: YMCA Pension & Assurance Plan Pensions ‘Road Shows’ 2017

Purpose of the ‘Road Shows’ In its role as Principal Employer, YMCA England & Wales represents Participating Employers from England, Wales & Scotland Together with the Pension Trustees, we believe that good communication is really important The pension deficit is a really important issue facing each Participating Employer Recognise that some YMCAs may have liabilities under the Plan, that relate to people who no-one currently involved recognises Further recognise that as CEOs, Chairs and trustees at a local level change, then previous knowledge and understanding may be lost Update on the outcome and impact of the 2017 Triennial Valuation

Update on membership of the Plan 2011 2014 2017   Deferred Members 1188 1049 919 Pensioner Members 516 616 609 Participating Employers 112 97 81

Actions taken so far… PENSION DEFICIT In the early 00’s, as the impact of life expectancy tables markedly increased, it became clear that the liabilities of the scheme were growing at a much faster rate than the ability of the employees and employers to pay in to the scheme – even with significantly increased rates of contributions PENSION DEFICIT Liabilities of the Plan Assets of the Plan Action was taken to try and slow the growing pension deficit: 1 May 2007 – ceased accrual of service 1 May 2011 – broke link with final salary The Pension Deficit is apportioned to Participating Employers (PEs) based on the periods of service of individual members with different PEs. This was initially done on the basis of known Service History as at 1st May 1995. This data has since been refined to enable it to be done on a ‘Full Service History’ (FSH) basis, that is considered to be 99.9% accurate.

‘Orphan Liabilities’ If one Participating Employer (PE) fails – either through insolvency or wind-up, then the pension liability owned by that YMCA has to be re-apportioned amongst the remaining PEs. This is on the basis that all PEs are considered to have ‘joint and several responsibility’ for the liabilities of the Plan. Prior to the 2014 Triennial Valuation, ‘orphan liabilities’ were created through the insolvency of the Welsh National Council of YMCA, and the wind-up of Gloucester YMCA Between 2014 – 2017, ‘orphan liabilities’ were created by the insolvency of Herrington Burn YMCA, and the partial insolvency of High Wycombe YMCA Adjustments to the schedule of payments arising between Triennial Valuations by ‘orphan liabilities’ are only recognised once every three years.

2017 Triennial Valuation Pension Trustees of all Pension Plans are required to have an external valuation of the liabilities and assets of the Plan every 3 years – hence Triennial Valuation Completed by an impartial and objective Actuary engaged by the Pension Trustees This looks at the members within the Plan, both pensioners and deferred members (deferred members are people with service in the Plan at some time, but who are not yet retired)

Triennial Valuation (Cont’d) Pensioner Members as a liability will reduce over time – as they get closer to projected life expectancy Deferred Members as a liability will increase over time, until they reach retirement age, as a result of potential annual increases in their pension As deaths occur within membership, then liabilities are either reduced (spouse pensions) or cease altogether Current life-expectancy tables are used, and inflation assumptions made

Triennial Valuation (Cont’d) Total liabilities are calculated, that will take the Plan to the final point some time in the future, when the last Member of the scheme dies (or the spouse of the last Member) – when the scheme will be wound-up The assets of the Plan [previously pension payments made by both employees and Participating Employers, but now augmented only by Participating Employers] are offset against the liabilities, giving the ‘Pension Deficit The Pension Deficit is then subject to the agreed apportionment methodology, that divides the total Deficit across all Participating Employers – to be repaid over an agreed period – the ‘Recovery Period’ Important to note that the deficit contributions payable should not be conflated with the actual pension liabilities (s.75 Debt) that each PE carries for members of the Plan.

Triennial Valuation Outcome (Cont’d)

Triennial Valuation Outcome (Cont’d) Result of the Main Funding Assessment At 1st May 2017 This means that for the first time, the deficit figure has reduced from one valuation to the next

Triennial Valuation Outcome (Cont’d) Why has the deficit reduced? Deficit contributions and the s.75 debt payments from former PEs (£14m) Much better than expected asset performance – showing an increase of £30m – showing the investment strategy of the Pension Trustee has been successful, especially in a very difficult financial environment These were partly offset by a decrease in underlying gilt yields, which results in the increased value placed on the Plan’s liabilities – an increase of £45.3m This has enabled the reduction in the deficit of £3.7m over the three years, and improved the Funding Level of the Plan from 70% in 2014 to 80% in 2017

Triennial Valuation Outcome (Cont’d) What will that mean to deficit contributions? The usual process following the Triennial Valuation, is for a revised schedule of payments to be set - encompassing the expected increase in the deficit, plus an annual % increase, and for the potential of the Recovery Period to be reviewed, to see if a short extension would limit the increases to the deficit contribution The proposed recovery plan takes us forward to the Plan becoming ‘fully funded’ in 2027, on deficit contribution basis (i.e. no extension to the Recovery Period), on the assumed continuation of the existing payments with a 3% increase annually The s75 liabilities for the Plan as a whole has increased from £98.6m as at 1.05.16, to £105m at 01.05.17 – which will mean the cost of buying out has gone up So – ‘Steady as you go!’

Expenses of the YMCA Pension Plan The costs to run a multi-employer pension plan generally are more expensive than a single employer one. The Pension Trustee is conscious of these costs and manage them tightly. Such costs include: Administration - both internal and external, including paying pensions investment advisor costs Specialist legal advisors - including dealing with disputes such as Hastings & Huddersfield Governance - meeting expenses and insurance Actuarial services Levy to the Pension Protection Fund and other bodies Audit costs   A couple of years ago the Pension Regulator produced an online tool to enable pensions schemes to benchmark their cost. The YMCA pension Plan came out in the lower quartile for multi-employer schemes of our size.

Changes to Member Offers As part of a routine review of the offer to members, the Pension trustee has reviewed key aspects of the offers it can make, in light of emerging practice and changes to legislation Historically, the Plan has only been able to provide transfers out that included a 30% reduction in any transfer value – to reflect the under-funding of the Plan On the advice of the Plan actuary, the basis of transfer values has now been modified, and will be paid at 100% of the new basis Pension Trustee has recently reviewed commutation rates, in line with market norms, and have improved the rates to reflect this Cash Commutations (Lump Sums) continue to be a popular option at the point of retirement, with members electing to sacrifice some of their annual pension for the release of a tax-free cash sum. This will continue to be offered, but members will also continue to be able to take their full pension should they wish Trivial Commutation, where a members’ pension is considered to be a trivial amount will also be an offer made to members – either at retirement or even post retirement

Changes to Member Offers (Cont’d) Trivial Commutation (lump sum in lieu of pension) HM Revenue and Customs (HMRC) has recently increased the amount of cash you can take in lieu of a small pension, referred to as Trivial Commutation. To qualify for a Trivial Commutation Lump sum, you must currently be at least 60 years old and the maximum overall value of all your pension pots added together (excluding the State Pension) has to be less than £30,000, (this limit used to be £18,000). If the value of your pension benefits are £10,000 or less (increased from £2,000), you may be able to take a cash sum without considering any other pension pots you have. Current pensioners who fall within the new rates, will now be targeted, to assess their wishes

Liability Reduction Process The process is now limited to the ETV process, and the costs for PEs will now be limited to the ETV. All Participating Employers (PEs) have received individual letters inviting them to engage in the Liability Reduction process, and outlining the individual PE costs that would follow, for the general costs, and the costs for Independent Financial Advisors (IFA) for individual members Target was set of 70% of the s.75 liabilities, as general indicator of PEs being willing to engage – if this is not reached, then assumption made that there is not sufficient support A number of PEs indicated that their governance cycle would not allow for decisions to be made by local Boards until the end of September ‘17 With a number of PEs still to respond, it is anticipated that the target of 70% will reached. Currently this is: 63%

Liability Reduction Process Cont’d… A formal submission has been made to the Pension Trustee by employer representatives, asking the Trustee to consider funding the enhancements for the Enhanced Transfer Value exercise The Pension Trustee is now taking careful legal and actuarial advice, before they can determine if they can fund and pay the enhancements, without remaining deferred and pensioner members suffering any short or long-term detriment – also that they are allowed by law to do it! Important to protect remaining PEs from any additional deficit funding strain Pension Trustee has now agreed they will be able to fund the ETV process, with some caveats to protect the Plan from excessive strain. As soon as decisions have been made, then a further communication will be issued to all PEs explaining the outcome

Updating the data Once the Actuary has completed the Triennial Valuation, they will normally prepare a ‘Schedule of Payment’, which determines how much each PE will need to make, in accordance with apportionment method used, based on the full service history of individual members If they continue to use the data from the 2014 valuation, then the schedule of payments will broadly stay the same, with a 3% annual increase The Trustee has determined that pending the potential outcome of the ETV, and other steps taken, it will be more appropriate to review the data at the next valuation It is important to note that when the data is updated at the next valuation, there will be changes to a PEs liability profile – either up or down

Deficit Contributions It is important for PEs to understand the deficit contributions that they currently pay When the deficit was originally determined, the individual contribution from each PE was calculated, and should in theory have been paid across to the Pension Trustee in its entirety The payment scheme was accepted by the Pension Trustee and the Pensions Regulator, as a means of reducing the immediate impact on PEs, and in practical terms is much like a mortgage Therefore, this ‘mortgage’ will continue to need to be paid – even if a PE completes a s.75 buy-out To protect all PEs, where a s75 is requested (normally as a result of reducing liabilities), the calculation will now show the s75 figure, plus the remaining deficit contributions through to 2027. Such an employer will be required to pay the higher of these two figures.

Thank you for your attendance today, and we hope the Presentations have served to assist your understanding of the Pension issues. If you have any questions that have not been addressed today, then please contact: Paul Smillie – paul.smillie@ymca.org.uk Company Secretary, The YMCA Pension Plan Trustee Limited Or Keith Fletcher – keith.fletcher@ymca.org.uk Representing the Principal Employer YMCA Pension Website – www.pensions.ymca.org.uk