Newsletter No. 46
HALCROW PENSIONERS ASSOCIATION
Newsletter No. 46 : October 2021
This is a newsletter of the Halcrow Pensioners Association. More details of HPA's objectives, organisation and its activities are here. You have been sent this newsletter because you may be a member of the Halcrow Pension Scheme or its successor, HPS2 or be a former member of HPS who has transferred to the PPF. Membership of HPA is open to all interested HPS / HPS2 members and currently costs £10/year (only for those joining in 2021 as those who paid during 2020 have been given a subscription holiday as explained in Newsletter No. 43). If you do not wish to receive the HPA newsletters then please email the webmaster to remove your name from the mailing list.
Report on Actuarial Valuation and the Summary Funding Statement
The Summary Funding Statement has been produced by the Trustee as an aid to understanding the key messages in the Actuarial Valuation Report with the addition of an overview snapshot on asset values, liabilities and the deficit at December 2020 and up to July 2021 taking due note of the newly agreed recovery plan.
The Trustee, the Actuary and the Employer have been very late in publication of the Actuarial Valuation (some 6 months after the statutory long stop date set by the Regulator), although the Regulator has been kept informed and has taken no action as far as we know. HPA have been constantly chasing the Trustee with some frustration on why it has taken so long, despite the pandemic. The Actuarial Valuation is published nearly 2 years into the current 3 year valuation period with only just over 1 year left before the next deadline December 2022. It was all signed off in July 2021, then we had to wait until mid September 2021 for the Summary Statement to be issued and then a further few weeks of chasing for the Actuarial Valuation Report to be released. Despite the frustration, we do recognize that market volatility in 2020 and 2021 has been a legitimate mitigating factor affecting negotiations and that the news on HPS2 is welcome.
At December 2020 the liabilities were £716.7m, the asset values were £686.5m and the deficit was £30.2m. At December 2019 the liabilities were £668m, the asset values were £629m and the deficit £38.9m. The situation by July 2021 had further improved to the point that the deficit was assessed to be approaching zero. As a result, a revised recovery plan has been agreed on the strength of this position with Jacobs (UK). As per the previous agreed recovery plan from 2016, Jacobs contributions between January and June 2021 were increased to the equivalent of £8.73m/yr from the previous annual £7.63m. The latest recovery plan contributions will be £2.256m/yr from July 2021. A substantial saving for Jacobs (UK). We await to review with interest the Jacobs (UK) 2020 Annual Accounts, which are due December 2021,on how the financial position and the contribution level for HPS2 compares with the three other defined benefit pension schemes that the company sponsors – Jacobs Engineering Ltd, Babtie and Allot and Lomax. We hope the improvements to HPS2 bring it more into line with these three other schemes. We hope to issue another Newsletter on this in due course.
The new recovery plan includes for the situation that if the average deficit over the 3 months prior to December 2022 exceed £3.95m, then Jacobs (UK) must increase contributions from January 2023 onwards (max back up to £8.72m). Actuarial modelling is forecasting a zero deficit by December 2022 (the Recovery Plan Appendix states the deficit is expected to be eliminated by September 2024), notwithstanding that the deficit was already close to zero by June 2021. All predictions are very volatile in the current financial climate and the “target” position is going to fluctuate, as exemplified by the latest falling markets and increased price inflation.
The HPS2 funding objective is to match the liabilities and asset values ie aim for zero deficit and not target a positive funding position. Actuarial modelling shows liabilities starting to fall by 2026 which is when the Trustee is targeting 100% of all assets to be in low risk bond/fixed interest investments (simplistically interest paying and no asset growth). The Trustee continues to de-risk the fund (twice in 2021) by switching out of the growth portfolio and into the low risk “matching” portfolio (bonds, fixed interest etc). As stated this reduces the risk of future volatility but what is not stated is that this also reduces the scope for future growth. As reported above, by 2026 actuarial modelling shows that investment growth is deemed a low priority, with a focus on income generation.
Should Jacobs ever consider discontinuing to sponsor the scheme, at December 2019 the deficit for an insurance buy out was some £152m and the alternative S179 combination of transfer to PPF and part buy out was some £63m. The standard deficit as informed above up to July 2021 was approaching zero and the insurance buy out was assessed to reduce to some £110m. This should encourage Jacobs (UK) to see the latest recovery plan in a positive light, with alternative options being unnecessarily expensive.
Trustee's Annual Report and Financial Statements year ended 31 December 2020
This document is the annual report for the scheme between December 2019 and December 2020. The change in membership during 2020 is shown in the table. Note the discrepancy in reported numbers between the two respective 2019 documents. We don’t know which is correct, although the Actuarial Valuation uses the lower set of numbers.
The membership continues to gradually reduce as is to be expected with pensioner numbers increasing their dominance over deferred. The trend for a few deferred members to transfer out seems to be slowing. There is a significant number of deferred scheme members still to take their pension.
The Scheme assets increased to £687.5m from £630m throughout the year principally due to investment performance. Commentary on the changes to the liabilities and the deficit at the end of 2020 and into 2021 has been covered above. Investment de-risking reached 70% low risk/fixed interest: 30% growth equities – with further de-risking anticipated based on the Trustee policy to do this. Investment performance has generally beaten the benchmarks set throughout 1 year and 3 years, particularly with the Baillie Gifford active equities over the last year. Welcome news.
Jacobs (UK) contribution, as agreed at £7.627m, was paid into the Scheme during 2020. As is to be expected, the sponsoring company (Jacobs UK) is reported to have a satisfactory covenant.
Access to HPS2 Information
The HPS2 trustee posts information for scheme members on a website which is only accessible to registered members. If you want access then go to the HPS2 website and register. The pensions team should then issue you with access credentials. The pensions team also emails some announcements to those on its email list. If you have any problems with access then contact the pensions team. Inconveniently, the full contact details for the pensions team are only available to those who have been granted access.
The Future of HPA
The need for HPA continues and among the possible ongoing tasks to look after HPA members' interests are:
1. To keep HPA members informed about HPS2 and other pension-related matters.
2. To closely monitor HPS2, the HPS2 Trustee and Jacobs UK (the scheme sponsoring company) to see whether adequate contributions are being made to the pension scheme.
3. To examine and comment on proposals for changes to pension-related laws or regulations where we think they would affect our interests.
4. Take opportunities to press for better supervision of pension schemes and their sponsoring companies.
5. To follow the potential changes in pension scheme rules arising from the Hampshire vs PPF and Bauer court decisions.
Previous Newsletters
If you haven't been with HPA from the start or want to remind yourself of previous events then you can browse through the previous newsletters for which there is a full list here.