PENSIONS CONSULTATIVE CONFERENCE 2009
The 2009
Conference was held at Ashorne Hill in Warwickshire
on 23rd September.
Approximately 35 people attended including Trustees, Pension Scheme Officers,
Corus Management and representatives of the various classes of members. Among the last were delegates from
NABSP. The following notes were prepared
by one of them. Any opinions expressed
are those of the author and should not be assumed to represent the views of the
Pensions Office which will be reported in the next issue of “Newsbrief”.
ALLAN JOHNSTON, the Trustee chairman, reported on
developments in the scheme over the past year.
The triennial evaluation had been published and resulted in a Company
contribution of 12% of salaries and active members’ contributions of 6% until
2011. In reply to a question about the
4% reduction in contribution rate for expected commutation of pensions it was
explained that a similar allowance had been made in previous evaluations but
had not been explicitly identified. In
April the Corus Engineering Steels (CES) Pension Scheme was merged with the
main scheme, bringing with it 9,000 members, nearly £700 million of assets and
additional funding from the Company which will continue for 7 years. Including these assets the market value of
the fund was now £10.4 billion.
Expenditure in 2008/09 was only marginally higher than income,
eliminating the need for forced sales of assets. Over the same period membership had reduced
by 2.3% (excluding CES members) due to a decline in Pensioners, Deferred
Pensioners and Dependants. Commutation
of small pensions accounts for some of the reduction. The fund had moved from a slight surplus in
March 2008 to a deficit of £800 million one year later when stock markets hit
their lowest point but had subsequently recovered to a position close to
balance. The pension increase in 2009
was only 0.1% but this was dictated by the Scheme Rules which specified that it
should be linked to the Retail Prices Index. If the latter was negative,
however, the increase would be zero, i.e. there is no chance of pensions being
reduced.
The Trustee
board had been reduced from 18 to 14 but the balance between company and member
nominations remained at 50:50. Trustee
Directors’ training and assessment was carried out on a continuous basis.
HUGH SMART, Chief Investment Officer, presented
a review of the fund’s performance.
During the year to March 2009 the total return was minus 7.3% but, as pointed
out by Allan Johnston, this coincided with the bottom of the economic
depression. All components of the fund
had subsequently recovered particularly equities, where the decline had been
most marked. Index-linked and fixed interest investments,
which account for 70% of the fund, had been less affected by the depression and
continued to perform well.
The
relative return on both fixed and index-linked gilts was compared with that on
equities over a 25 year period to illustrate the sharp decline in the latter
during 2008. During this period equities
had been purchased as their cost went down and re-sold in the second quarter of
2009 when their value was increasing.
However, a graph of freight costs, a good leading indicator of economic
activity, suggested that the recession was not yet over and Mr. Smart referred
to the vast number of idle container ships moored off
DEREK MULHOLLAND, Manager, Pensions, spoke on pension
issues and developments. The Finance Act 2004 had come into force and ended early retirement
between ages 50 and 54. Between
55 and 59 retirement “at employers’ request” would result in a 5% reduction for
each year under 60 for pension earned after April 2010.
The rules
on commutation of small pensions, changed about two years ago, have proved
difficult to administer and will change again in December 2009 so that, for
people entitled to more than one pension, they apply to each individually
without reference to the total involved.
From 2011
tax relief on pension savings will be restricted to 20% for those with taxable
income more than £180,000and this will apply to the employer’s contribution as
well as the individual’s with the tax liability falling on the individual. Although this obviously will only apply to a
small proportion of employees it sets a precedent which could in future be
applied to lower earning groups.
In the past
year the aggregate balance of pension schemes covered by the Pension Protection
Fund has fallen into a large deficit.
This may lead to a demand for increased contributions which could itself
cause some marginal schemes to collapse.
One consequence of this is that 87% of defined benefit schemes are now
closed to new entrants and 18% closed to future accrual. A review of other large pension schemes
illustrated other methods of limiting sponsoring companies’ liabilities. Mr. Mulholland also drew attention to
impending changes in State Pensions and the introduction by Government of
“Personal Account” pensions.
TOR FARQUHAR, Corus Director, Human Resources,
reiterated some of the previous information from the company perspective. He argued that scheme liabilities were
increasing at 5% per annum with a significant proportion being due to changes
in life expectancy and that the size of the pension fund relative to the assets
of the company placed the latter at risk.
He drew attention to the steps that had been taken to minimize this risk
but explained why the company considered that further measures were
required. In particular it did not wish
to underwrite future uncertainties in addition to current defined benefit
liabilities and this was why it was seeking to close the scheme to new entrants
and continuously review existing benefits for current active members, although
a number of other options had been considered.
No specific mention was made of the postponement of the new entrants
closure deadline (for the second time) which had happened four days before the
meeting, but it was stated that there would be further discussions with the
Unions’ Steel Committee over the next few weeks.
FRANK ROYLE, Corus Finance Director, reported on
the company’s recent financial and operating results. After making a record operating profit in the
first half of 2008/09 with deliveries almost at capacity demand collapsed in the
following nine months. World crude steel
production, excluding
The parent
company (Tata Steel) continued to perform well in an Indian market which is
still growing. It is committed to
injecting £425 million into Corus as part of the re-setting of the banking
covenant.
The
conference as a whole was very informative and all speakers gave interesting
presentations. Facilities at Ashorne Hill were excellent and the event was well
organized. Overall the impressions
obtained were that the scheme as it stands is in good health and pensions
currently being paid or already earned are secure Future pensions, however, may very well turn
out to be less generous, particularly if the world economy takes a long time to
recover.
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