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2016 Members’ Newsletter First Active Pension Scheme

Members’ Newsletter - Aon...Members’ newsletter 2016 7Funding update Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme

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Page 1: Members’ Newsletter - Aon...Members’ newsletter 2016 7Funding update Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme

2016 Members’ Newsletter

First Active Pension Scheme

Page 2: Members’ Newsletter - Aon...Members’ newsletter 2016 7Funding update Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme

Members’ newsletter 20162

The Chairman’s message

On page 4, you can read about the financial transactions of the Scheme over the year to 31 December 2015, where there is a summary of the payments into and out of the Scheme. You can also find out the latest update on how the investments are performing on page 6, together with more detail about the Trustees’ investment strategy.

Being a member of a defined benefit pension scheme is a valuable asset and we have included some information on page 9 to help you make the most of it.

It is a pleasure to present the 2016 newsletter for members of the First Active Pension Scheme. Here you can read about the latest Scheme news, along with an update on what’s been happening in the world of pensions.

I’m pleased to say that the triennial actuarial valuation of the Scheme as at 1 January 2016 has been successfully finalised in time for the statutory deadline of 1 October 2016. We have completed discussions with the bank to secure future funding for the Scheme, and you’ll find more details on page 7. We delayed issuing the newsletter this year to bring you this news.

You will be pleased to hear that the government’s Pensions Levy no longer needs to be paid, although there may still be a residual impact on members. The Levy was introduced as a temporary measure in 2011 and was charged annually until June 2015, when it ceased. You can read more about this and other pensions news in general on page 11.

Paul RevilleChairman of the Trustee Board

Page 3: Members’ Newsletter - Aon...Members’ newsletter 2016 7Funding update Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme

Members’ newsletter 2016 3

* Trustees nominated by the membership

Your Trustee Board Contents Financial highlights 4

Investment report 6

Funding update 7

Making the most of your pension 9

Keep in touch 12

Paul Reville (Chairman)

Colin Kelly

Jerry Crowley* Declan Hayes

Conor Holmes Pat Mooney*

John Reen* Roger Stanley*

* Trustees nominated by the members

Page 4: Members’ Newsletter - Aon...Members’ newsletter 2016 7Funding update Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme

Financial highlights

*The opening asset value at 1 January 2015 has been increased by €2,321,860 compared to the closing asset value at 31 December 2014 to reflect the value of annuity policies, which is now required under accounting standards.

**Pensions Levy recovered by reduction in members’ benefits over an extended period.

The table shows the payments into and out of the Scheme over the 12 months to 31 December 2015.

The Scheme’s formal Annual Report and Accounts for the year ended 31 December 2015 have been audited by Deloitte LLP, who have confirmed that they show a true and fair view of the Scheme’s financial transactions over the period. The Annual Report and Accounts have been summarised here to provide you with an overview of the Scheme’s financial transactions, but a copy of the full report is available from Pension Services, on request.

Opening asset value at 1 January 2015*€

210,878,544

Money into the Scheme:

- employer contributions 7,708,134- member contributions 499,135- net investment returns (2,054,398)Sub-total 6,152,871

Money out of the Scheme:

- benefit payments 3,569,332- member transfers out 1,037,030

- Pensions Levy** 313,328

- life assurance premiums 217,091- administration expenses 237,804

Sub-total 5,374,585

Closing asset value at 31 December 2015 211,656,830

Members’ newsletter 20164

Page 5: Members’ Newsletter - Aon...Members’ newsletter 2016 7Funding update Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme

MembershipThe following chart shows the Scheme’s membership as at 31 December 2015

DEFERRED MEMBERS

ACTIVE MEMBERS

PENSIONER MEMBERS

0 100 200 300 400 500 600 700 800

335

798

121

TOTAL MEMBERS: 1,254

Members’ newsletter 2016 5

Page 6: Members’ Newsletter - Aon...Members’ newsletter 2016 7Funding update Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme

Investment reportDuring the year, the Scheme’s assets increased by €778,286 to a total of €211.7 million.

Investment StrategyThe Trustees are responsible for setting and managing the investment strategy of the Scheme. The Investment Review Committee focuses on the complex detail of this strategy and they employ specialist advisers, Willis Towers Watson, to help them.

Investment performance In 2015, total Scheme assets delivered a return of -0.6% which equates to negative returns of €2.05m. This is broadly in line with the benchmark of -0.4% over the same period.

Members’ newsletter 20166

Equities 53%

Property 2%

Global corporate bonds 5%

Global sovereign bonds 10%

Real rates fund 13%

European corporate bonds 17%

TOTAL 100%

The actual asset allocation as at 31 December 2015 was as follows:

2015

Split of assetsAt 31 December 2015, the Scheme was 98.2% funded on a Minimum Funding Standard basis, which is ahead of the schedule set out in the Recovery Plan (see page 8). Accordingly, in 2015, the strategic allocation to bonds was increased to 46%. In particular, the allocation to global government bonds and the Euro Real Rates fund was increased.

Page 7: Members’ Newsletter - Aon...Members’ newsletter 2016 7Funding update Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme

Members’ newsletter 2016 7

Funding update

Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme. This involves working out the amount of money that is needed to pay pensions to members now and in the future. This amount is known as the Scheme’s liabilities. It involves the Actuary making certain assumptions about what will happen in the future, including how long people will live, what inflation will be (as pension increases are linked to inflation), how the Scheme’s assets are invested; and what return is likely to be achieved from those investments.

The Actuary then compares this amount with the value of the Scheme’s assets, which also includes the bank’s and members’ projected future contributions. There will either be a surplus or a shortfall which gives the funding level of the Scheme, expressed as a percentage.

The Trustees use this information to develop a funding strategy for the Scheme, in discussion with the bank. In the intervening years between formal actuarial valuations, the Trustees continue to monitor the funding level closely and the Scheme Actuary provides an approximate update each year.

The funding level of any pension scheme is subject to the volatility of market fluctuations and inflation. This is why the Trustees monitor the position very closely in order to discuss with the bank any remedial action that may be necessary.

The ongoing actuarial funding valuation as at 1 January 2016 has recently been completed, and highlights are:

• The Scheme’s liabilities, relating to past periods of service of members, exceeded the value of the Scheme’s assets resulting in a past service deficit of €26m and a funding level on an ongoing funding basis of 89%.

• The joint rate of contribution (including normal employee contributions) required to meet the cost of future accrual of benefits for active members is 28.3% of Pensionable Salaries.

• In addition, the bank contribution required to extinguish the past service deficit is 17.3% of Pensionable Salaries.

• As the bank contribution specified in the Recovery Plan is higher than the above combined rate, the recommendation of the Actuary is for the bank’s contributions to continue in line with the Recovery Plan, as set out on page 8.

Page 8: Members’ Newsletter - Aon...Members’ newsletter 2016 7Funding update Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme

Dec 12 €m

Dec 13 €m

Dec 14 €m

Dec 15€m

Scheme Assets 162.7 177.0 209.8 212.0

Funding Standard Liabilities 200.3 194.8 210.1 215.9

Excess/Shortfall (37.6) (17.8) (0.3) (3.9)

Funding Level 81.2% 90.9% 99.8% 98.2%

As can be seen from the above, good progress has been made against the target of satisfying the Funding Standard, with Scheme Assets just short of meeting the Funding Standard at 31 December 2015. It should be noted that statutory funding levels are very volatile and change on a daily basis. Also, there are other funding bases against which the Trustees must measure the Scheme’s progress (such as the triennial review described above) and, while we have seen an improvement in the Minimum Funding Standard basis above, the opposite has been the case on other bases. The Trustees will continue to monitor all the funding bases regularly with the guidance of the Scheme Actuary.

Members’ newsletter 20168

By the end of the Recovery Plan in 2020, the Scheme will be required to hold additional assets above those currently required by the Funding Standard. These additional assets are known as the Funding Standard Reserve and are to be considered as a contingency against possible future falls in asset values or increases in pension scheme liabilities.

The bank has agreed to provide further security to cover the assets required to be held in respect of the Funding Standard Reserve. This security (which is known as a ‘contingent asset’) will build up to an amount expected to meet the Funding Standard Reserve at the end of the Recovery Plan. The contingent asset agreement is in the final stages of negotiation and is expected to be signed shortly.

As advised previously, the Trustees submitted an updated Recovery Plan to the Pensions Authority in 2013 and this was subequently approved by that body. The headlines from the Recovery Plan agreed with the bank were as follows:

• It aims to restore the statutory funding position of the Scheme to 100% by 30 September 2020.

• The bank will pay annual lump sums of €6.8 million each year from 2013 to 2020 inclusive (i.e. eight payments). The lump sums will be paid in June each year and are inclusive of the contributions in respect of the future accrual of benefits.

• These lump sums will be increased in line with inflation from 2014 onwards.

• Subject to their fiduciary responsibilities the Trustees agreed to the passing of a resolution to give effect to benefit adjustments in order to recover the Pensions Levy payments once they accrue.

• Employee contributions are excluded from the above contribution rate and they will continue to be paid as normal.

• The cost of insuring risk benefits and Scheme expenses will also be met by the bank.

Funding position at 31 December 2015

Page 9: Members’ Newsletter - Aon...Members’ newsletter 2016 7Funding update Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme

Members’ newsletter 2016 9

Making the most of your pensionBeing a member of the First Active Pension Scheme is a valuable asset that helps you save for your retirement. Once you retire, you will get an income for life as well as a cash lump sum. It also provides security for your family, whether you die in service or after retirement.

Topping up your pensionYou can choose to pay extra money into your pension by making Additional Voluntary Contributions (AVCs). Remember that pensions is an Anytime election so you can make changes to your pension arrangements through RBSelect in any month and they will take effect the following month.

We offer a choice of seven funds depending on what you would like to achieve and the level of risk you are willing to take. The Scheme’s seven AVC funds are managed by Irish Life Assurance plc and there are management charges associated with each one. If you would like a factsheet on each fund, please contact Pension Services, but for your information, we have included a summary of the funds available to you on page 10.

If you are not sure whether to invest in AVCs or how to do so, it’s a good idea to seek independent financial advice.

Are you approacing normal retirement age?If so, Pension Services will contact you automatically around six months before your normal retirement age; you don’t need to do anything. However, if you will be retiring and are an employee with the bank, you will need to tell your line manager. There are flexible working options available in the lead up to retirement which can be found on intouch by searching for ‘winding down to retirement’ and selecting the Flexible Working Support Pack.

Where can I find out more about my pension benefits?Learnmore is the website which provides information about all Ulster Bank employee benefits, including your pension. Here you can get access to the member booklet, read the AVC guide and find our newsletter.You do not need to register to use Learnmore; it is available to everyone. Simply go to www.rbspeople.com/rbselect:

• click on jurisdiction;• select Learnmore;• follow the jurisdiction link;• choose defined benefit pension plan.

Page 10: Members’ Newsletter - Aon...Members’ newsletter 2016 7Funding update Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme

Members’ newsletter 201610

Funds are categorised by the level of investment risk involved. Low-risk funds offer low market volatility and low potential for returns. Medium-risk funds offer a higher potential for returns but with an increased exposure to market volatility. High-risk funds have high levels of market volatility and are usually for longer-term investments. They may not be suitable for investors who have fewer than 13 years to retirement.

The following funds are available to you:

AVC funds available to you

• Standard Cash Fund Very low level of volatility in fund returns but also only a very low potential for gains. Suitable for investors who are very close to retirement or have a very low appetite for risk.

• Secured Performance Fund*

Low level of volatility in fund returns but also only a low potential for gains. Suitable for investors who are close to retirement or have a low appetite for risk.

• Pre-Retirement Fund • Bond Fund

Some level of volatility. The potential return from these funds will also be medium. Suitable for investors who will accept some level of risk.

• Growth Fund Can have a high level of volatility. May not be suitable for investors who have less than 13 years to retirement. Most suitable for long-term investment.

• Global Equity Fund• Eurozone Equity Fund• Irish Property Fund

Very high-risk funds which can have a very high levels of volatility. May not be suitable for investors with less than 13 years to retirement. Most suitable for long-term investment.

low risk

low risk

medium risk

high risk

high risk

*This is a legacy fund which is no longer available for members to add to or start making contributions to.

Page 11: Members’ Newsletter - Aon...Members’ newsletter 2016 7Funding update Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme

A reminder about tax relief Following the 2016 Budget announcement in October 2015, there have been no changes to pension thresholds.

ContributionsThe amount of tax relief you can get on your own contributions to a pension scheme depends on your age and is expressed as a percentage of your gross income. The maximum gross income for relief purposes remains unchanged and is currently €115,000.

Age Limited tounder 30 years 15% of earnings30-39 years 20% of earnings40-49 years 25% of earnings50-54 years 30% of earnings55-59 years 35% of earnings60 + years 40% of earnings

Lump sums at retirementThere is no change to the €200,000 tax-free limit on pension lump sums. Lump sums above this figure, but within 25% of the fund, continue to be subject to income tax at 20% up to a maximum of €500,000. Tax on any amounts above this will be charged at your marginal rate.

Members’ newsletter 2016 11

Standard Fund Threshold (SFT)The SFT is also unchanged at €2 million. This is the tax-free limit on the total value of pension savings at retirement. Current tax legislation states that any savings in excess of the SFT at the date of retirement will be subject to a one-off tax charge of 40%. Thereafter, your remaining benefits are taxed in the usual manner. The value of a defined benefit pension will differ depending on the age at which the pension is drawn.

Pensions Levy As reported last year, the controversial Pensions Levy that has been imposed annually on private pensions since 2011 has now been abolished. The scheme paid the last Levy in 2015, however the Trustees may still pass the impact of this on to members. If this happens you will be contacted.

Understanding your pensionThe Pensions Authority is the regulatory body for occupational pension schemes. To find out more about pension issues in general, including the State pension, visit the Pensions Authority website at www.pensionsauthority.ie where you can also find a pension calculator and budget planner.

Pensions news

Page 12: Members’ Newsletter - Aon...Members’ newsletter 2016 7Funding update Every three years, the Scheme Actuary carries out an in-depth review of the financial position of the Scheme

Keep in touchPension Services provide pension administration services on behalf of the Trustee Board. The team provides dedicated services for all members of the bank’s various pension schemes, including payment of benefits, provision of quotes and projections, sending out scheme communications, and answering any questions you may have about your benefits.

Is your Nomination Form up to date?You should review and, if necessary, update your Nomination Form if you get married or divorced, enter or leave a civil partnership, or become a parent. This form lets the Trustee Directors know who you would like to receive any benefits that would be paid in the event of your death.

Data protectionWe hold information about you in order to provide your pension benefits (pensions, lump sums, death benefits), which may include information obtained from third parties. This information may be shared with:• Companies within the Royal Bank of Scotland (please contact

us if you do not want us to share your information with these companies);

• Other third parties who assist us in administering your benefits (updating personal data, calculating and paying benefits);

• Those where we have your permission to do so; and• Those where we are required to do so by law.If you would like a copy of the information we hold about you, please contact us.

Write to us:RBS Pension Services, City Link House, 4 Addiscombe Road, Croydon CR9 5PB (Depot Code 190)

Call us:Active members: 1 800 245 971 Deferred members and pensioners: +44 207 649 9499

Contact us via:Active members: click Contact HR on any HR page on intouch

Deferred members and pensioners: email [email protected]

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36

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Tell us if your details changeRemember to let us know if you change your address. A current address makes it easier for us to tell you about developments in the Scheme and also to pay your benefits without delay.