ASSESSMENT OF FINANCIAL STRENGTH & CORPORATE PROFILE B&CE GROUP OF COMPANIES (TRADING AS B&CE)

Transcription

1 ASSESSMENT OF FINANCIAL STRENGTH & CORPORATE PROFILE B&CE GROUP OF COMPANIES (TRADING AS B&CE) OCTOBER 2015

2 CONTENTS 1 INTRODUCTION BACKGROUND AKG S ASSIGNMENT INFORMATION SOURCES RELIANCES AND LIMITATIONS CONFIDENTIALITY ASSESSMENT CRITERIA FINANCIAL STRENGTH AND CORPORATE PROFILE BACKGROUND OVERVIEW OF THE GROUP AND ITS PROPOSITION REGULATION AND LEGISLATION B&CE GROUP CORPORATE STRUCTURE B&CE GROUP BUILDING AND CIVIL ENGINEERING HOLIDAYS SCHEME MANAGEMENT LIMITED B & C E FINANCIAL SERVICES LIMITED B & C E INSURANCE LIMITED THE BUILDING & CIVIL ENGINEERING CHARITABLE TRUST BUILDING AND CIVIL ENGINEERING BENEFITS SCHEME TRUSTEE LIMITED THE PEOPLE S PENSION TRUSTEE LIMITED THE PEOPLE S PENSION SCHEME DISTRIBUTION IMAGE & STRATEGY SERVICE REINSURANCE CORPORATE GOVERNANCE CONCLUSION APPENDIX 1 AE STAGING DATES APPENDIX 2 FINANCIAL STRENGTH RATING APPENDIX 3 INFORMATION ABOUT AKG AKG Financial Analytics Ltd Page 2 October 2015

3 1 INTRODUCTION 1.1 BACKGROUND This Report has been prepared for the B&CE Group of Companies, trading as B&CE (the Client, B&CE). This Report replaces, in its entirety, AKG s previous report dated February AKG s assignment can be broadly summarised as: 1.2 AKG S ASSIGNMENT To produce a confidential independent assessment of B&CE, taking account of AKG s generic experience of the requirements of leading intermediaries including IFAs and Employee Benefit Consultants, and including elements from the format of AKG s annual Company Profile & Financial Strength Reports for UK Life Companies, Friendly Societies & Similar Providers. AKG has been supplied with the following information: 1.3 INFORMATION SOURCES a) Building and Civil Engineering Holidays Scheme Management Ltd Annual report and financial statements for the year ended 31 March 2015 b) B & C E Insurance Ltd Annual report and financial statements for the year ended 31 March 2015 c) B & C E Financial Services Ltd Annual report and financial statements for the year ended 31 March 2015 d) The People s Pension Scheme Annual report and financial statements for the year ended 31 March 2015 e) AAF 02/07 Assurance Report Internal Controls for Master Trusts Report as at 5 September 2014 f) B & C E Insurance Ltd Annual PRA Insurance Returns for the year ended 31st March 2015 g) The People s Pension Trustee Ltd Annual report and financial statements for the year ended 31 March 2015 h) Building and Civil Engineering Benefits Scheme Trustee Limited Annual report and financial statements for the year ended 31 March 2015 In addition AKG held an assessment meeting in June 2015 with the following employees of B&CE: Sam Stedman, Director of Finance, and Roy Porter, Director of Business Development. Further information on B&CE, available at and was also utilised. Information in respect of the market landscape and other companies operating in the market was obtained from AKG s internal library of information, which is maintained both by regular direct engagement with product providers and intermediaries and by other channels of market intelligence. AKG Financial Analytics Ltd Page 3 October 2015

4 1.4 RELIANCES AND LIMITATIONS Much of the information upon which AKG s report and comments are based has been supplied directly by the Client. AKG has made every effort to ensure the accuracy of the content of this report and to ensure that the information contained is as current as possible at the date of issue, but AKG (inclusive of its directors, officers, staff and shareholders and any affiliated third parties) cannot accept any liability to any party in respect of, or resulting from, errors or omissions. Assessments of financial strength, etc. are generally based upon analysis of the annual Accounts and Statements of the companies concerned. All analysis is based on the assumption that prospective policyholders (and their advisers) will wish to take a cautious approach to risk in respect of financial strength issues, etc. in the selection of appropriate product providers. AKG personnel are available to expand upon the comments in this report, if required. Whilst many aspects underlying AKG s comments are likely to change only slowly, the financial services industry is a competitive and dynamic marketplace, with new products and developments being announced regularly. As a result, AKG cannot guarantee that any particular comment will remain appropriate at any future date. In particular, future developments such as product changes, or company restructuring, could have significant impact upon the comments. AKG information, comments and opinion, as expressed in the form of its analysis and ratings, do not establish or seek to establish suitability in any individual regard and AKG does not provide, explicitly or implicitly, through this report and its content, or any other assessment, rating or commentary, any form of investment advice or fiduciary service. Actuaries must comply with standards produced by The Institute and Faculty of Actuaries (IFoA) and the Financial Reporting Council (FRC). The FRC is responsible for setting technical actuarial standards (TASs) and the IFoA is responsible for setting and maintaining ethical standards, or Actuarial Profession Standards (APSs). In AKG s opinion, the work involved in this review does not fall within the scope of any of the Technical Actuarial Standards set by the Financial Reporting Council. 1.5 CONFIDENTIALITY This report has been produced for the Client s sole consideration. AKG is happy for the Client to reproduce all or part of this report in any internal or external published material, subject to: Prior arrangement of the content, context, duration and volume of such reproduction and of any reference, explicit or implicit, to AKG s involvement in producing this report; and Payment of such additional fees as may be mutually agreed between AKG and the Client. AKG Financial Analytics Ltd Page 4 October 2015

5 2 ASSESSMENT CRITERIA 2.1 FINANCIAL STRENGTH AND CORPORATE PROFILE A prime criterion in assessing financial services providers is that of Financial Strength and Corporate Profile. For the evaluation of Financial Strength and Corporate Profile, AKG s general aim is to assess a company s ability to support its business over the long-term, taking the following main criteria into account: Available capital Parental strength (and likely attitude towards supporting the company) Company size Corporate structure Operational capability and governance Distribution image Future strategy AKG has rated B&CE B (Strong) for overall financial strength. This rating is based on a mix of criteria, according to a balanced scorecard approach, with key aspects reflected in the assessment outlined in this report. The rating and supporting assessment is comparable (i.e. shares the common rating currency) with those ratings for entities covered by AKG s Company Profile & Financial Strength Reports. AKG Financial Analytics Ltd Page 5 October 2015

6 3 BACKGROUND 3.1 OVERVIEW OF THE GROUP AND ITS PROPOSITION B&CE is a not-for-profit organisation which operates for the benefit of its members and their dependants. B&CE is the UK s largest provider of financial benefits to the construction industry s employers and employees. Established in 1942 and founded in construction, B&CE s current offerings include a workplace pension scheme, employee accident cover, employee life cover and employee healthcare. As at 30 September 2015 B&CE managed assets of 2.5 billion, with over 3.2 million members and it provides financial benefits to over 1.1 million contributing members on behalf of over 18,500 corporate accounts. Since its launch, all efforts had gone towards achieving one goal: improving the personal and financial wellbeing of everyone working in construction. While this remains a core focus for the business the Group has faced a number of challenges in more recent years. The advent of automatic enrolment in the UK pensions market presented both a challenge and an opportunity for B&CE. Taking into account its experience with the provision of workplace pensions to employers with transient, low to moderate earning workforces, both large and small, B&CE felt that it was well placed to continue to specialise in workplace pensions. However it felt that in addition to continuing to serve the needs of the construction industry it also needed to broaden its appeal to the wider market. Furthermore that the EasyBuild proposition, built specifically for the construction industry and comply with stakeholder pension requirements, needed to be replaced. B&CE s response came in November 2011 when it announced details of The People s Pension as a new product to assist employers in complying with their automatic enrolment duties. The People s Pension a flexible and portable workplace pension scheme which is suitable for any organisation, large or small has subsequently replaced EasyBuild to become the lead proposition and focal point for B&CE. Due to the impact of the economic downturn on the construction industry B&CE had generally seen a reduction in the number of employer groups engaging with EasyBuild as well as a decline in those members making their own contributions to the scheme. The success of The People s Pension in recent years has enabled B&CE to buck this trend and year on year growth in the number of employers joining and the level of funds under management has made for positive reading. The economic downturn and the changes to the treatment of National Insurance contributions had also contributed to a downturn in business for the EAC and ELC products. B&CE has also been trying to arrest this slide. In 2014 B&CE targeted retention of 95% of ELC/EAC premiums (achieving 98% retention) and in 2015 B&CE is targeting an increase of 5% in ELC/EAC premiums. B&CE remains committed to offering simple low cost products whilst aiming to provide excellent customer service. It is the Group s continued response to its various challenges and opportunities that forms the ongoing background for assessment in this report. AKG Financial Analytics Ltd Page 6 October 2015

7 3.2 REGULATION AND LEGISLATION The regulatory and legislative landscape for financial services providers of all shapes and sizes has changed significantly in recent years and continues to evolve. Product providers therefore need to continue to be resilient in the face of change and to demonstrate an ability to adapt to change, by meeting challenges and responding to the various opportunities presented to them. The Pensions Act 2008 The Pensions Act 2008 imposed compulsory workplace pensions for most employees. Workplace pension schemes incorporating automatic enrolment must adhere to certain qualifying standards and are subject to a phased implementation between 2012 and The implementation of automatic enrolment began in October 2012 and is staged so that employers must introduce it in order of their size. A table showing automatic enrolment staging dates is shown in Appendix 1. Implementation of automatic enrolment will be complete in 2018, by which time approximately 1.8m employers will have been required to have implemented automatic enrolment. Building on their pensions experience in the construction industry through EasyBuild, B&CE identified growth in the workplace pensions market through automatic enrolment as their core focus. B&CE s flagship product, The People s Pension, has been designed to help a range of employers to meet their automatic enrolment obligations. B&CE has been able to increase its membership significantly as a result of automatic enrolment and this trend seems likely to continue as automatic enrolment progresses. Solvency II Solvency II is a fundamental review of the capital adequacy regime for the European insurance industry. It aims to establish a revised set of EU-wide capital requirements and risk management standards that will replace the current solvency requirements. Originally intended to be effective from 1 January 2013 it has since been subject to ongoing delays. However, on 13 November 2013, the trilogue (of informal representation from the European Parliament, the Council of the EU and the European Commission) provisionally approved Omnibus II, thus clearing the way for the introduction of Solvency II in January In the run up to implementation of Solvency II, insurance companies, including B&CE Insurance Ltd, are thoroughly assessing the risks within their businesses and taking steps accordingly. B&CE s decision to stop writing annuities and to refer them to Partnership Life Assurance Company Limited was partly in response to Solvency II. In the lead up to Solvency II the Group has also investigated and/or implemented other options, leading to a Part VII transfer of its closed block of annuity business to Partnership Life Assurance Company Limited. Pension Freedoms The Government announced pension freedoms changes in the 2014 Budget to start in the 2015/16 tax year. The changes mean that anyone aged 55 and over can now take the whole amount from their private (defined contribution) pension as a lump sum, paying no tax on the first 25% with the rest being taxed as if it were a salary at their income tax rate. These changes are having a major impact on the pensions market and providers of all types are being required to respond to the challenges presented. AKG Financial Analytics Ltd Page 7 October 2015

8 As an example annuity sales have been challenged with people having the option of taking larger cash sums and accessing the additional flexibility of drawdown, although there remains an underlying consumer preference for security of regular income in retirement. B&CE no longer has an annuity line of business and so they have not been impacted by reduced volumes. This business was formally transferred to Partnership Life Assurance Company Limited via a Part VII transfer in October New annuity business is no longer written by B&CE and is instead referred to Partnership Life Assurance Company Limited although this partnership and approach is under review. With a relatively young membership profile B&CE has seen some activity but not been overrun with queries and requests to access cash from pension funds but as the shape of this profile changes over time B&CE will need to give consideration to how it helps its members to understand the new options available to them at retirement. AKG understands that B&CE is looking at extending the range of options available to members at retirement and is also considering how to engage with members about the new options. B&CE has introduced the ability for members of The People s Pension or EasyBuild Stakeholder Pension to take uncrystallised funds pension lump sums (UFPLS). The pension freedom changes have also forced providers and asset managers to rethink default investment strategies particularly in the approach to the customer s retirement where strategies have typically disinvested over a period of 5 or 10 years from equities into corporate bonds and fixed interest. In September 2015 the Trustee of The People s Pension announced that it has appointed State Street Global Advisors (SSGA) as its investment platform provider. The decision is the first step in implementing a new investment approach that responds to the changing needs of its members, the market and the pension freedoms. B&CE has also stated an intention to switch from Legal & General Investment Management (LGIM) to SSGA for The People s Pension at some stage in DC Pension Charge Cap The Government has explored and consulted on a charge cap for DC pensions. As a result of this process annual charges on workplace pension schemes that automatically enrol their members were capped at 0.75 percent from April This presents a challenge to DC pension providers and asset managers where the total cost of DC pension scheme charges exceeds the new charge cap. B&CE already operates within the charge cap and so this has had little impact on them as a business. Strengthening the incentive to save: a consultation on pensions tax relief The government wants to make sure that the right incentives are in place to encourage saving into pensions. At the 2015 Summer Budget the Chancellor announced that the government would be consulting on whether there is a case for reforming pensions tax relief to strengthen the incentives to save and to offer savers greater simplicity and transparency, or whether it would be best to retain the current system. Once the consultation closes on 30 September 2015 the government will consider all responses and publish a summary of responses which will set out how the government intends to proceed. All providers offering long-term, tax incentivised savings products will need to keep a close eye on developments here and no doubt many will be contributing to the consultation process. From a B&CE perspective their future strategy will need to be able to adapt to the outcomes and impact from any changes brought about by this pensions tax relief consultation process. AKG Financial Analytics Ltd Page 8 October 2015

9 4 B&CE GROUP 4.1 CORPORATE STRUCTURE There are a number of companies in the B&CE Group as illustrated by the structure chart below. Building & Civil Engineering Holidays Scheme Management Ltd B & C E Insurance Ltd B & C E Financial Services Ltd The People's Pension Trust Ltd The Building & Civil Engineering Charitable Trust Building & Civil Engineering Benefits Scheme Trustee Ltd The People's Pension Scheme Benefits Scheme ELC Scheme An overview of the companies, their role within the Group, core activities and performance is provided in the following sections of this report. AKG Financial Analytics Ltd Page 9 October 2015

10 4.2 B&CE GROUP The Group had assets under management of around 2.5bn as at 31 March At a consolidated level, turnover increased from 15.4m to 15.7m. Turnover from insurance business decreased slightly to 8.7m [2014: 8.8m], with an increase in EasyBuild fees due to growth in assets under management offset by a fall in premiums for RapidCash and EAC. Scheme administration fees increased to 7.0m [2014: 6.6m] due to increased income from The People s Pension as funds under management grew. Net operating expenses reduced from 12.7m to 11.7m. Staff costs increased from 7.4m to 9.4m. As at 31 March 2015, the Group had 250 employees [2014: 181]. Whilst some of these additional costs are permanent, they are expected to be more than offset in time by increased income resulting from The People s Pension. Pre-tax profits increased from 11.6m to 15.4m. Post-tax profits increased from 10.4m to 12.4m. Group Reserves increased from 109.9m to 123.4m. Total available capital resources increased to 119.0m [2014: 105.4m], of which 29.0m [2014: 28.2m] was deemed by the Group as Unrestricted Capital, in that of the 119.0m, amounts of 75.1m [2014: 66.5m] and 14.1m [ 10.3m] are held in B & C E Insurance Ltd and B & C E Financial Services Ltd respectively, and are restrained by regulatory requirements. 4.3 BUILDING AND CIVIL ENGINEERING HOLIDAYS SCHEME MANAGEMENT LIMITED This is the Parent and Management Company within the Group. It is limited by guarantee and has no share capital. Building and Civil Engineering Holidays Scheme Management Limited administers the Building and Civil Engineering Benefits Scheme and is the appointed administrator of The Building and Civil Engineering Charitable Trust. The Company has two wholly owned subsidiaries: B & C E Financial Services Limited and B & C E Insurance Limited. The Board is comprised of independent Non-Executive Directors, construction federation representatives and employees representatives, who work closely alongside the Senior Management Team. Senior Management Team The Senior Management Team for the B&CE Group is made up as follows: Chief Executive Officer Patrick Heath-Lay Chief Operating Officer Jamie Fiveash Chief Information Officer Jim Bridge Director of Finance Sam Stedman Director of Risk and Regulatory Compliance Matthew Phillips Director of Strategic Delivery Mark Plant Director of People and Premises Zoe Wright Director of Policy and Market Engagement Darren Philp Director of Business Development Roy Porter Director of Operations Michael Mann AKG Financial Analytics Ltd Page 10 October 2015

11 4.4 B & C E FINANCIAL SERVICES LIMITED B & C E Financial Services Limited is a wholly owned subsidiary of Building and Civil Engineering Holidays Scheme Management Limited. Its principal activity is to administer The People s Pension, having been appointed as administrator by The People s Pension Trustee Limited on 18 December It is also the appointed administrator and registrar of a unit trust based personal pension scheme (the TUTMAN B&CE Contracted-out Pension Scheme, BCECOPS) and an employee life cover scheme, the Employee Life Cover (ELC) from B&CE, both of which are exclusive to the construction industry. Additionally, B & C E Financial Services Limited is the promotional and marketing arm of the Group, distributing any third party products that B&CE offers in partnership with other financial services providers. It has an arrangement in place to refer annuity business to Partnership Life Assurance Company Ltd but it is not currently actively referring business to Partnership Life Assurance Company Limited and the arrangement is under review following the changes to the taxation of defined contribution pension arrangements introduced in April The Company also continues to receive a modest amount of referral fees from an arrangement with Westfield Heath Ltd, where it historically promoted an employee healthcare product (Foresight Health Cash Plan) operated by Westfield. The main development in the year ended 31 March 2015 for B & C E Financial Services Limited was the increase in the membership of The People s Pension. The number of scheme members had increased to 1,315,517 members at the end of March 2015, in comparison with 581,345 members at the end of March 2014, attributed to a large number of new employers joining during the year to fulfil their obligations under the new automatic enrolment pension regime introduced by the government in Funds under management for The People s Pension totalled 453.2m at the end of March 2015, increasing from 78.0m at the end of March The membership of the ELC Scheme continued to reduce, totalling 142,195 at the end of March 2015 in comparison to 145,158 members at the end of March Membership has fallen for several years since the loss of the construction industry s National Insurance concession in 2012, which had been used by employers to mainly subsidise the cost of the life cover. Contributions into the ELC Scheme had reduced slightly from 9.8m in 2014 to 9.6m in The TUTMAN B&CE Contracted-out Pension Scheme (BCECOPS) is a unit linked personal pension, launched in 1988, which enabled members to elect for their, and the employer s, NI contributions to be paid into their own pension arrangement. It was previously called the Building and Civil Engineering Contracted-out Pension Scheme, it was renamed on 1 July 2010 when B & C E Financial Services Limited retired as Manager to the Scheme and was replaced by Thesis Unit Trust Management Limited. The product is no longer sold and membership has now fallen to 8,018 at the end of March 2015, in comparison to 8,445 at the end of March Funds under management in this scheme have grown from 239.6m at the end of March 2014 to 251.9m at the end of March 2015 as a result of strong investment performance. Turnover has increased by 19% to 3.6m, in comparison to 3.0m in This growth is attributed to an increase in the administration fees received by B & C E Financial Services Limited in respect of its administration of The People s Pension, which is calculated as a proportion of the funds under management for the scheme and totalled 0.9m for 2015 [2014: 0.1m]. AKG Financial Analytics Ltd Page 11 October 2015

12 Other sources of income fell compared to the previous year. The registrar fee which is received for the Contracted-out pension scheme, calculated as a proportion of the funds under management, fell to 1.7m in 2015 [2014: 1.8m]. The administration fee which is received for the ELC Scheme, calculated as a proportion of contributions, fell very slightly to 0.9m [2014: 0.9m]. Referral fees fell to 0.0m in 2015, in comparison to 0.2m in 2014, following a decision to refer annuity business to Partnership Life Assurance Company Limited without charge from November Costs increased significantly during the year from 8.7m to 10.9m, attributed to the significant increase in the number of employers and employees using The People s Pension. The Company is responsible for meeting the administration costs associated with The People s Pension scheme (with the exception of investment management and trustee fees) and receives an administration fee in respect of these services. It is made clear that the costs associated with The People s Pension scheme will exceed the income generated by the product for several years while the funds under management build up within the scheme. Significant levels of income are expected to be realised in the long term once the size of the pension fund has grown sufficiently. Given that the level of cost is currently in excess of the Company s income, and will be for several years, funds have been injected into the Company from the Parent Company through the issue of shares. A total of 9.5m [2014: 7m] was injected in cash during the year and on 10 February 2015 the board of the Parent Company approved a further 4.0m injection before 30 September B & C E Financial Services Limited has a letter of support from the Parent Company which states the intention to make available further funding in order to ensure that the Company remains solvent in the coming years until the income levels are sufficient to cover costs again. The impact here was a pre-tax loss of 7.1m [2014: loss of 5.5m]. No dividend was paid [2014: nil]. Shareholders funds increased to 14.4m [2014: 10.3m]. The Company is currently dependent on its Parent Company for financial support, but is clearly an important part of the Group, playing a key role as the administrator of The People s Pension. The Company is expected to return to making profits in 2019/20. The Company receives a fee from The People s Pension Scheme in respect of these services which is relatively small at present but is predicted to escalate over time as the size of the Scheme grows. 4.5 B & C E INSURANCE LIMITED B & C E Insurance Ltd is a wholly owned subsidiary of Building and Civil Engineering Holidays Scheme Management Limited. It is a composite insurance company, established in 1995, with the objective of offering appropriate insurance-based products to all who work in the construction industry. B & C E Insurance Ltd operates the following products: EasyBuild a stakeholder pension scheme launched in 2001 which has approximately 490,000 members. Employee Accident Cover from B&CE ( EAC ) a group accident scheme launched in October 2010, covering in excess of 140,000 construction employees and provided by B & C E Insurance Limited. Employees are covered for a range of injuries, providing up to 30,000 for accidents at work, or travelling to or from work. RapidCash Injury Insurance a low cost personal injury cover launched in 1997 for construction industry workers. Providing benefits up to 300 per week should an employee be unable to work and 50,000 for accidental death. The product is no longer promoted but enquiries are still received from existing customers. Term Assurance a term life product which is no longer sold by the Company and is in run off with a small number of policyholders remaining. AKG Financial Analytics Ltd Page 12 October 2015

13 Personal Accident personal accident cover which is no longer sold by the Company. This product is in run off and has very few policyholders remaining. The main development in the year was the continued decrease in active EasyBuild membership. There are now 31,110 members making contributions [2014: 60,894] and premiums during the year totalled 27.1m [2014: 47.0m]. Reinsurance premiums also fell to 27.2m [2014: 46.9m] due to the migration of members to The People s Pension. In 2012 the Group launched The People s Pension, a multi-employer trust based pension scheme, which is designed to enable employer customers to comply with the Automatic Enrolment legislation. EasyBuild will continue to be operated but The People s Pension will be B&CE s default solution to be offered to employers going forward. The People s Pension is not written within B & C E Insurance Ltd and is operated elsewhere in the Group. It is anticipated that the vast majority of employer customers currently operating EasyBuild will switch to The People s Pension. The number of active members in Easybuild will therefore continue to reduce over the next 3 years as employers reach their Automatic Enrolment staging dates. The UK s largest employers have now reached their staging dates meaning that many members now contribute to The People s Pension rather than EasyBuild. This continued reduction in premium receipts for EasyBuild has been taken into account in this year s actuarial valuation with a prudent assumption that EasyBuild s dormancy will be 100%. The administration of EasyBuild has recently been outsourced to B & C E Financial Services Limited, effective from 1 April This transaction was undertaken in order to reduce the level of expense risk that the Company is exposed to. It reduces the amount of regulatory capital and reserves required, particularly on a Solvency II basis. B & C E Insurance Ltd paid dividends during the year to the Parent Company. The Board felt that it was appropriate to remove capital from the Company due to the fact that the statutory solvency position has improved considerably in recent years. To help fund the dividend payment, the Board decided to remove some capital from the long-term fund following the completion of the 2014 actuarial valuation. In June 2014, 3.5m was transferred from the long-term fund to the general fund. The general fund subsequently paid 6.5m in dividends. It is the Board s intention to remove further capital from the long-term fund and a further 5m was transferred to the general fund in June The Company s Actuarial Function Holder considered this in the annual valuation report and concluded that the transfer was affordable under both the current statutory valuation and the new Solvency II regime. The Company paid a dividend of 10m to the Parent Company in September The Company is continuing to prepare for the new Solvency II regime. Planned work for the year ahead will include further training for the Board on risk management and the creation of the Own Risk and Solvency Assessment (ORSA). Another development during the year was the increase in the headline benefits rate for EAC which was increased from 25,000 to 30,000 from 1 May The intention is to continue operating the existing product range and no significant amendments are planned for these. The total pre-tax profit during the year for B & C E Insurance Ltd was 18.9m [2014: 8.4m]. AKG Financial Analytics Ltd Page 13 October 2015

14 The balance on technical account for long-term business totalled 12.7m [2014: 4.8m]. Other technical income increased to 7.4m [2014: 7.2m]. The annual management charge on EasyBuild was higher during the year as a result of the funds under management growing through contributions and investment returns. There were unrealised gains on investment values for assets held on the long-term fund totalling 5.0m [2014: 0.5m loss]. Investments performed well during the year, particularly corporate bonds with yields falling to record lows. There was a release of 6.0m in technical provisions [2014: 3.0m]. This release was caused by the transfer of the EasyBuild administration which led to a decrease in the linked business sterling reserve from 6.3m to 0.3m. Net operating expenses fell to 2.9m [2014: 3.8m] and costs for the Company have reduced with the focus of the Group switching to The People s Pension. The balance on the technical account for general business totalled 0.5m [2014: 0.4m] with the slight increase caused by the fall in operating expenses. Non-technical investment income totalled 1.0m for the year [2014: 0.6m]. The increase was due to realised gains from the sale of investment assets during the year. The tax charge for the year was 3.9m [2014: 1.9m] which increased due to the increase in profitability. The Company still writes predominantly life business 2015 gross written life premiums of 27.1m [2014: 47.0m] albeit reduced following the annuity arrangements with Partnership Life Assurance Company Limited and the declining presence of EasyBuild, which exceeded general business gross earned premiums of 1.4m [2014: 1.4m]. Similarly whilst gross assets are in excess of 1bn, a significant proportion of this was reinsured ( 953m into Legal & General Assurance (Pensions Management) Limited leaving a Long Term Fund of just 47m [2014: 46m]. General Business technical provisions, comprising unearned premiums and outstanding claims, were very low, at 288k [2014: 311k]. Shareholders Funds increased from 66.6m to 75.1m. In the Long Term Business Fund, solvency improved with increased free assets of 37.9m [2014: 30.2m] and a Capital Resources Requirement Coverage of 565% [2014: 471%]. In the General Business Fund free assets also rose to 27.0m [2014: 25.7m], giving a combined surplus of 64.9m [2014: 55.9m]. Whilst the Company s relative prominence within the overall Group is diminishing somewhat, AKG would still expect it to be appropriately supported. Any new insurance or protection products developed for the construction industry, or other markets, are likely to be written by B & C E Insurance Ltd. AKG Financial Analytics Ltd Page 14 October 2015

15 4.6 THE BUILDING & CIVIL ENGINEERING CHARITABLE TRUST Launched in 1991, the trust offers financial assistance to construction workers and their families who are suffering hardship, principally to ease the financial distress that illness or changes to domestic circumstances can cause. Since its launch the Charitable Trust has paid out over 2m. The three aims of the Charitable Trust are to provide: Financial help for people in times of need, such as unemployment, poverty, sickness or distress Grants towards education, training and retraining of operatives, past operatives and young people wanting to move into construction Grants towards occupational health and safety initiatives in the building and civil engineering industries. Building and Civil Engineering Holidays Scheme Management Ltd is the appointed administrator of the Charitable Trust. No donations were made to the Trust during the year, but there is a commitment to donate a further 500k by 31 March 2016 if required. 4.7 BUILDING AND CIVIL ENGINEERING BENEFITS SCHEME TRUSTEE LIMITED The main objective of the Company is to act as corporate trustee of schemes for the provision of benefits for building and civil engineering operatives offered by the Building and Civil Engineering Benefits Scheme and Employee Life Cover from B&CE. The Company, through its Board of Directors, exercises a general oversight of the schemes operations. The Directors also, through panels, carry out the functions of corporate trusteeship in relation to cases referred to them by the schemes administrators. The primary role of the Company is to provide suitable and appropriate financial management to ensure all assets are managed appropriately to achieve funding objectives. The main funding objectives centre around ensuring a suitable investment strategy is in place in order to meet the ongoing liabilities of the Lump Sum Retirement Benefit and additional voluntary contributions schemes which form part of the Benefits Scheme. The Lump Sum Retirement Benefit scheme, introduced in 1982, is an approved occupational pension scheme that pays a one-off tax free lump sum at age 65. It closed to new members on the launch of EasyBuild. Employee Life Cover (ELC) from B&CE launched in October 2010 as a death benefit only occupational pension scheme, for which Building & Civil Engineering Benefits Scheme Trustee Limited acts as trustee. B & C E Financial Services Limited acts as administrator, for which it receives administrative fees. The Company produces financial statements under the small companies regime of the Companies Act. For the year ended March 2015 the Company reported turnover of 22,900 [2014: 22,467] offset by operating charges of 22,900 [2014: 22,467]. Assets and liabilities were nil. The Company is limited by guarantee. AKG Financial Analytics Ltd Page 15 October 2015

16 4.8 THE PEOPLE S PENSION TRUSTEE LIMITED The People s Pension Trustee Limited was incorporated on 30 May 2012 by Building and Civil Engineering Holidays Scheme Management Ltd. The Company has no financial activity and has been established solely to provide the trustee service to The People s Pension Scheme. The objective of the Company is to act as corporate trustee of the Scheme. The Company oversees the operation of The People s Pension with a fiduciary duty to act in the interests of the Scheme s members. In particular the Company has a remit of safeguarding the Scheme s funds and ensuring that the Scheme delivers good value for members. Until 31 March 2015, PAN Governance LLP acted as corporate director and was represented on the Board by Steve Delo and Andrew Cheeseman. Since then the directors have been Steve Delo, Alan Pickering and Andrew Cheeseman. The Company appointed B & C E Financial Services Ltd as administrator of The People s Pension Scheme on 18 December The administrator is responsible for the day-to-day operation of the Scheme including communication with members and processing contributions and allocations to members pension funds. The Company has a Service Level Agreement (SLA) in place with the administrator. The administrator has agreed to pay all fees and expenses payable by the scheme (excluding investment management fees) and receives an administration fee from the scheme in respect of the service that it provides. 4.9 THE PEOPLE S PENSION SCHEME Building and Civil Engineering Holidays Scheme Management Ltd established The People s Pension on 28 June The scheme is a registered pension scheme for tax purposes under the Finance Act 2004 and received approval from HMRC on 10 July. The People s Pension, a Master Trust, from B&CE is a flexible and portable workplace pension, considered suitable for any organisation, large or small, across a range of employment sectors. Launched in November 2011, it became operational in October There is a flat charge of 0.5% per annum. There are no other fees or charges. It has a simple range of funds, which are currently managed by LGIM, with the additional options of Shariah and Ethical funds currently managed by HSBC and LGIM respectively. Headline figures relating to The People s Pension 30/09/ /03/ /03/ /03/2013 TPP members 1,602,770 1,315, ,345 10,750 TPP employer accounts 14,936 5,224 1, TPP funds under management ( m) The People s Pension continued to onboard significant numbers of employers and members into the scheme during the year ending March 2015 and it has now grown to become the largest private sector master trust pension scheme in the UK. B&CE states that its automatic enrolment market share has stood at approximately 25% over the past 18 months. AKG Financial Analytics Ltd Page 16 October 2015

17 4.10 DISTRIBUTION B&CE appointed a new Director of Business Development in July 2014 and the business development structure has subsequently gone through a remodelling process with new roles created and new appointments being made within the unit. The Business Development unit now comprises over 30 people. B&CE is developing a co-ordinated and segmented approach to new business targeting and existing business retention. Intermediaries There is a unit working on building relationships with, and bringing in business from, intermediaries in the market which is led by a Head of Business Development. Within this unit one team looks at the traditional targets in the intermediated distribution channel Financial Advisers, Corporate Advisers and Employee Benefit Consultants (EBCs). In this area there is a National Team Leader Intermediary Relationship Management supported by 5 regional Intermediary Relationship Managers. Teams within this unit also build and manages relationships with Federations and Unions (2 Federation and Union Relationship Managers in place) and Payroll Operators (3 Payroll Intermediary Relationship Managers in place). Scheme Implementation and Transfers There is a unit specifically working on Scheme Implementation and Transfers from a business development perspective. The implementation team is led by a National Implementation and Support Manager with support from 3 regional Implementation Managers and 2 head office based Support Managers. On the transfer side of things, an area of increasing interest to B&CE, there is a Transfer Manager and a National Transfer Specialist in place. Direct There is a business development unit working on building relationships with, and bringing in business from, employers on a direct channel basis. This area is led by a National Business Development Manager and consists of 6 Regional Relationship Managers, supported at head office by a Team Leader Remote Relationship Manager and 2 Remote Relationship Managers. Further specialist input is provided to this unit by a Business Development Consultant. There remains an emphasis on widening B&CE s distribution reach through channels outside of its historical base and the new business development structure illustrates that they are increasing their distribution touch points by targeting a range of key industry stakeholders. This is being done through a combination of regional presence and remote staff so that a range of different sized business development targets can be engaged with and serviced. AKG Financial Analytics Ltd Page 17 October 2015

18 4.11 IMAGE & STRATEGY B&CE has continued to review and evolve its strategy in recent years in respect of both its proposition offering and target market. As part of this it has sought to respond to the opportunities afforded by automatic enrolment and the wider changes within the pensions landscape, as well as internal Group changes and capability. It is also the case that some response, given the nature of the changes in the market, was necessary, given the trends within the business itself and also the actions of key competitors, to ensure the longer term future of the Group. In large part B&CE s strategy for expansion has sought to utilise its image in the construction industry, with a proven track record of delivery, together with the catalyst of pension regulatory developments, to expand its target market. Thus it seeks to additionally encompass a similar profile of workers across a broader industry base, thereby reducing its reliance on one economically sensitive sector of industry. The People s Pension product is now crucial to B&CE s future providing as it does an opportunity to maintain critical mass in what is the Group s core business area, workplace savings. The ability for B&CE to adopt and utilise more technology and to become more digitised in its approach is an acknowledged area of development for them and will be crucial to future business success. The Group, through The People s Pension, would appear to be continuing to gain market awareness and traction, certainly amongst financial advisers, corporate advisers and EBCs, where previously recognition would have been relatively poor when compared with the more mainstream pension providers operating in the intermediated sector or directly with consumers. A renewed approach to distribution, and a retrenchment from traditional pension providers in terms of engaging with smaller employers, looks set to further increase this profile. The Group does however maintain, and wish to reinforce, strong links with the construction industry. Staging dates for automatic enrolment commenced in October 2012 and so many employers now have an experience of the process, its requirements and the ability of their chosen automatic enrolment partner to help them meet these requirements. While things may have worked out well for some employers, others may not have enjoyed such a positive experience and so might be encouraged to appraise alternative options in the market. As such there is a sense within B&CE that there will be an emerging automatic enrolment transfer market and it is actively targeting opportunities in this area. B&CE is also targeting pension consolidation opportunities with existing members who might be inclined to bring other pension pots under one roof with The People s Pension. In the 2014/15 financial year B&CE received around 30m in transfer business, the majority of which was attributed to consolidation of member pension pots, and expects this to grow further in 2015/16 and beyond. The potential to offer a wider range of health and protection based products is also under consideration in order to broaden the B&CE product toolkit beyond automatic enrolment. Awards B&CE won DC Provider of the Year at the 2014 Professional Pensions UK Pensions Awards and Best Master Trust Provider at the 2014 Pensions Expert Pension and Investment Provider Awards. The People s Pension has been awarded a 5 Star Rating for automatic enrolment by Defaqto. B&CE was the winner of Business of the Year at the Gatwick Diamond Business Awards The People's Pension was Highly Commended in the Best Group Pension Provider category at the Investment Life & Pensions Moneyfacts Awards The People s Pension has also been awarded PQM READY status recognising that the scheme has met Pension Quality Mark standards for Mastertrusts and Multi-Employer schemes. AKG Financial Analytics Ltd Page 18 October 2015

19 4.12 SERVICE B&CE sets itself a requirement to deliver service excellence as part of an approach which espouses an ability to make things easier for its customers. As well as the requirement to build scale over the coming years, B&CE is committed to continue to deliver the highest level of service despite the increase in customer numbers. B&CE s staff work to rigorous Service Level Agreements (SLAs) to ensure that high levels of service are maintained. Operating customer activities within these SLAs remains a core business objective. B&CE is proud of its service record, with less than 0.015% of complaints (out of total membership). Although 412 complaints were received during the year (2014: 187), this was anticipated given the increased number of customers in the year. The membership of The People s Pension is expected to increase further in the next 12 to 24 months as employers continue joining the scheme. Increased funds under management are also expected, which should increase the Company s income. The Company s costs are also expected to increase further in order to ensure that there are sufficient resources to service the increased customer base of The People s Pension. Operating costs have increased significantly, driven by the need for additional staff to service the greatly increased customer base. These costs need to be managed effectively over time which will represent a balancing act for the business. B&CE therefore needs to deliver resource capacity through a combination of people and systems in order to accommodate market demand for The People s Pension. B&CE is actively seeking tangible operational efficiency including plans to further reduce time to on-board employers, reduce monthly maintenance of employer accounts and reduce time to process small pot claims. In September 2014 B&CE appointed a new Head of Operations. B&CE has recently been through a review of technology services across the business and is subsequently developing an IT Strategy to align these services to the business strategy. A core objective here is to focus internally on the development of operations and staff so that larger numbers of employers and members can be serviced without existing levels of service being compromised. B&CE has developed and launched an online facility for employers and their advisers to sign up to The People s Pension. As a result, the process is now far more efficient and allows B&CE to deal with a far greater number of new employer customers and advisers. B&CE has plans to continue to develop its processes, investing in technology and innovation so that employers and members will have ease and flexibility to selfservice, while still receiving support from B&CE. The ability to service smaller employers and their members will play a part in the future success of The People s Pension and B&CE. The smaller end of the market is intended to be satisfied through a more transactional (web-based) approach in the longer term. To date B&CE s experience of data quality has included a full spectrum from highly professional delivery to the more patchy quality experienced from the small firms end of the construction sector. This has the advantage of having provided B&CE with experience in coping with this variance and having implemented the systems checks to manage it. Moving forward another core objective is to increase the proportion of digital contact details held for members. AKG Financial Analytics Ltd Page 19 October 2015

20 4.13 REINSURANCE The extent to which a provider and its proposition rely on external reinsurance will usually form part of AKG s overall assessment. The People s Pension is not written into the Group s Insurance Company and hence there is no reinsurance as such. Legal & General Investment Management Limited is currently the preferred investment manager for the majority of investments. Other investment managers may be appointed in future as appropriate. The Shariah Fund is managed by HSBC CORPORATE GOVERNANCE A corporate governance framework, including control environment and risk policies has been established by the Group. Responsibility for the effective management of risk and oversight of risk philosophy, risk selection and risk management rests with each of the Company s Board of Directors. The Senior Management Team and the Internal Audit and Risk Management functions are required to report key risks and the effectiveness of risk management to the Group Audit and Risk Committee and the full Board on a regular basis. The Group Audit and Risk Committee is responsible for satisfying itself that a proper internal control framework to manage financial risks is in place and that controls operate effectively. The Parent Company s Board is made up entirely of non-executive Directors with half representing construction employer federations and half representing trade unions, together with an independent chairman. This unique governance structure is designed to ensure that decisions taken are in the best interests of B&CE s members. The subsidiary Company boards are made up of Directors from the main Board, executive Directors and independent non-executive Directors with financial services expertise. There are also three sub-committees which report into the main Board. The Group Audit and Risk Committee, the Investment Committee and the Remuneration and Nominations Committee all meet on a quarterly basis. Corporate governance is of great importance to B&CE which aims to satisfy the principles of good governance and, where practical, comply with the requirements of the Companies Act and the UK Corporate Governance Code, by ensuring that it has a transparent and effective decision making process in place. Regular reviews of the effectiveness of the Board as a whole and the Directors are conducted, based on detailed questionnaires and individual interviews, with agreed actions for best practice being implemented. All Directors have access to the services of the Group Company Secretary who aims to ensure that corporate governance processes and best practice are followed, that there are good flows of information within and to the Board and its sub-committees and assists with induction and development of the Board as required. AKG Financial Analytics Ltd Page 20 October 2015