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).