PENSION It all adds up UPDATE 2016
For members of the Lloyds Bank Offshore Pension Scheme, Defined Benefit section CONTENTS
Welcome 3 The Trustee Board 4 Meet the new Trustee Director 5 Membership 6 Are you considering moving roles within Lloyds Banking Group? 7 Financials 8 Investment performance update 9 Actuarial valuation update 10 Scheme news 10-11 Pensions news 12-14 Scheme advisers 15 Contact us 16
2 WELCOME
Welcome to the latest edition of Pension Update, the trustee newsletter for members of the Lloyds Bank Offshore Pension Scheme (the Scheme). The last year has been a busy one for the Scheme, and across the following pages are some important updates for you. On page 6 you can see how the membership figures have changed over the year and you’ll find an update on the Scheme’s investment performance on page 9. In Pensions news on pages 12-14 there are Island-specific updates which may interest you. If you’d like a printed copy of this newsletter, you can request one from the Scheme administrator. Contact details are on the back page. We hope you enjoy reading this newsletter. Email your thoughts to us at [email protected] – we’d be delighted to hear your ideas for articles we could include in future. The Law Debenture Trust Corporation (Channel Islands) Limited representing the Chairman of the Trustee Board
3 THE TRUSTEE BOARD
Employer-Appointed Trustee Directors
John Hope Simon Prescott Peter Reid Ross Willcox
Member-Nominated Trustee Directors
Paul Gallichan Paul McAuley Chris Taylor
Independent Trustee Director
David Barry representing The Law Debenture Trust Corporation (Channel Islands) Limited
4 THE TRUSTEE BOARD MEET THE NEW TRUSTEE DIRECTOR Why did you become a Trustee Director? Some years ago I was asked to become an employer-nominated trustee for the scheme where I was an active member. I enjoyed the challenge and found that I had quite a lot of relevant experience which enabled me to contribute fully. When I retired, I was asked to stay on as a trustee. I decided that it would be a good idea to have a few trusteeships so that I could gain exposure to different advisers and issues. Presently I’m a trustee of five schemes which brings a John Hope range of challenges.
What skills and expertise do you bring to the Trustee Board? Almost by chance I have quite a lot of experience that’s relevant to being a trustee. After qualifying as an accountant I moved into pension scheme investment management. I’ve managed equity, fixed income, property and private equity portfolios; I’ve also set up back and middle office functions. Towards the end of my career, I moved into corporate development and then investor relations, all of which helps when choosing and getting the best out of pension advisers. It should also mean that I have an idea about communication – but that may be for others to judge!
What are your priorities for the coming year as Trustee Director? There’s quite a lot happening for the Scheme in 2016. We have new trustees and have set up an Investment Committee, which I chair. Importantly, we have a triennial valuation, so the priorities are making sure the Trustee Board functions as well as it can, that the investments are fit for purpose, that we foster good relations with the Scheme’s principal employer and that we have successful outcomes to any negotiations that underpin the security of the Scheme.
What are your hobbies and interests? My hobbies and interests are centred around family and sport. I have two children and two grandchildren, so I see them as often as possible. Being retired also gives me more time to watch live sport. I like horse racing and have a share in a horse which is good fun but certainly doesn’t make money. I support Hull City (I’m from Hull, that’s my excuse) and like watching cricket. I also like travel – but who doesn’t?
5 MEMBERSHIP
Active members
At 31 December 2014 At 31 December 2015 251 219
Deferred members
At 31 December 2014 At 31 December 2015 362 352
Pensioners and dependants
At 31 December 2014 At 31 December 2015 359 395
Total members
At 31 December 2014 At 31 December 2015 972 966
6 ARE YOU CONSIDERING MOVING ROLES WITHIN LLOYDS BANKING GROUP (THE GROUP)?
If you’re looking at new opportunities that might involve moving permanently from the Islands to mainland UK, you should be aware that this would affect your pension scheme membership. Such a move would mean leaving the Scheme and joining the Group’s defined contribution pension scheme, Your Tomorrow, for future membership. The benefits already built up in the Scheme would be preserved until your normal retirement date. Further information about changing pension schemes in these circumstances is available on the Pensions Talk section of the Group Pensions website. Make sure you review this important information before making a decision to make a change.
7 FINANCIALS
A summary of the Trustee Board’s Annual Report and Financial Statements for the year ended 31 December 2015 is shown below:
Income £m Total Contributions 8.9 £8.9m
Expenditure £m
Pensions in payment (7.3) Total Payments in respect of leavers (5.0) £13.6m Other expenses (1.3)
Returns on investments £m
Change in market value of investments 3.5 Total Investment income 0.8 £4.1m Investment management expenses (0.2)
Assets £m Decrease Net assets at 31 December 2014 302.9
Net assets at 31 December 2015 302.3 £0.6m
Figures are shown in millions (£m).
8 INVESTMENT PERFORMANCE UPDATE Over the period 1 January 2015 to 31 December 2015, the Scheme’s assets decreased by £2.1 million to £299.3 million after allowing for Scheme cash flows during the year. Equity returns were broadly positive during the year and, alongside property, contributed positive returns to the Scheme’s total performance across the period. Fixed income investments provided relatively flat returns as yields ended the year at a broadly similar level to the start. ‘Passive’ investments aim to perform in line with market benchmarks and the Scheme’s passive investments in Legal & General Investment Management continue to perform in line with their benchmarks. ‘Active’ investments aim to outperform market benchmarks. Of the Scheme’s active investments, the fund of hedge funds managed by Benchmark Plus returned 11.3%, outperforming its benchmark of 11%, Rockspring (UK property) returned 13.7%, slightly ahead of its benchmark of 12.3% and CBREGI (European Property) returned 17.8%, outperforming its benchmark of 8.0%. A review of the Scheme’s investment strategy is currently underway, to restructure some of the portfolio to improve its investment efficiency. Asset allocation may drift from the central benchmark weight, due to factors such as market movements and asset transitions. This may have an impact on the overall Scheme performance. The performance of the DB section’s investments at 31 December 2015, over one and three year periods as well as since inception, compared with the benchmark, is shown below:
Actual % Benchmark %
1 year 1.5 2.5
3 years 8.5 8.6
Since inception 7.8 8.2
Please note that past performance is not a guide to future performance and investments can go down in value as well as up.
What’s a benchmark? A benchmark is a target against which investment performance is measured. The benchmark represents the performance of each market (for example, the UK Equity Fund’s benchmark is the FTSE All Share Index which measures the performance of most company shares in the UK). Each individual fund aims to perform in line with its benchmark (if it’s ‘passive’) or above its benchmark (if it’s ‘active’). To calculate the total Scheme benchmark, all the individual fund benchmarks are blended in proportion to the fund’s strategic asset allocation. Therefore, the total Scheme benchmark incorporates Equity, Property and Corporate and Government Bonds benchmarks.
9 ACTUARIAL VALUATION UPDATE
The Trustee Board works closely with Lloyds Bank Plc (the Bank) to ensure your benefits are adequately funded, secured and governed. A formal actuarial valuation is carried out every three years by the Scheme actuary. The 31 December 2012 valuation was finalised in early 2015. The next actuarial valuation, with an effective date of 31 December 2015, is currently underway. As part of the last valuation, the Trustee Board and the Bank entered into a contingent asset agreement. In general terms, this provides a guarantee for the payment of the deficit contributions and also a guarantee in respect of any shortfall arising for amounts payable to the Scheme on the occurrence of certain events (for example, if the Bank were to become insolvent or the Scheme were to wind up in deficit). The value of these contingent assets will fluctuate in line with market conditions but as at 29 April 2016 were valued at £187.1 million. The financial position and the contributions required will continue to be regularly reviewed.
What’s an actuarial valuation? An actuarial valuation is a financial health check of the Scheme. The Scheme actuary, an independent professional, carries out the actuarial valuation at least every three years. The results of the actuarial valuation tell the Trustee Board how well funded the Scheme is.
SCHEME NEWS Paying additional voluntary contributions Active members of the Scheme paying money purchase additional voluntary contributions (AVCs) were previously subject to a condition that their AVC payments would not exceed 15% of their total pay for that year (as required under applicable legislation). This restriction has recently been lifted, and active members may now pay AVCs (Pension Extra) that exceed 15% of pay. If you wish to start paying or increase the amount of AVCs that you pay to Pension Extra, you can do this at any time via Flex. Visit www.lbgflex.com to find out more.
10 Cash at retirement You have the option of taking some of your pension at retirement as cash. This is currently tax free, subject to a specified limit in Guernsey which takes into account certain other lump sums that have been paid to you from pension schemes (for 2016 this limit is £188,000). The amount of cash you’re able to take from your benefits at retirement is likely to increase in the coming months as the Trustee Board is revisiting the formula it uses to calculate the amount of cash that you may choose to take. The amount you can take is calculated based on what section of the Scheme you’re in and, usually, the Island on which you’re ordinarily resident when you take your benefits. This may also be impacted by how many years of Pensionable Service you have and whether your Scheme benefits are contracted-out (Isle of Man members only). Please contact the Scheme administrator for further details if you plan to retire in the near future.
Change of administrator We’re currently undergoing the process of changing the Scheme’s administrator and want to keep you as up to date as possible about the change and how it may affect you. The change isn’t due to happen until later in 2016, when we’ll write to all members. There’ll also be a dedicated area on the Group Pensions website at lloydsbankinggrouppensions. com/adminchange where you’ll be able to find out more, alongside who to contact if you have any queries or questions.
Brand new website We’ve designed the new website with members in mind, and hope you find the information useful and the tools helpful and easy to use. Some of the new features include: - Information specific to your Scheme - Useful contact details - A new retirement lifestyle calculator Take a look at lloydsbankinggrouppensions.com
Have you completed a nomination form? It’s really important that you complete a nomination form and keep it up to date. A nomination form lets the Trustee know who you would like to receive any benefits that may be payable in the event of your death. The Trustee Board is not legally bound by the wishes you express in your form, but will take them into account when making the decision about who is to receive any benefits due. If you haven’t yet completed a nomination form (or you need to update it), you can download one from the Group Pensions website. 11 PENSIONS NEWS
Please note that the Scheme may not be affected by the changes detailed below. The Trustee Board is considering the potential relevance of the changes to the Scheme in conjunction with the Bank’s pension policies team and its legal advisers. Any changes might require amendments to the Scheme rules.
Channel Islands Financial Ombudsman The Channel Islands Financial Ombudsman was launched on 16 November 2015. It will only consider acts or omissions giving rise to a complaint in Jersey from 1 January 2010 onwards and in Guernsey from 2 July 2013 onwards. Further details about the complaints procedure can be found on their website at www.ci-fo.org Please note, the Financial Ombudsman will not consider complaints involving the Isle of Man.
Jersey Tax relief on pensions for non-residents In the past, non-resident individuals receiving taxable Jersey pension income have been entitled to a proportion of the allowances and reliefs available to Jersey residents. Following the 2016 budget, this entitlement is abolished and non-residents will pay tax at an effective rate of 20% on their pension income. Guernsey Lump sums from overseas pension schemes On 2 October 2015, changes came into force concerning the tax charges a Guernsey resident might expect to receive on any lump sums taken from an overseas pension scheme at retirement. This includes lump sums taken from pension schemes which: • Are situated outside Guernsey; • Are approved/exempted by the relevant overseas tax authority; and • Provide similar benefits to a Guernsey Retirement Annuity Trust. The lump sum will be free from Guernsey income tax providing that it’s not more than 30% of the value of the member’s fund. Lump sums in excess of this limit will be taxed as income in Guernsey in the year that they are paid. Visit the Guernsey government’s website at www.gov.gg/taxpensions for further details.
12 Transfers into occupational pension schemes Also from 2 October 2015, new limits apply to the tax relief on lump sums from occupational pension schemes in respect of funds transferred in from either: • Guernsey unapproved schemes; or • Overseas pension schemes to the value of the funds derived from the transfer value.
Tax relief on contributions paid to an occupational pension scheme With effect from 1 January 2016, the tax relief limit of £50,000 applies to all contributions made to occupational pension schemes, including Retirement Annuity Trusts. Visit www.gov.gg/taxpensions for further details.
Transfers into occupational pension schemes Also from 2 October 2015, new limits apply to the tax relief on lump sums from occupational pension schemes in respect of funds transferred in from either: • Guernsey unapproved schemes; or • Overseas pension schemes to the value of the funds derived from the transfer value.
Tax relief on contributions paid to an occupational pension scheme With effect from 1 January 2016, the tax relief limit of £50,000 applies to all contributions made to occupational pension schemes, including Retirement Annuity Trusts. Further details can be found on the Guernsey government’s website at www.gov.gg/taxpensions Isle of Man In July 2015, Tynwald voted in favour of supporting the introduction of proposals to allow Manx residents ‘pensions freedoms equal to or better than those currently available in the UK’. A Working Group has been established, including various private sector and government participants, and it’s anticipated that their findings and proposals will be brought back to Tynwald sometime in 2016. UK Budget news In his Budget speech on 16 March 2016, the Chancellor of the Exchequer announced no new changes to UK pensions other than those that had been announced in the previous budgets in 2015 relating to tax allowances. See lloydsbankinggrouppensions.com/library/ tax_information for details about the changes which took effect from April 2016.
13 Pension scams – update Pension scams are continuing to happen, with some people being tricked into handing over their life savings. Here are some of the most common tactics used by fraudsters: • A cold call, text message, website pop-up or someone coming to your home offering a ‘free pension review’, ‘one-off investment opportunity’ or ‘legal loophole’. • Convincing marketing materials that promise returns of over 8% on their investment. • Paperwork delivered to your door by courier that requires immediate signature. • A proposal to put your money in a single investment. • Claim that you can access your pension before age 55. • Transfer of your money overseas. Please be vigilant and alert to scams at all times when talking to anyone about savings. You can visit the UK Pensions Regulator’s website at www.pension-scams.com to read more.
UK State Pension changes There have been some changes to the UK State Pension provisions with effect from 6 April 2016. One of the changes is to the UK State Pension age (SPA). You can read The new State Pension on the UK government’s website to find out more. How do these changes affect active members of the Scheme? Depending on the Section of the Scheme that you belong to, there is a State Pension adjustment to your pension benefits at SPA. For members of Section B of the Scheme (former members of the old LBI Channel Islands Pension Scheme), the adjustment will continue to be based on the State Pension of the relevant Island and will apply based on your local, Island-specific SPA. For members of Section D of the Scheme (former members of the Lloyds TSB Group Pension Scheme No.1), the adjustment will apply based on the existing basic State Pension in the UK (i.e. the adjustment, will continue to be on the same basis as now) and your equivalent SPA under the UK system. Members of Sections A (former members of the old TSB (Channel Islands) Pension Scheme and the Lloyds TSB Group Pension Scheme No.2) and C (former members of the Hill Samuel & Co (Jersey) Ltd Pension Scheme) do not have a State Pension adjustment, so are not affected by this.
14 SCHEME ADVISERS
The Trustee Board has appointed the following professional advisers and managers to assist with the running of the Scheme:
Actuary and Investment advisers Willis Towers Watson Limited
Independent auditors PricewaterhouseCoopers LLP
Bankers Lloyds Bank Plc
Covenant adviser KPMG (with effect from March 2015)
Custodian The Bank of New York Mellon – Asset Servicing
Investment managers Benchmark Plus Management LLC CB Richard Ellis Collective Investors UK Limited Legal and General Assurance (Pensions Management) Limited LGIM (with effect from March 2016)
Advocates Allen & Overy LLP Cains Mourant Ozannes
Nominee company BNY Mellon Nominees Limited 15 CONTACT US
If you have any questions about the Scheme, please contact the Scheme administrator:
Lloyds Pension Administration, Willis Towers Watson, PO Box 545, Redhill, Surrey, RH1 1YX
01737 227 522
lloydsbankinggrouppensions.com
Independent financial advice If you’d like to talk to a financial adviser in your local area, visit: For Jersey: Financial Services Commission at www.jerseyfsc.org/investment_business For Guernsey: Financial Services Commission at www.gfsc.gg For Isle of Man: Financial Services Authority at www.iomfsa.im
Disclaimer The full terms and conditions of the Scheme are contained in the Trust Deed and Rules. The Trust Deed and Rules are formal documents that are the legal basis of the Scheme and will prevail in the event of any disagreement. Nothing in this document confers any entitlement to benefits.
THIS NEWSLETTER IS AVAILABLE IN LARGE PRINT, BRAILLE OR AUDIO FORMAT. CONTACT THE SCHEME ADMINISTRATOR
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