Summary Funding Statement

Your 2022 Summary Funding Statement

As a member of the Defined Benefit (DB) Section, you will be aware of the valuable benefits that membership of the Scheme provides. So, knowing how the Scheme is doing financially, and whether your benefits are secure, will be important to you.

This Summary Funding Statement helps to keep you up to date and understand more about the funding of the Scheme. This year, we provide you with an update on the financial position of the DB Section, as well as answers to some of the questions you may have about its financial health. The Statement is provided for information only.

The latest funding review

Formal funding reviews of the Scheme are carried out every three years. The most recent funding review took place at 5 April 2020.

In the years in between the formal funding review, the Scheme Actuary carries out an annual funding update for the Trustee to assess how the assets and liabilities have changed since the last funding review. Since the 5 April 2020 review, the Scheme Actuary has completed annual updates at 5 April 2021 and 5 April 2022.

The funding results at 5 April 2022 as well as the results of the reviews at 5 April 2020 and 5 April 2021 are shown in this Summary Funding Statement.

The Scheme’s funding targets

The responsibility for agreeing the current funding position and future contributions to the Scheme rests jointly with the Trustee and the Company. They assess the financial health of the Scheme with reference to two funding targets — the Ongoing Target and the Scheme Solvency Target. The principles underlying the funding targets are set out in a Statement of Funding Principles, which has been agreed by the Trustee and the Company and which is available to members on request.

Results based on the Ongoing Target

The assumptions that the Trustee currently uses for the Ongoing Target include a realistic allowance for anticipated investment returns on an investment strategy made up mainly of bonds and reflect current thinking about inflation and mortality and the Company’s current policy for awarding discretionary pension increases. The table below shows how the assets of the DB Section compared to the Ongoing Target at 5 April 2020, 5 April 2021 and 5 April 2022.

2022

The Scheme’s assets

£6,650m

The amount needed to provide benefits (liabilities)

£6,137m

The Surplus

£513m

The funding level:

108%

2021

The Scheme’s assets

£7,207m

The amount needed to provide benefits (liabilities)

£6,612m

The Surplus

£595m

The funding level:

109%

2020

The Scheme’s assets

£7,714m

The amount needed to provide benefits (liabilities)

£7,060m

The Surplus

£654m

The funding level:

109%

The funding level has been relatively stable over the two years. At 5 April 2022, both the Ongoing Target and the Scheme’s assets, which are closely matched to the liabilities, were lower than a year earlier as a result of increases in bond yields.

When bond yields rise, the amount of assets needed to pay future benefits reduces.

When calculating these figures, it is necessary to make certain assumptions about future events. This means that the amount actually needed to provide the benefits — which, for the purposes of calculating the Ongoing Target, include those benefits currently granted on a discretionary basis, such as any increases to pensions in payment above statutory requirements — could turn out to be quite different from the figures shown above.

Results based on the Scheme Solvency Target

In order to help safeguard members’ guaranteed benefits in the unlikely event that the Company were no longer able to support the Scheme, the Trustee uses a funding target called the Scheme Solvency Target. This monitors the funding of the Scheme using slightly different assumptions from those used to determine the Ongoing Target in that they include no allowance for future discretionary pension increases, include a reserve for the projected future administration expenses of providing the Scheme benefits and allow for a more cautious investment policy to be followed by the Trustee.

The table below shows how the assets of the DB Section compared to the Scheme Solvency Target at 5 April 2020, 5 April 2021 and 5 April 2022.

2022

The Scheme’s assets:

£6,650m

The amount needed to provide benefits (liabilities)

£6,145m

The Surplus

£505m

The funding level:

108%

2021

The Scheme’s assets:

£7,207m

The amount needed to provide benefits (liabilities)

£6,632m

The Surplus

£575m

The funding level:

109%

2020

The Scheme’s assets:

£7,714m

The amount needed to provide benefits (liabilities)

£7,127m

The Surplus

£587m

The funding level:

108%

Similar to the Ongoing Target, the funding level has been broadly stable, with both the Scheme Solvency Target and the Scheme’s assets reducing in value over the year to 5 April 2022 as a result of higher bond yields.

Future contributions for the Company

The results of the 5 April 2020 funding review showed that, at that date, the Scheme expected to have sufficient assets to provide existing benefits under both the Ongoing and Scheme Solvency Targets. Based on the position at 5 April 2020 there was therefore no requirement for the Company to make contributions to the Scheme above the minimum required under the Scheme Rules.

The next formal funding investigation (Actuarial Valuation) is due to be carried out at 5 April 2023. As part of that process, the Trustee and the Company will again look at how the Scheme should be funded in the

future and decide whether any changes are required to the approach adopted for the 2020 review or to the rate of contributions payable.

This assessment could, depending on the approach adopted, show a different position to that based on the principles and assumptions consistent with those used in 2020.

Your next ‘Summary Funding Statement’ will report on the outcome of the actuarial valuation at 5 April 2023.

Your questions answered

How is my pension paid for?

The Company pays (if required) contributions to the Scheme so that the benefits set out in the Scheme’s Trust Deed and Rules can be paid.

The money to pay for members’ pensions is held in a common fund. It is not held in separate funds for each individual. This common fund is invested by the Trustee and any proceeds go towards providing members’ benefits.

How is the amount of money the Scheme needs worked out?

The Trustee obtains regular updates from the Scheme Actuary on the amount of money needed to provide the benefits built up by members (based on certain assumptions as described by the Statement of Funding Principles). The contributions to be paid are agreed between the Trustee and Company having considered the results of these updates. The Trustee’s objective is to have enough money in the Scheme to pay pensions now and in the future. However, the ability of the Scheme to do this depends upon the Company’s continued support. In the event of a shortfall in funding, the Company will usually need to pay in more money to make up the difference along with the future expenses of running the Scheme. There has not been any payment to the Company out of Scheme funds since the date of the last Summary Funding Statement.

In certain circumstances, the Pensions Regulator has powers to intervene in a scheme’s funding plan, by changing the future accrual of benefits, setting the level of the funding target, setting the terms of the recovery plan and/or imposing a schedule of contributions. The Pensions Regulator has not used any of these powers in relation to the Scheme.

What would happen if the Scheme started to wind up?

If the Scheme were to start to wind up, the Company would be required to pay enough money into the Scheme to enable members’ benefits to be provided by an insurance company. Neither the Trustee nor the Company have any plans to wind up the Scheme. However, by law, we are required to let you know the Scheme’s financial position if this were to happen.

Based on the Actuary’s statutory estimate of solvency, which estimated the cost in the market of settling the liabilities through the purchase of annuities, the funding level of the Scheme was 112% at 5 April 2020.

If the Scheme was wound up in the future at a point at which there was a deficit against the relevant solvency measure and the Company could not afford to make good that deficit, you might not get the full amount of the pension you are entitled to, even if the Scheme were fully funded on the Ongoing Target. The statutory estimate of solvency is only an estimate of the terms that might be available from insurance companies. You may also not receive all your benefits from the Scheme if the insurance companies’ terms at the point of wind up require more funds than are set aside in the Scheme and the Company is not able to make the extra funds available. If the Company became insolvent, the Pension Protection Fund might be able to take over the Scheme and pay compensation to members, but this compensation is likely to be less than the benefits you are entitled to under the Scheme.

Further information and guidance is available on the Pension Protection Fund’s website at ppf.co.uk. Or you can contact the Pension Protection Fund at information@ppf.co.uk.

Where can I get more information?

The Scheme website contains a lot of useful information about the Scheme and the benefits it provides. The website also holds the following documents: