YOUR PENSION TEAM
Clockwise from top left:
Eddie Noone
Lisa Whittingham
Nicola Worth
Marguerite Taylor
Janet O'Neill
Sharon Wale
Sue Treen
Jackie Arnold
Pam Richards
Steve Eeles
Paul Jones
Michelle Tandy
2
CONTENTS
Welcome from the Trustee Chairman 3
Looking after your interests 4
Membership profile 4
Pensions Simplification 5
Focus on finances 6
Annual scheme audit 6
Where the money is invested 7
How times change – past 8
How times change – future 10
Pension increases 10
Careless talk costs £££s 11
Useful contacts for pensioners 11
Keep us informed 11
Hot off the press 11
Summary funding statement 12
State your claim 14
A new way forward for UK pensions 14
Company news 15
Pensions ‘life raft’ now in place 15
Smiths Pensions – Contacts
For queries about pension payments, or general enquiries about theScheme or your own benefits, please use the contacts set out below.
Pension Payments: 0121 616 3128
0121 616 3129
Email: [email protected]@smithspensions.co.uk
Other pension queries: 0121 632 6483
Email: [email protected]@smithspensions.co.uk
You can also write to Smiths Pensions Ltd. at:
15th Floor, No 1 Hagley Road, Edgbaston, Birmingham B16 8TG
Welcome to the 2006 edition of
Pensions Review, which
provides information about
the TI Group Pension Scheme and
news of recent developments in the
world of pensions.
Francis Shaw Merger
I would particularly like to welcome
members of the Francis Shaw &
Company (Manchester) Limited
Pension Scheme who became
members of the TI Scheme on
29 July 2005. There are more details
in ‘Merger News’ below.
Accounts
A summary of the Scheme accounts
for 2006 can be found on page 6, with
an update on the Scheme’s
investments on page 7.
Scheme Funding
The Scheme Actuary is preparing a
full valuation of the Scheme’s
finances as they stood on 5 April
2006, and will present the results
later this year. This is the first
valuation under new scheme-specific
funding regulations introduced by the
Pensions Act 2004. The valuation
results will feature in next year’s
Pensions Review.
Pensions Simplification
Pensions received a great deal of
coverage in the media this year,
especially A-Day, or ‘Pensions
Simplification’, which took place on
6 April 2006. On page 5, we have set
out the main effects of the
simplification changes, which should
allow many members greater
flexibility in how they arrange their
pensions.
White Paper
In May 2006, the Government
published a White Paper: ‘Security in
retirement: towards a new pensions
system’, which sets out proposals for
the future structure of State,
occupational and personal pensions.
The proposals are outlined on page
14 and we will keep you updated on
their progress in future editions of
Pensions Review.
We hope that you find this Pensions
Review useful and as always we
welcome any comments on the
contents, or suggestions for future
editions.
Welcome from the Trustee Chairman
John
Edwards
Trustee
Chairman
“
”
A-Day, or ‘Pensions Simplification’, took place on 6 April 2006
3
In 2005, the Trustee board agreedto merge the Francis Shaw &Company (Manchester) LimitedPension Scheme with the TIScheme. The merger took effectfrom 29 July 2005.
Francis Shaw members’ benefitsremain unchanged after themerger. However the benefits arenow administered by SmithsPensions.
Merger News
Your Trustee board
TI Pension Trustee Limited is the
Trustee Company set up to govern
the running of the Scheme and has
ten Directors:
• 5 Directors are appointed by
Smiths, who are also members of
the Scheme
• 4 Directors are selected from the
Scheme’s membership (one of
whom may be a Scheme
pensioner) and
• 1 is an Independent Director.
The current Trustee Directors are:
Guy Norris
John Crosby
Neil Parkin
James Roe – Pensioner Director
Antony Macwhinnie –
Independent Director (Law
Debenture*)
Chris Surch
Keir Dhillon – Member Director
John Edwards – Chairman
Philip Barclay – Member
Director
Colin Jump – Member Director
*Law Debenture is a specialist
Trustee Company. Antony
Macwhinnie has been nominated as
their representative on the TI
Trustee board.
All Trustee Directors receive training
and support to help them carry out
their duties. They are jointly
responsible for ensuring that the
Scheme is managed in accordance
with the law, in the best interests of
its members and beneficiaries and in
accordance with its governing
documents – the Trust Deed and
Rules. The Trustee board meets
regularly throughout the year.
10
9
8
7
6
5
4
3
2
1
MEMBERSHIP
PROFILE
5 April 2005 5 April 2006
2005 2006
� Contributing
members 1,470 1,475
� Deferred
members 19,102 17,793
� Pensioners 22,099 21,606
Total 42,671 40,874
Looking after your interests
Trustee board – responsible
for running the Scheme
National Pensions Forum –
representing the members
4
8 9
21
710
3 4
6
5
The National Pensions Forum (NPF) is
a consultative body set up to allow
member representatives to have their
say on the operation of the UK
pension schemes run by Smiths, and
to allow Smiths to inform the
representatives about current issues
and developments concerning its UK
pension schemes.
The NPF consists of:
• Employee representatives
nominated by Local Pensions
Committees (LPCs)
• Pensioner representatives
• Company Representatives
• A full-time trade union officer
from Amicus.
If you would like your views to be
passed on to the Company, contact
details for your LPC representative
are available from your local HR
department or the Smiths Pensions
website www.smithspensions.co.uk
If you are a pensioner, you may contact
the pensioner representatives, Peter
Whitehead or Richard Willcox, via
Smiths Pensions Limited (see page
2), or by email to
[email protected] state which representative
you wish to contact.
The National Pensions Forum
Key ‘simplification’
changes
• New tax regime for pensions
• Minimum retirement age to
increase to 55 in 2010
• Maximum tax-free cash at
retirement now 25% of the
value of the pension
• Lifetime Allowance of
£1.5million introduced
• Active members can pay more
contributions to the Scheme
On 6 April 2006 (‘A-Day’), the
Government changed the UK
pension tax regime. HM
Revenue & Customs called these
changes ‘Pensions Tax Simplification’
– a title which appears a little
hopeful given the complexity of
some of the new rules!
Some of the major changes are
outlined in more detail here. If
you have any queries about how
the changes will affect your
benefits, please contact
Smiths Pensions using the
contact details on page 2.
Tax-free cash
When members take
their pensions from the
Scheme, they can
normally exchange some
of their pension for a
tax-free cash sum. Since
6 April 2006, members
can take up to broadly
25% of the value of their
pension as cash. The
new regime also allows
protection for the few
members who would
have been entitled to
a larger cash sum as at 5 April 2006,
so that the ability to take that cash
sum exists.
From 6 April 2006, members may be
able to take all of their Additional
Voluntary Contribution (AVC) fund as
cash at retirement, as long as the
total amount of cash taken is within
the new limits.
The earliest age you can
retire
Members may currently take a
pension from age 50, subject to
the consent of their employer and,
where required, the Scheme’s
Trustee. From 6 April 2010,
members will not be able to take
their pension before they reach
age 55. However members who
satisfy the criteria for an ill-
health pension can retire at
any age.
Certain deferred
members on standard
Dowty Section terms may
still be able to take their
pension from age 50
(provided other
conditions allow this).
This is permitted under
the legislation as
there was an
exception made for
cases where a
member could take
early retirement
without the need for
the consent of
another party (such
as the Trustee or
company).
New allowances
HM Revenue & Customs has
introduced an allowance for the total
pension savings an individual can
have before special tax charges apply.
This ‘Lifetime Allowance’ has
initially been set at £1.5 million and
will increase over time. Due to the
size of the allowance, very few
people will exceed it. While it will be
possible for individuals to build up
higher pension benefits, a special
tax charge will apply to the excess
over the Lifetime Allowance. When
Scheme benefits come into
payment, you will be asked to
confirm whether the value of your
benefits (from all pension schemes)
exceeds the Lifetime Allowance.
The new regulations also introduced
an ‘Annual Allowance’, initially set at
£215,000. If over the course of a
year, the value of your pension
arrangements increases by more
than the Annual Allowance, a tax
charge will apply on the excess. The
Annual Allowance is measured over
the Pension Input Period, which, for
your Scheme benefits, ends each
year on the effective date of the
benefit statements issued by the
Scheme.
TI Scheme
contributions
From 6 April 2006, contributing
members can pay as much of their
Smiths earnings into the Scheme as
they wish and receive tax relief on
the contributions up to the level of
the Annual Allowance. Any
contributions, above the normal
member contribution or ‘pension
adjustment’ for salary sacrifice
members, will count as Additional
Voluntary Contributions (AVCs).
However, contributing members
should note that as AVCs are
deducted from payroll, the level of
AVCs deducted must leave enough
pay to cover National Insurance
deductions, any tax due on benefits-
in-kind and any other deductions
due from pay.
Pensions Simplification
Pensions Simplification will mainly affect members who
have not yet retired. But it may also be of interest to
pensioners, particularly those who have benefits in other
schemes that they have yet to take.
5
You can find more details about the new pensions tax
regime on the HM Revenue & Customs website
http://www.hmrc.gov.uk/manuals/rpsmmanual/
rpsm00200000.htm
FUND ACCOUNT
£m £m
Fund at 5 April 2005 1,264.6
Expenditure
Retirement benefits (62.3)
Death and leaver benefits (2.2)
Other outgoings* (3.2)
(67.7)
Income
Contributions 9.3
Transfers in 3.5
Other income 0.5
13.3
Return on investments
Investment income 32.8
Change in market value 174.3
Investment management fees (2.3)
204.8
Increase in value of the
Fund over the year 150.4
Fund at 5 April 2005 1,264.6
Fund at 5 April 2006 1,415.0
*Includes administration and professional fees and the PPF levy
Focus on finances
Annual scheme audit
PricewaterhouseCoopers LLP has
audited the Scheme’s accounts for
the year to 5 April 2006 and
confirmed that these give a true and
fair view of the Scheme’s financial
transactions.
The auditor has also confirmed that,
with the exception below, the
Company paid contributions to the
Scheme in the year to 5 April 2006 in
line with the Schedule of
Contributions, as certified by the
Scheme Actuary.
During the year, an instruction for
payment of contributions was lost in
the post. While this error was
identified and rectified quickly, it
resulted in a late payment of Scheme
contributions. The Company has now
changed the way in which
contributions are paid to the
Scheme, to ensure that this incident
is not repeated.
NET ASSETS STATEMENTInvestments £m £m
Fixed interest securities 286.3
Index-linked securities 432.0
Equities 638.0
Managed funds 2.3
Cash deposits/investment
debtors 55.7
1,414.3
Designated assets
(AVC etc) 2.6
Current assets 0.4
Current liabilities (2.3)
0.7
Fund at 5 April 2006 1,415.0
Investment
performance of the
Scheme’s assets for
the last 3 years
U P D A T E . . . H E A D L I N E S . . . N E W S . . . R E P O R T
6
Year Investment Benchmarkending return return5 April 2006 16.4% 16.8%5 April 2005 7.5% 8.0%5 April 2004 13.5% 13.7%
Income
£13m
Return oninvestment
£205m
Expenditure
£68m
FUND AT5.4.05
£1265m
£1415m
FUND AT5.4.06
� Index-linked gilts 31%
� UK equities 27%
� Fixed-interest bonds 20%
� Overseas equities 18%
� Cash and other assets 4%
Total 100%
HOW THE ASSETS ARE SPLIT
This chart shows the distribution of investments at 5 April 2006.
Where the money is invested
This section of the Review looks
at how the Scheme’s assets are
invested and pages 12 and 13
give further details of the Scheme’s
funding position.
The Scheme’s assets are split into 2
portfolios – ‘matched’ and ‘unmatched’.
Matched portfolio
The value of the matched portfolio is
approximately equal to the estimated
value of all the benefits that will be
paid out in respect of members who
have already retired – this represents
roughly 60% of the Scheme’s assets.
The matched portfolio invests in
Government securities, company
bonds and cash. The Trustee board
has appointed Merrill Lynch
Investment Managers to invest the
matched portfolio.
What are government
securities and company
bonds?
Government securities and company
bonds are issued by governments
and companies in order to raise
money.
When someone buys government
securities or company bonds, they
are lending money to a government
or company, which in turn
undertakes to pay interest at regular
intervals and to repay the loan at a
later date.
Unmatched portfolio
The unmatched portfolio uses the
balance of the Scheme’s assets to
invest in equities and cash. At
present the unmatched portfolio
represents approximately 40% of the
total fund.
What are equities?
Equities are shares in a company,
which are bought and sold on a stock
exchange. Owners of the shares are
entitled to receive a share of the
company’s profits, which are paid out
as dividends.
The Trustee board has appointed
5 investment managers for the
unmatched portfolio.
What is the difference
between an active
manager and a passive
manager?
An active manager chooses
individual equities it thinks will
perform better than other equities. A
passive (or index-tracking) manager
buys equities that mirror the
performance of a particular sector or
area as a whole (as measured by a
particular index).
T . . . M O V E M E N T . . . S T O C K S . . . I N V E S T M E N T
Manager
Schroder Investment Management
Barclays Global Investors
Brandes
Capital International
Jupiter Asset Management
Invests in . . .
Far East Equities
Global equities
European equities
Global Equities
UK Equities
Type of Manager
Active
Passive
Active
Active
Active
7
How times change – past
8
A look back at how the role of women at work was v
In 1942, life in Britain was
dominated by the events
of World War II. In July of
that year, the Germans
made aeronautical history
by test flying the
Messerschmitt ME-262, the
first operational jet-engined
fighter plane. Then in
August, Winston Churchill
made a secret trip to North
Africa, to assess the Eighth
Army’s struggle against
Rommel’s Afrika Korps.
Britain’s factories were fully
involved with supplying
whatever was needed to
help the war effort, which
meant that work was
plentiful but the men to do it
were scarce after
conscription was introduced
in October 1939. Women
stepped into the gap and
were employed to continue
production. Many also came
over from Ireland to gain
steady work and send
money home.
During July and August
1942, Tube Investments (TI)
in Birmingham (who merged
with Smiths almost 60 years
later in 2000), received 2
visitors from Mass-
Observation, a social
research organisation
founded in 1937 with the
aim of studying the everyday
lives of ordinary people in
Britain. One investigator
went into the offices and
another into the TI factory
for 2 months. The
investigators were incognito,
and got their information
from chatting informally to
the female workers. This
information is now stored at
the Mass Observation
Archive, University of
Sussex, and is a prime
source of material for
research into the war
years (see
www.massobs.org.uk).
Visitors to the archive are
welcome.
Work in the factory
Women were employed in
all areas of the factory, often
in exhausting work. In the
assembly section, they had
to lever 25-foot long tubes of
steel into position at a pace
set by a male co-worker
(who was on piecework
rates – so he was not going
to hang around!). The end of
the day often saw women
collapsing onto the
cloakroom floor, too tired
even to clean up before
going home. Not all jobs
were quite so tiring – girls
working in the machine
shop were said to be ‘fresh’
and ‘untired’ when their
working day ended.
After the first week, a
combination of the heavy
work, and sleep interrupted
by night bombing, meant
that many new workers
were tired and dispirited.
But most quickly settled
down and enjoyed the work.
Many believed it to be good
for their health although
some concerns were
recorded.
‘Casablanca’ had a limited
premiere in 1942 and its
worldwide release in 1943.
19421942
9
viewed in 1942The factory girls seemed to
enjoy the atmosphere and
companionship of work, as
well as the sense of
importance of their job. The
attention of the men who
would fuss around them,
believing the work to be too
hard for women, was also
commented on favourably.
Pay and benefits
There were no itemised
payslips in 1942! Most of the
women had no idea how
their pay packet was made
up and there was often
discontent as to what
proportions were wages,
overtime and bonuses. The
food provided at the factory
raised some eyebrows –
despite rationing. Much of
the food served in the
canteen was left on the
plates – particularly the
badly cooked potatoes and
the Friday fish! However,
then, as now, puddings were
always well received.
Bombing
Birmingham was the second
most heavily bombed city in
the country, but the workers
seemed to take this danger
with a ‘stiff upper lip’
attitude, their main
complaint being loss of
sleep. One greatly
appreciated gesture was the
allocation of the house of a
TI Director in Edgbaston for
use by any worker ‘bombed
out’ of their home – the
women realised that not all
employers provided this
facility.
War effort
The part that women were
playing in Britain’s war
effort was emphasised to
the female factory workers
in a speech made by the
Lord Mayor of Birmingham,
in which he declared that
‘Factory dungarees and
overalls were as much a
uniform as any in the
services.’
Smiths in the war
Of course Smiths was also
doing its bit for the war
effort. In fact, we have a site
at Bishop’s Cleeve near
Cheltenham because
Smiths was asked to set up
a new factory for war
production, well away from
London and the danger of
bombing.
Smiths’ instruments were
fitted to many legendary
aircraft such as the
Lancaster, Whitley and
Wellington bombers.
How times change – future
Website
Last year, Smiths Pensions launched
the secure area on the Smiths
Pensions website called ‘My
Pension’. This area allows active
members to perform a number of
online calculations, such as AVC
estimates and retirement forecasts.
Deferred members can obtain details
of their deferred pension.
To register for this facility, simply log
onto www.smithspensions.co.uk and
click on ‘My Pension’. You will then
be taken through the registration
procedure, which for security
reasons is in 2 stages. You will need
your member reference – this is
shown on your benefit statement if
you are a contributing member and
on your payslip if you are a
pensioner. If you cannot find your
reference number, please contact
Smiths Pensions (see page 2).
This facility is
not currently
available for
members
whose benefits are not administered
by Smiths Pensions and the options
available for former members of the
Francis Shaw and Lapmaster
Schemes are limited.
In addition to the benefits provided by
the TI scheme, you may also be
eligible for a State pension. You can
apply for a State pension forecast
online at:
www.thepensionservice.gov.uk or by
calling the State pension forecasting
team on 0845 3000 168.
10
Final salary sections
This section does not apply to RSFmembers, or to any othermembers where non-standardterms are in place.
Pensions in payment are reviewed
once a year and increases are given
to help combat the effects of
inflation. Inflation is measured by
calculating the change in the Retail
Prices Index (RPI) over an agreed
12-month period. For historical
reasons, the period used to calculate
the rise in RPI varies for the
different sections of the Scheme.
The amount of any pension increase
and the date on which it is applied
depends upon which section of the
Scheme you were a member of and
when your pension came into
payment.
The increases awarded for the 2
largest sections of the Scheme, the
TI Section and the Dowty Section,
for the Scheme year 2005 to 2006,
are shown below.
The pensions for other sections of
the Scheme have been increased in
accordance with the Scheme Rules
relating to the relevant sections of
the Scheme.
What is a Guaranteed
Minimum Pension?
The Scheme may pay a Guaranteed
Minimum Pension (GMP) to replace
the benefits you would have built up
under the State Earnings Related
Pension Scheme (SERPS), for any
Scheme membership from 6 April
1978 to 5 April 1997.
If you have reached State Pension Age
or are receiving a widow’s or widower’s
pension, the pension increases referred
to below will only apply to your pension
above the GMP. The State is responsible
for any increases due on GMPs earned
before 1988 and, if applicable, these will
be paid with your State pension. Any
GMP earned after 1988 is increased by
the Scheme in line with inflation up to
3% a year; the State is responsible for
any increases above 3%.
RSF members
From 1 January 2004, all new
Scheme members joined the
Retirement Savings Fund (RSF),
which is a section of the TI Group
Pension Scheme.
Under the RSF, a member’s Total
Credit (apart from the annual credit
earned in the most recent year) is
increased annually in line with the
increase in the Retail Prices Index
(RPI) during the previous calendar
year, subject to the agreement of
the Company and the Trustee
board.
The increase in RPI for the year to
31 December 2005 was 2.2% and
the Company and Trustee board
agreed this increase to Total Credits
on 1 April 2006.
% increase Date increase applied
TI Section (above the GMP) 3.2% 1 October 2005
Dowty Section (above the GMP) – retired before March 1988 2.2% 1 March 2006
(backdated to 1 December 2005)
Dowty Section (above the GMP) – retired after March 1988 2.7% 1 April 2006
GMPs earned after 1988 2.7% 6 April 2006
GMPs earned before 1988 Nil
Pensionincreases
“Members can performa number of onlinecalculations, such asAVC estimates andretirement forecasts”
Expression of Wish
Members can complete an Expression of
Wish form to indicate to the Trustee to
whom they would like any lump sum to
be paid on their death. The form is not
legally binding but does help the Trustee
decide who should receive the benefit.
If you have not completed an Expression
of Wish form, or your circumstances
have changed since you last did so, you
can obtain a new form from the Smiths
Pensions website or by contacting
Smiths Pensions on the number given
on page 2.
The Trustee does not require completed
Expression of Wish forms for people who
are receiving spouses’ or dependants’
pensions, or for retired members who
have been in receipt of their pension for
more than 5 years.
Change of address
It is important that you keep us informed
if you move house. If we do not have your
correct address when you retire, we
cannot contact you to pay your benefits.
Careless talk costs £££s
It’s good to talk – but even better when you know who’s
calling! We’ve had reports that some of our members have
received bogus calls asking for pension details over the
phone. There may be times when Smiths Pensions has a
legitimate reason to contact you. But if you receive a
telephone call out of the blue asking about your pension and
you don’t know the caller, follow this simple checklist:
• Ask the caller for their name and number
• Ask how they obtained your number
• If you are in any doubt as to their true identity, say you will phone them back
• Contact Smiths Pensions Limited on 0121 632 6483 to verify the caller’s
details
At all times, be very wary of giving out personal financial information over the
phone. Never provide your bank account details unless you are buying goods
or services from a reputable source. If you have an internet bank account,
remember that your own bank will never ask for your password and account
details in an email, or over the phone.
Civil partnerships
From 6 December 2005, same sex
couples have been able to register
their relationships as civil
partnerships. Since that date,
company pension schemes have
been required to provide civil
partners with the same benefits as
married couples for all service
after 4 December 2005. Also, for
any ‘contracted-out’ benefits
earned in the Scheme between
6 April 1988 and 5 December 2005,
it is necessary to provide the same
benefits to civil partners as
married couples.
After the death of a member who
does not leave a spouse, if your
section of the Scheme permits it,
the Trustee also has the discretion
to pay a dependant’s pension to an
individual who meets the definition
of a dependant under the Scheme
Rules. The amount of the
dependant’s pension is determined
by the Trustee Directors. If you
wish to nominate someone for a
dependant’s pension, you can
obtain a form from Smiths
Pensions website or using the
contact details on page 2.
Transfers-in
Under certain circumstances the
Scheme will now accept transfers
in from other pension
arrangements. For further details
please contact Smiths Pensions
(see page 2).
Age Concern Helpline – 0800 009966www.ageconcern.org.uk
Attendance Allowance AndDisability Living AllowanceInquiry Service – 0845 712 3456
Benefit Inquiry Line – (forthe disabled and theircarers) 0800 882200
Department for Work andPensions – www.dwp.gov.uk(or visit:www.thepensionservice.co.ukfor an online State pensionforecast)
Help The Aged Senior Line –0808 800 6565www.helptheaged.org.uk
Invalid Care Allowance Unit –01253 856 123
The Pensions AdvisoryService – 08450 601 2923www.opas.org.uk
TV Licence Concessions –0870 241 6461/6468www.tvlicensing.co.uk
War Pensions Helpline –0800 169 2277
Useful contactsfor pensioners
11
Keep us informed
Hot off the press
As the Trustee of the TI GroupPension Scheme, we (TIPension Trustee Ltd.) are
responsible for checking on theScheme’s ‘funding’. In other words,we check on the money building up inthe Scheme to see how it compareswith the money needed to provide thebenefits promised to members.
From now on, we will publish a
statement each year to give you
updated information about the
funding of the Scheme. This
statement is based on the latest full
valuation of the Scheme, which takes
place every three years. Interim
valuations are obtained from the
Scheme Actuary each year, which
provide updated estimates of the
Scheme’s funding position. A full
valuation is currently being carried
out to determine the 5 April 2006
funding situation, and next year’s
funding statement will be based on
the results of that valuation.
What is a valuation?
The aim of a valuation is to assess:
• how much money the Scheme
needs to cover the benefits
members have already earned; and
• what contributions the Scheme
needs to pay for benefits building
up in future.
Of course, it is impossible to
guarantee the future or predict exact
figures, but by making sensible
assumptions about economic and
financial conditions and the
Scheme’s membership, the Actuary
can provide his best estimate of the
funding position. As Trustee, we then
use our judgement to decide an
appropriate funding plan. It is a legal
requirement that we then discuss
and agree with the Company the
funding plan to be adopted for the
Scheme. This is referred to as the
“ongoing valuation basis” and it
assumes that the Company will
continue to support the Scheme. By
‘Company’, we mean the employers
who participate in the Scheme.
At each full valuation we also
consider the Scheme’s “solvency
position”. This assumes that the
Scheme is terminated at the
valuation date and looks at whether
there is enough money to buy
insurance policies to provide
members’ benefits in that situation.
The cost of providing all the benefits
through insurance policies is likely to
be higher than the cost of paying
them from the Scheme because
insurance policies are priced very
conservatively and will include
administration charges and a profit
margin. Even if a scheme is fully
funded on the “ongoing valuation
basis”, the ”solvency position” is
therefore likely to be less than 100%.
The security of your
benefits
Contributions from members and the
Company are paid into the Scheme
and invested along with the other
assets. Benefits are paid from the
Scheme’s assets as they fall due.
There is no separate account for you
personally, unless you have an
account as a result of Additional
Voluntary Contributions, a Money
Purchase Supplement or a transfer-
in.
We monitor the Scheme’s funding
position regularly. But the Scheme
relies on the Company for its
ongoing financial support to:
• pay the future expenses of running
the Scheme each year; and
• make extra contributions when
there is a funding shortfall.
The summary funding statement for your pension
12
At the latest full valuation on 5 April 2003, the Scheme’s
“ongoing” funding position was as follows:
£m
The Scheme had assets with a market value of
The Actuary’s estimate of the amount needed to provide
the benefits members had already earned was
This gave a shortfall of
This is the same as a funding level of
At the latest interim valuation on 5 April 2005 the “ongoing”
funding position was as follows:
The Scheme had assets with a market value of
The Actuary’s estimate of the amount needed to provide
the benefits members had already earned wa
This gave an excess of
This is the same as a funding level of
The Scheme’s solvency position
The Actuary also estimated that £ million would have been needed
to buy insurance policies to cover members’ benefits at 5 April 2003,
which means that the Scheme’s assets of £ million would only
have covered % of the estimated cost of buying those insurance
policies at that date.
Please read the section on page 13 headed “What if the Scheme
is terminated?” for a full explanation of what would happen in
these circumstances.
What if the Scheme is
terminated?
If the Company were no longer able
or willing to support the Scheme we
would have to consider how best we
could protect members’ benefits. In
such circumstances we would have
the legal right to require the Company
to pay an amount to the Scheme that
enabled us to buy insurance policies
to cover all of the benefits that
members had already earned.
If the Company’s financial position
were such that it could not pay
enough to fully cover the cost of
buying these insurance policies then
we would still have the legal right to
require the Company to pay all that it
can. We would then have to decide
whether to continue to operate the
Scheme without the Company’s
backing or to buy insurance policies
to cover a proportion of members’
benefits.
Alternatively, the Pension Protection
Fund (the PPF) might be able to take
over the Scheme and pay
compensation to members. For
further details about the PPF, please
refer to page 15.
Payments to the
Company
The information this statement must
contain has been set out in legislation.
One of the required pieces of
information is to confirm to members
if there have been any payments to the
Company out of Scheme funds in the
previous 12 months as a result of the
Scheme having surplus assets. We
can confirm that there have been no
such payments.
Further information
If you are thinking of making anychanges to your pensionarrangements at any time, youshould obtain as much informationas you can and also think aboutobtaining independent financialadvice. The Financial ServicesAuthority website has moreinformation about finding a suitablyqualified adviser.
If you are a current employee, you
receive a benefit statement each
year. Anyone who has a right to
benefits from the Scheme can also
ask to see the following:
• The Statement of Investment
Principles, which explains how the
Trustee invests the Scheme’s assets.
• The Schedule of Contributions,
which shows how much money is
being paid into the Scheme.
• The Scheme’s Annual Report and
Accounts, which shows the
Scheme's income and expenditure
for the year.
• The full report on the Actuarial
Valuation following the Actuary’s
check of the Scheme's funding
situation. The latest report shows
the position at 5 April 2003.
If you have any other questions, or
would like any more information
about the Scheme, please contact
Smiths Pensions using the contact
details on page 2.
PensionsAct 2004
Who is the Actuary?
The Trustees have appointed
Matthew Arends as Scheme
Actuary in place of Simon Head
who is currently on a sabbatical.
Matthew and Simon both work for
Aon Consulting Ltd.
The Actuary is appointed by the
Trustees to advise on the
Scheme's funding and, amongst
other things, performs the
Scheme valuation (see ‘What is a
valuation’).
Actuaries are experts in
assessing risk, carrying out
statistical analysis and financial
modelling, particularly in relation
to pension schemes.. . . we check
on the money
building up in the
Scheme to see how
it compares with
the money needed
to provide the
benefits promised
to members . .
“
”13
Many members will have read
in the press of concern that
the current level of pension
provision and saving in the UK may
not be sufficient.
In May 2006, the Government
announced proposed changes to the
pension system, which, in its own
words, are intended ‘to combat
poverty and promote security and
independence in retirement for
today’s and tomorrow’s pensioners’.
The main proposals are outlined
below – it is important to be aware
that what will actually happen is very
much subject to future political
events.
Basic State Pension
The Basic State Pension currently
increases in line with price inflation,
while earnings tend to increase at a
higher rate than prices. From 2012,
the Basic State Pension will increase
in line with average earnings.
State Pension Age
The State Pension Age will gradually
increase to age 68 by 2046.
New low-cost savings
scheme
A low-cost pension savings scheme
will be introduced to make it easier
for individuals to save for a pension.
Employers will automatically have to
enter employees into this low cost
scheme or into a suitable employer
scheme. There will be a compulsory
level of contributions to be made by
the employer and employee.
Employees will be able to opt out if
they wish to do so.
Each year £ billions of State
benefits aren’t claimed.
Although not comprehensive,
we have listed some of the main
State benefits to which you could be
entitled.
Basic State Pension – can be
claimed from State pension age (65
for men, and between 60 and 65 for
women, depending on your date of
birth). The amount you receive
depends on how long you have paid
(or been credited with) National
Insurance contributions. From April
2006, the full basic State Pension is
£84.25 per week for single
pensioners and £134.75 per week for
pensioner couples. If you claim later
than State pension age, the amount
increases, or you could get a cash
sum as well as the standard pension.
Additional State Pension –
calculated as a proportion of
earnings when you claim your basic
State Pension, this used to be called
the State Earnings Related Pension
Scheme (SERPS) and was based on
an individual’s record of National
Insurance contributions and
earnings. It changed to the State
Second Pension (S2P) in April 2002
and is now more generous than
SERPS for low and moderate
earners, certain carers and people
with long-term illness or disability. If
you joined the Scheme before
1 January 2004 (i.e. those in the Final
Salary sections) you will not earn
Additional State Pension whilst
contributing to the Scheme.
Pension Credit – a top-up benefit for
pensioners aged 60 or over, on low
incomes, the Pension Credit
guarantees a retirement income of at
least £114.05 per week (single) and
£174.05 each week (couple). The
savings credit provides a small top-
up for single people with incomes up
to £159 each week, and couples with
incomes up to £233 each week.
Attendance Allowance – an
additional benefit to cover extra costs
associated with having a disability
after the age of 65 (the higher rate is
worth £62.25 each week and the
lower rate £41.65 each week). Your
entitlement to Pension Credit will
increase if you receive Attendance
Allowance.
Carer’s allowance – paid to informal
carers who look after a relative,
friend or neighbour for at least 35
hours a week. The allowance is
taxable but not dependent on
National Insurance contributions.
The person being looked after must
be receiving either Attendance
Allowance, the care component of
Disability Living Allowance at its
highest or middle rate, Industrial
Injuries Disablement Benefit,
Constant Attendance Allowance, or
War Pensions Constant Attendance
Allowance.
Disability Living Allowance – similar
to Attendance Allowance, but paid to
disabled adults below the age of 65
or parents with disabled children.
This benefit is not means tested but
the amount paid varies according to
the level of care required.
TV licence concessions – there is a
free television licence if you are aged
75 or over and a 50% discount if you
are registered blind.
A new way forward for UK pensions
State your claim
14
The Pension Protection Fund
(PPF) was created under the
Pensions Act 2004. Its purpose
is to step in when employers become
insolvent and their pension
scheme(s) does not have enough
money to fund its benefits (up to a
level that the PPF would provide).
What is protected?
If the PPF steps in, it will not pay the
exact benefits that the scheme
promised. The table below
summarises the percentage of
pension the PPF would pay to each
member.
Will PPF pensions be
increased?
• Pensions for service before 6 April
1997 will not increase in payment.
• Pensions for service after 5 April
1997 will increase in line with
inflation up to a maximum of 2.5%
a year in payment.
• Pensions not yet in payment are
increased to normal pension age in
line with inflation up to a maximum
of 5% a year, and will increase in
payment as shown below.
Please note that this is a broad
summary of the compensation
payable by the PPF. For exact details
please refer to the PPF website at
http://www.pensionprotectionfund.
org.uk.
Levy
The PPF is funded by levies paid by
pension schemes. The exact levy
each scheme must pay depends on
the number of members in the
scheme, the financial security of the
sponsoring employer and the funding
position of the scheme.
Top marks!
The amount that a pension
scheme has to pay to the
Pension Protection Fund (PPF)
– see below – is determined in part
by the financial security of the
sponsoring employer, as measured
by a company called Dun &
Bradstreet.
This year, Smiths Group plc received
the highest possible score from Dun
& Bradstreet, which means that they
consider the possibility of Smiths
becoming insolvent in the next
12 months as low as their scoring
system can register. This is obviously
good news for Smiths employees,
but also good news for all members
of pension schemes run by Smiths.
Nevertheless, the Scheme will still
have to make a significant payment
to the PPF during the year.
Sustaining success
Smiths Group plc has been voted one
of the world’s top 100 most
sustainable companies.
The Global 100 is a listing of the 100
largest blue chip companies around
the world that demonstrated the
strongest sustainability performance
among their peers.
The analysis evaluated which
companies had the best-developed
ability – relative to their industry
peers – to manage the
environmental, social and
governance risks and opportunities
they face.
Company news
Pensions ‘life raft’ now in place
Situation at date of PPF involvement
Pension in payment (survivor’s pension or ill-health pension)
Pension in payment (member is under normal retirement age)
Pension not yet in payment
% of Scheme Pension
100%
100%
90%*
90%*
15
Pension in payment (member is over normal retirement age)
*Subject to a cap which is currently £26,050
LARGE PRINT
A large print version of thisnewsletter is available onrequest from Smiths Pensions at the address shown on theinside front cover.
Both versions are printed onenvironmentally friendly paper.
Smiths Pensions Limited
15th FloorNo.1 Hagley RoadEdgbastonBirmingham B16 8TG
T 0121 632 6483F 0121 631 4389www.smithspensions.co.uk
Front cover photos:
Medical – Airway Products
Speciality Engineering – John Crane metal bellows seal
Detection – HazmatID Analyzer
Aerospace – Canopy
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