Contents Pages 02 | 03

Contents pages 02 | 03 Chairman’s Introduction 04 The Railways Pension Scheme 06 Key Statistics 09 Audited Financial Statements 11 Independent Auditor’s Report 23 Statement of Trustee Company responsibilities in relation to Audited Financial Statements 25 The Trustee Company Annual Report 27 The Trustee’s Investment Report 42 Actuary’s Report 46 Report on Actuarial Liabilities 48 Appendices 51 Chairman’s introduction ,, On behalf of your Trustee Board I would like to introduce the Annual Report and Audited Financial Statements of the Railways Pension Scheme (‘the Scheme’) for the year ended 31 December 2015. ,, Railways Pension Scheme: 2015 Annual Report and Audited Financial Statements Chairman’s introduction pages 04 | 05 The year was a mixed one for investment returns. A consequence of the investment review is that As stated in the 2014 annual report, we are I would like to take this opportunity to record Returns on property and equity fell slightly short the range of pooled funds has been simplified, to also implementing a change programme for the my gratitude to all who have served as Trustee of their benchmarks; however all other asset ensure they meet the needs of individual Sections administration and trustee services part of our Directors during the year. The wide range of their classes achieved returns at least equal, and in whilst also allowing assets to be invested, as far operations, the ‘Chrysalis programme’. Part of knowledge and expertise is invaluable in ensuring some cases well above, their benchmarks. The as possible, as if the RPS were a single, undivided this project will be the replacement of the current that your Trustee continues to have a broad Growth Pooled Fund, in which the majority of the scheme. As a result of this simplification the pensions administration system, but we intend to understanding of the railway industry and that Scheme’s assets are invested, recorded absolute Defensive Pooled Fund was closed during the year deliver much more than that. As the name of the it represents effectively the interests of the many gains of 3.9% against a benchmark of 1.2% and and some single asset class pooled funds, such as project suggests, this will transform the way in stakeholders. a target of 5.2%. The Scheme’s second largest the Property Pooled Fund and the Hedge Pooled which RPMI, our administration business, operates. pooled fund investment, the Private Equity Pooled Fund, are now wholly owned by the Growth The UK pension landscape continues to be Fund, recorded an excellent annual gain of 16.6%, Pooled Fund with no provision for Sections to varied and changeable, especially in the defined against a benchmark of 3.8% and target of 4.8%. invest in these pooled funds directly. The Trustee 2015 saw an increase in Chrysalis contribution sections of the Scheme, and I look Of the asset classes designed to generate return, believes that multi-asset pools, where the mix of forward to working with my fellow directors and the Passive Equity Pooled Fund generated returns asset classes can be varied depending on market programme activity at RPMI as we the staff at RPMI in meeting these and the other of 1.1% almost meeting its benchmark and target conditions and opportunities, are able to capture approach the launch of the first challenges ahead. return of 1.3%. However the Property Pooled Fund returns more efficiently and effectively than single of the three programme phases failed to reach its benchmark, but still managed to asset pools. return a strong 11.4% during the year. in mid-2016. We are making a As part of the simplification of the range of pooled significant investment in RPMI to In 2013, the Trustee initiated a wide-ranging review funds, the Private Equity Pooled Fund will be wound ensure that we maintain a service of its investment governance, covering investment up, although due to the nature of the investments beliefs, structure, and a root-and-branch review of in this pooled fund, this will take several years. for our members that not only the investment processes underlying the pooled The Illiquid Growth Pooled Fund was launched in demonstrates excellent value for funds. 2015 saw the continued implementation of 2015 and this will be the Scheme’s new vehicle for many of the initiatives begun in the previous years. investing in private markets and other illiquid return- money, but represents a quality In 2014, as part of these changes, a new Railpen seeking investments in the future. service that meets the needs of Investments Board was established to manage the modern world. the pooled funds on behalf of the Trustee Board, During 2015, significant progress was made in while the Trustee Board retains oversight and reducing the numbers and scope of external John Chilman responsibility for the Scheme’s assets. The Railpen firms managing Scheme money, with an As part of the Chrysalis programme we have spoken Chairman of the Trustee Company Investments Board approves Strategic Plans for associated reduction in cost. Equity investment with our many stakeholders, a process that will each of the pooled funds at the end of each year. was increasingly carried out through Alternative continue during the implementation, and we will These provide a road map for the direction of each Risk Premia Strategies, which identify underlying be working to deliver a range of services that meets portfolio over the coming year and the resources to drivers of return and build portfolios cheaply and as many of those needs as possible. We have to be be applied to it. systematically. Some bond strategies were also mindful that the Scheme covers a wide variety of simplified, with in-house purchase of government organisations, from the very large, to those with bonds to hold long-term. only a handful of members, so the Trustee’s role is to ensure that a high-quality and cost-effective service is delivered for all sponsoring employers. The Railways Pension Scheme The Railways Pension Scheme pages 06 | 07 The Railways Pension Scheme (‘RPS’) is the largest of the four pension schemes managed by the Trustee Company (‘Trustee’). It is one of the 3.5m passengers travel by train in the UK largest schemes in the UK and provides pensions for 157 (2014: 152) every day. companies operating within the privatised railway industry. The Railway Touring Company The RPS comprises six parts: the 1994 Pensioners Section, the Shared Cost Arrangement, the Defined Contribution Arrangement, the Defined Benefit Arrangement, the Omnibus Section and the Industry-Wide Defined Contribution (‘IWDC’) Section. Employers may participate in more than one arrangement and in more than one section of the Shared Cost Arrangement. There are 113 sections (2014: 110 sections) across the six parts of the RPS as illustrated below: Railways Pension Scheme 1994 Shared Cost Defined Defined Benefit Omnibus IWDC Section Pensioners Section Arrangement Contribution Arrangement Arrangement Section 1 107 3 0 1 1 sections 1 117 3 38 27 employers 114,059 217,782 71 1,753 4,068 members The Railways Pension Scheme franchised or sold, a proportionate share of RPS The IWDC Arrangement was established on Advantages of an industry-wide The 1994 Pensioners Section assets was transferred to the new section of the 1 November 2001. The Arrangement aims scheme Scheme. Subsequent sales and transfers of parts to provide employers with a flexible defined Pensioners and preserved pensioners in the BR of businesses can now result in the creation or contribution scheme. At the end of 2015, 27 The industry-wide structure allows the assets to be Pension Scheme on 30 September 1994 were mergers of sections. employers were part of this Arrangement (2014: combined into ‘pooled funds’. These investment transferred into a separate section of the RPS – the 22 employers). funds are significantly larger than would be 1994 Pensioners Section. Later, on 30 December As at 31 December 2015, 93 of the 107 shared possible were sections to invest their assets 2000, pensioners and preserved pensioners of cost sections had active members and 45 of these At 31 December 2015, there were three defined separately, resulting in several advantages for the the BR Section were also transferred to the 1994 shared cost sections remain open to new members. contribution sections (2014: three sections). schemes and sections. Pensioners Section. The assets and liabilities of For open sections, employees of the participating another six closed railway pension schemes were employer who are employed in the railway industry Reporting For example, the asset allocation needs of sections also transferred to the 1994 Pensioners Section in may join the Scheme. New members are not can be considered separately from the appointment 2007, after agreement between the Trustee and protected under the Railways Act 1993, however, and monitoring of individual investment managers. the Department for Transport. so their pension rights may differ from those who There are separate records for each section and The size of the pooled funds also allows all sections have protected rights. A full list of sections and each section receives quarterly reports including to benefit from economies of scale in investment The Secretary of State guarantees participating employers is given in Note 11 to the accounts, investment and administration management costs and access to a wide range of Audited Financial Statements. performance. Each section is independently valued investments. Sections wishing to invest in pooled all past service liabilities and by the Scheme Actuary. funds in the first instance, where possible, buy pensions in payment of the 1994 pooled fund units from sections wishing to sell, The Omnibus Section Pensions Committees thus avoiding some of the external investment Pensioners Section at 1 August transaction costs.

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