CHAIRMAN’S WELCOME
Welcome to the Trustee’s newsletter for 2022. The Trustee has had another busy year, addressing such things as…
- signing off the 2020 valuation
- the actuarial factor review
- the consolidation of the Trust Deed and Rules
- continued consideration of sustainable investment
- an audit of the effectiveness of the Trustee Board, and
- a review of the administration department, to name a few.
The funding level improved over the year from the valuation low of 105% at 31 March 2020, impacted by the pandemic, to 110% as at 31 March 2022. More information on this is included in the funding update. We also had a change to the Trustee Board during the year, with Mark McIntosh retiring in June.
We would like to extend our thanks to Mark for his service to the Board and wish him well in his new venture.
I’d like to extend my thanks to the Trustee Directors for their professionalism and dedication through yet another busy year, 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 Stuart Hedley, one of our Member-Nominated Trustee Directors, who kindly agreed to extend his second term in office by a further year and who will be stepping down in October this year. Stuart served on the predecessor Board, the Rolls-Royce Engine Controls Systems Pension Scheme, so has dedicated a significant amount of his time to serving as a Trustee Director and we wish him all the very best for the future.
Liz Airey
Chairman of the Trustee
The year’s key events are set out below. (Click on the headings to read more.)
NEW RETIREMENT OPTIONS
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.
The administration department has been busy amending and testing the benefit calculations so that they take account of the Fund’s closure and the introduction of new retirement options.
The new version of our popular online estimator was launched in June and member feedback has been really positive. This allows you to build a package that works for you at retirement, including bridging pensions, full or partial transfers as well as all the existing options. You can customise all of these options online at the date of your choice and see the effect of ‘mixing and matching’ options to suit your needs.
Some options are subject to you meeting eligibility conditions and may not be available if you continue to work at Rolls-Royce. The online estimator will ask you some simple questions and will only show the options you are able to take at your chosen date. Watch our video giving an overview of the estimator and the new options.
The best way to access and plan for your retirement is by using the online estimator. You can log on at any time through the link below. We will communicate with our members through the website so, if you haven’t yet registered yet, we would encourage you to do so.
Even if you’re already receiving your pension, the website is a useful tool, providing information and allowing 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.
www.rolls-roycepensions.com
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. Make sure you subscribe to the channel to be notified whenever we post new content.
www.youtube.com/rolls-roycepensionsFEEDBACK WANTED
We continue to develop this report and have added video links this year. We hope you like the new format and would welcome your feedback to [email protected]
FUNDING UPDATE & OUR LONG-TERM PLAN
The date of the Fund’s last actuarial valuation, 31 March 2020, was at the point when the impact of the pandemic on markets was at its height.
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 March 2022. Our next triennial valuation is due as at 31 March 2023. The 2022 summary funding statement can be viewed here and the annual actuarial report here.
Although this doesn’t directly affect your pension, the transfer value can fluctuate because the calculation of it contains a number of actuarial assumptions that are influenced by market conditions. Transfer values tend to be lower when interest rates are expected to rise, as less money is needed to buy the same level of pension on the open market. And when interest rates are expected to be lower, transfer values tend to rise, as more money will be needed to buy the equivalent pension elsewhere.
It’s important to remember that your Standard or Bridging Pension options are not affected by any movement in the transfer value.
More detail can be found in the news item originally posted on the member website.
The Trustee has agreed a long-term plan with the Company which is to get the Fund to a position where it could, over time, insure all the benefits (also known as a buyout). The Trustee’s strategic objectives are all aimed at achieving this plan by 2035. The Trustee will continue to monitor progress against the plan and will report progress in future newsletters.
WHO ARE YOUR TRUSTEE DIRECTORS?
The Trustee Board is made up of six Company-appointed Trustee Directors, including an independent Chairman and a Director nominated by the Company’s Central Negotiating Committee (CNC), and four Member-Nominated Directors.
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
Vacancy to be filled
Paul Butler
member nominated, pensioner
Stuart Hedley
member nominated, Manufacturing Engineer, Solihull
Colin High
member nominated, Innovation Hub, Inchinnan
Mark Porter
member nominated, Works Convenor / Chair of UK Council, Rolls-Royce plc, Barnoldswick
Over the year to 31 March 2022, the Trustee Board held 12 main board meetings, 10 scheduled and two additional. In addition, the Trustee Directors sit on numerous standing committees and working parties.
Trustee Directors serve four-year terms with a maximum of two terms before rotating off the Board. During the year, Mark Porter was appointed to serve for a second term in office. In addition, Stuart Hedley will be stepping down from the Board this October and we would very much like to hear from anyone interested in standing as a Member-Nominated Trustee Director. 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.
The Trustee worked with Willis Towers Watson (WTW) to review the effectiveness of the Trustee Board. This review was helpful in allowing the Board to move to the next level in terms of governance ahead of the requirements being introduced by the Pensions Schemes Act 2021 and also in understanding Board dynamics, to help the Board be more effective in its decision making and more integrated in its approach.
PAID FOR FINANCIAL ADVICE
You’re only legally required to take financial advice if you’re transferring your benefits out of the Fund and the transfer value is over £30,000.
However, the Trustee strongly recommends you take advice in all circumstances, irrespective of whether you’re transferring out or taking Scheme benefits. Retirement is a one-off event and taking financial advice helps ensure you’re choosing the benefits that are most appropriate for your individual needs.
The Company and the Trustee have appointed WPS Advisory as our preferred provider of independent financial advice and this is available to all Scheme members. If you’re an employed deferred member over the age of 55, the cost of the advice is met by the Fund, up to a limit of £875 per member. (Please note: although the advice is funded, you may incur a small tax charge as HMRC class this as a taxable benefit in kind.) If you don’t qualify for the funded advice, you are still entitled to a heavily discounted preferential rate of £875 plus VAT. This level of advice 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).
Members have told us that the WPS Advisory service can sometimes be protracted, and that they sometimes experience delays. We have been discussing this with WPS Advisory and they will be launching a new online registration portal, which directly links to their new ‘Who Am I?’ service. This should ensure that you are able to provide them with information in advance so that you, and indeed WPS Advisory, are well prepared before you meet with your adviser. This is key to ensuring a streamlined and efficient service.
TAKING A TRANSFER? TAKE CARE!
Many of our members elect to take a transfer value on leaving the Company, especially those eligible for a Share of Funds 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 must take appropriate advice and allow sufficient time for this complex process to be managed properly.
If you’re planning on using your own adviser rather than the Trustee’s preferred provider, WPS Advisory (see above), please be careful who you use and be aware of potential scammers.
You should also 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. For example, if your transfer value is £400,000 and your adviser is charging you 1%, this is actually 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.
The MoneyHelper website, provided by HM Government and The Money and Pensions Service, will give you the knowledge to protect yourself from pension scams. If you’re transferring your pension, take a few minutes out to make sure you’re Scam Aware. Click here to find out more.
We have also provided information on the member website about financial advice and reported scams, to help you keep your pension safe. Click here to see our detailed Transfer Guide.
Please take every precaution when transferring your benefits away from the Fund. To make sure you’re getting the right advice, please consider using the services provided by WPS Advisory, as they are recommended by both the Trustee and the Company.
RESPONSIBLE INVESTMENT
Responsible Investment (RI) has been on the Trustee’s agenda for some time and has continued to progress. Much of this is in response to regulatory requirements as this issue gains traction globally. Investing sustainably means balancing the needs of the economy, society and the environment – this approach is often shortened to ESG.
Member ESG survey
To help us understand the level of interest and knowledge about ESG, we asked all members to complete a simple survey. Within the opening two weeks, over 4,000 of you took the time to engage, which is a great response rate. This has given us a really useful insight into what you’re thinking. As a starting point, we’ve learnt that over 70% of you are worried about climate change. Over 50% of you said that you believe it’s important or very important to use our investment strategy to drive positive social changes and almost 70% thought it was important that we hold to account the companies that we invest in when it comes to ESG issues.
You can view a summary of the survey results by clicking here. We’ll be speaking to our advisers about these results, and you’ll hear more about what we’re doing on the ESG front in the near future.
Sustainable Investment
The 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. It should be noted that the Trustee has a legal responsibility to invest the assets in the best way possible for all the members. In this respect, ESG is looked at through a financial lens and decisions taken where this will be of long-term benefit to the Fund.
So far the Trustee has 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 – this will be the third year we have produced this; and
- To analyse the potential impact of climate change on the Fund across different scenarios.
This year, the Trustee agreed climate-related investment targets, in summary:
- Net zero greenhouse gas (GHG) emissions across all investments by 2050;
- Minimum 50% reduction in GHG emissions of the investments excluding the liability driven investment (LDI) and private equity portfolios by 2030 relative to 31 December 2021 levels;
- Minimum 50%/55% reductions in weighted average carbon intensity of the investment grade credit portfolios by 2025/2030 relative to 31 December 2021 levels; and
- A range of individual targets for each investment grade credit portfolio to be achieved by 2030 relative to 31 December 2021 levels.
The Board also considered and agreed sustainability themes to incorporate into the investment portfolio. 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.
You can read the Trustee’s investment update to members issued on 31 March 2022 here.
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.
The table below contains a summary of the Fund’s accounts for the year ended 31 March 2022. The Fund’s annual accounts were audited by Deloitte LLP, the independent auditor.
From the accounts
| 2022 £’000 |
2021 £’000 |
|
| What was paid in | ||
| Your contributions | - | 1,622 |
| Company contributions | 737 | 88,514 |
| Total contributions | 737 | 90,136 |
| Transfers in | 416 | 1,188 |
| Other income | - | - |
| Total | 1,153 | 91,324 |
| What was paid out | ||
| Benefits to members and dependants | (112,148) | (137,986) |
| Transfers | (376,485) | (870,795) |
| Other | (1,764) | (1,800) |
| Administrative expenses | (3,286) | (4,753) |
| Total | (493,683) | (1,015,334) |
| How investments performed | ||
| Investment income | 197,518 | 184,094 |
| Change in market value of investments | (156,240) | (37,277) |
| Investment management fees | (8,509) | (8,841) |
| Taxation | - | 77 |
| Total | 32,769 | 138,053 |
| The wider picture | ||
| Balance at the start of the Fund’s financial year | 8,541,051 | 9,335,564 |
| Add what was paid in | 1,153 | 91,324 |
| Take away what was paid out | (493,683) | (1,015,334) |
| Take into account investment returns | 32,769 | 138,053 |
| Balance at the end of the Fund’s financial year | 8,081,290 | 8,541,051 |
Who’s in the Fund?
The Fund closed to future accrual as at 31 December 2020. The membership summary below is as at 31 March 2022.
Total
38,423
GMP Equalisation
Most members who joined the Fund before 1997 will have been contracted out of the State second-tier pension. You paid lower National Insurance contributions, and as a result built up a small amount of pension in the Fund known as the Guaranteed Minimum Pension (GMP). This is paid to you as part of your scheme pension, instead of being paid through the State second-tier pension.
You may have heard that the pension industry has been struggling with how to equalise GMPs for men and women – but this isn’t a new problem. In fact, it stretches back 25 years. We finally have potential solutions, and we will be discussing and agreeing the most appropriate method for our members over the coming year. This is a complicated subject and will not affect all members. There is no need for you to take any action. If you are affected, we will write to you separately. Any impact is likely to be very small.
WHAT’S COMING NEXT?
This is just a flavour of what’s round the corner…
- Pension dashboard – an online system which will allow users to view information from multiple pensions in one place. To be launched in 2023.
- The minimum age members can draw their pension will change from 55 to 57 in 2028. Former Rolls-Royce Pension Fund section members will not be affected as you retain a minimum pension age of 50. Members of our other sections will also not be impacted, as you will keep your minimum pension age of 55.
- The emphasis on Responsible Investment and all things ESG (Environmental, Social and Governance) with a current focus on the ‘S’ will continue to grow.
- An increasing emphasis on governance with the Pension Schemes Act 2021 requirements being introduced.
KEEP IN TOUCH
The Scheme website at www.rolls-roycepensions.com 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 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 - 5.30pm Monday to Friday). You can also find more information and useful links at www.rolls-roycepensions.com/SavingsTrust
