Summary. BBC Pension Scheme. Actuarial report as at 1 April 2015

Transcription

1 Summary 18 June 2015

2 Summary The main results of this actuarial report and those from the latest actuarial valuation and intervening actuarial report are as follows: Technical provisions funding level is estimated to have increased to 88% over the year to 1 April % 88.2% 86.1% Deficit of assets relative to technical provisions is estimated to have decreased to 1,723 million over the year to 1 April 2015 Contents Summary Scope Next steps Limitations Statutory funding objective Secondary funding objective Additional information Membership data Asset information Glossary ,723m 1,747m 2,054m Secondary funding target funding level is estimated to have decreased to 75% over the year to 1 April % 74.7% 75.6% Deficit of assets relative to secondary funding target is estimated to have increased to 4,362 million over the year to 1 April ,482m 4,362m 4,651m Throughout this report the following terms are used: Scheme Trustees BBC Pension Trust Limited Trust Deed & Rules The 50 th Deed of Variation of the Scheme s Trust Deed and Rules dated 23 June

3 Scope This is the actuarial report in respect of the as at 1 April 2015 and I have prepared it for the Trustees. As noted in the Limitations section of this report, others may not rely on it. The actuarial report is required under Part 3 of the Pensions Act 2004 in years when a full actuarial valuation is not conducted; a copy of this report must be provided to the BBC within seven days of its receipt. The main purpose of the actuarial report is to provide an approximate update of the development in the financial position of the Scheme relative to its statutory funding objective since the latest actuarial valuation. It should be considered in conjunction with the report on the actuarial valuation as at 1 April 2013 and the actuarial report as at 1 April This report and the work involved in preparing it are within the scope of and comply with the Financial Reporting Council s Technical Actuarial Standards regarding pensions, reporting actuarial information, data and modelling. Next steps The Trustees are required to disclose to members, in a summary funding statement, certain outcomes of this actuarial valuation within a reasonable period. Members may also request a copy of this report. The financial position of the Scheme and the level of BBC contributions to be paid will be reviewed at the next actuarial valuation, which is expected to be carried out as at 1 April A J Blay Fellow of the Institute and Faculty of Actuaries 18 June 2015 Towers Watson Limited Watson House London Road Reigate RH2 9PQ Authorised and regulated by the Financial Conduct Authority \\wwp\data\benefits data reigate ch\penc\bbc\bbc15ge\bbc_actuarial_report_2015.docx 1

4 Limitations Third parties This report has been prepared for the Trustees for the purpose indicated. It has not been prepared for any other purpose. As such, it should not be used or relied upon by any other person for any other purpose, including, without limitation, by individual members of the Scheme for individual investment or other financial decisions, and those persons should take their own professional advice on such investment or financial decisions. Neither I nor Towers Watson Limited accepts any responsibility for any consequences arising from a third party relying on this report. Except with the prior written consent of Towers Watson Limited, the recipient may not reproduce, distribute or communicate (in whole or in part) this report to any other person other than to meet any statutory requirements. Data supplied The Trustees bear the primary responsibility for the accuracy of the information provided, but will, in turn, have relied on others for the maintenance of accurate data, including the BBC who must provide and update certain membership information. Even so it is the Trustees responsibility to ensure the adequacy of these arrangements. I have taken reasonable steps to satisfy myself that the data provided are of adequate quality for the purposes of the investigation, including carrying out basic tests to detect obvious inconsistencies. These checks have given me no reason to doubt the correctness of the information supplied. It is not possible, however, for me to confirm that the detailed information provided, including that in respect of individual members and the asset details, is correct. This report has been based on data available to me as at the effective date of the actuarial report and takes no account of developments after that date except where explicitly stated otherwise. Methodology In carrying out this update as at 1 April 2015, I have carried out full liability calculations based on individual membership information as at 1 January 2015, supplied to us by the Scheme s administrators, which we have then adjusted to allow for expected benefit accrual and increases over the three months to 1 April 2015, but assuming no changes in membership status (which slightly overstates the liabilities). 2

5 Statutory funding objective The Trustees primary funding objective is the statutory funding objective under the Pensions Act 2004, which is to have sufficient and appropriate assets to cover the Scheme s technical provisions. The method and assumptions for calculating the technical provisions as at 1 April 2013 were agreed between the Trustees and BBC and documented in the Statement of Principles dated 18 December The table below summarises the main financial assumptions used to estimate the Scheme s technical provisions for this actuarial report and the latest actuarial valuation. The assumptions adopted for the 1 April 2014 actuarial report are also shown for information. Main Financial assumptions 1 April April April 2013 Real + Nominal Real + Nominal % pa % pa % pa % pa Nominal % pa Real + % pa Price inflation (Retail Prices Index) Price inflation (Consumer Prices Index) 2.2 (0.8) 2.6 (0.8) 2.6 (0.8) Career Average Benefits (CAB 2006) revaluation Career Average Benefits (0.9) 2.4 (1.0) 2.4 (1.0) (CAB 2011) revaluation Pension increases - Old Benefits New Benefits 2.8 (0.2) 3.1 (0.3) 3.1 (0.3) - CAB (1.1) 2.0 (1.4) 2.0 (1.4) - CAB (0.9) 2.4 (1.0) 2.4 (1.0) Pay increases (including promotional 1.0 (1.9) 1.0 (2.3) 1.0 (2.3) allowance) Discount rate for technical provisions - pre-retirement (past service) post-retirement (current pensioners) - post-retirement (future pensioners) Allowing for compounding I regard the financial assumptions adopted for this actuarial report as consistent with those used for determining the Scheme s technical provisions at 1 April 2013, adjusted for changes in market conditions, and in my view they are appropriate for the purpose of this actuarial report. The demographic assumptions used for the purposes of this update are consistent with those adopted for the actuarial valuation as at 1 April 2013, as set out in the Scheme s Statement of Principles dated 18 December However, if the Trustees and BBC were to consider all the assumptions in detail as part of a formal valuation process it is likely that some of these assumptions would change. There is no allowance in the calculations underlying this update for any future discretionary increases to benefits other than those set out in the Statement of Principles. Since 1 April 2013 no material changes have been made to the Scheme s benefits. 3

6 No allowance has been made in the calculation for possible changes to the benefits that may be required to ensure that the Scheme provisions in respect of Guaranteed Minimum Pensions do not unlawfully discriminate between male and female members. The table below compares the estimated technical provisions as at 1 April 2015 with the market value of the Scheme s assets and the corresponding figures from the 1 April 2013 actuarial valuation and 1 April 2014 actuarial report: Valuation statement 1 April April April 2013 m m m Amount required to provide for the Scheme s liabilities in respect of: Defined benefits 14,390 12,331 12,155 Expenses AVCs Technical provisions 14,586 12,525 12,346 Market value of assets 12,863 10,778 10,292 Past service deficit (technical provisions less 1,723 1,747 2,054 assets) level (assets technical provisions) 88.2% 86.1% 83.4% Developments since the latest actuarial report The funding level has increased to 88% from 86% as at 1 April 2014, corresponding to a slight decrease in the deficit from 1,747m to 1,723m. The main factors contributing to this change are: a reduction in deficit due to o o the deficit contributions of 200m paid over the year, and investment returns being greater than assumed, mainly offset by changes in market conditions leading to a large increase in liabilities. 4

7 Secondary funding objective The Trustees secondary funding objective is for the Scheme to be fully funded on a measure of selfsufficiency, known by the Scheme as the Journey Plan. If the Scheme were to reach full funding on the Journey Plan self-sufficiency measure, it could remove the majority of investment risks and meet benefit payments as they fall due, with a very low probability of requiring additional contributions from the BBC. The method and assumptions for calculating the value of the liabilities on the self-sufficiency basis as at 1 April 2013 have been agreed between the Trustees and BBC and are documented in the Statement of Principles dated 18 December They are the same as those adopted for the technical provisions, with the exception of the discount rate which is equivalent to a single discount rate of 2.58% pa as at 1 April 2015 for the self-sufficiency basis, decreased from 3.84% pa as at 1 April 2014 and 3.50% pa as at 1 April The table below compares the estimated liabilities on the self-sufficiency basis as at 1 April 2015 with the market value of the Scheme s assets and the corresponding figures from the 1 April 2013 actuarial valuation and 1 April 2014 actuarial report: Valuation statement 1 April April April 2013 m m Amount required to provide for the Scheme s liabilities in respect of: Defined benefits 17,029 14,066 14,752 Expenses AVCs Self-sufficiency liabilities 17,225 14,260 14,943 Market value of assets 12,863 10,778 10,292 Past service deficit (technical provisions less 4,362 3,482 4,651 assets) level (assets technical provisions) 74.7% 75.6% 68.9% The funding level has decreased to 75% from 76% as at 1 April 2014, corresponding to an increase in the deficit from 3,482m to 4,362m. The main factors contributing to this change are: changes in gilt yields leading to a large increase in liabilities, partially offset by the deficit contributions of 200m paid over the year, and investment returns being greater than assumed. 5

8 Membership data A summary of the data provided for this actuarial report and the preceding actuarial valuation is presented below. Number of members Number 1 April April April 2013 Total Total Total Active members 12,482 13,251 14,401 Deferred pensioners 29,379 29,314 28,867 Pensioners 19,204 19,188 19,007 Dependants 3,786 3,726 3,695 Children Total 65,220 65,861 66,331 Annual salary or pension million 1 April April April 2013 Total Total Total Pensionable salaries Deferred pensions Pensioners pensions Dependants pensions Children s pensions Notes on data tables: For each year, data as at 1 April are based on data provided as at the preceding 1 January, which we have adjusted to allow for expected benefit accrual and increases to 1 April Figures in respect of dependants exclude children Deferred pension amounts include revaluation to the valuation date. Asset information The audited accounts supplied as at 1 April 2015 show that the market value of the Scheme s assets was 12,863 million. This includes Additional Voluntary Contributions (AVCs) which amounted to 96 million.

9 Glossary This glossary describes briefly the terminology of the regime for funding defined benefit pension schemes as introduced by the Pensions Act Actuarial report: A report prepared by the Scheme Actuary in years when an actuarial valuation is not carried out that provides an update on developments affecting the Scheme s assets and technical provisions over the year. Actuarial valuation: A report prepared by the Scheme Actuary that includes the results of the calculation of the technical provisions based on the assumptions specified in the Statement of Principles and assesses whether the assets are sufficient to meet the statutory funding target. Demographic assumptions: Assumptions relating to social statistics for Scheme members, which can affect the form, level or timing of benefits members or their dependants receive. This can include levels of mortality experienced by the Scheme and the proportion of members electing to exercise benefit options. Discount rates: Assumptions used to place a capital value at the valuation date on projected future benefit cash flows from the Scheme. The lower the discount rate the higher the resulting capital value. Financial assumptions: Assumptions relating to future economic factors which will affect the funding position of the Scheme, such as inflation and investment returns. target/objective: An objective to have a particular level of assets relative to the accrued liabilities of the Scheme. See also statutory funding objective. Scheme Actuary: The individual actuary appointed (under the Pensions Act 1995) by the Trustees to perform certain statutory duties for the Scheme. Secondary funding objective: To have sufficient and appropriate assets to cover the secondary funding target. Secondary funding target: The secondary funding target is a stronger target than the statutory funding objective, and one to which the Trustees aspire over the longer term. Once 100% funding on the technical provisions basis is reached, the secondary funding target may be expected to be achieved by a combination of investment returns and contributions. Self-sufficiency: If the Scheme were to reach 100% funding on a self-sufficiency measure, it could remove the majority of investment risks and meet benefit payments as they fall due, with a very low probability of requiring additional contributions from the employer. Although there is no unique definition of a self-sufficiency target, the discount rate used would be based on the returns that could be generated by holding low risk assets that match the Scheme s liabilities. Statement of Principles (SFP): The SFP sets out the trustees policy for ensuring that the statutory funding objective and any other funding objectives are met and, in particular, the assumptions for calculating the technical provisions at the effective date of the actuarial valuation. The trustees are responsible for preparing and maintaining this document, taking into account the advice of the Scheme Actuary and in many cases seeking the agreement of the employer. Statutory funding objective: To have sufficient and appropriate assets to cover the Scheme s technical provisions. Summary funding statement: An update sent to members following the completion of each actuarial valuation or actuarial report informing them of the assessed financial position of the Scheme. Technical provisions: The amount of assets required to make provision for the accrued liabilities of the scheme. The technical provisions are calculated using the method and assumptions set out in the Statement of Principles.