CHAIRMAN’S WELCOME
Welcome to the Trustee’s newsletter for 2021. The Trustee Board has had another extremely busy year, with frequent meetings as we navigated our way through the pandemic and the various knock-on effects it has had on the Fund. The year’s key events are set out below.
(Click on the headings to read more.)
Fund closure Fund valuation One of our key areas of focus was the effect Covid-19 had on the Company and its ability to maintain and support the Fund. We worked closely with the Company and with our covenant adviser, Penfida, to understand this impact and what mitigating actions could be taken. We agreed to defer Company contributions to the Fund through 2020 to help the Company manage its cash flow. Once the Company had re-financed, all of these delayed contributions were paid over to the Fund.
As you already know, one of the impacts of the pandemic was that the Company decided to consult on changes to the Fund as it advised that it could no longer afford the build-up of future pension costs and liabilities, and so the Fund closed to future accrual on 31 December 2020. Our administration department dealt with over 2,000 leavers as part of the Company’s severance programme; in addition, bridging pensions and partial transfers were introduced and since the year end the department has been implementing the augmentations agreed as part of the closure – more information is available in the announcements issued at the time:
Closure announcement November 2020
Company announcement on augmentations, 22 June 2021 – staff
Company announcement on augmentations, 22 June 2021 – managers
2020 was our triennial actuarial valuation year. At the date of the valuation (31 March 2020), financial markets were in turmoil as a result of Covid and the subsequent global lockdowns. However, the headline results show that, even with the effects of Covid, the Fund remained in a secure funding position, being 105% funded as at 31 March 2020, and recovering to pre-Covid funding levels since then. Find out more here.
I’d like to extend my thanks to the Trustee Directors for their professionalism and dedication through this challenging period, the pensions executive and the wider pensions department for their support and resilience, and to the Company for their openness and collaboration. I’d especially like to thank Craig Gibson, one of our Member-Nominated Trustee Directors who left during the year as part of the severance programme but who kindly agreed to remain on the Trustee Board until we had finalised the 2020 valuation, and to his successor, Colin High, who patiently waited in the wings until taking on his role on 10 June this year. Many thanks to both and we wish Craig all the very best for a happy and fulfilling retirement.
Liz Airey
Chairman of the Trustee
OUR ONLINE IMPROVEMENTS
We’re great believers in letting members have their personal information at their fingertips, so we’re always looking for ways to improve our member website.
Read moreThe administration department has been busy re-programming the benefit calculations to take account of the Fund’s closure and the introduction of some new retirement options. These new options were initially for severance leavers but will shortly be rolled out wider (see further information below).
A number of improvements have also been made to the self-service tools available on the member website, so that members leaving employment now are able to select retirement options, complete forms and have their identity checked online without the need to send in any paper forms. A brand-new pension estimator is also being developed, which will show results for all the new options being made available to members, such as bridging pensions and full or partial transfers, alongside the existing options. You’ll be able to customise your pension online and see the effect of ‘mixing and matching’ options to suit your needs.
We expect the new options and estimator to be available for all members who have not yet taken benefits (not just those retiring from active employment) in the autumn and we’ll keep you updated. In the meantime, if you have a pension benefit in RRUKPF you can log on anytime at the link below. The existing estimator doesn’t provide all of the new options yet, but you can still get a quote of your core retirement benefits and transfer value, as well as access to lots of other information. If you haven’t yet registered for the member website, you can also do this using the link below.
If you’re already receiving your pension, the new options won’t apply but the website still provides lots of useful information and allows you to view payslips, change address and bank details and generally keep up with news about the Fund.
Remember to make sure your profile is 100% complete and up to date, including not only your personal details but also your nominated beneficiaries. Reviewing this information is especially important if your personal circumstances have changed or simply if you haven’t reviewed the details for some time.
OUR VERY OWN YOUTUBE CHANNEL
It’s great that you now have more options for taking your retirement benefits, but we recognise that further choice adds further complexity, so we’ve added some new videos to the website to help you understand your benefits and options. They’re available to view on the Rolls-Royce Pensions YouTube channel at the link below and we’ll continue to add further videos in the future:
FEEDBACK WANTED
We’re always keen to hear what you think of our member reports. Send your feedback to
[email protected]
Global stock markets were severely impacted in the early stages of the pandemic, with declines not seen since the 2008 financial crisis.
However, due to the largely de-risked investment strategy adopted by the Fund, which succeeded in protecting the assets from the worst of the market volatility, the impact in terms of funding level was approximately a 5% decline to around 105%. Since then, the funding level has recovered to pre-Covid levels and was 110% as at June 2021. More detail is included in the 2021 valuation update.
Although this doesn’t directly affect your pension (because the amount you get is not linked to investment returns), it does have an impact on Share of Fund transfer values which are linked to the Fund’s funding level at the point of calculation.
The 2020 valuation showed assets were £9,336 million, and liabilities on an ongoing (technical provisions) basis were £8,874 million, giving a surplus of £462 million. However, since then the Fund has closed to future accrual and it arguably becomes more relevant to measure liabilities on a solvency basis (that is, the estimated amount needed to buy out benefits with an insurance company). On the solvency basis, the Fund does not have sufficient assets at present to achieve this. The Trustee is in the process of agreeing a long-term plan with the Company to reach this level of funding in the future.
The 2020 valuation took some time to conclude as discussions were ongoing with the Company regarding benefit enhancements for members, as part of the closure of the Fund to future accrual. More detail can be found in the following Company announcements:
Company announcement on augmentations, 22 June 2021 – staff
Company announcement on augmentations, 22 June 2021 – managers
The current Trustee Directors are:
Liz Airey, Independent Chairman
Jo Durkan, Company appointed, Assistant Treasurer, Derby
Iain Foster, Company appointed, Commercial Director Civil, Derby
Steve Jones, CNC nominated, Instrument Maker, Bristol
Will Mansfield, Company appointed, former Group Chief Accountant, Derby
Mark McIntosh, Company appointed, deferred member
Paul Butler, member nominated, pensioner
Stuart Hedley, member nominated, Manufacturing Engineer, Birmingham
Colin High, member nominated, Innovation Hub, Inchinnan
Mark Porter, member nominated, Works Convenor and Chair of UK Council, Barnoldswick
Pre-Covid, the Trustee Directors met six times a year, with two strategy events and four quarterly meetings. Over 2020 and 2021 the Directors met 20 times, with all of these, apart from the March 2020 meeting, being held online. The Trustee Board has agreed to extend the general meetings to ten a year, four of which will be quarterly and face-to-face once they are able to do so; plus two strategy events and four virtual meetings. This will allow the Board to continue to be agile and to work proactively in managing the Fund.
Trustee Directors serve four-year terms with a maximum of two terms before rotating off the Board. Mark Porter’s initial term of office ends on 31 October 2021. We would like to hear from anyone interested in standing as a Member-Nominated Trustee Director and further details can be found here. Being a Trustee Director can be a very rewarding role, and full training and support is offered to anyone who joins the Board.
PAID-FOR FINANCIAL ADVICE
The Company and the Trustee have appointed WPS Advisory as our preferred provider of independent financial advice. If you’re an employed deferred member, you will be able to access WPS Advisory’s retirement advice service and the cost will be met by the Fund, up to a limit of £875 per member. This is generally sufficient for most members, but if you need additional services or have complicated financial circumstances, you might have to meet any additional costs yourself (but WPS Advisory will let you know in advance what these costs might be). Although the cost of the basic service is met by the Fund, the value is assessed as a taxable benefit in kind, so you may have to pay a small amount of extra tax when using this service.
TAKING A TRANSFER? TAKE ADVICE - BUT TAKE CARE
Many of our members elect to take a transfer value on leaving the Company, especially those eligible for a Share of Fund transfer value. This is an important and often life-changing decision, so it’s important to take proper advice.
The Fund is here to provide pensions to our members, so if you decide not to take a pension and instead elect to take a transfer value, you should take appropriate advice and allow sufficient time for this complex process to be managed properly.
If you decide not to use the Trustee’s preferred provider, WPS Advisory (see above), then please be careful who you use and be aware of potential scammers.
If you decide to use your own adviser, please be aware that the cost of this advice won’t be met by the Fund. Do make sure you understand your financial adviser’s charges, as they are often quoted as a percentage of the transfer value, which might seem small but could amount to a large sum, depending on the size of your transfer value. So, for example, if your transfer value is £400,000 and your adviser is charging you 1 percent, this equates to a charge of £4,000. Compare this to the cost the Trustee and the Company have negotiated with WPS Advisory, which is a flat-rate fee of £875 per member.
There may also be additional, ongoing charges and again you should ensure that you fully understand these fees before proceeding. There is more information in the following documents:
Transfers – protect yourself from scammers
Statement on transfers, October 2020
The Pensions Regulator provides some tips on how to avoid a pension scam, here.
We have also provided information on the pension member website about financial advice and reported scams, to help you keep your pension safe.
Please take every precaution when transferring your benefits away from the Fund. To make sure you’re getting the right advice, please use the services provided by WPS Advisory, as they are recommended by both the Trustee and the Company.
Finally, the Pension Schemes Act 2021 which will come into force later this year/early 2022 will put additional requirements on trustees and pension scheme administrators to further protect members. This may mean that we are required to obtain more information from you if you are considering transferring out of the Fund. More information will be posted to the member website if this is the case.
ON THE ROAD TO RESPONSIBLE INVESTMENT
Responsible Investment (RI) has been on the Trustee’s agenda for some time and has continued to progress this year. Much of this is in response to regulatory requirements as this issue gains traction globally.
Read moreThe Trustee has been considering how to invest the Fund assets in a way that not only protects members’ benefits but also creates value and promotes sustainable growth. Last year the Trustee agreed:
- To produce an annual RI report to help improve the Fund’s approach to Responsible Investment;
- To adopt the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) which requires an annual TCFD statement; and
- To analyse the potential impact of climate change on the Fund across different scenarios.
Since then there has been progress on ESG ratings, engagement and carbon foot-printing from all the Fund’s investment managers. This is a developing area, and the Trustee, with the help of its investment advisers, will continue to encourage the investment managers to keep in line with developing best practice.
NEW RETIREMENT OPTIONS
2020 saw the introduction of a new ‘bridging pension’ option and a partial transfer option, designed initially to help those members affected by the redundancy programme earlier this year, but which will soon be made available to all other members as a retirement option. A new late retirement option for members will also be introduced shortly.
Read moreBridging pensions
A bridging pension allows you to ‘bridge the gap’ between early retirement and your State Pension age. It means you receive a higher pension from Rolls-Royce in the years up to your State Pension age, and a lower Rolls-Royce pension after you start to receive your State Pension, so that your total income broadly remains the same.
Partial transfer values
This option allows you to keep a certain amount of pension in the Fund that is guaranteed whilst transferring the remainder out. There is a minimum transfer that is permitted and, in all cases, financial advice will be required.
Late retirement options
Currently, deferred benefits must be taken at age 65 and cannot be deferred beyond that age. The new option will give you the choice to delay claiming your Fund pension anytime up to age 75. A late retirement increase will be applied for the period of time your pension is deferred.
Further information will be available on all these options in the autumn when the new estimator comes online.
FACTS & FIGURES
We’ve pulled together a summary of the Fund’s latest report and financial statements, but you can see the full document here.
Read moreThe table below contains a summary of the Fund’s accounts for the year ended 31 March 2020. The Fund’s annual accounts were audited by KPMG LLP, the independent auditor at the time. KPMG have since been replaced by Deloitte as Fund auditor, as part of the ongoing review of advisers. Please scroll across if using a mobile device.
From the accounts
|
|
2021
£'000 |
2020
£'000 |
|---|---|---|
What was paid in |
|
|
| Your contributions | 1,622 | 2,491 |
| Company contributions | 88,514 | 168,722 |
| Total contributions | 90,136 | 171,213 |
| Transfers in | 1,188 | 981 |
| Other income | - | 500 |
| Total | 91,324 | 172,694 |
|---|---|---|
What was paid out |
|
|
| Benefits to members and dependants | (137,986) | (271,075) |
| Transfers | (870,795) | (5,100,752)* |
| Other | (1,800) | (680) |
| Administrative expenses | (4,753) | (5,413) |
| Total | (1,015,334) | (5,377,920) |
|---|---|---|
How investments performed |
|
|
| Investment income | 188,661 | 307,789 |
| Change in market value for investments | (41,589) | 552,215 |
| Investment management fees | (8,841) | (11,174) |
| Taxation | 77 | (57) |
| Total | 138,308 | 848,773 |
|---|---|---|
|
|
|
|
The wider picture
| Balance at the start of the Fund’s financial year | 9,335,564 | 13,692,017 |
|---|---|---|
| Add what was paid in | 91,324 | 172,694 |
| Take away what was paid out | (1,015,334) | (5,377,920) |
| Take into account investment returns | 138,308 | 848,773 |
| Balance at the end of the Fund’s financial year | 8,549,862 | 9,335,564 |
|---|---|---|
|
|
|
|
*Includes the bulk annuity premium paid to LGAS in respect of the pensioner insurance agreement.
Who’s in the Fund?
The Fund is closed to new members and closed to future accrual as at 31 December 2020.
The membership summary below is as at 31 March 2021.
Total
39,649
*This includes former active members who became employed deferred members as at 31 December 2020.
WHAT'S COMING NEXT?
This is just a flavour of what’s round the corner…
- The government is looking at giving trustees greater powers to combat pension transfer scams
- The minimum age members can draw their pension will change from 55 to 57 in 2028
- The emphasis on Responsible Investment will continue to grow.
KEEP IN TOUCH
The Scheme website has a lot of information about your pension.
If you can’t find the information you’re looking for, please contact us at:
[email protected]
Finally, if, following the closure of the Fund, you’re a member of the Rolls-Royce Retirement Savings Trust invested with Aviva, you can access more information regarding your pension by contacting 0345 604 0803 (helpdesk lines are open 8am - 5.50pm Monday to Friday). You can also find more information and useful links at www.rolls-roycepensions.com/SavingsTrust
