Trustee Report 2020 Smithkline Beecham Senior Executive Pension Plan
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Summary Pension Trustee Report 2020 SmithKline Beecham Senior Executive Pension Plan For the year ending 31 December 2020 Welcome to your Report Welcome to the Summary Trustee Report for 2020 for the SmithKline Beecham Senior Executive Pension Plan (the ‘Plan’), which provides a summary of the finances, investments and funding of the Plan over the year to 31 December 2020. The Plan is sponsored by GlaxoSmithKline Services Unlimited (‘GSK’). Covid-19 In response to the Coronavirus (Covid-19) pandemic, a Covid-19 working group was formed in March 2020, comprising the Chairs of the Trustee Boards and the various sub-committees. This group continues to meet frequently and monitors the impact of the Covid-19 pandemic on all key areas, including the employer covenant, the ongoing performance of the third party providers (including business continuity), DB funding levels, the investment manager performance, asset custody, liquidity of funds, administrative performance and DC scheme considerations. The Trustee is pleased to report that, to date, the pandemic has had no lasting detrimental impact on any key area for the Schemes. The financial statements reflect fair value of the Fund’s assets at the reporting date. At the year end (i.e. 31 December 2020), and subsequent to the year end, there have been no restrictions imposed on the trading of any assets. Membership The chart below shows the membership of the Plan as at 31 December 2020. Employee members 3 Employee members are current employees who are covered for Death in Service benefits only. Deferred members Plan 82 Deferred members are are former employees who membership have accrued benefits for past service but have not yet retired. Pensioners 645 Pensioners are members who are currently receiving a pension from the Plan -2- Financial highlights The table below summaries the financial information for the year to 31 December 2020. £M Value as at 31 December 2019 697 Income - GSK contributions* 0.7 Investment returns 57 Expenditure** (47) Value as at 31 December 2020 708 * GSK contributions include member contributions paid via Salary Sacrifice. **Expenditure incudes benefits paid, transfers to other schemes and administrative expenses. How the DB Assets are Invested At 31 December 2020 the Plan asset allocation was invested as shown below. The position reflects the purchase of a bulk annuity policy from Aviva to secure the majority of future benefits of all the Plan’s members (a ‘full scheme buy-in’). This asset provides a hedge against the Plan’s liabilities with a small remaining asset allocation in index linked government bonds and cash. SB SEPP £ Liability matching 100% This includes Bonds, Cash and Insurance Policies. -3- Update on the funding of the Plan - Defined Benefit section of the Plan The funding position of the Defined Benefit section of the Plan Formal actuarial valuations are normally carried out every three years. A formal valuation of the Plan is being carried out as at 31 December 2020 and the Trustee and GSK are currently in the process of agreeing new principles for ensuring sufficient funds are available to meet current and future expected pension payments. The last formal valuation of the Plan was carried out by the Plan’s actuary as at 31 December 2017, which showed the Plan to have a funding surplus of £38M. As previously communicated to members, on 9 May 2019, the Trustee purchased a bulk annuity contract with Aviva, to secure the majority of future benefits of all the Plan’s members (a ‘full scheme buy-in’). This was fully funded through a transfer to Aviva of £675M, consisting of investments and cash from the Plan. Following the above transaction, the Plan has retained a small surplus which is intended to cover the cost of other benefits that are outside the scope of theAviva policy, including the costs associated with GMP equalisation. The Trustee and GSK regularly monitor the funding of the Plan and as at 31 December 2020 the Plan was estimated to have a surplus of assets of £8m (£8m as at 31 December 2019). Please note that the estimated position at 31 December 2020 is approximate and does not make allowance for any new principles agreed between the Trustee and GSK as part of the formal actuarial valuation as at 31 December 2020. Additional Contributions Both GSK and the Trustee have a common objective for the Plan to be fully funded. The next full valuation of the Plan is expected as at 31 December 2020 and as the majority of the Plan’s liabilities are now covered by a full scheme buy-in, GSK and the Trustee expect the Plan to remain fully funded. However, if a shortfall is identified, the Trustee and GSK would need to agree a deficit recovery plan to deal with this. -4- Update on the funding of the Plan - Defined Benefit section of the Plan If GSK were to become insolvent In the unlikely event that GSK were to become insolvent, the Plan would have to be wound up and the Trustee would seek to secure members’ benefits with an insurance company. An insurance company would take over the responsibility and risk of funding the Plan’s benefits and would typically use an even more conservative approach to calculating the liabilities of the Plan than GSK and the Trustee currently do. If responsibility for the Plan’s benefits were to be transferred to an insurance company, at the last formal valuation the actuary estimated that the Plan had sufficient assets, as at 31 December 2017, to secure around 96% of members’ benefits. Since 31 December 2017 this position improved and the Trustee was able to fund the full scheme buy-in premium from Plan assets. Members’ benefits should be covered in full in the event that GSK were to become insolvent. Pension Plan members’ benefits receive a degree of protection from the Pension Protection Fund (PPF). If GSK were to become insolvent and there were insufficient funds in the Plan to provide pension benefits, the PPF might be able to take over the assets and pay compensation to members. A reduced level of benefits would be payable to the members from the PPF. The Trustee regularly monitors the covenant of GSK and some of the factors that it considers include credit ratings, profitability, market capitalisation, cash flow and liquidity. No payments to GSK The law requires the Trustee to confirm whether there were any payments made to GSK from the Plan’s assets since the last summary funding statement. We can confirm that no payments have been made to GSK from the Plan’s assets. No intervention by the Pensions Regulator The law requires the Trustee to confirm whether the Pensions Regulator has modified the Plan Rules, issued statutory directions regarding the funding of the Plan or imposed a schedule of contributions on the Plan, in accordance with its powers under the Pensions Act 2004. We can confirm that the Pensions Regulator has taken no such steps in relation to the Plan. -5- Additional Voluntary Contributions (AVCs) Investment Fund Performance to 31 December 2020 The table below shows the performance figures (after fees) for the largest three Defined Contribution investment funds. Over the Over the last 3 years last year (Annualised) Cash 0.3% 0.5% GSK Global Equity Index 12.6% 8.6% GSK Inflation Linked Pre-Retirement 11.5% 6.5% Other funds are available. Full details are available from the Pension Helpline or on the Trustee’s website at: www.gskpensions.co.uk. Please remember that past performance is not a guide to future returns and future returns are not guaranteed. The value of an investment will fluctuate (this may be partly the result of exchange rate fluctuations) and you may not get back the full amount invested. -6- Fund changes During Q2 2020, the Trustee introduced two additional underlying manager allocations within both the GSK Diversified Growth Fund and the GSK Lifecycle Fund; The Fulcrum Diversified Absolute Return Fund (‘Fulcrum’) and the Man Group Alternative Risk Premia Strategy (‘Man Group’). Both the Fulcrum and Man Group Funds allocate to a diverse range of asset classes and underlying investment strategies that are generally not widely accessed in other areas of the GSK Lifecycle Fund and GSK Diversified Growth Fund. Alongside the addition of the Fulcrum and Man Group Funds, the overall balance of assets of the GSK Lifecycle Fund was changed. This resulted in a reduction to passive equities and an increase in allocation to the GSK Diversified Growth Fund within the GSK Lifecycle Fund structure. Chair’s DC statement The Trustee of the Plan must produce a Chair’s statement each year confirming the steps the Trustee has taken to ensure good governance of the Plan’s defined contribution arrangements over the previous year. A copy of the Chair’s statement is included in the Plan’s full report and accounts, which can be found on the Trustee website in the same location as this Summary Trustee Report: 1. Go to www.gskpensions.co.uk 2. Click on ‘Governance’ 3. Select your pension Fund to read the relevant information under ‘Key Documents’ 4. You can print or save the report if you want to The full report and accounts also includes information on contingent liabilities, the impact of Covid-19 and events subsequent to the year-end. -7- Trustees and Advisers Who looks after the Plan? The SmithKline Beecham Senior Executive Pension Plan is set up under a trust and is managed by the Trustee, SmithKline Beecham Senior Executive Pension Plan Trustee Limited. Trustee Directors The current Directors of the Trustee are: Independent Trustee Directors: • The Law Debenture (JIC) Pension Trust Corporation,