8
NEWS
DB Investment Changes
DATE:
October 2011
Investment changes should stabilise Fund
“Changes to the Fund’s investment strategy to bring more stability
and reduce risk, together with increases to Company contributions,
should improve the security of the Pension Fund.” says Fund Actuary
Christian Hardy.
In the last few years DB Section members will have seen that, although the
Company has increased the amount it pays into the Fund, the deficit (the
additional amount that would be needed to pay for those benefits members
have earned) has risen.
A number of factors have contributed to this rise:
The cost of pensions has increased as pensions are being paid for longer as a result of improvements in
life expectancy
Low interest rates require more to be invested to provide the same level of income than when interest
rates are high
Investment returns have been volatile, as discussed in the article on page 7.
The Trustee does not have control over life expectancy or interest rates. However, it does have some control
over one of the other key factors – the investment returns.
The Fund currently invests 50% in higher-risk assets which have the potential to deliver higher investment
returns but can also fall more dramatically in value. The remaining 50% is invested in lower risk assets, which
are more stable but do not have the same growth potential.
Paul Rhodes, Trustee Director and member of the Investment and Funding Committee says:
“We are pleased to announce that the Trustee has agreed a new investment strategy
with the aim that, by 31 December 2018, the Fund will have moved to approximately
20% risk-seeking assets and 80% risk-reducing assets. As the Fund is a mature fund,
with an ageing membership, this gives more stability and less risk.”
This change follows extensive discussions between the Company and a Working Group including the Fund
Actuary and Investment Adviser, as well as the Trustee Board’s Investment and Funding Committee. As part
of this funding strategy, the Company has agreed to increase its contributions.
The Trustee will continue to regularly monitor the funding level of the Fund and, when market conditions are
right, may decide to change the investment allocation to take advantage of potential recovery / market peaks.
The Fund has recently undergone its three-yearly valuation and details can be found in the Summary Funding
Statement enclosed with this edition of FYI magazine, which contains more information about the finances
and funding position. More information on the Fund’s investment strategy can be found in the Statement of
Investment Principles which is available from the Trustee on request.
•
•
•
Elsewhere in FYI
F Y I
News
Fund Data
The allocation of investments as at 31 March 2011 is
as follows:
Asset class
%
Equities inc GTAA*
54.1
Bonds
41.0
Property
2.0
Currency hedging
-0.3
Private Equity
1.3
Infrastructure
1.9
Total
100.0
* Global Tactical Asset Allocation. The Fund terminated the
GTAA mandate following a period of underperformance.
Maria Crellin, the UK Pension Manager, says:
“The Company has agreed to contribute a total
of £170 million a year over the next five years,
including £30 million towards future service
benefits and around £140 million towards the
deficit. This should both help pay off the deficit
and counteract the loss of potential investment
returns as a result of moving into risk-reducing assets.”
Comments
“Although, as a pensioner, I’m no longer building up benefits in the Fund, it’s reassuring to know that the
Fund is being managed well. I was at BAT for 30 years and it’s really important to me to know that the
Fund’s not going to flounder.”
Brian Atmore, DB pensioner
“I understand investments to a degree. I’m not an expert but in my opinion the Trustee seems to be
managing the Fund well and I feel quite reassured.”
Mary Blunt, deferred member of the DB section
“I always read the Summary Funding Statement as I am interested in understanding the health of the
Fund and what my employer’s (BAT’s) plans are to bridge potential gaps in the Fund. It’s good to hear
how much the Company has agreed to contribute to help protect the Fund and our benefits.”
Andrew Brock, employee member of the DB Section
