair value determination
The fair value of financial instruments has been determined using the following fair value hierarchy:
Level 1: The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.
Level 2: Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.
Level 3: Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.
The Scheme’s investment assets and liabilities have been fair valued using the above hierarchy levels as follows:
As at 31 March 2016 Level 1 £’000
Level 2 £’000
Level 3 £’000
Total £’000
SHCL Section
Pooled investment vehicles - 103,387 4,109 107,496
Cash 175 - - 175
175 103,387 4,109 107,671
BCSPF Section
Pooled investment vehicles - 610,727 30,194 640,921
AVC investments - 36 389 425
Cash 749 - - 749
Other investment balances - - - -
749 610,763 30,583 642,095
Group DB Section
Pooled investment vehicles - 511,410 28,126 539,536
AVC investments - 771 916 1,687
Cash 558 - - 558
Other investment balances - - - -
558 512,181 29,042 541,781
Defined Contribution Section
Pooled investment vehicles - 91,904 - 91,904
- 91,904 - 91,904
Bayer Group Pension Plan Confidential
47
Notes to the Financial Statements (continued)
20. Fair value determination (continued)
As at 31 March 2015 Level 1 £’000
Level 2 £’000
Level 3 £’000
Total £’000
SHCL Section
Pooled investment vehicles - 107,303 3,966 111,269
Cash 296 - - 296
296 107,303 3,966 111,565
BCSPF Section
Pooled investment vehicles - 636,344 21,880 658,224
AVC investments - 46 444 490
Cash 5,732 - - 5,732
Other investment balances 152 - - 152
5,884 636,390 22,324 664,598
Group DB Section
Pooled investment vehicles - 537,944 26,117 564,061
AVC investments - 846 1,003 1,849
Cash 1,037 - - 1,037
Other investment balances 128 - - 128
1,165 538,790 27,120 567,075
Defined Contribution Section
Pooled investment vehicles - 86,502 - 86,502
- 86,502 - 86,507
21. Investment risk disclosures
When deciding how to invest the Plan’s assets, the Trustee considers a wide range of risks, including
credit risk and market risk, as defined below.
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other
party by failing to meet an obligation.
Market risk comprises currency risk, interest rate risk and other price risk, defined as follows:
Currency risk is the risk that the fair value or future cash flows of a financial asset will fluctuate
because of changes in foreign exchange rates.
Interest rate risk is the risk that the fair value or future cash flows of a financial asset will fluctuate
because of changes in market interest rates.
Bayer Group Pension Plan Confidential
48
Notes to the Financial Statements (continued)
21. Investment risk disclosures (continued)
Other price risk is the risk that the fair value or future cash flows of a financial asset will fluctuate
because of changes in market prices (other than those arising from interest rate risk or currency
risk), whether those changes are caused by factors specific to the individual financial instrument
or its issuer, or factors affecting all similar financial instruments traded in the market.
The Trustee determined the Plan’s investment strategy after taking advice from its investment adviser.
The Plan has exposure to the aforementioned risks via the investments held to implement the
investment strategy. The Trustee manages investment risks, including credit risk and market risk,
considering the Plan’s investment objectives and strategy, and the advice of its investment advisers.
Within each investment portfolio, investment objectives and restrictions to manage risk are
implemented through the legal agreements in place with the Plan’s investment managers. The Trustee
monitors the performance of the strategy and associated risks, and each investment manager against
its objectives and restrictions, on a regular basis.
Further information on these risks and the Trustee’s approach to risk management is set out below.
This does not include AVC investments, as these are not considered significant in relation to the overall
investments of the Plan. However, it does reflect the Trustee’s approach to risk management within
both the DB and DC Sections.
Credit risk
The Plan invests mostly in pooled funds and is therefore directly exposed to credit risk in relation to the
solvency of the custodians of those funds. For the DB Section, the main investment manager is Legal
and General Investment Management (“L&G”).
Direct credit risk arising from pooled funds is mitigated by the underlying assets of the pooled funds
being ring-fenced from the investment managers, the regulatory environment in which the pooled fund
managers operate and diversification of the Plan’s investments across a number of pooled funds. The
Trustee carries out due diligence checks prior to the appointment of any new investment manager or
fund, and on an on-going basis monitor for changes to the operating environment of the existing pooled
funds.
The Plan increased the concentration of its credit risk exposure when a decision was taken by the
Trustee to transfer its holding in equities from BlackRock to L&G in June 2015, which increased the
amount of assets with L&G by £571m. The Trustee carried out due diligence on the protections in place
under investment with L&G before completing this transfer. The conclusion was that the Trustee was
comfortable to make this change.
The Plan is indirectly exposed to credit risks arising from the underlying investments held by the pooled
funds, where they invest in bonds. The indirect exposure to credit risk within the DB Section arises from
the Plan’s investments in the L&G corporate bond fund. The amount invested in this mandate is shown
in the Statement of Net Assets. The DB Section also invests in government bond funds, but the Trustee
does not view these as having material credit risk.
The bond funds of both the DB and DC Sections are passively managed. Therefore, in these funds
credit risk is managed by replicating a bond index that includes a diversified exposure to bond issuers,
restricted to bonds rated A or above. As such, indirect credit risk through exposure to the underlying
investments is managed by the managers avoiding exposure to those bonds that have a high risk of
defaulting.
Bayer Group Pension Plan Confidential
49
Notes to the Financial Statements (continued)
21. Investment risk disclosures (continued)
Currency risk
As the Plan’s liabilities are denominated in Sterling, any non-Sterling currency exposure within the
assets presents additional currency risk.
Whilst the majority of the currency exposure of the Plan’s assets is to Sterling, the Plan is subject to
indirect currency risk because some of the Plan’s pooled investments are held in overseas markets.
The Trustee considers the overseas currency exposure in the context of the overall investment
strategy, and believes that the currency exposure that exists diversifies the strategy and is appropriate.
All of the Plan’s pooled funds are accessed via a Sterling share class. The Plan’s DB assets that are
invested in overseas markets are the L&G All World Equities Fund (£563.2m) and the CBRE Global
Alpha Fund (£34.8m). The DC Section assets that are exposed to indirect currency risk are the Global
Equity Fund, Emerging Markets Equity Fund and the Target Return Fund. The amount invested in each
of these funds is shown on page 22.
At the start of the year, the Trustee conducted a 50% currency hedge on the global equities held within
the DB Section. However, when these assets were switched to L&G in June 2015, the currency hedge
was increased to 100%, eliminating the currency risk associated with this portfolio.
The exposure to foreign currencies within the actively managed pooled funds (CBRE Global Alpha
Fund and Bayer Target Return Fund) will vary over time as the managers change the underlying
investments, but is not expected to be a material driver of returns over the longer term. Decisions about
the exposure to foreign currencies within these actively managed pooled funds are at the discretion of
the appointed fund managers. Foreign currency exposure within passive equity funds held by the DC
Section will vary over time according to the composition of each market index.
Interest rate risk
As the Plan invests predominantly in pooled funds, there is no direct exposure to interest rate risk. The
Plan’s assets that are invested in bond funds, totalling £597m, are subject to indirect interest rate risk.
However, for the DB Section, the interest rate exposure of the Plan’s assets hedges part of the
corresponding risks associated with the Plan’s liabilities. The net effect will be to reduce the volatility of
the funding level, and so the Trustee believes that it is appropriate to have exposures to these risks in
this manner.
Within the DB Section, the assets the Plan invests in with material exposure to changes in interest rates
are the L&G corporate bond, fixed interest gilt and index-linked gilt funds.
During the year, the Trustee agreed to put a trigger in place so that if the Plan’s funding level improves
sufficiently, it will switch assets from equity to bond portfolios. This will have the effect of increasing
interest rate risk of the Plan’s assets but also provide a higher level of matching to the corresponding
liability risk.
Within the DC Section, the investments in bond funds are intended to broadly reflect the movements in
annuity prices, so serve a similar purpose to those holdings in the DB Section.
Bayer Group Pension Plan Confidential
50
Notes to the Financial Statements (continued)
21. Investment risk disclosures (continued)
Other price risk
As the Plan invests predominantly in pooled funds, there is no direct exposure to other price risk.
The Plan’s assets are exposed indirectly to risks of market prices other than currencies and interest
rates, such as the L&G equity pooled fund holdings being subject to movements in equity prices and
the CBRE property portfolio being subject to movements in property prices and currency risk for the
CBRE Global Alpha Fund totalling £598m. For the DB Section, most of the other price risk is indirectly
within the equity pooled fund. For the DC Section, exposure to other price risk is mainly indirect through
the Target Return Fund which is a combination of diversified growth funds. The Trustee believes that
the Plan’s assets are adequately diversified between different asset classes and within each asset
class to manage this risk.
The Plan’s exposure to these risks will vary over time depending on how the manager changes the
underlying asset allocation to reflect their market views.
The table below summarises the Plan’s exposure to these risks at the end of the year:
Defined Benefit Section
Credit risk Currency risk
Interest risk
Other price risk
L&G All World Equity Index Fund (GBP hedged)
● ● ○ ●
L&G Over 15 Year Gilts Index Fund ● ○ ● ○ L&G Over 15 Year Index-Linked Gilts Fund ● ○ ● ◐ L&G Corporate Bond Over 15 Year Index Fund ● ○ ● ○ L&G Liquidity Fund ● ○ ● ●
L&G Global Real estate Equity Index Fund ● ● ○ ●
CBRE UK Osiris Property Fund ● ○ ○ ●
CBRE Global Alpha Fund ● ● ○ ●
Defined Contribution Section
Credit risk Currency risk
Interest risk
Other price risk
Bayer Global Equity Fund ● ● ○ ●
Bayer UK Equity Fund ● ○ ○ ●
Bayer Inflation Protection Fund ● ○ ● ◐ Bayer Emerging Markets Equity Fund ● ● ○ ●
Bayer Corporate Bond Fund ● ○ ● ○
Bayer Long Dated Gilt Fund ● ○ ● ○
Bayer Property Fund ● ○ ○ ●
Bayer Target Return Fund ● ● ◐ ●
Fidelity BlackRock Cash Fund ● ○ ● ○
In the above tables, the risk noted affects the asset [●] significantly [◐] partially or [○] hardly/not at all.
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Notes to the Financial Statements (continued)
22. Current assets
Defined benefit sections Defined
contribution section
2016 £’000
Total
2016 £’000
SHCL
2016 £’000
BCSPF
2016 £’000
Group DB
2016 £’000
Contributions receivable - - 29 - 29
Cash at bank 205 21,422 3,294 140 25,061
Due from other sections - - - - -
Prepaid life assurance premiums - - 80 - 80
Death in service insurance receivable - - 257 - 257
Other debtors - 1 4 - 5
205 21,423 3,664 140 25,432
Defined benefit sections Defined contribution
section 2015
£’000
Total
2015 £’000
SHCL
2015 £’000
BCSPF
2015 £’000
Group DB
2015 £’000
Contributions receivable 2 14 334 - 350
Cash at bank 184 20,555 2,797 2 23,538
Due from other sections - - 10 - 10
Prepaid life assurance premiums - - - - -
Death in service insurance receivable - - - - -
Other debtors - 2 39 - 41
186 20,571 3,180 2 23,939
The cash at bank asset under the DC section of the Plan, includes unallocated funds of £118,993
(2015: £1,650), being the portion of the fund that is not specifically allocated to members. All other
DC current assets and current liabilities are allocated to members.
Contributions receivable have subsequently been paid to the Plan by the due dates required by the
Schedules of Contributions.
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Notes to the Financial Statements (continued)
23. Current liabilities
Defined benefit sections Defined contribution
section 2016
£’000
Total
2016 £’000
SHCL
2016 £’000
BCSPF
2016 £’000
Group DB
2016 £’000
Retirement benefits 14 136 397 - 547
Death benefits - 1 257 - 258
CEPs due to HMRC 13 19 85 - 117
Accrued expenses 4 4 15 - 23
Taxation 38 316 - 21 375
Due to other sections - - - - -
69 476 754 21 1,320
Defined benefit sections Defined contribution
section 2015
£’000
Total
2015 £’000
SHCL
2015 £’000
BCSPF
2015 £’000
Group DB
2015 £’000
Retirement benefits - 149 - - 149
Death benefits - 3 2 141 146
CEPs due to HMRC 13 19 85 - 117
Accrued expenses 18 119 88 - 225
Taxation 35 310 82 - 427
Due to other sections - 10 - - 10
66 610 257 141 1,074
24. Primary Statement Comparatives
Defined benefit sections Defined contribution
section 2015
£’000
Total
2015 £’000
SHCL
2015 £’000
BCSPF
2015 £’000
Group DB
2015 £’000
Net (withdrawals)/additions
from dealings with members (2,535)
(6,885) (14,318) 8,124 (15,614)
Net returns on investments 20,236 113,742 101,806 8,566 244,350
Net increase in the Plan 17,701 106,857 87,488 16,690 228,736
Net assets of the Plan at start 93,984 577,702 482,510 69,673 1,223,869
Net assets of the Plan at end 111,685 684,559 569,998 86,363 1,452,605
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Notes to the Financial Statements (continued)
25. Related party transactions
During the year four Trustee Directors were contributing members of the Plan. Employer’s
contributions are paid by the Employer in accordance with the rules of the Plan and the
recommendations of the Actuary. At the year end there were six Trustee Directors contributing to the
Plan.
During the year two Trustee Directors were in receipt of a pension from the Plan. Benefits are paid in
accordance with the rules of the Plan. At the end of the year two Trustee Directors were in receipt of a
pension from the Plan.
Fees of £30,247 (2015: £33,058) were paid in the year to BESTrustees, by the Plan, in respect of the
Independent Trustee Director. See Note 10 (page 38) for admin expenses payable for the year.
Fees and expenses paid to the Trustee Directors, as listed on page 2, are disclosed in Note 10 (page
38).
26. Post balance sheet events
During the year, the Trustee was made aware of the Company’s intention to make certain changes to
the pension (and associated) benefits it provides to its employees from 1 June 2016. During July 2016,
the Company closed the DC Section of the Plan to future contributions and instead offered employees
the opportunity to contribute to a new Master Trust arrangement. During July 2016, as part of the
changes, the members’ Retirement Accounts in the DC Section of the Plan were transferred to the
Master Trust arrangement.
The Trustee continues to work with its advisers on the transfer following the end of the Plan year,
including taking advice where necessary. Further information will be included in next year’s report.
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Appendix 1: Summary Funding Statements SHCL Section of the Bayer Group Pension Plan
Valuation Results
The Trustee carries out an in-depth look at the Plan’s finances every three years (as a minimum). This is known
as a valuation. In years where a formal valuation is not carried out, an approximate review is carried out (which
is called an interim assessment).
This statement summarises the results of the valuation carried out as at 31 March 2014, and provides an
update to 31 March 2015.
To check the Plan’s funding position, the Actuary compares the amount needed to provide benefits due (the
technical provisions) against the assets (e.g. shares, bonds, property) it holds to pay them. If the value of the
assets is less than the value of the technical provisions, the Plan is in deficit. If the value of the assets is more
than the value of the technical provisions, the Plan is in surplus. The latest assessment of the Plan showed that,
on 31 March 2015, the funding positions of the SHCL Section, and the Plan as a whole, were as follows:
Change in the Funding Position
Although the funding position has fluctuated over the past two years, the surplus of £1m and funding level of
101% at 31 March 2015 is the same as it was at March 2013 (the date of the last Summary Funding Statement).
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Appendix 1: Summary Funding Statements (continued) SHCL Section of the Bayer Group Pension Plan (continued)
What action is being taken to tackle the deficit?
The Trustee and Bayer are required to review and agree the contributions payable to the Plan at each formal
valuation. As part of the 2014 valuation, the Trustee agreed a revised ‘Recovery Plan’ with Bayer to make up
the deficit. However, no deficit contributions are payable to the SHCL Section as there was a surplus in the
Section at the 2014 valuation.
How is this Valuation Calculated?
To establish the value of the technical provisions and, in turn the assets and contributions the Plan will need, our
Actuary (Bob Scott of Lane Clark & Peacock) has to make a number of assumptions about the future. These
include:
• Future investment returns,
• Life expectancy rates,
• Future inflation expectations, and
• The demographics of the Membership.
A full set of assumptions is set out in the statement of funding principles which is available on request.
How is the amount the plan needs worked out?
The Trustee has agreed a funding policy with Bayer which is intended to provide enough money to pay benefits
as they are due. The amount of money which Bayer pays into the SHCL Section may go up or down following
the regular valuations by the Plan’s Actuary.
So long as the Plan continues and Bayer is willing and able to pay the necessary contributions, we expect to be
able to pay benefits in full, even though we currently have a deficit.
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Appendix 1: Summary Funding Statements (continued) BCSPF Section of the Bayer Group Pension Plan (continued)
Valuation Results
The Trustee carries out an in-depth look at the Plan’s finances every three years (as a minimum). This is known
as a valuation. In years where a formal valuation is not carried out, an approximate review is carried out (which
is called an interim assessment).
This statement summarises the results of the valuation carried out as at 31 March 2014, and provides an update
to 31 March 2015.
To check the Plan’s funding position, the Actuary compares the amount needed to provide benefits due (the
technical provisions) against the assets (e.g. shares, bonds, property) it holds to pay them. If the value of the
assets is less than the value of the technical provisions, the Plan is in deficit. If the value of the assets is more
than the value of the technical provisions, the Plan is in surplus. The latest assessment of the Plan showed that,
on 31 March 2015, the funding positions of the BCSPF Section, and the Plan as a whole, were as follows:
Change in the Funding Position
Since March 2013 (the date of the last Summary Funding Statement), the deficit has reduced from £124m to
£79m. This means the funding level has improved from 82% to 90%. This reflects a positive return on the Plan’s
assets and the contributions paid by Bayer: these have more than offset the impact of falls in the returns
available on government bonds in the last year, and the corresponding increase in the technical provisions.
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Appendix 1: Summary Funding Statements (continued) BCSPF Section of the Bayer Group Pension Plan (continued)
What action is being taken to tackle the Deficit?
The Trustee and Bayer are required to review and agree the contributions payable to the Plan at each formal
valuation. As part of the 2014 valuation, the Trustee agreed a revised ‘Recovery Plan’ with Bayer to make up
the deficit. In March 2015, Bayer made a payment of £19.7m to the BCSPF Section and has committed to further
payments of £19.7m in 2016 and £11.0m each year from 2017 until 2019.
How is this Valuation calculated?
To establish the value of the technical provisions and, in turn the assets and contributions the Plan will need, our
Actuary (Bob Scott of Lane Clark & Peacock) has to make a number of assumptions about the future. These
include:
• Future investment returns,
• Life expectancy rates,
• Future inflation expectations, and
• The demographics of the Membership.
A full set of assumptions is set out in the statement of funding principles which is available on request.
How is the amount the plan needs worked out?
The Trustee has agreed a funding policy with Bayer which is intended to provide enough money to pay benefits
as they are due. The amount of money which Bayer pays into the BCSPF Section may go up or down following
the regular valuations by the Plan’s Actuary.
So long as the Plan continues and Bayer is willing and able to pay the necessary contributions, we expect to be
able to pay benefits in full, even though we currently have a deficit.
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Appendix 1: Summary Funding Statements (continued) For the Group DB Section of the Bayer Group Pension Plan (continued)
Valuation Results
The Trustee carries out an in-depth look at the Plan’s finances every three years (as a minimum). This is known
as a valuation. In years where a formal valuation is not carried out, an approximate review is carried out (which
is called an interim assessment).
This statement summarises the results of the valuation carried out as at 31 March 2014, and provides an update
to 31 March 2015.
To check the Plan’s funding position, the Actuary compares the amount needed to provide benefits due (the
technical provisions) against the assets (e.g. shares, bonds, property) it holds to pay them. If the value of the
assets is less than the value of the technical provisions, the Plan is in deficit. If the value of the assets is more
than the value of the technical provisions, the Plan is in surplus. The latest assessment of the Plan showed that,
on 31 March 2015, the funding positions of the Group DB Section, and the Plan as a whole, were as follows:
Change in the Funding Position
Since March 2013 (the date of the last Summary Funding Statement), the deficit has reduced from £52m to
£40m. This means the funding level has improved from 90% to 93%. This reflects a positive return on the Plan’s
assets and the contributions paid by Bayer: these have more than offset the impact of falls in the returns
available on government bonds in the last year, and the corresponding increase in the technical provisions.
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Appendix 1: Summary Funding Statements (continued) For the Group DB Section of the Bayer Group Pension Plan (continued)
What Action is being taken to tackle the Deficit?
The Trustee and Bayer are required to review and agree the contributions payable to the Plan at each formal
valuation.
As part of the 2014 valuation, the Trustee agreed a revised ‘Recovery Plan’ with Bayer to make up the deficit. In
March 2015, Bayer made a payment of £1.3m to the Group DB Section and has committed to further payments
of £1.3m in 2016 and £4.7m each year from 2017 until 2019.
How is this Valuation calculated?
To establish the value of the technical provisions and, in turn the assets and contributions the Plan will need, our
Actuary (Bob Scott of Lane Clark & Peacock) has to make a number of assumptions about the future. These
include:
• Future investment returns,
• Life expectancy rates,
• Future inflation expectations, and
• The demographics of the Membership.
A full set of assumptions is set out in the statement of funding principles which is available on request.
How is the amount the plan needs worked out?
The Trustee has agreed a funding policy with Bayer which is intended to provide enough money to pay benefits
as they are due. The amount of money which Bayer pays into the Group DB Section may go up or down
following the regular valuations by the Plan’s Actuary.
So long as the Plan continues and Bayer is willing and able to pay the necessary contributions, we expect to be
able to pay benefits in full, even though we currently have a deficit.
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Appendix 2: Actuary’s Certification of the Schedule of
Contributions
This certificate is provided for the purposes of Section 227(5) of the Pensions Act 2004 and Regulation
10(6) of the Occupational Pension Schemes (Scheme Funding) Regulations 2005.
Name of Scheme: Bayer Group Pension Plan - SHCL Section
Adequacy of rates of contributions
1. I certify that, in my opinion, the rate of contributions shown in this schedule of contributions are such that the
statutory funding objective can be expected to be met for the period for which the Schedule if to be in force.
Adherence to statement of funding principles
2. I hereby certify that, in my opinion, this schedule of contributions is consistent with the Statement of Funding
Principles dated 25th June 2015.
The certification of the adequacy of the rates of contributions for the purpose of securing that the statutory
funding objective can be expected to be met is not a certification of their adequacy for the purpose of
securing the Plan’s liabilities by the purchase of annuities, if the Plan were to be wound–up.
Signature: I R H Scott
Name: IRH Scott
Qualification: Fellow of the Institute of Actuaries
Date of signing: 30th June 2015
Address: Lane Clark & Peacock LLP
95 Wigmore Street
London
W1U 1DQ
In giving the above opinion I have interpreted the phrase “can be expected to continue to be met” as being
satisfied by consideration of the proposed contributions under the economic and demographic scenario implied
by the trustee’s funding assumptions as set out in their Statement of Funding Principles dated 25 th June 2015
and without any further allowance for adverse contingencies that may arise in the future. My opinion does not
necessarily hold in any other scenarios.
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Actuary’s Certification of the Schedule of Contributions (continued)
This certificate is provided for the purposes of Section 227(5) of the Pensions Act 2004 and Regulation
10(6) of the Occupational Pension Schemes (Scheme Funding) Regulations 2005.
Name of Scheme: Bayer Group Pension Plan – BCSPF Section
Adequacy of rates of contributions
I certify that, in my opinion, the rate of contributions shown in this schedule of contributions are such that the
statutory funding objective can be expected on 31 March 2014 to be met by the end of the period specified in the
recovery plan dated 25th June 2015.
Adherence to statement of funding principles
I hereby certify that, in my opinion, this schedule of contributions is consistent with the Statement of Funding
Principles dated 25th June 2015.
The certification of the adequacy of the rates of contributions for the purpose of securing that the statutory
funding objective can be expected to be met is not a certification of their adequacy for the purpose of securing
the Plan’s liabilities by the purchase of annuities, if the Plan were to be wound–up.
Signature: I R H Scott
Name: IRH Scott
Qualification: Fellow of the Institute of Actuaries
Date of signing: 30th June 2015
Address: Lane Clark & Peacock LLP
95 Wigmore Street
London
W1U 1DQ
In giving the above opinion I have interpreted the phrase “can be expected to continue to be met” as being
satisfied by consideration of the proposed contributions under the economic and demographic scenario implied
by the trustee’s funding assumptions as set out in their Statement of Funding Principles dated 25 th June 2015
and without any further allowance for adverse contingencies that may arise in the future. My opinion does not
necessarily hold in any other scenarios.
Furthermore, I have taken no account of either adverse of beneficial outcomes that have become known to me
since the effective date of the valuation. However, I have taken account of contributions that are payable to the
Section between the effective date of the valuation and the date that I have certified as documented in the
Schedule of Contributions.
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Actuary’s Certification of the Schedule of Contributions (continued)
This certificate is provided for the purposes of Section 227(5) of the Pensions Act 2004 and Regulation
10(6) of the Occupational Pension Schemes (Scheme Funding) Regulations 2005.
Name of Scheme: Bayer Group Pension Plan – Group DB Section
Adequacy of rates of contributions
I certify that, in my opinion, the rates of contributions shown in this schedule of contributions are such that the
statutory funding objective can be expected on 31 March 2014 to be met by the end of the period specified in the
recovery plan dated 25th June 2015.
Adherence to statement of funding principles
I hereby certify that, in my opinion, this schedule of contributions is consistent with the Statement of Funding
Principles dated 25th June 2015.
The certification of the adequacy of the rates of contributions for the purpose of securing that the statutory
funding objective can be expected to be met is not a certification of their adequacy for the purpose of securing
the Plan’s liabilities by the purchase of annuities, if the Plan were to be wound–up.
Signature: I R H Scott
Name: IRH Scott
Qualification: Fellow of the Institute of Actuaries
Date of signing: 30th June 2015
Address: Lane Clark & Peacock LLP
95 Wigmore Street
London
W1U 1DQ
In giving the above opinion I have interpreted the phrase “can be expected to continue to be met” as being
satisfied by consideration of the proposed contributions under the economic and demographic scenario implied
by the trustee’s funding assumptions as set out in their Statement of Funding Principles dated 25th June 2015
and without any further allowance for adverse contingencies that may arise in the future. My opinion does not
necessarily hold in any other scenarios.
Furthermore, I have taken no account of either adverse of beneficial outcomes that have become known to me
since the effective date of the valuation. However, I have taken account of contributions that are payable to the
Section between the effective date of the valuation and the date that I have certified as documented in the
Schedule of Contributions.
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Appendix 3: DC Section Statement of Investment Principles
1. Introduction
The Silver Birch Trustee Limited (“the Trustee”) of the Bayer Group Pension Plan (the ‘Plan’) has adopted
this Statement of Investment Principles (the ‘Statement’) in order to fulfil its obligations under the
Pensions Act 1995 as amended by the Pensions Act 2004 (“the Act”). The Plan consists of the following
four sections:
Group DB Section
SHCL Section
BCSPF Section
DC Section
This document deals solely with the DC Section.
Under the current arrangements the assets of each section are ring fenced to reflect the fact that liabilities
of each underlying section are different in nature.
The Trustee has sole responsibility for decisions regarding the Plan’s investment arrangements. The
Trustee’s investment responsibilities are governed by the Plan’s Trust Deed, of which this Statement
takes full regard.
Investments in the DC section of the Plan are administered and delivered via an Investment Platform
currently hosted by Fidelity.
The Trustee has consulted with Bayer Plc (“the Company”) in its capacity as the Sponsoring
Employer, regarding the investment policy set out in this document.
In establishing the DC Sections’ investment arrangements, the Trustee has:
had regard to the requirements of the Act, in particular those concerning diversification and suitability
of investments; and
sought advice from the Investment Consultant.
In preparing this Statement, the Trustee has:
complied with the requirements of the Act regarding the content of Statements of Investment
Principles;
incorporated (where applicable) the recommendations in the Myners Review regarding the content of
Statements of Investment Principles; and
received written advice from the Investment Consultant, who the Trustee believe to be suitably qualified
and experienced to provide such advice. The advice takes into account the suitability of investments
and the need for diversification, given the circumstances of the Plan and the principles contained in this
SIP.
In accordance with the Financial Services and Markets Act 2000, the Trustee will set general investment
policy, but will delegate the responsibility for selection of specific investments to an appointed investment
manager or managers. The investment manager(s) shall provide the skill and expertise necessary to
manage the investments of the DC Section competently.
Copies of this document have been given to the Company, the Investment Consultant and the Investment
Managers. Copies are available to members of the Plan on request.
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Appendix 2: DC Section Statement of Investment Principles (continued)
1. Introduction (continued)
The Trustee has considered and agrees with the Institutional Shareholders Committee Statement of
Principles on the responsibility of shareholders but the application of the Principles are at the discretion of
the investment manager with the aim to adhere to the best possible financial return for the DC Section.
The Trustee will obtain advice on retained investments (eg pooled funds) of the DC Section from the
Investment consultant.
The Trustee will, from time to time, review the appropriateness of this SIP with the help of its advisers, and
will amend the SIP as appropriate. These reviews will take place as soon as practicable after any
significant change in investment policy, and at least once every three years.
2. Governance
The Trustee has ultimate responsibility for decision-making on investment matters. In order to ensure that
investment decisions are taken only by persons or organisations with the skills, information and
resources necessary to take them effectively, the Trustee delegates some of these responsibilities.
Responsibility for all day-to-day investment decisions is delegated to the Investment Managers. The
Trustee retain direct responsibility for other investment matters including:
establishing appropriate governance arrangements;
determining the DC Section’s investment objectives and strategy;
determining the DC Section’s investment options and any asset allocation benchmarks required in those
options;
reviewing the content of this Statement of Investment Principles and modifying it if deemed
appropriate, in consultation with the Investment Consultant and the Company; and
reviewing investment policy in light of advice received from the investment consultant and/or the
DC subcommittee.
A list of the Trustee’s current advisers and Investment Managers etc is provided in Appendix A. A
summary of the responsibilities of the Investment Consultant, Investment Managers, Platform Provider and
Administrator is provided in Appendix B.
DC Sub Committee (“DCSC”)
The Trustee of the Plan has appointed a DC Sub-Committee (“DCSC”). The responsibilities of the DCSC
are set out in the DCSC’s Terms of Reference, which, in regard to investment, are summarised below:
determining the DC Section’s investment management structure according to the investment options
and strategies set by the Trustee;
determining the mandates for the DC Section’s investment managers;
appointing (and dismissing) investment managers, platform provider, administrators and
consultants; and
monitoring the DC Section’s investment arrangements on a regular basis.
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Appendix 2: DC Section Statement of Investment Principles (continued)
3. Investment objectives of the DC Section
Introduction
The Trustee recognises that different investment policies are appropriate in respect of Defined Benefit
and Defined Contribution entitlements.
Objectives of the Defined Contribution Section
The Trustee’s investment objectives are as follows:
the provision of a range of self-select investment funds to accommodate the needs of different
members. The Trustee is satisfied that the investment options available are wide enough to satisfy
the reasonable return and risk combinations appropriate for most members. The objective of each self-
select investment funds are set out in the Funds’ Investment Policy in Appendix C.
the provision of lifestyle strategies for members who do not wish to make their own investment
decisions.
The Trustee has set the following investment objectives for the Growth phase of the lifestyle strategies:
To aim to achieve growth in excess of price inflation over the long term.
To aim to provide long-term equity-like growth but with less fluctuations that global equity markets.
The Trustee has set the following investment objectives for the De-risking phase of the lifestyle strategies:
To aim to provide some protection from falling capital values.
To aim to provide some alignment with movements in annuity rates.
To aim to provide some protection from price inflation.
AVCs
The Plan provides a facility for a closed group of members to pay AVCs into the Plan to enhance the
benefits at retirement. The AVC’s are invested on a DC basis. In keeping with their policy for the main
Plan, the Trustee policy is to seek to achieve the objective through investing in a suitable mixture of real
and monetary assets.
4. Manager structure and investment strategy
The Trustee has considered the use of both passive and active investment management when developing
and reviewing the DC Section’s strategy. The resultant allocation to active and passive management
is formed following consideration of the efficiency, liquidity and level of transactions costs likely to prevail
within each market as well as the impact of the investment manager fees on future expected returns net of
fees.
The Defined Contribution Section currently provides a range of funds through Fidelity, a platform provider
who also provides the Plan’s administration. The Trustee contracts with Fidelity via an insurance policy.
The expectation is that the Investment Managers should achieve their objectives in the majority of three
year periods under consideration. The managers should demonstrate that the skill they exercise in
managing the portfolio and the process they follow are both consistent with these objectives given the
level of risk adopted.
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Appendix 2: DC Section Statement of Investment Principles (continued)
4. Manager structure and investment strategy (continued)
The Investment Managers also notify the Trustee in advance of any new investment categories in which
they are proposing to invest.
The investment managers have discretion over the timing of realisation of investments of the Plan and in
considerations relating to the liquidity of investments. When appropriate, the Trustee, on the administrators’
recommendation, decides on the amount of cash required for benefit payments and other outgoings and
informs the investment manager of any liquidity requirements.
The Investment Managers are paid a fee for their services. For all the managers, the fee is paid on the
basis of assets under management.
The Trustee, with the help of its advisers and in consultation with the employer, undertake a review of
investment strategy from time to time, particularly after any changes significant to the Plan, taking into
account the objectives described in Section 3 above.
In setting the strategy, the Trustee considered:
The suitability of the offering for the membership;
a wide range of asset classes;
the risks and rewards of different strategies;
the suitability of each asset class within each strategy, both across asset classes and within asset
classes;
the need for appropriate diversification between different asset classes; and
the views of the sponsoring employer.
The Trustee currently offers three lifestyle strategies: these strategies switch from growth assets to lower
risk assets over periods of five, ten and fifteen years before the member’s target retirement age. The ten
year lifestyle strategy is the default investment strategy for members who do not wish to make an
investment choice.
The Trustee is satisfied that the investment options available are of appropriate liquidity and diversification
to be reasonably expected to generate income and capital growth that, together with new contributions from
members and the Company, will provide a fund at retirement from which members can draw their benefits.
5. Other matters
Social, environmental and ethical issues
The Trustee has delegated responsibility for the selection, retention and realisation of investments to the
Investment Managers. The Trustee’s policy is that the extent to which social, environmental or ethical
considerations are taken into account in these decisions is left to the discretion of the Investment
Managers.
The Trustee expects that the extent to which social, environmental or ethical issues may have a
financial impact on the portfolio will be taken into account by the Investment Managers in the exercise of
their delegated duties. It is not, however, expected that the passive Investment Manager employed by
the DC Section will take such matters into account.
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Appendix 2: DC Section Statement of Investment Principles (continued)
5. Other matters
Rights attaching to investments
The Trustee’s policy is to delegate responsibility for the exercising of rights (including voting rights)
attaching to investments to the Investment Managers.
The Trustee is satisfied that the Investment Managers have an explicit strategy elucidating the
circumstances in which they will intervene in a company, the approach they will use in doing so and how
they will measure the effectiveness of this strategy.
6. Monitoring
The Trustee recognises the importance of monitoring the DC Section’s investment arrangements. The
Trustee therefore:
reviews the investment policy for the DC Section following significant changes to the DC sections (for
example changes to the contribution structure) or any significant changes to the membership of the Plan;
assesses the quality of the performance and processes of the Investment Managers and platform
provider by reviewing the investment results and other information;
monitors the DC Section’s custodial arrangements;
monitors compliance of the investment arrangements with this Statement;
reviews this Statement at least tri-annually; and
consults with the Company before amending this Statement.
The Trustee has agreed performance objectives with each manager, and timescales over which these
are measured. These are detailed in Appendix C.
The Trustee, following advice from the Investment Consultant, has identified the criteria by which managers
should be selected (or de-selected). These include (in no specific order of importance):
Past performance: acceptable variability in relation to Investment Manager’s style.
Business:
• supportive ownership from a parent committed to investment management.
• evidence of clear strategic direction.
People:
• high calibre, experienced professionals.
• relatively low staff turnover.
• evidence of clear commitment to house culture.
• strong recruitment/training plans.
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Appendix 2: DC Section Statement of Investment Principles (continued)
6. Monitoring (continued)
Process:
• effective approach to accessing/interpreting research.
• robust, repeatable process.
• process consistent with the stated philosophy.
Role suitability:
• level of fees.
• reputation of the manager.
• familiarity with the mandate.
• internal objectives and restrictions of any pooled funds
Services:
• reporting.
• administration.
The Trustee employs an independent agency (Fidelity) to measure the Investment Managers’
performance against these objectives. They provide a quarterly review of the investment performance of
the DC Section’s Investment Managers.
7. Risk management
The Trustee recognises a number of risks involved in the investment of the assets of the DC Section:
Solvency risk and mismatching risk –
• are measured through a qualitative and quantitative assessment of the expected development of
the assets relative to the amount of pension a member could reasonability expect to receive under
current and alternative investment policies. Addressed for the DC Section through the choice of the
benchmark and asset classes set out in appendix C
• are managed through assessing the progress of the actual growth of the assets relative to annuity
prices under current and alternative investment policies
Manager risk –
• is measured by the expected deviation of the prospective risk and return, as set out in the
manager’s objectives, relative to the investment policy
• is managed through the diversification of the DC Section’s assets between active and passive
managers, the performance objectives set out in Appendix C, the ongoing monitoring of the
managers and the negotiation of suitable Investment Management Agreements as well as a
number of qualitative factors supporting the manager’s investment process.
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Appendix 2: DC Section Statement of Investment Principles (continued)
7. Risk management
Investment risk close to retirement –
• is measured by the level of investment value stability required by the member in the period prior to
purchasing an annuity and the liquidity of investment classes during the same period
• is managed by the use of Lifestyle investment strategies and member education for those using the
self select investment option.
Political risk –
• is measured by the level of concentration of any one market leading to the risk of an adverse
influence on investment values arising from political intervention
• is managed by regular reviews of the actual investments relative to policy and through regular
assessment of the levels of diversification within the existing policy.
Custodial risk –
• is measured by assessing the credit-worthiness of the investment managers and platform
administrator and the ability of these organisations to settle trades on time and provide secure
safekeeping of the assets under custody
• is managed by monitoring the platform administrator’s activities and discussing the performance of
the Platform Administrator with the investment managers when appropriate. In addition, restrictions
are applied as to who can authorise transfers of cash and the accounts to which transfers can be
made.
Cash risk – addressed for the DC Section through the guidelines with the managers with respect
to the managers’ policy on diversification of cash deposits.
Inappropriate investments – constraints on derivatives, stock-lending, gearing specific assets, and
illiquid assets ensure that the funds are not overly exposed to a single investment management style.
Currency risk
• is measured by the level of overseas investment and the translation effect of currencies leading to
the risk of an adverse influence on investment values.
Sponsor/Employer risk
• is measured by the level of ability and willingness of the Company to support the continuation of
employer contributions.
• is managed by assessing the interaction between the DC Section and the Company’s business, as
measured by the number of factors, including the creditworthiness of the Company.
Inflation risk –
• is the risk that assets does not provide a return at least in line with inflation, such that purchasing
power is not maintained. This is managed through the Lifestyle strategy and is also a matter for
members to consider when purchasing an annuity at retirement.
• is managed by strategy modelling in consultation with the Investment Consultant.
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Appendix 2: DC Section Statement of Investment Principles (continued)
7. Risk management
The Trustee/DCSC continues to monitor these risks and any other risks that may arise with the assistance
of the Investment Consultant. It may add to this list any new significant risk categories.
These measures do not render the investment policy free of risk. Rather, the measures endeavour to
balance the need for risk management and the need to allow the Investment Managers sufficient flexibility
to manage the assets in such a way as to achieve the required performance target.
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Current Advisers and Investment Managers Appendix A
Investment Consultant: Lane Clark & Peacock LLP
Investment Managers: See Appendix C
Investment Platform Provider: Fidelity
Administrator: Fidelity
Solicitors: CMS Casmeron McKenna
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Division of Responsibilities Appendix B
Investment Managers
The Investment Managers’ principal responsibilities are:
At their discretion, but within any guidelines given by the Trustee, implementing changes in the asset mix,
selecting securities and buying and selling investments.
Informing the Trustee of any changes in the internal performance objective and guidelines of any pooled
fund used by the DC Section as soon as practicable.
Having regard to the need for diversification of investments and to thesuitability of investments.
Giving effect to the principles contained in the Statement.
Platform provider and Administrator
The Platform Administrator’s responsibilities include:
Ensuring the manager’s safekeeping of assets.
Processing the settlement of transactions and investment changes.
Providing the Trustee with statements of the assets and the cashflows.
Undertaking all appropriate administration of the investment funds.
Provision of an investment platform.
Provision of a platform whereby members can check the performance of their individual portfolio against
target.
Provision of a help desk facility.
Dealing with corporate actions.
Providing a quarterly review of investment performance of the Investment Managers.
Investment consultant
The Investment Consultant’s principal responsibilities are:
Participating with the Trustee in tri-annual reviews of this Statement of Investment Policy in consultation
with the Scheme Actuary.
Provision of performance measurement services in conjunction with the performance measurer.
Undertaking project work as required including reviews of investment policy and investment managers.
Advising on the termination of incumbent managers and the selection of new managers.
Advising the Trustee on retained investments of the DC Section (eg pooled funds).
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Division of Responsibilities (continued)
Members
The Members’s responsibilities with regard to investment are:
Selection of which lifestyle strategy or self select option they wish to adopt.
Monitoring Investment Performance (i.e. through Fidelity’s plan viewer) against personal investment return
targets.
Self Selection of their Investment Strategy on the Investment Platform.
Deciding on the level of personal contribution and planned retirement age.
At retirement using the pot accumulated in the Plan to provide income in retirement.
Informing the Administrator of any changes in personal details.
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Investment Manager Arrangements Appendix C
Defined Contributions Section
Self Select Options
The following self select funds are available to members:
Fund Name Underlying Fund(s) Investment Policy
Bayer Target
Return Fund
50% Standard Life
GARS Fund and 50%
Newton Real Return
Fund
The underlying funds invest in a wide range of assets classes including
equities, bonds, commodities, cash and derivatives. Based on the underlying
funds’ objectives, the fund broadly aims to achieve a return of 4% pa over
cash (as measured by 1 month LIBOR) over rolling 5 year periods.
Bayer Global Equity
Fund
BlackRock Global
Equity 50/50 Fund
The fund invests 50% in UK equities and 50% in overseas equities. The
overseas equities are split equally between the US, Europe (ex UK), and the
Far East. The Fund aims to achieve a return consisted with a weighted
combination of the relevant FTSE World Indices.
Bayer UK Equity
Fund
BlackRock UK Equity
Index Fund
The fund invests in UK equity and aims to achieve returns in-line with FTSE
All-Share Index
Bayer Emerging
Markets Fund
BlackRock Emerging
Market Equity Index
Fund
The fund invests in the equities of emerging market economies. It aims to
track the MSCI Global Emerging Market Index.
Bayer Property Fund Threadneedle
Property Fund
The fund invests primarily in UK property, including retail and office buildings,
and industrial property. The fund aims to achieve returns that are 1-1.5% or
more above those of the average property fund as calculated by
Russell/Mellon CAPS over rolling three-year periods.
Bayer Corporate
Bond Fund
BlackRock Corporate
Bond Index Fund All
Stocks
This fund invests in investment grade corporate bonds denominated in
sterling. The fund aims to achieve a return consistent with the iBoxx £ Non-
Gilts Index. This index covers the broad spectrum of investment grade
corporate bonds in issue.
Bayer Long Dated
Gilt Fund
BlackRock Over 15
Years UK Gilt Index
Fund
The fund invests in fixed interest gilts with more than 15 years to maturity.
The fund aims to achieve a return consistent with the FTSE UK Gilts Over 15
years Index.
Bayer Inflation
Protection Fund
BlackRock Over 5
Years Index Linked
Gilt Index Fund
The fund invests in index-linked gilts with more than 5 years to maturity. The
fund aims to achieve a return consistent with the FTSE UK Gilts Index-Linked
Over 5 Years Index.
Fidelity BlackRock
Cash Fund
BlackRock Cash
Fund
The fund aims to achieve returns in line with the 7day LIBID by investing in a
diversified portfolio of money market instruments.
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Investment Manager Arrangements (continued)
Defined Contributions Section (continued)
Lifestyle Strategies
The three “Lifestyle” strategies have switching periods of five, ten and fifteen years respectively.
The key features of the Lifestyle strategies are:
In the Growth phase, the assets are invested in 50% in Bayer Target Return Fund, 5% in the Bayer
Emerging market equity Fund and 45% in the Bayer Global Equity Fund (50/50).
In the De-risking phase (that is the switching period leading up to the member’s selected retirement age),
the assets are switched into bonds (split between inflation linked gilts (Bayer Inflation Protection Fund),
corporate bonds (Bayer Corporate Bond Fund) and fixed interest gilts (Bayer Long Dated Gilt Fund)), and
cash (BlackRock (formerly BGI) Cash Fund).
The 10 year Lifestyle is the default strategy.