THE FIRSTGROUP PENSION SCHEME ANNUAL REPORT FOR THE YEAR ENDED 5 APRIL 2020 Scheme Registration Number: 10248863 The FirstGroup Pension Scheme Annual Report for the year ended 5 April 2020 Contents Page Trustee, Principal Employer, Participating Employers and Advisers 1 - 2 Trustee's Report 3 - 12 Statement of Trustee's Responsibilities 13 Independent Auditor's Report to the Trustee 14 - 15 Financial Statements 16 - 17 Notes to the Financial Statements 18 - 28 Independent Auditor's Statement about Contributions to the Trustee 29 Summary of Contributions 30 Actuarial Certificate 31 The FirstGroup Pension Scheme Annual Report for the year ended 5 April 2020 Trustee, Principal Employer, Participating Employers and Advisers Trustee The FirstGroup Pension Scheme Trustee Limited Employer-nominated Trustee Directors Capital Cranfield Pension Trustees Limited (represented by Lukshmi Selvarajah) I Hodgson (appointed 26 March 2020) A Ritchie (resigned 19 March 2020) Member-nominated Trustee Directors R Soper Secretary to the Trustee Inside Pensions Principal Employer FirstGroup Holdings Limited Participating Employers First Aberdeen Limited First Beeline Buses Limited First Eastern Counties Buses Limited First Glasgow (No.1) Limited First Manchester Limited First Scotland East Limited First South Yorkshire Limited First Travel Solutions Limited First West of England Limited First West Yorkshire Limited Leicester Citybus Limited Tram Operations Limited Scheme Actuary John Hemsley, FIA Mercer Limited Independent Auditor Grant Thornton UK LLP Administrator Mercer Limited Investment Manager Mercer Limited Investment Custodian State Street Custodial Services (Ireland) Limited Investment Adviser Mercer Limited Page 1 The FirstGroup Pension Scheme Annual Report for the year ended 5 April 2020 Trustee, Principal Employer, Participating Employers and Advisers Additional Voluntary Contribution (AVC) Provider Standard Life Assurance Limited Bank National Westminster Bank Plc Legal Adviser Linklaters LLP Contact for further information and complaints about the Scheme The FirstGroup Pension Scheme Trustee Limited c/o Mercer Limited 5 George Square Glasgow G2 1AR Telephone: 0870 850 0712 Email: [email protected] Page 2 The FirstGroup Pension Scheme Annual Report for the year ended 5 April 2020 Trustee's Report Introduction The Trustee of The FirstGroup Pension Scheme (the Scheme) is pleased to present its report together with the audited financial statements for the year ended 5 April 2020. The Scheme is a defined benefit scheme. With effect from April 2012, the Scheme was closed to new entrants. The Scheme closed to future accrual from 6 April 2018. Constitution The Scheme was established in 2000 with a definitive trust deed and rules dated 4 February 2000. The Scheme is currently governed by an updated trust deed dated 30 March 2006 with subsequent amendments. During the year ended 5 April 2020, Deeds of Amendment were executed to: - allow the lump sum death benefit in respect of a member to be paid 23 months after the Trustee were notified or when the Trustee could have reasonably known of the death; - allow commutation of pension benefits in cases where the member was in serious ill health; - transfer a small group of members whose sole benefit under the Scheme was a money purchase account consisting of protecting rights accounts; and - transfer two protected rights members back from First UK Bus Pension Scheme to the FirstGroup Pension Scheme as these two members had other benefits in the FirstGroup Pension Scheme. Management of the Scheme Trustee The Trustee who served during the year is listed on page 1. In accordance with the Occupational Pension Schemes (Member-nominated Trustees and Directors) Regulations 2006, members have the option to nominate and vote for Member-nominated Trustee Directors. The one Member-nominated Trustee Director, as shown on page 1, is nominated by the members under the rules notified to the members of the Scheme. He may be removed before the end of his term only by agreement of all the remaining Trustee Directors, although his appointment ceases if he ceases to be a member of the Scheme. In accordance with the trust deed, the Principal Employer, FirstGroup Holdings Limited, has the power to appoint and remove the Trustee of the Scheme. The Directors of The FirstGroup Pension Scheme Trustee Limited are appointed and removed in accordance with the Company's Articles of Association. Statement of Trustee's Responsibilities The Statement of Trustee's Responsibilities is set out on page 13 and forms part of this Trustee's Report. Governance and risk management The Trustee has in place a business plan which sets out its objectives in areas such as administration, investment and communication. This, together with a list of the main priorities and timetable for completion, helps the Trustee run the Scheme efficiently and serves as a useful reference document. The Trustee has also focused on risk management. A risk register has been put in place which sets out the key risks to which the Scheme is subject to, along with the controls in place to mitigate these. This register is regularly reviewed and updated by the Trustee. Trustee knowledge and understanding The Pensions Act 2004 requires trustees to have sufficient knowledge and understanding of pensions and trust law and be conversant with scheme documentation. The Pensions Regulator has published a Code of Practice on Trustee Knowledge and Understanding to assist trustees on this matter which became effective from 6 April 2006 and which was revised and reissued in November 2009. The Trustee has agreed a training plan to enable it to meet these requirements. Page 3 The FirstGroup Pension Scheme Annual Report for the year ended 5 April 2020 Trustee's Report Principal and participating employers The Scheme is provided for all eligible employees of the Principal and participating employers. The Principal Employer's registered address is FirstGroup Holdings Limited, 8th Floor, The Point, 37 North Wharf Road, London, W2 1AF. Flexible apportionment arrangements During the year, scheme apportionments arrangement documentation was submitted to the Pensions Regulator for four employers which had ceased to be a Participating Employer of the Scheme in prior years. In the majority of cases, the Section 75 debt was apportioned to the Principal Employer, FirstGroup Holdings Limited, and the table below summaries the amounts apportioned, the date of cessation and which company took over the liability: Section 75 Debt Participating Employer Cessation Date Apportioned Apportioned to First Bristol Buses Limited 1 June 2017 £4.7m First Bus Central Services Limited First Essex Buses Limited 28 April 2017 £1.9m FirstGroup Holdings Limited First Hampshire & Dorset Limited December 2017 £2.3m FirstGroup Holdings Limited First South West Limited 31 March 2015 £2.4m FirstGroup Holdings Limited Financial development The financial statements on pages 16 to 28 have been prepared and audited in accordance with the Regulations made under Section 41 (1) and (6) of the Pensions Act 1995. They show that the value of the fund decreased from £162,346,562 at 5 April 2019 to £158,691,860 at 5 April 2020. The decrease shown above comprised net withdrawals from dealings with members of £5,661,216 together with net returns on investments of £2,006,514. Page 4 The FirstGroup Pension Scheme Annual Report for the year ended 5 April 2020 Trustee's Report Report on actuarial liabilities Under Section 222 of the Pensions Act 2004, every scheme is subject to the Statutory Funding Objective, which is to have sufficient and appropriate assets to cover its technical provisions. The technical provisions represent the present value of the benefits members are entitled to based on pensionable service to the valuation date. This is assessed using the assumptions agreed between the Trustee and the Principal and participating employers and set out in the Statement of Funding Principles, which is available to Scheme members on request. The most recent full actuarial valuation of the Scheme was carried out as at 5 April 2018. An updated valuation was performed on 5 April 2020. These showed: Actuarial Valuation Actuarial Update 5 April 2018 5 April 2020 The value of Technical Provisions was £167.9 million £178.8 million The value of assets was £160.3 million £159.8 million Percentage of Technical Provisions 95% 89% The method and significant actuarial assumptions used to determine the technical provisions are as follows (all assumptions adopted are set out in the Appendix to the Statement of Funding Principles). Method The actuarial method to be used in the calculation of the technical provisions is the Projected Unit Method. Significant actuarial assumptions for the valuation as at 5 April 2018 Financial assumptions Discount interest rate Pre-retirement: 2.53% p.a. Post-retirement: 2.18% p.a. Price inflation (RPI): 3.23% p.a. Price inflation (CPI): 2.43% p.a. Salary increases: n/a Deferred revaluation (non-GMP) 2.43% p.a. Pension increases in payment CPI Max 5% p.a. 2.40% p.a. CPI Max 3% p.a. (Post 88 GMP) 1.97% p.a. Demographic Assumptions Retirement Earliest age at which members may retire without a reduction to benefits Mortality - base table S2PA (year of birth) tables adjusted by 85%/92% for male/female members and by 96%/106% for female/male contingent lives Mortality - future improvements CMI 2017 core projection model with a long-term improvement rate of 1.75% p.a. Commutation 75% of maximum tax free lump sum