SPECTRIS PENSION PLAN Annual Report to Members for year ended 31 December 2010
Introduction The Trustee has pleasure in presenting its report to the members of the Spectris Pension Plan ('the Plan') for the year ending 31 December 2010. The Plan is a final salary („defined benefit‟) pension scheme and is closed to future accrual and therefore no longer contracted out of the State Second Pension. This report to members is designed to give details of who runs the Plan, where the Plan‟s assets are invested and provide brief details from the Plan accounts for the year 2010. The „Pension News Update‟ section explains Plan events as well as any changes in pension legislation. For general information on the benefits you receive please refer to the Plan members’ booklet.
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Running of the Plan The Trustee is responsible for the administration of the Plan on behalf of the members, including maintaining records, collecting and investing contributions, appointing Fund Managers and monitoring their performance, paying benefits and preparing the Annual Report and Accounts. The Trustee does not charge the Plan for its services.
The Trustee Company employs the professional services of the following in the running of the Plan: Administrators and Consultants Aon Hewitt Limited Actuary Chris Bamford, Aon Hewitt Limited (until March 2011) Anthony Stephens, Aon Hewitt Limited (appointed April 2011)
The Trustee of the Plan is Spectris Pension Trustees Limited, a subsidiary of Spectris plc. The power of removal and/or appointment of the Trustee is vested in Spectris plc.
Auditors Menzies LLP
At the end of the year, the Directors of the Trustee Company were:
John Warren (Chairman)
Carol Brookson *
Stephen Firth *
Sacha Kenny
Robert Martin (appointed
Investment Managers AEGON Asset Management Limited Invesco Perpetual Newton Fund Managers Ltd (appointed March 2010) Ruffer LLP (appointed March
November 2010)
2010)
David Watson *
Scottish Widows Investment Partnership (until April 2010)
* member-nominated director Solicitors Pinsent Masons LLP Bankers National Westminster Bank Plc
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Accounts summary The formal Plan accounts for the period from 1 January 2010 to 31 December 2010 have been audited by Menzies and agreed by the Trustee. A summary of the Plan accounts is set out below:
Income Contributions Other income Investment income
Expenditure Lump sums - on retirement Lump sums - on death Transfers out & leavers Expenses Pension payments
Increase in fund value for the year
2010 (£,000)
2009 (£,000)
4,478 66 9,815 14,359
2,824 152 15,667 18,643
195 165 23 139 3,254 3,776
538 71 102 688 3,139 4,538
10,583
14,105
Plan Market Value 2010: £93.4m (2009: £82.9m)
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Membership At 31 December 2010 there were 1,618 members in the Plan, compared to 1,635 members at 31 December 2009. The breakdown is as follows:
Spectris Pension Plan Membership
785
720
833
812
0
103
2010 Active members
2009 Retired members
Deferred members
Key Active Member: A member of the Plan accruing benefits in the Plan until 31 December 2009. Deferred Member: A member having left their Spectris employer before retirement or withdrawn from the Plan who is entitled to have their benefits retained under the Plan. Both employer and member contributions cease and no further benefits are accrued. Retired Member: An individual currently in receipt of a pension from the Plan. Pensioners include individuals receiving a pension on the death of their spouse.
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Investment The majority of the fund is managed by AEGON Asset Management Limited in the form of fixed interest assets using a „buy and hold‟ strategy. Sterling denominated corporate bonds are purchased which provide a regular yield and fixed return at maturity. The assets are not actively managed but rather held to maturity and AEGON are assessed on their ability to manage the default risk on these investments. A proportion of the fund is held in actively managed equities, via the Invesco Perpetual Income Fund. In March 2010, investments were effected in the Absolute Return Funds of Newton Fund Managers Ltd and Ruffer LLP. As at 23 April 2010, the funds held with Scottish Widows Investment Partnership were split equally and transferred to the Newton and Ruffer funds. A formal document called the „Statement of Investment Principles‟ sets out the investment strategy for the Plan, including the Trustee‟s policy on Socially Responsible Investment. A copy of this statement is available on request by writing to the Group Pensions Manager. There were no investments in, or loans to, Spectris plc or its subsidiaries.
Investment performance The Trustee monitors the Plan‟s performance with assistance from appointed advisers. The fund‟s returns in the year to 31 December 2010 are as follows:
AEGON Asset Management -
Fixed Interest Fund Invesco Perpetual -
Income Fund Newton -
Real Return Fund (*full 2010 annual return) CF Ruffer –
Absolute Return Fund (*since outset 28/4/2010)
Fund %
Benchmark %
n/a
n/a
+11.28
+14.51
+10.6
+4.5
+8.3
n/a
Invesco Perpetual uses the FTSE All Share Index as its benchmark. Newton has a performance objective to exceed the LIBOR (London inter-bank lending rate) by 4% p.a. over rolling 3 to 5 year periods. Ruffer does not use an explicit benchmark but aims for low volatility and positive returns in all market conditions over rolling 12 month periods.
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Pensions in payment On 1 January 2010 Pensions in payment were increased in accordance with the relevant benefit category under the Scheme Rules.
Expression of wish form Lump sum death benefits are paid to your dependants, relatives or estate at the Trusteeâ€&#x;s discretion, according to the rules of the Plan. The Trustee will refer to your expression of wish form to take account of your wishes, although they are not obliged to do so. It is important that you keep your expression of wish form up to date so that changes in personal circumstances are properly recorded. The form will be held on your personnel file. You should remember to complete another expression of wish form after any change in your personal circumstances. In the event that you should leave the Spectris Group with retained benefits under the Spectris Pension Plan, your expression of wish form will be forwarded to Aon Hewitt Limited for safekeeping. New forms may be obtained from your HR Department or from the Secretary to the Trustee.
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Pension news update Directors To avoid any possible conflict of interest between the Company and the Trustee, Roger Stephens, Head of Commercial and Company Secretary of Spectris plc, stood down as a Trustee Director with effect from 10 November 2010. Mr Stephens will continue to attend Trustee meetings as a representative of Spectris plc, the sponsoring employer. From the same date, Robert Martin, Deputy Company Secretary and the Group Pensions Manager, was appointed as a Trustee Director. Plan Actuary With effect from 29 March 2011, Chris Bamford retired from Aon Hewitt Consulting and therefore resigned as actuary to the Plan after some 24 years in the position. Anthony Stephens, also a principal and actuary at Aon Hewitt Consulting, was appointed as his successor on 14 April 2011. In a statement to the Trustee, Mr Bamford confirmed that he knew of no circumstances connected with his resignation which affected the interest of members or beneficiaries of the Plan. State Pension Age The state pension age for women is currently undergoing a gradual change from 60 to 65 which is due to be completed by April 2020. State pension age for men and women will then increase from 65 to 66 beyond April 2020 and potentially further to 68 in the following two decades. Government plans are currently under review to accelerate the process to reach an equal state pension age of 65 by November 2018 and then increase state pension age to 66 for all by April 2020.
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Pension news update Company Performance 2010 was a good year for Spectris plc as the general economic recovery resulted in production levels and customer expenditure returning to more usual rates. The operating companies in the Group produced solid evidence of a recovery from the recession in their respective industries. Overall sales levels of ÂŁ901m were achieved, with total operating profit at ÂŁ142m. Trading exceeded expectations across all four business segments, although the Board expect a return to more normal sales growth during 2011. Strategically, the Group emphasis remains on investing in new products and applications, seeking acquisition opportunities and expanding market positions and regional presence. The focus on operational excellence continues.
Change of address and bank account details Plan members are asked to advise the Administrator of the Plan, Aon Hewitt Limited, of any change in their address and retired members should also advise any change in their bank account details.
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SPECTRIS PENSION PLAN (“the Plan”) Dear Member SUMMARY FUNDING STATEMENT for 2011 One of the Trustee‟s responsibilities is to make sure that a valuation of the Plan is carried out every 3 years. In addition, the Trustee must, by law, provide you with an annual statement of how the Plan is funded and remind you of the results of the last valuation. This is the Statement for 2011. You may have read in the press about the changes to the way statutory pension increases (i.e. the minimum increases required by law) in pension schemes will be calculated in the future. The Government has confirmed that it will be using the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI) to determine statutory minimum increases with effect from 1 January 2011. CPI is calculated differently to RPI and the Government believes that this index provides a better reflection of the costs of living for pensioners. Historically, increases in CPI have tended to be lower than RPI. The impact of this change on the pension increases in the Plan is complex due to the number of different types of pension increases that exist in the Plan. A separate communication is included in this annual report to members that confirms the increases that apply to each benefit category. This year‟s statement provides the results of an annual funding update to 1 January 2011 which includes an allowance for the impact on the funding of the Plan from the change to CPI. How is my pension funded? The Company makes contributions so that the Plan can pay pensions and other benefits to members. However, as there is no future service accrual, members no longer contribute to the Plan. All the Plan assets are held under a single trust. Members do not have separate individual holdings apart from their Additional Voluntary Contributions. The Trustee obtains regular valuations from the Plan Actuary which make assumptions about the Plan‟s future experience. This enables an estimate to be made of the assets needed to meet the payment of benefits. Using this information, the Trustee comes to an agreement with the Company on how much it should pay to keep the Plan‟s funding on track.
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The Pensions Regulator has powers to direct matters affecting the funding of the Plan in certain circumstances. No such directions have ever been made in relation to the Plan. Results of the last Valuation The results of the latest valuation of the Plan showed that as at 1 January 2009 the funding position was as follows: Assets Amount assessed as needed to provide benefits (“Liabilities”) Surplus / (Deficit) Funding level
£73.7m £80.7m (£7.0m) 91%
(In addition there are insured pensions in payment for which the liability (of £0.6m) is matched by the value of the corresponding policies.) Following completion of the valuation as at 31 December 2009, the Company increased its contributions to the Plan to £2.6m p.a. which was designed to eliminate the deficit in the Plan by 31 December 2012, if the assumptions made for the purposes of the valuation are borne out in practice. The Company also paid an additional £1.9m into the Plan in 2010 to keep the deficit recovery plan on track. The Company is also paying the expenses (regulatory and administrative costs) of the Plan and has provided the Trustee with a bank guarantee as additional security to underpin the Plan. The bank guarantee will remain in place until 1 April 2019 and the amount of the guarantee will change each year depending on the outcome of an annual assessment of the Plan‟s funding. The guarantee was for £4.2m up to 31 March 2011 and is for £3.4m for the period from 1 April 2011 to 31 March 2012. Change in funding position The Scheme Actuary provides annual updates of the funding position and this allows the Trustee to monitor the position between valuations. The results of these updates are set out below.
Assets Amount assessed as needed to provide benefits (“Liabilities”) Surplus / (Deficit) Funding level
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Jan 2009
Jan 2010
Jan 2011
£73.7m £80.7m
£82.1m £91.2m
£92.5m £96.7m
(£7.0m) 91%
(£9.1m) 90%
(£4.2m) 96%
The funding level has improved from January 2010 to January 2011. Factors that have contributed to the improved funding position are:
The deficit reduction contributions made by the Company have reduced the deficit. Allowance for CPI rather than RPI increases for some pensions when calculating the liabilities.
You should be aware that the factors affecting the funding level are changeable, particularly stock market performance and life expectancies. This means that the funding level can go up or down in the future. The importance of the Company’s support The Trustee‟s objective is to have enough money in the Plan to pay pensions now and in the future. However, this relies on the Company continuing in business and supporting the Plan because:
Assets can go down as well as up, and when there is a shortfall, the Company will usually need to put in more money; and The cost of benefits may increase so that the Company will need to put in more money.
If the Plan had more than enough money to buy-out the benefits in full a refund could be paid to the Company. No such payment from the Plan has been made to the Company in the last 12 months. What would happen if the Plan started to wind up? It is a requirement that this Statement addresses what would happen if the Plan were to wind up. However, it is important to appreciate that there is no intention to wind up the Plan at this time. Nevertheless, if the Plan were to wind up, the Company would be required to pay enough into the Plan to enable your benefits to be secured with an insurance company. As at 1 January 2009, the estimated shortfall, compared to the amount that an insurance company would require to secure the benefits (called “full solvency”), was approximately £64m, equivalent to a funding level of 54%. This reflects the relatively expensive terms offered by insurance companies for this type of business. Please note that this information is designed to be informative and is required under this statement; it does not imply that the Company is thinking of winding-up the Plan. If the Company were unable to pay the full amount to fully secure the benefits with an insurance company and became insolvent, the Pension Protection Fund (PPF) would be expected to take responsibility for the Plan‟s liabilities and pay benefits to members. The PPF has been set up by the government to help protect members‟
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pensions where a company becomes insolvent, although it does not guarantee to pay full benefits. Hence, if the Plan were to wind up, there are circumstances in which you may not receive the full amount of pension you have earned, even if the Plan is fully funded on its target funding level. However, whilst the Plan is ongoing, even though funding may temporarily be below target, pensions will continue to be paid in full. Further information and guidance is available on the Pension Protection Fund website at www.pensionprotectionfund.org.uk or you can write to the PPF at Knollys House, 17 Addiscombe Road, Croydon, Surrey CR0 6SR. Why does the Trustee’s funding plan not call for full solvency at all times? The full solvency position assumes that benefits will be secured by buying insurance policies. Insurers take a very cautious view of the future, particularly with regard to investment returns, include a profit margin and make an allowance for their expenses. By contrast, the Trustee‟s funding plan assumes that the Company continues to financially support the Plan, and so such caution about the future is not appropriate. What is the Plan invested in? The Trustee‟s policy is to invest in a broad range of assets to get the best return possible while taking account of the liabilities of the Plan, and the risks of having too much money in any one type of investment. The investments of the Plan as at 1 January 2011 were as follows: Bonds Shares in UK companies (equities) Derivatives (interest rate and inflation swaps) Cash Total
£65.6m £29.0m (£4.2m) £2.1m £92.5m
In addition the Trustee holds insurance policies in respect of a small number of pensions in payment. The Trustee holds the derivatives to substantially protect the Plan against changes in interest rates and inflation and thus aims to reduce the volatility of the funding level of the Plan. Where can I get further information? If you have any other questions, or would like any more information about the Plan, please contact the Trustee at the following address. Please help the Trustee to keep in touch with you by telling either the Trustee or the scheme administrator, Aon Hewitt Limited, if you change address.
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Please note that if you are considering leaving the Plan, it is suggested that you consult an appropriate financial adviser before taking any action. Mr R Martin Spectris Pension Trustees Limited Station Road Egham Surrey TW20 9NP Yours sincerely, The Trustee of the Spectris Pension Plan Date:
July 2011
Additional documents available on request (a fee may apply) Statement of Funding Principles Statement of Investment Principles Schedule of Contributions Annual Report & Accounts Actuarial Valuation and Reports Member Booklet Benefit Statement Trust Deed and Rules Recovery Plan
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Information about changes to inflation linked increases to pensions You may have read in the press about the changes to the way statutory increases (i.e. the minimum increases required by law) in pension schemes will be calculated in the future. The change is to the inflation index that is used to calculate:
statutory increases to deferred pensions between the date of leaving pensionable service and retirement; and
statutory increases to pensions after retirement.
These changes are effective from 1 January 2011 and only impact increases that are to be applied in the future. Increases already received are not affected. Before the change, the reference index for these statutory increases was the Retail Prices Index (RPI). This index is based on the increase in the price of a ‟basket‟ of consumer goods each year and includes housing costs such as mortgage interest payments. The index that the Government has said will now be used is the Consumer Prices Index (CPI). This is also based on the price of a ‟basket‟ of goods, but is calculated slightly differently. The Government feels that this index better reflects how pensioners are affected by inflation. The impact of the Government‟s change depends on the way in which the rules of a pension scheme are written. In the Spectris Pension Plan (“the Plan”) there are many different benefit categories arising from different current and past employers and the impact of the change is complex, being dependent on the benefit category to which you belong. This note summarise the effect for all members of the Plan. Deferred pensioners who have not yet retired should read both of the remaining sections of this note. Pensioners who have already retired need only read the section “Pension increases after retirement”. Members of the Plan who were in service between 6 April 1978 and 5 April 1997 will have accrued Guaranteed Minimum Pension (GMP) in the Plan. This is the minimum pension that the Plan has to provide as a result of contracting-out of the state second pension. The effect of the change to CPI is different for GMP pension and pension accrued in excess of GMP and this is summarised in this note.
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Pension increases before retirement This section only applies if you have not yet retired and covers increases to your pension between leaving the Plan and retirement. The effect on your pension increases after retirement is covered in the next section. Pension increases before retirement will change for all benefit categories, except for Servomex members who left pensionable service before 6 April 2006 and all Budenberg members. Pension increases before retirement for Servomex members who left before 6 April 2006 and all Budenberg members are not affected. For all other members, any pension in excess of GMP (that is subject to increases before retirement) will now increase in line with CPI inflation rather than RPI inflation. A maximum increase of 5% p.a. over the whole period from leaving until retirement applies as before. This change only applies to future increases from 2011 – any increases that you have already received will be retained. Pension increases after retirement This section applies to all members and summarises the impact on increases to pensions after you have retired. The impact depends on whether you are a Servomex member, a Burnfield member, a Budenberg member or any other category of member. The pensions affected for Servomex members are:
All GMP accrued between 6 April 1988 and 5 April 1997. Any such GMP pension will now increase in line with CPI inflation with a maximum of 3% p.a. Previously this GMP pension increased in line with RPI inflation with the same maximum increase of 3% p.a.
All pension accrued between 6 April 1997 and 5 April 2005, but only for members who remained in Pensionable Service after 31 March 2005. This pension will now increase in line with CPI inflation with a maximum of 5% p.a. Previously this pension increased in line with RPI inflation with the same maximum increase of 5% p.a.
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There is no change to pension increases to this pension for members who left Pensionable Service before 1 April 2005. 
All pension accrued between 6 April 2005 and 31 December 2009. Any such pension will now increase in line with CPI inflation with a maximum of 2.5% p.a. Previously this pension increased in line with RPI inflation with the same maximum increase of 2.5% p.a.
The pension affected for Burnfield members is all pension accrued between 6 April 1997 and 5 April 2006. Any such pension will now increase in line with CPI inflation with a minimum of 3% p.a. and a maximum of 5% p.a. Previously this pension increased in line with RPI inflation with the same minimum and maximum increases. There are no pensions affected for Budenberg members. The pension affected for all other members is GMP accrued between 6 April 1988 and 5 April 1997. Any such GMP pension will now increase in line with CPI inflation with a maximum of 3% p.a. Previously this GMP pension increased in line with RPI inflation with the same maximum increase of 3% p.a.
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Information regarding the Plan Enquiries concerning the Plan or members' benefits should be addressed to the HR department of your employing company or to the Administrator of the Spectris Pension Plan, Aon Hewitt Limited, 5th Floor, The Fountain Precinct, Balm Green, Sheffield S1 2JA. Tel: 0114 203 4010. Copies of the full accounts are available to members by writing to The Group Pensions Manager, Spectris Pension Trustees Limited, Station Road, Egham, Surrey TW20 9NP. Information concerning the Plan and the address at which the Trustee may be contacted has been given to The Pensions Regulator.
The Data Protection Act 1998 The Data Protection Act 1998 governs how the Trustee can hold and process your personal data to allow it to run the Plan. In addition, the Act allows you to request a copy of the data held in relation to you. Requests for a copy of the data should be addressed to the Administrator of the Spectris Pension Plan (address as above). The Trustee reserves the right to charge a small fee for such requests.
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Other information The Pensions Regulator Napier House Trafalgar Place Brighton BN1 4DW Tel: 0870 6063636 Fax: 0870 2411144 www.thepensionsregulator.gov.uk The Pensions Regulator is the regulatory body for work-based pension schemes in the UK. The regulator:
has a defined set of statutory objectives;
has wider powers to investigate schemes and take action where necessary;
takes a proactive, risk-focused approach to regulation; and
provides practical support for the regulated community
The following organisations exist to assist members with queries regarding past or present pension benefits: The Pensions Advisory Service (TPAS) 11 Belgrave Road London SW1V 1RB Tel: 0845 601 2923 www.pensionsadvisoryservice.org.uk The Pensions Advisory Service is an independent non-profit organisation which can assist members and their beneficiaries to resolve any difficulties with the Trustee or with the Plan's administrators. If the problem remains unresolved, the matter may be referred to the Pensions Ombudsman. The Pensions Ombudsman 11 Belgrave Road London SW1V 1RB Tel: 020 7630 2200 Fax: 020 7821 0065 www.pensions-ombudsman.org.uk
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Spectris Pension Trustees Limited Station Road Egham Surrey TW20 9NP
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