‘The regular Summary Funding Statement produced for members is just one part of the work the
Trustee does to monitor the Fund’s finances. Among other responsibilities, the Trustee reviews the
Fund every quarter and produces an internal quarterly report.’
Graham Thomas, Trustee Director
8
Every year, the Fund Actuary and the Trustee review the financial position of the Fund and publish
the results in the form of a Summary Funding Statement. This year’s statement is now on the
pensions website for you to review.
Christian Hardy, the Fund Actuary, explains the key points of the statement over the next two pages. He also talks to us
about the next formal actuarial valuation that is due to take place in 2014.
Putting a value on your benefits
As the actuary for the BAT UK Pension Fund,
it is my job to review and advise the Trustee
on the finances of the Fund. I calculate the
assets (the money built up in the Fund) and
place a value on the costs of paying members’
benefits (the ‘liabilities’). The purpose of
the valuation is to make sure the assets are
sufficient to pay all members’ benefits.
A formal actuarial valuation is carried out once
every three years and the last was conducted
with an effective date of 31 March 2011. The
full valuations provide an accurate picture of the
Fund’s finances based on the up-to-date Fund
membership. The actuarial valuation also provides
an opportunity for the Trustee to review its funding
principles.
A new formal valuation will be carried out in 2014,
which I explain more about overleaf.
This calculation is slightly different. Rather
than estimating the costs of maintaining the
Fund on an ongoing basis, it estimates the
cost that would be charged by an insurance
company to secure all members’ benefits,
assuming the fund were to wind-up.
These costs are higher because insurers
take a cautious view of the liabilities. We are
required by law to calculate the ‘wind-up’
position of the Fund – it doesn’t mean that
the Company is planning to close the Fund.
The Company is contributing extra money to
the Fund with the aim of removing the deficit.
Since January 2012, the Company has paid deficit
contributions of
£140 million
per annum and
additional contributions of
£50 million
were also
received in December 2012 and July 2013.
If you would like a paper copy of this statement, or of any of the other formal
documents produced for the Fund, contact the Trustee at this address.
This section shows the results of the interim
actuarial report – it demonstrates that the position
of the Fund has improved since the last review
was carried out at 31 March 2012. The additional
Company contributions have helped to reduce the
shortfall by almost £200 million over the year.
The Fund’s finances are
reviewed regularly and an
interim actuarial report was
prepared with an effective
date of 31 March 2013.
9
In addition to the deficit contributions the Company
pays
£30 million
each year to cover the cost of
accruing benefits and running the Fund.
The 2014 valuation
We have already started our next formal actuarial review of
the Fund. As part of this, the funding position will be formally
assessed at 31 March 2014. This will be where we confirm how
much progress has been made in reducing the deficit – taking
into account ‘known’ factors such as the deficit contributions by
the Company and the performance of the Fund’s investment
strategy, and a number of assumptions, such as the life
expectancy of members. These variable factors can add to the
liabilities of the Fund. Once the valuation is complete, we will
agree a new Schedule of Contributions with the Company.
The Fund’s assets in the Defined Benefit section are made up of
contributions, investment returns and transfers in. On the
page you can hear from our investment advisers, LCP. Their role is
assisting the Trustees to maximise and protect assets of the Fund
by investing them wisely across a range of funds with different
levels of risk.
‘I find it reassuring to know that the Company
keeps a close eye on how well the Fund is
performing. Although the Fund is in deficit, the
Company seem committed to supporting the
Fund, as shown by the extra contributions they
are paying to make up the shortfall.’
Debbie Harding, Executive Administrator
The Company is showing its commitment
to the Fund and the Company covenant by
agreeing to pay additional contributions to
the Fund, as a result of a deterioration in the
funding position since the 2011 actuarial
valuation. The covenant is the ability and
strength of the Company to support the Fund.
At the time of the last full valuation there was a
‘deficit’ in the Fund. This means that there was
not enough money in the Fund to cover all the
benefits that members are entitled to so far. This
is not a reason to be concerned as the Trustee
agreed a plan with the Company to pay more
into the Fund in order to reduce the deficit.
