Here are the nominees for Financial News’s awards for excellence in pensions. Winners will celebrate at a gala dinner in London on May 14.
Best Pension Scheme Governance
Aviva Staff Pension Scheme
The £11 billion Aviva Staff Pension Scheme has been taking considerable strides in its trustee governance. Sir Ian Prosser, the former chairman and chief executive of Bass/InterContinental Hotels, and also the chairman of the BP Pension Scheme, became chairman of the Aviva scheme in January 2013, and his appointment has brought a renewed focus on governance and risk management. Its board also includes industry veteran Alan Pickering as an independent trustee. The scheme simplified its complex board structure, with clearer delineation of responsibilities between the board, its four subcommittees and chief investment officer, Ian McKinlay, who was recruited from the Pension Protection Fund two years ago. The main board, which meets about four times a year, now considers high-level strategic issues. The investment subcommittee, which meets up to six times a year, considers the fund’s asset mix and fund manager mandates, while the CIO handles manager selection and monitoring, and investment implementation.
The Cheviot Trust
This multi-employer DC scheme for the legal sector, which opened its doors to employers from any sector in 2013, has an unusually active approach to governance for its investments. Its trustee board is chaired by Robert Hall, a former managing director at wealth manager Tilney, and made up of lawyers, accountants and human resources professionals. Since 2011, the board has been managing and reviewing investments and asset allocation on a monthly basis, a strikingly active approach in an industry where most trustee boards meet four or six times a year. In moments of particular market stress, the Cheviot trustees work even harder, according to Britt Hoffman-Jones, a consultant at P-Solve, who advises the board. Six conference calls were held between P-Solve and the trustees in the two weeks after September 3 last year to monitor the progress of US debt ceiling negotiations and consider a potential increase to their US equities allocation.
The pension trustees for Experian, the global information services company, have stepped up their game since the company auto-enrolled 1,000 staff into its defined-contribution scheme in 2013. This brought its total membership to around 4,000, with £180 million in assets. In September 2013, the trustees appointed Hymans Robertson as DC scheme adviser, and since then the consultancy has been running detailed scheme analysis for them to establish what level of pension members might get if they stick with their current savings rates and investment choices, and how likely they are to hit the retirement income standards set by the government’s Pensions Commission. Six months into the process, Hymans Robertson senior DC consultant Rona Train says Experian’s trustees are some of the most committed and enthusiastic she has ever worked with. Experian’s board and its subcommittees have met about eight times in six months to push through the governance review.
Legal & General Workplace Pensions Mastertrust
Legal & General has put its new master trust at the heart of its pensions business. It hired pensions trustee Paul Trickett, formerly the head of Towers Watson’s investment consulting business in Europe, in May 2013 as independent chairman of its trustee board. Independent trustee firm Pitmans Trustees is also on the board, represented by Steve Carrodus. In a significant move, it has extended the same governance arrangements over L&G’s “back book” of contract-based schemes. Sixteen companies had signed up for the master trust as of April 2013, including retailers M&S, Sainsbury’s, Ikea, Halfords and Mothercare, giving the trust 140,000 members in all, and assets under management of £600 million. Employers can meet quarterly with trustees at the scheme’s Mastertrust Employers Group, and in July 2013, it became the first insurer to get a seal of approval from the National Association of Pension Funds’ Pensions Quality Mark programme. In December, Trickett announced that L&G would be holding the first-ever “members’ AGM” for a master trust in 2014.
###### Best Member Communications
The online fashion retailer Asos has experienced rapid growth in the past decade, from a start-up founded in 2000 to a FTSE 350 company employing 1,500 staff in the UK. The government’s new requirement that all companies set up a pension scheme for employees, under the auto-enrolment regulations, was due to fall on the company in November, but Asos brought the date forward to September 2013 in order to launch a communications push for its flexible benefits package, which includes the pension but also dental insurance and discounts on consumer goods. So last summer, Asos’ employees were made aware that “benefits season” was coming with a series of road shows, seminars, Q&A forums and focus groups, and an online benefits hub was set up so people could log in and make active choices about their pensions and other benefits. According to Andy Seed, a KPMG consultant who advised on the project, 96% of Asos’ staff did so. He said: “For such a young demographic as Asos’ workforce, that is hugely impressive.” The strategy appears to have paid off. In September, Asos reward manager Scott Baker and head of people Andrea Pattico told a Chartered Institute of Professional Development conference that membership of the DC scheme increased from 400 to 607 ahead of auto-enrolment.
IBM Pensions Trust
For years, IBM’s pension fund trust has led the industry in online communication through its website, with regular news updates and DC pension modellers. But throughout 2013 IBM’s pension trustees rolled out a new MyPension service, allowing members to manage their DC investments directly through the site. Over 7,000 have signed up so far. At the same time, the website has been given new, interactive members’ reports. More than half (15,900) of the technology organisation’s 26,000 pension members now access the information electronically. Between October 2 and November 2, 2013, the new reports received 650% more views than all the views for the previous 12 months.
Manchester Airports Group Pension Schemes
MAG’s pensions team embarked on a rapid communications offensive in early 2013 when the company acquired Stansted Airport on February 28, and with it 1,200 staff. Two new pension schemes, a DB and a DC scheme, were created to mirror the Stansted employees’ previous arrangements, and full joiners’ packs were sent to all the new staff on the day the acquisition announcement was made – meaning that the pensions communication was the first of any kind that Stansted staff got from their new owners. This was only possible because MAG’s pensions team, led by Mark Cliff, had appointed communications specialist Shilling, alongside scheme administrators, actuaries and investment consultants, weeks before they even knew that MAG’s bid would be successful. Stansted staff were auto-enrolled into the new schemes, and only 2% opted out, most of whom were leaving the company. The schemes’ regular communications, which make use of airline motifs (transfers, baggage-handling, lift-off and so on) and “key point” and “take action” icons to encourage engagement, are both clear and stylish.
Marks & Spencer Pension Scheme
In 2013, the retailer launched its first dedicated website for members of its legacy defined-benefit scheme, built to be accessible through tablets and mobiles as well as computers. The £7.2 billion, 120,000-member fund has only about 13,000 members who are still working, and connecting with retirees is a challenge. As part of the sponsoring company’s ecological drive, branded “Plan A”, the M&S trustees are trying to get as many members as possible to sign up to email communications rather than paper ones. The project began in 2010 with a phased approach, and in 2014 the trustees have moved the focus directly to electronic communication, with plans to deliver the biannual newsletter via the website only, giving members the option to receive paper copies but encouraging them to provide their email address to keep up to date.
###### Best DC Plan Design
The Cheviot Trust
This multi-employer DC scheme for legal firms, which now offers its services to employers from any sector, took a radical step in 2013 – it became the first DC trust to offer a post-retirement investment option: a drawdown fund. This offers members the choice of staying invested after they have stopped working, rather than leaving and taking out an annuity with an insurer. Drawdown funds offer the potential for higher pensions, and unlike a conventional annuity, they can be inherited by spouses or children – but they are inherently more risky, because they mean continuing exposure to the markets. So Cheviot also offers financial advice, whereby members can either pick an independent financial adviser or use one of Cheviot’s selection. Cheviot’s drawdown offering, like its main pension plan, is underpinned by an unusually active investment process for a DC pension, where trustees meet once a month to discuss asset allocation calls (see nomination for Best Pension Scheme Governance). Cheviot invests its DC funds in a range of assets, from global and regional equities, to government debt, credit, high yield, emerging market debt and property.
First UK Bus Pension Scheme
FirstGroup auto-enrolled some 23,000 staff across its UK bus division in March 2013. It was a complex task, involving multiple pay bargaining groups, several staff unions and 52 separate payrolls. Ahead of auto-enrolment the company set up a new DC section under its previously DB trust to accept auto-enrollees, who will be able to join the main career-average scheme after nine years’ service. Group head of reward John Chilman said “the organisation has not closed off the option of a defined-benefit pension for new employees”. FirstGroup had to set up an in-house payments/administration “hub” to handle fund choices and contribution rate changes from all its different workforces. Contribution rates are set at a maximum 5% for both employees and employer, with annual step-ups from 2% from employer and 2% from employee offered to new enrollees. Scheme communications are also cutting-edge, with cartoon videos based on the “visual thinking” theory that people absorb information best when seeing and hearing simultaneously, and personalised messages for members when they log in to the scheme website, which also has pension modellers based on personal data and circumstances. The site has achieved a 75% hit-rate among members.
The Lighthouse Pension Trust
In January, the Lighthouse Group, a national network of Independent Financial Advisers, launched into the corporate pensions market by setting up a new master trust for auto-enrolment, explicitly targeted at the small and medium employers due to auto-enrol from late 2014 onwards. It offers a sophisticated form of target-date funds known as the BirthStar range, designed by Henry Cobbe of Elston Consulting and dynamically managed by AllianceBernstein, which will put savers’ money into emerging market equities, corporate credit and property alongside more traditional DC investments – mostly using index-tracking funds to keep costs low, with a total fund charge to members of 0.75%. The Lighthouse Trust will provide all scheme information through an iPhone or iPad app. The scheme is being run at arm’s length from the Lighthouse Group, with independent trustees Bridge Trustees overseeing it, and no obligation on Lighthouse IFAs to recommend it.
Shepherd Neame, which styles itself Britain’s oldest brewer – it has been operating since 1698 – began auto-enrolling its staff into its pension scheme in July 2013. This was two months early, since the brewing company began preparing in good time. It began discussing the onset of auto-enrolment with long-standing pensions advisers BBS Consultants & Actuaries in September 2011, two years before the company’s original implementation date. At this point, three quarters of Shepherd Neame’s 1,200 staff were not in a pension plan. The company decided to set up its auto-enrolment-ready scheme by consolidating three previous DC schemes operating within the group into one – the Shepherd Neame Limited Company Retirement Account, whose trustees are chaired by company president Robert Neame. The plan’s investment choices were also revamped, into funds including diversified growth funds, emerging markets and commercial property.
###### Best Investment Strategy
Dorset County Pension Fund
This £1.9 billion, 54,000-member public pension fund was the third-best performer in the Local Government Pension Scheme last year, with a return of 16.8%. The only two funds that beat it are much smaller funds with much simpler, equity-heavy investment strategies, which did well that year as markets performed – but Dorset has a much larger and diversified portfolio, aimed at generating strong but steady returns. Over three years the fund has made 10.3% a year, which is the seventh-best performance in the LGPS, and over the five years to the end of December 2013, the fund has made an average 12.8% a year, ahead of the local authority average of 10.8%. It has also been at the forefront of investment innovation in the public sector, recruiting Insight Investment for a liability-driven investment mandate in 2012, a highly unusual step for a public scheme. According to Nick Buckland, head of treasury and pensions, this required them to set up a bespoke investment vehicle to do derivative transactions, as current regulations for public funds prohibit the use of these financial instruments. The same year, it also hired Baring Asset Management for a diversified growth mandate. Both decisions paid off in 2012/2013, with Insight & Baring substantially beating benchmarks.
HSBC Bank (UK) Pension Scheme
With a single trustee board overseeing the bank’s closed Defined Benefit Section scheme and its open Defined Contribution Section scheme, HSBC can offer best-in-class investments to the latter. In the DC scheme, funds are white-labelled so that members can pick and choose asset classes without having to worry about selecting top-performing managers, which is the trustees’ responsibility. HSBC’s DC Section scheme has also begun offering a new emerging markets fund, property fund and diversified assets fund in the past few years, and has rolled out a new “cash life cycle” fund which is aimed at savers in the DB Section scheme who want to make additional voluntary contributions. For the £18 billion DB fund, there has been a managed transition into lower-risk investments, with new bank capital rules making it imperative that pension funds do not trouble the balance sheet. In 2010, the trustee invested in a £1.8 billion portfolio of primarily distressed loans transferred from the bank, boosting the scheme’s funding ratio and the bank’s capital position. As a result of this and other moves, at its most recent formal actuarial valuation, undertaken last year and giving the position as of December 31, 2011, the scheme had eliminated the £3.2 billion deficit recorded in 2008, despite strengthening its mortality assumptions.
Pirelli UK Pension Funds
The Italian tyremaker hired fiduciary manager Cardano to run its five UK defined-benefit pension funds in July 2011, and since then, their investment strategy has been given an overhaul. The trustees of the five schemes, worth £650 million altogether, set up a Common Investment fund for their return-seeking assets, meaning that the three smaller ones can benefit from the same sophisticated investment approach as the larger ones. In the past couple of years this has seen them put money into investments such as global-macro hedge funds, private equity, real estate and to benefit from better access to some more niche strategies. During 2013, the assets returned 7%, while the schemes’ liabilities fell by 2% – a nine-percentage-point outperformance, but with only one third of the volatility of equity markets. In 2012, the trustees and Cardano agreed an innovative hedging approach using swaptions to protect against adverse movements in interest rates.
Universities Superannuation Scheme
In the past year to 18 months, the £40 billion industry-wide fund for the UK’s higher education sector has set up an in-house infrastructure investment team that is winning deals, an approach that is almost unprecedented in the UK, and which resembles the direct ownership approach of the large Canadian pension funds. USS bought 8.65% of Heathrow in October 2013, and a stake in the UK’s privatised NATS air traffic control system before that. In December 2013, it made a €150 million convertible loan to Spanish infrastructure group Globalvia Inversiones. The scheme now has £1.9 billion overall in infrastructure equity and debt. More broadly, the scheme made 13.3% on its money during 12 months to March 31, 2013, narrowly ahead of benchmark. The scheme also continues to attract top-calibre talent; Bill Galvin, the former chief executive of the Pensions Regulator, joined the scheme in August 2013 as its chief executive, and in March 2014 it announced the recruitment of Kathryn Graham, the former director of special projects at the BT Pension Scheme, in a senior strategy role in its investment division.
Pension Protection Fund
Nominated for the third year running, having won this award for the past two years, the £15 billion Pension Protection Fund built on its good results of previous years during 2012/2013, with an investment return of 11.1%, taking its overall surplus to £1.8 billion as of March 31, or a funding level of 110% – despite a record £1 billion of new liabilities transferred to the PPF from the pension funds of bankrupt companies. As in previous years, the scheme’s sophisticated liability-hedging techniques were responsible for most of the return, though its asset portfolio also outperformed its benchmark by 4.6% – more than double its targeted outperformance over liabilities of 1.8% a year. As its portfolio grows, it continues to make new investments – the PPF added another nine fund managers to its approved panel for global tactical asset allocation in October 2013, and is recruiting managers for new property investments in Europe, the US and Asia. In 2014, the PPF also announced it was making its first move into direct lending to UK companies, putting aside £150 million for the purpose.
###### Best De-Risking Strategy
In February and December 2013, the defence group signed longevity swap deals with Legal & General worth £5 billion in all, covering three of its group pension schemes against the risk that pensioners will live longer than the scheme actuaries predict. The transactions, arranged with the help of adviser Aon Hewitt, covered 48,000 pensioners in all, and were notable in that all three deals included prearranged transfers-on of portions of the longevity risk from L&G to reinsurers Hannover Re and Reinsurance Group of America. One of the transactions, the swap covering the Royal Ordnance Pension Scheme, was also complicated by the fact that this scheme links pension increases to the consumer prices index rather than the retail prices index, following a government rule change in 2010.
BT Pension Scheme
During 2013, BT launched the UK’s biggest pensions increase exchange exercise – an offer to over 100,000 pensioners to swap part of their inflation-linked pension for a higher flat-rate pension. According to Paul Rogers, head of pensions risk at BT: “The idea with BT’s exercise was to give members additional flexibility and choice, while providing additional certainty to the pension scheme on future pension payments.” Benefits in the BT Pension Scheme are largely linked to inflation through the consumer prices index. With few derivative or hedging products yet on the market tied to CPI, as opposed to the more established retail prices index, the exercise gave the pension scheme an alternative way to reduce its inflation exposure. As well as receiving an option guide and personal statement, pensioners could call a helpline, and speak to an independent financial adviser. Members were given a “balanced deal” offer, which means the absolute value of the option is greater or equal to the pension being given up, on a prescribed basis. Over 30,000 members have called the helpline so far and the exercise is expected to remove inflation exposure on a significant proportion of liabilities. James Riley, a KPMG consultant who advised on the process, said: “The biggest previous such exercise might have involved about 10,000 people, so this is over 10 times larger than anything that’s been done before.”
British Arab Commercial Bank
The £60 million British Arab Commercial Bank Pension Scheme has been actively de-risking for several years; placing four separate buy-ins to date, covering all current pensions in payment. The latest, a £12 million pensioner buy-in with Partnership Assurance, was groundbreaking as the first “whole of market” medically underwritten buy-in. Up until this deal, widely diverging underwriting preferences among insurers forced trustees to preselect a provider to work with on medically underwritten deals. However, BACB was the first scheme to take advantage of a new broking process designed by its adviser, JLT Employee Benefits, which allowed multiple insurers to quote based on common underwriting data. The trustees used a third party to collect medical information through a short health questionnaire, achieving responses from members accounting for 95% of the scheme’s liabilities. The results were then shared with insurers, and in this way the trustees benefited not only from more accurate pricing that the additional health data facilitated, but also from competitive tension between the participating insurers.
EMI Pension Scheme
In July 2013, the trustees of the £1.5 billion EMI Group Pension Fund, which had been taken on by US bank Citigroup following a corporate restructuring of record company EMI, announced the full buyout of their scheme. This was the UK’s largest such transaction, involving 20,000 members, and yet every one of them had been written to within a week. Although helplines were provided, only 2% of the membership used them – an indication that the written communications were sufficiently clear to answer all their questions. Pensions insurance buyouts such as this usually proceed with the insurer issuing a collective insurance policy to the trustees, which is then exchanged for individually named policies issued to every member during the following months. Insurer Pension Corporation, which did the EMI buyout, exchanged the collective policy for the individual policies within seven months, which the company believes is the fastest such policy transfer in a pensions buyout worth more than £500 million. Clive Gilchrist, chairman of the EMI trustees, said the process had been “exceptionally smooth”.
Jardine Lloyd Thompson Pension Scheme
The insurance and reinsurance brokerage, which also operates a substantial pensions consulting business, called in its in-house expertise to structure two innovative insurance buy-ins with Prudential last year. The company and trustees got scheme member data up to date in advance using tracing services, and then separated its scheme population into multiple tranches by liability duration. Market triggers were set in advance for each tranche of liabilities, one of £120 million and then a second of £85 million, so that when bond prices moved in the trustees’ direction, assets could be swapped quickly, securing advantageous terms. Prudential was preselected as a provider, and legal terms were agreed in advance, meaning that the transactions, when they happened, could happen quickly. Prudential was able to line up higher-yielding assets in advance, which helped it to offer a better price to the JLT scheme.
###### Best Retail Sector Pension Provider
AJ Bell, founded in 1995, has grown to become one of the largest providers of self-invested personal pensions, with £20 billion under management. Chief executive and founder Andy Bell has been active in lobbying the government to simplify pensions rules, including scrapping the lifetime allowance and revamping drawdown rules. In February 2014, the company released a survey claiming that 90%-plus of IFAs supported its stance on these issues. The firm held its first investment conference in November, 2013, attracting high-profile names from the fund management industry such as Edward Bonham Carter of Jupiter, Terry Smith of Fundsmith, and Tom Rampulla of Vanguard. Known as a low-cost provider, AJ Bell charges an admin fee of 0.2% on savings pots up to £2 million, plus a range of admin and switching fees.
Hargreaves Lansdown, the winner of this award last year, is one of the best-known names in retail pension provision. The company’s growth has been impressive; total assets managed have risen in value by an annual 25% over five years to £43 billion, with about £12 billion of that in Sipps. It has begun pushing into the corporate pensions market too, as auto-enrolment duties fall on smaller employers and the corporate and retail pensions markets begin to merge. During the past six months Hargreaves has added 28 clients for its “Corporate Vantage” workplace savings solution, with the total number of employees enrolled in these plans now up to 32,000, with £793 million in assets. Hargreaves continues to be aggressive on fund manager charges too, much to fund managers’ consternation, and in March unveiled a list of 27 funds from managers that it had managed to negotiate down to 54 basis points. Hargreaves takes a fee of 45 basis points on top of this.
Rowanmoor is the UK’s largest independent provider of small self-administered pensions, as well as offering Sipps, and continued to grow in 2013 – group turnover rose 17.2% to £14.3 million during the 12 months to September 30, with 3,860 pension schemes under management at year-end, up 26% on the previous year. It has also continued to work on IFA relations, running workshops and an IFA survey to coincide with the 40th anniversary of the Small Self Administered Scheme in summer 2014, and finding that advisers’ top concern was the effect of auto-enrolment on small businesses. The firm has been particularly vocal about issues facing small employers that have spun out of public-sector organisations, after working with a privatised company that spun out of the NHS only to find it was expected to auto-enrol last year, instead of in 2016 in line with businesses of similar size. Rowanmoor launched a service in June 2013 offering administration services to SMEs that want to set up accounts with the National Employment Savings Trust, the government’s low-cost pension plan.
During 2013, the firm’s numbers of self-invested personal pension customers rose 20% to 189,000, with assets administered in these plans up 18% to £22 billion. The firm has been active in its efforts to help IFAs through the disruption to their business models caused by the Retail Distribution Review, and in January launched a “benchmarking service” for the sector to allow IFAs to compare themselves with their peers. Separately, in the corporate pensions sector Standard Life is making a push for small and medium enterprises. It overhauled its processes in April 2013 and now claims it can process 60,000 new members a day, up from 4,000 before. Group chief executive David Nish addressed the Liberal Democrats’ Glasgow conference on the topic of SMEs and pensions in November 2013, and in December, Standard Life launched a service claiming to allow SMEs to set up a scheme in six minutes. During 2013 it also announced workplace pensions tie-ups with Punter Southall and IFA outfit LEBC.
This specialist provider of Sipps, which is part of the Legal & General group, hit two milestones last September – 20,000 Sipp accounts and £6 billion under administration. The firm says it is in good shape to deal with new Financial Conduct Authority rules on “non-standard investments” – primarily commercial property, since only about 20% of its book is invested in these assets, compared with around 40% for some providers, and it is well capitalised for any new requirements. It also acquired two Sipp books of business from smaller providers Pearson Jones and Origen last year. Will Self, appointed managing director in May 2013, says the firm has the “capability and desire to intensify this acquisition programme”. In February 2013, it announced a move to help deal with the issue of commercial property in Sipps by appointing a panel of recommended solicitors to help clients through any purchases.
###### Outstanding Individual Contribution to Pensions
Gilchrist, deputy chairman of professional trustee firm BESTrustees, has had a long and distinguished career in pensions since stepping down as a director of the PosTel pension scheme – the forerunner of today’s BT and Royal Mail funds – to found BESTrustees in 1992. In 2013 he was as busy as ever. As chairman of the EMI pension fund he helped shepherd the scheme from company bankruptcy, through ownership by Citigroup to a buyout with Pension Corporation in the middle of 2013. He has continued to work hard on behalf of Nortel Networks pensioners as chairman of that scheme, which continues to pursue a £1.5 billion claim on the bankrupt telecoms group through the courts. He also chairs the Kingfisher pension schemes (nominated for Scheme of the Year) and sits on the board of the Co-operative Group Pension Scheme.
Green, who is retiring in 2014, has been chief executive of the Superannuation Arrangements of the University of London for 16 years. Saul, as the scheme is known, is a £1.9 billion public-sector fund that runs an open career-average pension scheme, which in 2013 began to auto-enrol staff under the government’s programme. Green has led the diversification of its investment strategy, and the setting up of a subsidiary company, STC Pension Management, to take on administration for other public-sector schemes. Its first client, the University of Sussex pension scheme, joined in October 2012. Green was also the founding chairman of the Pensions Administration Standards Association, which was set up in 2011, and is a past president of the Pensions Management Institute.
In April 2014, Rubenstein will pass his five-year anniversary as chief executive of the Pension Protection Fund, the UK government’s safety net for the retirement plans of bankrupt companies. Under his leadership, the organisation has grown into a centre for investment excellence in the UK pension fund industry, and Rubenstein wants it to take investments in-house by 2017, as it has done with scheme administration. He was also instrumental in the setting up of the Pensions Infrastructure Platform, alongside the National Association of Pension Funds and its chief executive Joanne Segars – a new low-cost investment platform for UK funds to pool resources to invest in infrastructure projects. He is also a former vice-chairman of the NAPF and chairman of its investment council, and a former member of the UK Actuarial Profession’s management board.
Spencer, a former UK chief executive of insurer Royal and Sun Alliance, now known as RSA Group, has been chairman of the BT pension scheme – one of the country’s two biggest funds – for three years, chairman of the BA pension fund for five years, and also has independent trusteeship roles at the British American Tobacco pension fund and Rolls-Royce’s pension fund. He has also overseen innovative deals such as Rolls-Royce’s 2011 longevity swap. In 2010, he was appointed a CBE in the New Year’s Honours for services to financial services.
Williams has been group director of pensions at Whitbread, the company behind hospitality brands such as Costa Coffee, Premier Inn and Beefeater Grill, since 2007 – a business that includes plenty of young, transient and lower-paid workers. According to peers in the industry, there are few in pensions with more passion than Williams for talking to those people about pensions in a language they understand. She has led a successful auto-enrolment drive at Whitbread, with only around 4% of the 21,000 staff the firm enrolled last year opting out of the scheme – a vindication for Williams’ “keep it simple” approach to communications. In October 2013, Williams became chairman of the National Association of Pension Funds’ new Defined Contribution Council.
###### Pension Scheme of the Year
HSBC DC Pension Plan
This £1.5 billion scheme is one of the largest and most generous DC schemes in the UK, and HSBC is making it better still. As it stands, the bank offers a contribution of 8% flat, plus an extra 5% if members put in 5%, making for an 18% total contribution. In July 2014 this will rise to a 7% match, meaning a total contribution of 22% will be on offer. And in July 2015, HSBC’s flat contribution rate will also increase to 9%, and to 10% on the first £20,000 of salary, meaning that members who put in 7% will get between 23% and 24% of their salaries invested in their pensions. Lesley Alexander, group head of pensions, says this is aimed at helping the bank’s lower-paid staff, who may not be able to save as much as they need to. Last year, the scheme added fund choices from three new managers and its investments are good performers too (see nomination for Best Investment Strategy). HSBC pays all fund manager fees on DC investments – something that is almost unique in the industry. And the bank has begun a financial education programme for its members, using bespoke modelling tools to estimate rates of return across multiple asset classes, in order to estimate how much individual savers will get in their pensions based on their current savings rates and investments. This is a cut above the usual models, which simply assume 6% or 7% rates of return.
Kingfisher (includes B&Q and Screwfix)
The DIY retail group Kingfisher is nominated for a sophisticated investment approach to its defined-benefit fund, and a generous and forward-thinking approach to its new defined-contribution plan. In July 2012, it increased the contributions to this plan ahead of auto-enrolment, which fell on the company between April 2013 and February 2014, to a maximum 14% company contribution on an 8% worker contribution, making for a total contribution of 22% – a generous rate not often found outside the financial sector. The company has also auto-enrolled new members into a salary sacrifice arrangement called Smart Pensions, further increasing the tax relief on their savings. The Kingfisher trustees added a new emerging markets fund to the DC plan in 2012. The trustees are at the cutting edge for investments in the older final salary plan (assets of c£2.4 billion), now closed. They invested members’ money in a new agriculture investment fund with Insight Investment in the 2012/2013 financial year and a new emerging market debt and equity fund with Aberdeen Asset Management. They also made allocations to an alternatives mandate with LGT Capital Partners and a direct lending fund with Haymarket Financial. Kingfisher’s website for members is top of the range, updated regularly with a wealth of information on both schemes.
Kodak Pension Plan
This £1 billion UK scheme was orphaned in April 2013 with a £900 million deficit, when its US parent Eastman Kodak went bankrupt. In response, the trustees, chaired by independent trustee Steven Ross, structured an innovative deal. Instead of pursuing a financial claim against the Kodak estate, the scheme acquired the assets of two business streams, personalised imaging and document imaging, from within Kodak; and set up 35 companies around the globe, creating a group called Kodak Alaris, which the pension fund now owns. However, even with this transfer, the scheme would still have been left with an unsustainable deficit and looked set for the Pension Protection Fund, where members’ pensions are cut by at least 10% – and more for high earners. So the trustees proposed to close and then reopen the plan under new, slightly less generous terms, offering members more than they would get under the PPF. In August 2013, the deal was backed by 97% of the membership on an 80% turnout. In September the new-look Kodak Pension Plan formally took ownership of the Kodak Alaris companies, and the deal has been signed off by the Pensions Regulator. The trustees announced that the new plan would begin operations on March 31, and that a new chief executive, Ralf Gerbershagen, had been hired for Kodak Alaris.
Santander (UK) Group Pension Scheme
This £8.3 billion, 60,000-member bank pension scheme, created out of seven legacy schemes belonging to the various banks and UK building societies that Santander has bought in recent years, was nominated in this category in 2013. The project to combine and modernise the scheme has continued. On the investment front, its in-house team has sold out of pricey gilts to put money into credit and absolute return funds. It has sold out of funds of hedge funds and built a single manager portfolio, and it has been building a liability hedging portfolio of property with explicitly inflation-linked rent increases, such as the Manchester Arena, which it bought last summer, and The Brewery, an events venue in London acquired in September 2013. In March 2014, the scheme announced a modernisation of its administration, bringing communications and record-keeping for its legacy defined benefit-funds, and its modern defined-contribution scheme, under a single mandate with a single provider, JLT Benefit Solutions. This relatively unusual step involved a major IT overhaul to tie in with the bank’s online benefits portal, “santanderisyou” – at the same time as the bank and its pension trustees are working on the scheme’s latest actuarial valuation.
Universities Superannuation Scheme
The £40 billion pension fund’s investments in NATS and Heathrow Airport (see nomination for Best Investment Strategy above) in autumn 2013 have put USS at the forefront of pension funds directly investing in infrastructure, but the scheme was active on several other fronts in 2013. Infrastructure sits within the fund’s Private Markets Group, which was formed in 2013 by combining its alternative assets and property teams, and which also looks at “strategic investments” in areas such as hospitals and care homes, farmland and timberland, land banks, social housing and student accommodation, private debt opportunities and renewable energy. The scheme is also active on the public policy front. It is a leading member of a group of investors raising concerns that audit and accounting standards do not take adequate account of prudence, with head of equities Ben Levenstein warning in November 2013 that: “The gravity of some investors’ unease about the international accounting framework is a serious concern which must be addressed.” The same month, USS joined forces with the BT Pension Scheme, the National Association of Pension Funds and Railpen to jointly publish a set of principles for executive remuneration.
Scheme Sponsor of the Year
In 2013, the £5 billion of longevity swaps the company arranged to cover its defined-benefit schemes grabbed the headlines, but BAE Systems has been supporting these funds, worth over £17 billion, for years. It paid a lump sum of £390 million to the main BAE Systems Pension Scheme in 2012, followed by annual payments of £40 million until 2026; it is also paying £50 million a year of deficit contributions to the BAE Systems 2000 Pension Plan, about £30 million a year to the Shipbuilding scheme and £21 million a year to the Royal Ordnance Pension Scheme. However, all these plans are closed and for new staff the company offers the BAE Systems DC Retirement Plan, into which it began auto-enrolling in July. This offers basic contribution rates of 6% of salary from the company in exchange for 4% from the member. If members put in an additional 2%, the company puts in the same, making for a total maximum contribution of 14%. This plan, operated by Standard Life, features two lifestyle strategies – one aimed at people who want to use their whole pot to buy an annuity, and one for members who want to take a quarter of it as a tax-free lump sum. The investments, which cycle from a global equities tracker to Standard Life’s multi-asset Gars fund as members reach the middle of their careers, then move either into cash and bonds, or a special annuity purchase fund depending on which lifestyle is picked. BAE Systems gained the NAPF’s Pensions Quality Mark for this plan in July 2013.
The Swedish furniture retailer has designed a new pension scheme for staff ahead of auto-enrolment, which fell on the company in April 2013. Under it, the company offers a maximum contribution of 6.5% of salary for members who pay in 4%, but it is the scheme’s provisions for lower-paid and part-time staff (70% of its retail-sector workforce) that make it stand out. Members are enrolled with a 1% salary contribution from Ikea in exchange for a 1% payment from themselves, but when the legislation requires the company to increase these figures to 2% from the company and 3% from the worker in 2017, the retailer will instead introduce a 3% contribution from Ikea in exchange for only 2% from staff. The 2018 uplift will be similarly inverted, to 3% from staff and 4% from Ikea. In addition, Ikea has introduced these percentage rates across a member’s entire salary, whereas the law only calls for them to be applied on earnings above £5,670 a year. The Ikea scheme also contains built-in annuity advice from a recommended independent financial adviser for free. Finally, in December 2013, the group announced a boost for pensions at the global level. Ikea is setting up an annual bonus scheme, which will pay special contributions into employees’ pension pots if the company hits its financial targets. It has earmarked €100 million for the scheme, and Alix Main, UK & Ireland compensation and benefits manager at Ikea, said it was likely that 55% of its staff would qualify through having worked for the company for more than five years.
Manchester Airports Group
As well as setting up a new defined-benefit pension fund in 2013 for employees at Stansted Airport, which it acquired in February, the airport group has been investing heavily in its pensions offering across the board. When former PwC consultant Mark Cliff joined in January 2013, he was the group’s first dedicated head of pensions. Cliff has had a busy year, overseeing not only the group’s new schemes for Stansted staff, but also the rollout of auto-enrolment, which came into force for the staff at Manchester, Bournemouth and East Midlands airports in September 2013. Each airport has its own legacy DB pension arrangements, but MAG’s main groupwide DC plan has employer contributions of 5% of salary on offer if members chip in 2.5%. Cliff said that before his arrival, only 37% of eligible staff had signed up for this plan, but following a communications blitz featuring on-site walkabouts and pension surgeries, this rose to 60% in 2013. The group has set up a more basic minimum scheme for auto-enrolment, but Cliff said his next priority is to target 80% participation in the main scheme by getting members to upgrade.
Royal Mail Group
Following tough negotiations with unions in 2013, in January the company agreed to keep its career-average Royal Mail Pension Plan open to future accrual for another three years at least to 2018, with no increases in members’ contribution rate of 6% of salary. With around £3.1 billion in assets, it is the fastest-growing defined-benefit plan in the country. In return, the company’s unions agreed that pensionable pay increases would have to be limited, which allows the company to keep a handle on the pension scheme’s cost. And Royal Mail has agreed to plough at least some of the money it has saved into improving its defined-contribution plan, which is open to new staff. It has proposed raising the minimum company contribution to 7% of members’ salaries in return for a member contribution of 4%, and introduce a new maximum tier of 6% member, 9% employer contributions. From April 2015, the company will begin auto-enrolling new staff on its middle contribution tier of 5% and 8%, as opposed to the lower tier as at present.
The UK bank is nominated in this category following a commitment to keep its final-salary pension schemes open to future accrual by current staff until at least 2019, which has been welcomed by the bank’s unions – and cited by the Lloyds Trade Union as an example to its bank as well. Following an initial threat to close the scheme if its deficit was not dealt with, the bank negotiated a deal with the unions that will keep the final-salary schemes open to the approximately 5,000 staff that are still members of them, in return for a cap of 1% a year on pay rises that can be counted towards pension benefits. The bank has also agreed an innovative structure whereby DB members whose salary increases exceed this cap can make matched contributions into the bank’s DC scheme instead, and also agreed a special one-off payment into the DC scheme of £2,000 per member, due to be paid in June. The Communications Workers Union “strongly” recommended this package to its members in a vote in September 2013, and 96% of the membership voted to back it.
Source: Financial News