TI Group Pension Scheme PENSIONS REVIEW 2006 - … PR 2006.pdf · W elcome to the 2006 edition of Pensions Review, which provides information about the TI Group Pension Scheme and

2006TI Group Pension Scheme

PENSIONSREVIEW

2006

YOUR PENSION TEAM

Clockwise from top left:

Eddie Noone

Lisa Whittingham

Nicola Worth

Marguerite Taylor

Janet O'Neill

Sharon Wale

Sue Treen

Jackie Arnold

Pam Richards

Steve Eeles

Paul Jones

Michelle Tandy

2

CONTENTS

Welcome from the Trustee Chairman 3

Looking after your interests 4

Membership profile 4

Pensions Simplification 5

Focus on finances 6

Annual scheme audit 6

Where the money is invested 7

How times change – past 8

How times change – future 10

Pension increases 10

Careless talk costs £££s 11

Useful contacts for pensioners 11

Keep us informed 11

Hot off the press 11

Summary funding statement 12

State your claim 14

A new way forward for UK pensions 14

Company news 15

Pensions ‘life raft’ now in place 15

Smiths Pensions – Contacts

For queries about pension payments, or general enquiries about theScheme or your own benefits, please use the contacts set out below.

Pension Payments: 0121 616 3128

0121 616 3129

Email: [email protected]@smithspensions.co.uk

Other pension queries: 0121 632 6483

Email: [email protected]@smithspensions.co.uk

You can also write to Smiths Pensions Ltd. at:

15th Floor, No 1 Hagley Road, Edgbaston, Birmingham B16 8TG

Welcome to the 2006 edition of

Pensions Review, which

provides information about

the TI Group Pension Scheme and

news of recent developments in the

world of pensions.

Francis Shaw Merger

I would particularly like to welcome

members of the Francis Shaw &

Company (Manchester) Limited

Pension Scheme who became

members of the TI Scheme on

29 July 2005. There are more details

in ‘Merger News’ below.

Accounts

A summary of the Scheme accounts

for 2006 can be found on page 6, with

an update on the Scheme’s

investments on page 7.

Scheme Funding

The Scheme Actuary is preparing a

full valuation of the Scheme’s

finances as they stood on 5 April

2006, and will present the results

later this year. This is the first

valuation under new scheme-specific

funding regulations introduced by the

Pensions Act 2004. The valuation

results will feature in next year’s

Pensions Review.

Pensions Simplification

Pensions received a great deal of

coverage in the media this year,

especially A-Day, or ‘Pensions

Simplification’, which took place on

6 April 2006. On page 5, we have set

out the main effects of the

simplification changes, which should

allow many members greater

flexibility in how they arrange their

pensions.

White Paper

In May 2006, the Government

published a White Paper: ‘Security in

retirement: towards a new pensions

system’, which sets out proposals for

the future structure of State,

occupational and personal pensions.

The proposals are outlined on page

14 and we will keep you updated on

their progress in future editions of

Pensions Review.

We hope that you find this Pensions

Review useful and as always we

welcome any comments on the

contents, or suggestions for future

editions.

Welcome from the Trustee Chairman

John

Edwards

Trustee

Chairman

“

”

A-Day, or ‘Pensions Simplification’, took place on 6 April 2006

3

In 2005, the Trustee board agreedto merge the Francis Shaw &Company (Manchester) LimitedPension Scheme with the TIScheme. The merger took effectfrom 29 July 2005.

Francis Shaw members’ benefitsremain unchanged after themerger. However the benefits arenow administered by SmithsPensions.

Merger News

Your Trustee board

TI Pension Trustee Limited is the

Trustee Company set up to govern

the running of the Scheme and has

ten Directors:

• 5 Directors are appointed by

Smiths, who are also members of

the Scheme

• 4 Directors are selected from the

Scheme’s membership (one of

whom may be a Scheme

pensioner) and

• 1 is an Independent Director.

The current Trustee Directors are:

Guy Norris

John Crosby

Neil Parkin

James Roe – Pensioner Director

Antony Macwhinnie –

Independent Director (Law

Debenture*)

Chris Surch

Keir Dhillon – Member Director

John Edwards – Chairman

Philip Barclay – Member

Director

Colin Jump – Member Director

*Law Debenture is a specialist

Trustee Company. Antony

Macwhinnie has been nominated as

their representative on the TI

Trustee board.

All Trustee Directors receive training

and support to help them carry out

their duties. They are jointly

responsible for ensuring that the

Scheme is managed in accordance

with the law, in the best interests of

its members and beneficiaries and in

accordance with its governing

documents – the Trust Deed and

Rules. The Trustee board meets

regularly throughout the year.

10

9

8

7

6

5

4

3

2

1

MEMBERSHIP

PROFILE

5 April 2005 5 April 2006

2005 2006

� Contributing

members 1,470 1,475

� Deferred

members 19,102 17,793

� Pensioners 22,099 21,606

Total 42,671 40,874

Looking after your interests

Trustee board – responsible

for running the Scheme

National Pensions Forum –

representing the members

4

8 9

21

710

3 4

6

5

The National Pensions Forum (NPF) is

a consultative body set up to allow

member representatives to have their

say on the operation of the UK

pension schemes run by Smiths, and

to allow Smiths to inform the

representatives about current issues

and developments concerning its UK

pension schemes.

The NPF consists of:

• Employee representatives

nominated by Local Pensions

Committees (LPCs)

• Pensioner representatives

• Company Representatives

• A full-time trade union officer

from Amicus.

If you would like your views to be

passed on to the Company, contact

details for your LPC representative

are available from your local HR

department or the Smiths Pensions

website www.smithspensions.co.uk

If you are a pensioner, you may contact

the pensioner representatives, Peter

Whitehead or Richard Willcox, via

Smiths Pensions Limited (see page

2), or by email to

[email protected] state which representative

you wish to contact.

The National Pensions Forum

Key ‘simplification’

changes

• New tax regime for pensions

• Minimum retirement age to

increase to 55 in 2010

• Maximum tax-free cash at

retirement now 25% of the

value of the pension

• Lifetime Allowance of

£1.5million introduced

• Active members can pay more

contributions to the Scheme

On 6 April 2006 (‘A-Day’), the

Government changed the UK

pension tax regime. HM

Revenue & Customs called these

changes ‘Pensions Tax Simplification’

– a title which appears a little

hopeful given the complexity of

some of the new rules!

Some of the major changes are

outlined in more detail here. If

you have any queries about how

the changes will affect your

benefits, please contact

Smiths Pensions using the

contact details on page 2.

Tax-free cash

When members take

their pensions from the

Scheme, they can

normally exchange some

of their pension for a

tax-free cash sum. Since

6 April 2006, members

can take up to broadly

25% of the value of their

pension as cash. The

new regime also allows

protection for the few

members who would

have been entitled to

a larger cash sum as at 5 April 2006,

so that the ability to take that cash

sum exists.

From 6 April 2006, members may be

able to take all of their Additional

Voluntary Contribution (AVC) fund as

cash at retirement, as long as the

total amount of cash taken is within

the new limits.

The earliest age you can

retire

Members may currently take a

pension from age 50, subject to

the consent of their employer and,

where required, the Scheme’s

Trustee. From 6 April 2010,

members will not be able to take

their pension before they reach

age 55. However members who

satisfy the criteria for an ill-

health pension can retire at

any age.

Certain deferred

members on standard

Dowty Section terms may

still be able to take their

pension from age 50

(provided other

conditions allow this).

This is permitted under

the legislation as

there was an

exception made for

cases where a

member could take

early retirement

without the need for

the consent of

another party (such

as the Trustee or

company).

New allowances

HM Revenue & Customs has

introduced an allowance for the total

pension savings an individual can

have before special tax charges apply.

This ‘Lifetime Allowance’ has

initially been set at £1.5 million and

will increase over time. Due to the

size of the allowance, very few

people will exceed it. While it will be

possible for individuals to build up

higher pension benefits, a special

tax charge will apply to the excess

over the Lifetime Allowance. When

Scheme benefits come into

payment, you will be asked to

confirm whether the value of your

benefits (from all pension schemes)

exceeds the Lifetime Allowance.

The new regulations also introduced

an ‘Annual Allowance’, initially set at

£215,000. If over the course of a

year, the value of your pension

arrangements increases by more

than the Annual Allowance, a tax

charge will apply on the excess. The

Annual Allowance is measured over

the Pension Input Period, which, for

your Scheme benefits, ends each

year on the effective date of the

benefit statements issued by the

Scheme.

TI Scheme

contributions

From 6 April 2006, contributing

members can pay as much of their

Smiths earnings into the Scheme as

they wish and receive tax relief on

the contributions up to the level of

the Annual Allowance. Any

contributions, above the normal

member contribution or ‘pension

adjustment’ for salary sacrifice

members, will count as Additional

Voluntary Contributions (AVCs).

However, contributing members

should note that as AVCs are

deducted from payroll, the level of

AVCs deducted must leave enough

pay to cover National Insurance

deductions, any tax due on benefits-

in-kind and any other deductions

due from pay.

Pensions Simplification

Pensions Simplification will mainly affect members who

have not yet retired. But it may also be of interest to

pensioners, particularly those who have benefits in other

schemes that they have yet to take.

5

You can find more details about the new pensions tax

regime on the HM Revenue & Customs website

http://www.hmrc.gov.uk/manuals/rpsmmanual/

rpsm00200000.htm

FUND ACCOUNT

£m £m

Fund at 5 April 2005 1,264.6

Expenditure

Retirement benefits (62.3)

Death and leaver benefits (2.2)

Other outgoings* (3.2)

(67.7)

Income

Contributions 9.3

Transfers in 3.5

Other income 0.5

13.3

Return on investments

Investment income 32.8

Change in market value 174.3

Investment management fees (2.3)

204.8

Increase in value of the

Fund over the year 150.4

Fund at 5 April 2005 1,264.6

Fund at 5 April 2006 1,415.0

*Includes administration and professional fees and the PPF levy

Focus on finances

Annual scheme audit

PricewaterhouseCoopers LLP has

audited the Scheme’s accounts for

the year to 5 April 2006 and

confirmed that these give a true and

fair view of the Scheme’s financial

transactions.

The auditor has also confirmed that,

with the exception below, the

Company paid contributions to the

Scheme in the year to 5 April 2006 in

line with the Schedule of

Contributions, as certified by the

Scheme Actuary.

During the year, an instruction for

payment of contributions was lost in

the post. While this error was

identified and rectified quickly, it

resulted in a late payment of Scheme

contributions. The Company has now

changed the way in which

contributions are paid to the

Scheme, to ensure that this incident

is not repeated.

NET ASSETS STATEMENTInvestments £m £m

Fixed interest securities 286.3

Index-linked securities 432.0

Equities 638.0

Managed funds 2.3

Cash deposits/investment

debtors 55.7

1,414.3

Designated assets

(AVC etc) 2.6

Current assets 0.4

Current liabilities (2.3)

0.7

Fund at 5 April 2006 1,415.0

Investment

performance of the

Scheme’s assets for

the last 3 years

U P D A T E . . . H E A D L I N E S . . . N E W S . . . R E P O R T

6

Year Investment Benchmarkending return return5 April 2006 16.4% 16.8%5 April 2005 7.5% 8.0%5 April 2004 13.5% 13.7%

Income

£13m

Return oninvestment

£205m

Expenditure

£68m

FUND AT5.4.05

£1265m

£1415m

FUND AT5.4.06

� Index-linked gilts 31%

� UK equities 27%

� Fixed-interest bonds 20%

� Overseas equities 18%

� Cash and other assets 4%

Total 100%

HOW THE ASSETS ARE SPLIT

This chart shows the distribution of investments at 5 April 2006.

Where the money is invested

This section of the Review looks

at how the Scheme’s assets are

invested and pages 12 and 13

give further details of the Scheme’s

funding position.

The Scheme’s assets are split into 2

portfolios – ‘matched’ and ‘unmatched’.

Matched portfolio

The value of the matched portfolio is

approximately equal to the estimated

value of all the benefits that will be

paid out in respect of members who

have already retired – this represents

roughly 60% of the Scheme’s assets.

The matched portfolio invests in

Government securities, company

bonds and cash. The Trustee board

has appointed Merrill Lynch

Investment Managers to invest the

matched portfolio.

What are government

securities and company

bonds?

Government securities and company

bonds are issued by governments

and companies in order to raise

money.

When someone buys government

securities or company bonds, they

are lending money to a government

or company, which in turn

undertakes to pay interest at regular

intervals and to repay the loan at a

later date.

Unmatched portfolio

The unmatched portfolio uses the

balance of the Scheme’s assets to

invest in equities and cash. At

present the unmatched portfolio

represents approximately 40% of the

total fund.

What are equities?

Equities are shares in a company,

which are bought and sold on a stock

exchange. Owners of the shares are

entitled to receive a share of the

company’s profits, which are paid out

as dividends.

The Trustee board has appointed

5 investment managers for the

unmatched portfolio.

What is the difference

between an active

manager and a passive

manager?

An active manager chooses

individual equities it thinks will

perform better than other equities. A

passive (or index-tracking) manager

buys equities that mirror the

performance of a particular sector or

area as a whole (as measured by a

particular index).

T . . . M O V E M E N T . . . S T O C K S . . . I N V E S T M E N T

Manager

Schroder Investment Management

Barclays Global Investors

Brandes

Capital International

Jupiter Asset Management

Invests in . . .

Far East Equities

Global equities

European equities

Global Equities

UK Equities

Type of Manager

Active

Passive

Active

Active

Active

7

How times change – past

8

A look back at how the role of women at work was v

In 1942, life in Britain was

dominated by the events

of World War II. In July of

that year, the Germans

made aeronautical history

by test flying the

Messerschmitt ME-262, the

first operational jet-engined

fighter plane. Then in

August, Winston Churchill

made a secret trip to North

Africa, to assess the Eighth

Army’s struggle against

Rommel’s Afrika Korps.

Britain’s factories were fully

involved with supplying

whatever was needed to

help the war effort, which

meant that work was

plentiful but the men to do it

were scarce after

conscription was introduced

in October 1939. Women

stepped into the gap and

were employed to continue

production. Many also came

over from Ireland to gain

steady work and send

money home.

During July and August

1942, Tube Investments (TI)

in Birmingham (who merged

with Smiths almost 60 years

later in 2000), received 2

visitors from Mass-

Observation, a social

research organisation

founded in 1937 with the

aim of studying the everyday

lives of ordinary people in

Britain. One investigator

went into the offices and

another into the TI factory

for 2 months. The

investigators were incognito,

and got their information

from chatting informally to

the female workers. This

information is now stored at

the Mass Observation

Archive, University of

Sussex, and is a prime

source of material for

research into the war

years (see

www.massobs.org.uk).

Visitors to the archive are

welcome.

Work in the factory

Women were employed in

all areas of the factory, often

in exhausting work. In the

assembly section, they had

to lever 25-foot long tubes of

steel into position at a pace

set by a male co-worker

(who was on piecework

rates – so he was not going

to hang around!). The end of

the day often saw women

collapsing onto the

cloakroom floor, too tired

even to clean up before

going home. Not all jobs

were quite so tiring – girls

working in the machine

shop were said to be ‘fresh’

and ‘untired’ when their

working day ended.

After the first week, a

combination of the heavy

work, and sleep interrupted

by night bombing, meant

that many new workers

were tired and dispirited.

But most quickly settled

down and enjoyed the work.

Many believed it to be good

for their health although

some concerns were

recorded.

‘Casablanca’ had a limited

premiere in 1942 and its

worldwide release in 1943.

19421942

9

viewed in 1942The factory girls seemed to

enjoy the atmosphere and

companionship of work, as

well as the sense of

importance of their job. The

attention of the men who

would fuss around them,

believing the work to be too

hard for women, was also

commented on favourably.

Pay and benefits

There were no itemised

payslips in 1942! Most of the

women had no idea how

their pay packet was made

up and there was often

discontent as to what

proportions were wages,

overtime and bonuses. The

food provided at the factory

raised some eyebrows –

despite rationing. Much of

the food served in the

canteen was left on the

plates – particularly the

badly cooked potatoes and

the Friday fish! However,

then, as now, puddings were

always well received.

Bombing

Birmingham was the second

most heavily bombed city in

the country, but the workers

seemed to take this danger

with a ‘stiff upper lip’

attitude, their main

complaint being loss of

sleep. One greatly

appreciated gesture was the

allocation of the house of a

TI Director in Edgbaston for

use by any worker ‘bombed

out’ of their home – the

women realised that not all

employers provided this

facility.

War effort

The part that women were

playing in Britain’s war

effort was emphasised to

the female factory workers

in a speech made by the

Lord Mayor of Birmingham,

in which he declared that

‘Factory dungarees and

overalls were as much a

uniform as any in the

services.’

Smiths in the war

Of course Smiths was also

doing its bit for the war

effort. In fact, we have a site

at Bishop’s Cleeve near

Cheltenham because

Smiths was asked to set up

a new factory for war

production, well away from

London and the danger of

bombing.

Smiths’ instruments were

fitted to many legendary

aircraft such as the

Lancaster, Whitley and

Wellington bombers.

How times change – future

Website

Last year, Smiths Pensions launched

the secure area on the Smiths

Pensions website called ‘My

Pension’. This area allows active

members to perform a number of

online calculations, such as AVC

estimates and retirement forecasts.

Deferred members can obtain details

of their deferred pension.

To register for this facility, simply log

onto www.smithspensions.co.uk and

click on ‘My Pension’. You will then

be taken through the registration

procedure, which for security

reasons is in 2 stages. You will need

your member reference – this is

shown on your benefit statement if

you are a contributing member and

on your payslip if you are a

pensioner. If you cannot find your

reference number, please contact

Smiths Pensions (see page 2).

This facility is

not currently

available for

members

whose benefits are not administered

by Smiths Pensions and the options

available for former members of the

Francis Shaw and Lapmaster

Schemes are limited.

In addition to the benefits provided by

the TI scheme, you may also be

eligible for a State pension. You can

apply for a State pension forecast

online at:

www.thepensionservice.gov.uk or by

calling the State pension forecasting

team on 0845 3000 168.

10

Final salary sections

This section does not apply to RSFmembers, or to any othermembers where non-standardterms are in place.

Pensions in payment are reviewed

once a year and increases are given

to help combat the effects of

inflation. Inflation is measured by

calculating the change in the Retail

Prices Index (RPI) over an agreed

12-month period. For historical

reasons, the period used to calculate

the rise in RPI varies for the

different sections of the Scheme.

The amount of any pension increase

and the date on which it is applied

depends upon which section of the

Scheme you were a member of and

when your pension came into

payment.

The increases awarded for the 2

largest sections of the Scheme, the

TI Section and the Dowty Section,

for the Scheme year 2005 to 2006,

are shown below.

The pensions for other sections of

the Scheme have been increased in

accordance with the Scheme Rules

relating to the relevant sections of

the Scheme.

What is a Guaranteed

Minimum Pension?

The Scheme may pay a Guaranteed

Minimum Pension (GMP) to replace

the benefits you would have built up

under the State Earnings Related

Pension Scheme (SERPS), for any

Scheme membership from 6 April

1978 to 5 April 1997.

If you have reached State Pension Age

or are receiving a widow’s or widower’s

pension, the pension increases referred

to below will only apply to your pension

above the GMP. The State is responsible

for any increases due on GMPs earned

before 1988 and, if applicable, these will

be paid with your State pension. Any

GMP earned after 1988 is increased by

the Scheme in line with inflation up to

3% a year; the State is responsible for

any increases above 3%.

RSF members

From 1 January 2004, all new

Scheme members joined the

Retirement Savings Fund (RSF),

which is a section of the TI Group

Pension Scheme.

Under the RSF, a member’s Total

Credit (apart from the annual credit

earned in the most recent year) is

increased annually in line with the

increase in the Retail Prices Index

(RPI) during the previous calendar

year, subject to the agreement of

the Company and the Trustee

board.

The increase in RPI for the year to

31 December 2005 was 2.2% and

the Company and Trustee board

agreed this increase to Total Credits

on 1 April 2006.

% increase Date increase applied

TI Section (above the GMP) 3.2% 1 October 2005

Dowty Section (above the GMP) – retired before March 1988 2.2% 1 March 2006

(backdated to 1 December 2005)

Dowty Section (above the GMP) – retired after March 1988 2.7% 1 April 2006

GMPs earned after 1988 2.7% 6 April 2006

GMPs earned before 1988 Nil

Pensionincreases

“Members can performa number of onlinecalculations, such asAVC estimates andretirement forecasts”

Expression of Wish

Members can complete an Expression of

Wish form to indicate to the Trustee to

whom they would like any lump sum to

be paid on their death. The form is not

legally binding but does help the Trustee

decide who should receive the benefit.

If you have not completed an Expression

of Wish form, or your circumstances

have changed since you last did so, you

can obtain a new form from the Smiths

Pensions website or by contacting

Smiths Pensions on the number given

on page 2.

The Trustee does not require completed

Expression of Wish forms for people who

are receiving spouses’ or dependants’

pensions, or for retired members who

have been in receipt of their pension for

more than 5 years.

Change of address

It is important that you keep us informed

if you move house. If we do not have your

correct address when you retire, we

cannot contact you to pay your benefits.

Careless talk costs £££s

It’s good to talk – but even better when you know who’s

calling! We’ve had reports that some of our members have

received bogus calls asking for pension details over the

phone. There may be times when Smiths Pensions has a

legitimate reason to contact you. But if you receive a

telephone call out of the blue asking about your pension and

you don’t know the caller, follow this simple checklist:

• Ask the caller for their name and number

• Ask how they obtained your number

• If you are in any doubt as to their true identity, say you will phone them back

• Contact Smiths Pensions Limited on 0121 632 6483 to verify the caller’s

details

At all times, be very wary of giving out personal financial information over the

phone. Never provide your bank account details unless you are buying goods

or services from a reputable source. If you have an internet bank account,

remember that your own bank will never ask for your password and account

details in an email, or over the phone.

Civil partnerships

From 6 December 2005, same sex

couples have been able to register

their relationships as civil

partnerships. Since that date,

company pension schemes have

been required to provide civil

partners with the same benefits as

married couples for all service

after 4 December 2005. Also, for

any ‘contracted-out’ benefits

earned in the Scheme between

6 April 1988 and 5 December 2005,

it is necessary to provide the same

benefits to civil partners as

married couples.

After the death of a member who

does not leave a spouse, if your

section of the Scheme permits it,

the Trustee also has the discretion

to pay a dependant’s pension to an

individual who meets the definition

of a dependant under the Scheme

Rules. The amount of the

dependant’s pension is determined

by the Trustee Directors. If you

wish to nominate someone for a

dependant’s pension, you can

obtain a form from Smiths

Pensions website or using the

contact details on page 2.

Transfers-in

Under certain circumstances the

Scheme will now accept transfers

in from other pension

arrangements. For further details

please contact Smiths Pensions

(see page 2).

Age Concern Helpline – 0800 009966www.ageconcern.org.uk

Attendance Allowance AndDisability Living AllowanceInquiry Service – 0845 712 3456

Benefit Inquiry Line – (forthe disabled and theircarers) 0800 882200

Department for Work andPensions – www.dwp.gov.uk(or visit:www.thepensionservice.co.ukfor an online State pensionforecast)

Help The Aged Senior Line –0808 800 6565www.helptheaged.org.uk

Invalid Care Allowance Unit –01253 856 123

The Pensions AdvisoryService – 08450 601 2923www.opas.org.uk

TV Licence Concessions –0870 241 6461/6468www.tvlicensing.co.uk

War Pensions Helpline –0800 169 2277

Useful contactsfor pensioners

11

Keep us informed

Hot off the press

As the Trustee of the TI GroupPension Scheme, we (TIPension Trustee Ltd.) are

responsible for checking on theScheme’s ‘funding’. In other words,we check on the money building up inthe Scheme to see how it compareswith the money needed to provide thebenefits promised to members.

From now on, we will publish a

statement each year to give you

updated information about the

funding of the Scheme. This

statement is based on the latest full

valuation of the Scheme, which takes

place every three years. Interim

valuations are obtained from the

Scheme Actuary each year, which

provide updated estimates of the

Scheme’s funding position. A full

valuation is currently being carried

out to determine the 5 April 2006

funding situation, and next year’s

funding statement will be based on

the results of that valuation.

What is a valuation?

The aim of a valuation is to assess:

• how much money the Scheme

needs to cover the benefits

members have already earned; and

• what contributions the Scheme

needs to pay for benefits building

up in future.

Of course, it is impossible to

guarantee the future or predict exact

figures, but by making sensible

assumptions about economic and

financial conditions and the

Scheme’s membership, the Actuary

can provide his best estimate of the

funding position. As Trustee, we then

use our judgement to decide an

appropriate funding plan. It is a legal

requirement that we then discuss

and agree with the Company the

funding plan to be adopted for the

Scheme. This is referred to as the

“ongoing valuation basis” and it

assumes that the Company will

continue to support the Scheme. By

‘Company’, we mean the employers

who participate in the Scheme.

At each full valuation we also

consider the Scheme’s “solvency

position”. This assumes that the

Scheme is terminated at the

valuation date and looks at whether

there is enough money to buy

insurance policies to provide

members’ benefits in that situation.

The cost of providing all the benefits

through insurance policies is likely to

be higher than the cost of paying

them from the Scheme because

insurance policies are priced very

conservatively and will include

administration charges and a profit

margin. Even if a scheme is fully

funded on the “ongoing valuation

basis”, the ”solvency position” is

therefore likely to be less than 100%.

The security of your

benefits

Contributions from members and the

Company are paid into the Scheme

and invested along with the other

assets. Benefits are paid from the

Scheme’s assets as they fall due.

There is no separate account for you

personally, unless you have an

account as a result of Additional

Voluntary Contributions, a Money

Purchase Supplement or a transfer-

in.

We monitor the Scheme’s funding

position regularly. But the Scheme

relies on the Company for its

ongoing financial support to:

• pay the future expenses of running

the Scheme each year; and

• make extra contributions when

there is a funding shortfall.

The summary funding statement for your pension

12

At the latest full valuation on 5 April 2003, the Scheme’s

“ongoing” funding position was as follows:

£m

The Scheme had assets with a market value of

The Actuary’s estimate of the amount needed to provide

the benefits members had already earned was

This gave a shortfall of

This is the same as a funding level of

At the latest interim valuation on 5 April 2005 the “ongoing”

funding position was as follows:

The Scheme had assets with a market value of

The Actuary’s estimate of the amount needed to provide

the benefits members had already earned wa

This gave an excess of

This is the same as a funding level of

The Scheme’s solvency position

The Actuary also estimated that £ million would have been needed

to buy insurance policies to cover members’ benefits at 5 April 2003,

which means that the Scheme’s assets of £ million would only

have covered % of the estimated cost of buying those insurance

policies at that date.

Please read the section on page 13 headed “What if the Scheme

is terminated?” for a full explanation of what would happen in

these circumstances.

What if the Scheme is

terminated?

If the Company were no longer able

or willing to support the Scheme we

would have to consider how best we

could protect members’ benefits. In

such circumstances we would have

the legal right to require the Company

to pay an amount to the Scheme that

enabled us to buy insurance policies

to cover all of the benefits that

members had already earned.

If the Company’s financial position

were such that it could not pay

enough to fully cover the cost of

buying these insurance policies then

we would still have the legal right to

require the Company to pay all that it

can. We would then have to decide

whether to continue to operate the

Scheme without the Company’s

backing or to buy insurance policies

to cover a proportion of members’

benefits.

Alternatively, the Pension Protection

Fund (the PPF) might be able to take

over the Scheme and pay

compensation to members. For

further details about the PPF, please

refer to page 15.

Payments to the

Company

The information this statement must

contain has been set out in legislation.

One of the required pieces of

information is to confirm to members

if there have been any payments to the

Company out of Scheme funds in the

previous 12 months as a result of the

Scheme having surplus assets. We

can confirm that there have been no

such payments.

Further information

If you are thinking of making anychanges to your pensionarrangements at any time, youshould obtain as much informationas you can and also think aboutobtaining independent financialadvice. The Financial ServicesAuthority website has moreinformation about finding a suitablyqualified adviser.

If you are a current employee, you

receive a benefit statement each

year. Anyone who has a right to

benefits from the Scheme can also

ask to see the following:

• The Statement of Investment

Principles, which explains how the

Trustee invests the Scheme’s assets.

• The Schedule of Contributions,

which shows how much money is

being paid into the Scheme.

• The Scheme’s Annual Report and

Accounts, which shows the

Scheme's income and expenditure

for the year.

• The full report on the Actuarial

Valuation following the Actuary’s

check of the Scheme's funding

situation. The latest report shows

the position at 5 April 2003.

If you have any other questions, or

would like any more information

about the Scheme, please contact

Smiths Pensions using the contact

details on page 2.

PensionsAct 2004

Who is the Actuary?

The Trustees have appointed

Matthew Arends as Scheme

Actuary in place of Simon Head

who is currently on a sabbatical.

Matthew and Simon both work for

Aon Consulting Ltd.

The Actuary is appointed by the

Trustees to advise on the

Scheme's funding and, amongst

other things, performs the

Scheme valuation (see ‘What is a

valuation’).

Actuaries are experts in

assessing risk, carrying out

statistical analysis and financial

modelling, particularly in relation

to pension schemes.. . . we check

on the money

building up in the

Scheme to see how

it compares with

the money needed

to provide the

benefits promised

to members . .

“

”13

Many members will have read

in the press of concern that

the current level of pension

provision and saving in the UK may

not be sufficient.

In May 2006, the Government

announced proposed changes to the

pension system, which, in its own

words, are intended ‘to combat

poverty and promote security and

independence in retirement for

today’s and tomorrow’s pensioners’.

The main proposals are outlined

below – it is important to be aware

that what will actually happen is very

much subject to future political

events.

Basic State Pension

The Basic State Pension currently

increases in line with price inflation,

while earnings tend to increase at a

higher rate than prices. From 2012,

the Basic State Pension will increase

in line with average earnings.

State Pension Age

The State Pension Age will gradually

increase to age 68 by 2046.

New low-cost savings

scheme

A low-cost pension savings scheme

will be introduced to make it easier

for individuals to save for a pension.

Employers will automatically have to

enter employees into this low cost

scheme or into a suitable employer

scheme. There will be a compulsory

level of contributions to be made by

the employer and employee.

Employees will be able to opt out if

they wish to do so.

Each year £ billions of State

benefits aren’t claimed.

Although not comprehensive,

we have listed some of the main

State benefits to which you could be

entitled.

Basic State Pension – can be

claimed from State pension age (65

for men, and between 60 and 65 for

women, depending on your date of

birth). The amount you receive

depends on how long you have paid

(or been credited with) National

Insurance contributions. From April

2006, the full basic State Pension is

£84.25 per week for single

pensioners and £134.75 per week for

pensioner couples. If you claim later

than State pension age, the amount

increases, or you could get a cash

sum as well as the standard pension.

Additional State Pension –

calculated as a proportion of

earnings when you claim your basic

State Pension, this used to be called

the State Earnings Related Pension

Scheme (SERPS) and was based on

an individual’s record of National

Insurance contributions and

earnings. It changed to the State

Second Pension (S2P) in April 2002

and is now more generous than

SERPS for low and moderate

earners, certain carers and people

with long-term illness or disability. If

you joined the Scheme before

1 January 2004 (i.e. those in the Final

Salary sections) you will not earn

Additional State Pension whilst

contributing to the Scheme.

Pension Credit – a top-up benefit for

pensioners aged 60 or over, on low

incomes, the Pension Credit

guarantees a retirement income of at

least £114.05 per week (single) and

£174.05 each week (couple). The

savings credit provides a small top-

up for single people with incomes up

to £159 each week, and couples with

incomes up to £233 each week.

Attendance Allowance – an

additional benefit to cover extra costs

associated with having a disability

after the age of 65 (the higher rate is

worth £62.25 each week and the

lower rate £41.65 each week). Your

entitlement to Pension Credit will

increase if you receive Attendance

Allowance.

Carer’s allowance – paid to informal

carers who look after a relative,

friend or neighbour for at least 35

hours a week. The allowance is

taxable but not dependent on

National Insurance contributions.

The person being looked after must

be receiving either Attendance

Allowance, the care component of

Disability Living Allowance at its

highest or middle rate, Industrial

Injuries Disablement Benefit,

Constant Attendance Allowance, or

War Pensions Constant Attendance

Allowance.

Disability Living Allowance – similar

to Attendance Allowance, but paid to

disabled adults below the age of 65

or parents with disabled children.

This benefit is not means tested but

the amount paid varies according to

the level of care required.

TV licence concessions – there is a

free television licence if you are aged

75 or over and a 50% discount if you

are registered blind.

A new way forward for UK pensions

State your claim

14

The Pension Protection Fund

(PPF) was created under the

Pensions Act 2004. Its purpose

is to step in when employers become

insolvent and their pension

scheme(s) does not have enough

money to fund its benefits (up to a

level that the PPF would provide).

What is protected?

If the PPF steps in, it will not pay the

exact benefits that the scheme

promised. The table below

summarises the percentage of

pension the PPF would pay to each

member.

Will PPF pensions be

increased?

• Pensions for service before 6 April

1997 will not increase in payment.

• Pensions for service after 5 April

1997 will increase in line with

inflation up to a maximum of 2.5%

a year in payment.

• Pensions not yet in payment are

increased to normal pension age in

line with inflation up to a maximum

of 5% a year, and will increase in

payment as shown below.

Please note that this is a broad

summary of the compensation

payable by the PPF. For exact details

please refer to the PPF website at

http://www.pensionprotectionfund.

org.uk.

Levy

The PPF is funded by levies paid by

pension schemes. The exact levy

each scheme must pay depends on

the number of members in the

scheme, the financial security of the

sponsoring employer and the funding

position of the scheme.

Top marks!

The amount that a pension

scheme has to pay to the

Pension Protection Fund (PPF)

– see below – is determined in part

by the financial security of the

sponsoring employer, as measured

by a company called Dun &

Bradstreet.

This year, Smiths Group plc received

the highest possible score from Dun

& Bradstreet, which means that they

consider the possibility of Smiths

becoming insolvent in the next

12 months as low as their scoring

system can register. This is obviously

good news for Smiths employees,

but also good news for all members

of pension schemes run by Smiths.

Nevertheless, the Scheme will still

have to make a significant payment

to the PPF during the year.

Sustaining success

Smiths Group plc has been voted one

of the world’s top 100 most

sustainable companies.

The Global 100 is a listing of the 100

largest blue chip companies around

the world that demonstrated the

strongest sustainability performance

among their peers.

The analysis evaluated which

companies had the best-developed

ability – relative to their industry

peers – to manage the

environmental, social and

governance risks and opportunities

they face.

Company news

Pensions ‘life raft’ now in place

Situation at date of PPF involvement

Pension in payment (survivor’s pension or ill-health pension)

Pension in payment (member is under normal retirement age)

Pension not yet in payment

% of Scheme Pension

100%

100%

90%*

90%*

15

Pension in payment (member is over normal retirement age)

*Subject to a cap which is currently £26,050

LARGE PRINT

A large print version of thisnewsletter is available onrequest from Smiths Pensions at the address shown on theinside front cover.

Both versions are printed onenvironmentally friendly paper.

Smiths Pensions Limited

15th FloorNo.1 Hagley RoadEdgbastonBirmingham B16 8TG

T 0121 632 6483F 0121 631 4389www.smithspensions.co.uk

Front cover photos:

Medical – Airway Products

Speciality Engineering – John Crane metal bellows seal

Detection – HazmatID Analyzer

Aerospace – Canopy