Summary Funding Statement 2023
This Statement is an important document that lets you know how the Scheme is doing financially.
Why is it important?
It’s important because the Scheme’s financial health could affect the benefits you receive. It’s also a legal requirement.
The Trustee monitors the financial security of the Scheme on a monthly basis. The Scheme must have a full in-depth financial check (called an Actuarial Valuation or Valuation) from an independent professional (known as the Scheme Actuary) at least every three years. The Scheme Actuary also has to carry out a formal review annually. As the Trustee of the Scheme, we send you a summary funding statement to tell you about these results.
How is the Scheme doing?
The last formal valuation took place as at 30 September 2021 (the 2021 valuation). Annual funding updates looking at the funding position as at 30 September 2022 (the 2022 update) and 30 September 2023 (the 2023 update) are shown for comparison.
AssetsThe money the Scheme has now. |
LiabilitiesThe estimated cost of providing the promised benefits - now and in the future. |
Surplus / (shortfall)The assets minus the liabilities |
Funding levelThe assets as a percentage of the liabilities. |
|---|---|---|---|
|
2023 update £2,577m |
2023 update £2,729m |
2023 update (£152m) |
2023 update 94% |
|
2022 update £3,029m |
2022 update £3,163m |
2022 update (£134m) |
2022 update 96% |
|
2021 valuation £4,656m |
2023 valuation £4,537m |
2023 valuation £119m |
2023 valuation 103% |
|
The Scheme invests in a range of asset classes as set out in the Newsletter: The asset value has reduced significantly mainly as a result of the significant rise in interest rates since the valuation in 2021. The asset value excludes part of the one-off contribution made by the Company following the sale of Aberdeen, Glasgow and Southampton airports in December 2014. The amount excluded in the 2023 update was £9.7m. |
The calculation of the liabilities assumes that the Scheme will continue until all the future benefits due are paid. It's an estimate because it depends on assumptions about what will happen in the future, such as the investment return that will be earned on the Scheme's assets and how long members will live for. The value of the liabilities has fallen since 2021 mainly due to the rise in interest rates which results in a lower value being place on the liabilities. |
As there was a surplus of £119m for the 2021 valuation the Company has not been required to pay any 'deficit reduction contributions'. The Trustee and Company have agreed to monitor the funding position on a regular basis and may need to agree deficit contributions in the future if the shortfall increases. |
Between the valuation and the 2022 update the funding level deteriorated primarily as a result of the impact on financial markets of the government's 'mini budget' held on 23 September 2022 which led to a sharp increase in gilt yields which in turn reduced the value of the Scheme's liabilities but caused a greater fall in the value of the Scheme's assets. Between the 2022 update and the 2023 update, gilt yields continued to rise, albeit more slowly than in the previous year, which has reduced the value of the liabilities further, but the assets have again fallen by more than the liabilities. |
AssetsThe money the Scheme has now. |
|---|
|
2023 update £2,577m |
|
2022 update £3,029m |
|
2021 valuation £4,656m |
|
The Scheme invests in a range of asset classes as set out in the Newsletter: The asset value has reduced significantly mainly as a result of the significant rise in interest rates since the valuation in 2021. The asset value excludes part of the one-off contribution made by the Company following the sale of Aberdeen, Glasgow and Southampton airports in December 2014. The amount excluded in the 2023 update was £9.7m. |
LiabilitiesThe estimated cost of providing the promised benefits - now and in the future. |
|
2023 update £2,729m |
|
2022 update £3,163m |
|
2023 valuation £4,537m |
|
The calculation of the liabilities assumes that the Scheme will continue until all the future benefits due are paid. It's an estimate because it depends on assumptions about what will happen in the future, such as the investment return that will be earned on the Scheme's assets and how long members will live for. The value of the liabilities has fallen since 2021 mainly due to the rise in interest rates which results in a lower value being place on the liabilities. |
Surplus / (shortfall)The assets minus the liabilities |
|
2023 update (£152m) |
|
2022 update (£134m) |
|
2023 valuation £119m |
|
As there was a surplus of £119m for the 2021 valuation the Company has not been required to pay any 'deficit reduction contributions'. The Trustee and Company have agreed to monitor the funding position on a regular basis and may need to agree deficit contributions in the future if the shortfall increases. |
Funding levelThe assets as a percentage of the liabilities. |
|
2023 update £2,577m |
|
2022 update £3,029m |
|
2023 valuation 103% |
|
Between the valuation and the 2022 update the funding level deteriorated primarily as a result of the impact on financial markets of the government's 'mini budget' held on 23 September 2022 which led to a sharp increase in gilt yields which in turn reduced the value of the Scheme's liabilities but caused a greater fall in the value of the Scheme's assets. Between the 2022 update and the 2023 update, gilt yields continued to rise, albeit more slowly than in the previous year, which has reduced the value of the liabilities further, but the assets have again fallen by more than the liabilities. |
The next valuation is due as at 30 September 2024 and work has commenced on this. We will keep you updated on developments each year through Focus and Digital Focus.
How much money is paid into the Scheme each year?
The Company had been paying deficit reduction contributions at a rate of £20 million per year up to 30 September 2022. Given the surplus in the 2021 valuation it was agreed that these contributions would stop, but an agreement is in place to revisit this if the funding position falls below 95% and remains there for more than two consecutive quarters. Although the funding position was below 95% at 30 September 2023, it has since increased and remained above this level.
As part of the 2021 valuation it was agreed that the Company would continue to pay contributions at a rate of 25.6% of Basic Salaries plus total Shift Pay to cover the cost of Active members accruing further pension benefits. Active members continue to pay contributions at a rate between 5.0% and 7.5% of Pensionable Salary plus Shift Pay determined by their section of membership.
The contributions from both the Company and members totalled £33 million over the year ending 30 September 2022 and £18 million over the year ending 30 September 2023.
Another legal requirement for the Scheme...
If the Company was to cease to exist or decided to stop paying for the Scheme on an ongoing basis, it would be expected to pay the Scheme enough money to secure all the benefits built up by members with an insurance company. This is known as the Scheme being ‘wound-up’.
The comparison of the Scheme’s assets to the cost of buying the benefits with an insurance company is known as the ‘solvency funding level’. This is usually significantly lower than funding levels worked out if we assume the Scheme carries on. This is because insurance companies have to invest in low risk assets and they also have to hold reserves to demonstrate they have enough money to pay out the benefits. This makes buying benefits with an insurance company expensive.
The actuarial valuation at 30 September 2021 showed that the Scheme’s assets could not have paid for the full benefits of all members to be provided by an insurance company if the Scheme had wound-up at that date.
Assets |
Wind-up cost |
Surplus / (shortfall) |
Solvency funding level |
|---|---|---|---|
| The money the Scheme has. | The estimated cost of buying the benefits with an insurance company. | The assets minus the wind-up cost. | The assets as a percentage of the wind-up costs. |
|
2021 valuation £4,714m |
2021 valuation £5,865m |
2021 valuation (£1,151m) |
2021 valuation 80% |
|
This value differs to that shown earlier as this one includes the one-off contribution excluded for funding purposes and includes a different valuation of the Scheme's 'buy-in policies' held with Legal & General. |
The calculation estimates the cost of providing the promised benefits if the Scheme ended on 30 September 2021 and the responsibility of paying the benefits was transferred to an insurance company. |
Assets |
|---|
| The money the Scheme has. |
|
2021 valuation £4,714m |
|
This value differs to that shown earlier as this one includes the one-off contribution excluded for funding purposes and includes a different valuation of the Scheme's 'buy-in policies' held with Legal & General. |
Wind-up cost |
| The estimated cost of buying the benefits with an insurance company. |
|
2021 valuation £5,865m |
|
The calculation estimates the cost of providing the promised benefits if the Scheme ended on 30 September 2021 and the responsibility of paying the benefits was transferred to an insurance company. |
Surplus / (shortfall) |
| The assets minus the wind-up cost. |
|
2021 valuation (£1,151m) |
Solvency funding level |
| The assets as a percentage of the wind-up costs. |
|
2021 valuation 80% |
So how secure is my pension?
The Trustee aims to have enough money to pay pensions and other benefits to members as they are due.
However, in the event the Scheme was wound-up without enough money to buy all the benefits with an insurer, then, unless the Company could afford to pay the difference, it’s unlikely you’d receive the full pension benefits you were expecting. To help members in this situation, the Government set up the Pension Protection Fund (PPF) in 2005.
The pension you would receive from the PPF depends on your age and when your benefits were earned. Further information and guidance is available on the PPF website at ppf.co.uk - or you can contact the PPF via email on information@ppf.co.uk or by phone on +44(0)20 8633 4902.
Including this information doesn’t mean that the Company or the Trustee are planning to wind up the Scheme. We are required by law to give you this information.
We are also required to tell you if there have been any payments from the Scheme to the Company since the last funding statement, or whether The Pensions Regulator has intervened to change the way benefits build up, the way valuations are worked out, or the way any funding shortfall is being met. In each instance, the answer is no.
Can I leave the Scheme before I am due to retire?
If you are an Active member, you can leave the Scheme before you reach your Normal Retirement Date and your pension will be based on your completed service and salary at your date of leaving. Your pension benefits may be left in the Scheme to be paid at retirement (called a deferred pension) or transferred to another pension arrangement.
Similarly, if you have already left the Scheme you can, if you wish, transfer your benefits to another pension arrangement prior to retirement.
If you are thinking of transferring your benefits out of the Scheme for any reason, you should consult a professional adviser, such as an independent financial adviser, before taking any action. You can find one at register.fca.org.uk. The law prevents us from providing you with financial advice.
Please note: benefits are determined by the Rules of the Scheme. If there is any conflict between any information in this Summary Funding Statement and the Rules, the Rules (as amended from time to time) will be overriding. If you have any questions or would like a copy of the Rules, please contact the Scheme Administrator.