Members’ AGM University of Aberdeen Superannuation & Life Assurance Scheme David Gordon 14 June 2011 © 2011 Towers Watson. All rights reserved.

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 2 Agenda Trustees and their responsibilities Highlights from the accounts Scheme benefit changes Actuarial update

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 33 Trustees Dr Alistair Mair – Convenor Ms Irene Bews – Director of Finance Mr Steve Cannon – Secretary to the University Prof Chris Gane – Vice Principal Mrs Diane Massie – Member Nominated Mr Brian Paterson – Member Nominated The Trustees met on five occasions over the year Member nominated trustees serve for three year terms – next election due 2013 The Trustees are also assisted on investment matters by: Prof Alex Kemp Prof Angela Black Towers Watson

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 44 Roles and responsibilities Trustees The Scheme is set up under a Trust Assets are held separately from University assets Trustees run the Trust in the line with the Scheme rules Trustees look after the benefits of the members Under the rules of the Scheme the Trustees determine the University’s contribution rate in consultation with the University University Funds the Scheme Responsible for deciding what future benefits are provided The Pensions Regulator Protects members’ benefits Pension Protection Fund Provides a benefit for members whose employer is insolvent and there are insufficient assets to pay benefits

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 5 Scheme membership Scheme membership continues to grow

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 6 Cash flows over the year to 31 July 2010 Members contributions: £1.0m 7.05% of pay Includes Pensions Plus University contributions: £2.6m 17.1% of pay plus life assurance premiums Cash flows Pensions / other benefits: £4.2m Expenses: £0.2m Investment return: 22.1% Fund value 31 July 2010: £81.2m 3 May 2011: £89.6m

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 7 Investment changes The Trustees carried out a review of their investment arrangements in 2010 They concluded that the Scheme should be invested passively This means the Scheme aims to track the stock market The Scheme previously invested actively This means the manager aims to out-perform the stock market Investing passively: Reduces risk of underperforming the stock market Reduces costs, in terms of management charges and governance time for the trustees The Scheme’s assets were transferred to Legal & General Investment Management (LGIM) in September 2010 The Trustees will save ~£150k a year in investment charges

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 8 How the Scheme is invested The Trustees also reviewed their allocation to different asset classes when investing with LGIM The proportion invested in overseas equities was increased Target asset allocation: 50% Overseas equities 20% UK equities 30% bonds Investments take account long term nature of liabilities Target asset allocation:

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 9 Benefits explained – RPI or CPI? The Government has changed the rules on inflationary increases The Trustees have looked at what the Trust Deed says Increases to pensions after retirement Mostly based on RPI and subject to minimum of 3% Element known as “Post 88 GMP” is now based on CPI up to 3% Some pensioners may get a pension increase a few pounds lower in some years After leaving but before retirement increases are based on the Government rules Now mainly based on CPI Benefits accrued up to 31 July 2011

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 10 Scheme benefit changes

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 11 Confirmed benefit changes The University consulted with active UASLAS members in Autumn 2010 The University confirmed in February that the following changes will take effect from 1 August 2011 The Scheme will operate on a Career Average Revalued Earnings (CARE) basis Increases to pensions in payment will move to a CPI basis (up to 5% a year) Potential changes to retirement age were withdrawn by the University Members will receive annual benefit statements showing final salary and CARE benefits separately A new on-line member booklet will be published before 1 August 2011 Benefits accrued up to 31 July 2011 will not be affected

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 12 What is Career Average (CARE)? Each year you will earn a block of pension and lump sum based on your Pensionable Salary for the year, which will build up towards your total pension and lump sum. Each block of pension will be earned at the rate of 1/80 th (3/80 th for lump sum) of Pensionable Salary for that year. Each block of pension and lump sum would increase by the annual increase in inflation up to a maximum of 2.5% pa until your date of retirement.

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 13 What is Career Average (CARE)? Year 1 - £20,000 +3% Pay Increase (=£20,600) 80 = £258 Year 2 - £ % Inflation = £264 £ % Pay increase = £265 Lump Sum = £3,287 x 3 = £9,861 YEAR 1YEAR 2YEAR 3YEAR 4YEAR 5YEAR 6YEAR 7YEAR 8YEAR 9YEAR

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 14 What about benefits built up to 31 July 2011? These remain on a final salary basis: 1/80thFinal Pensionable SalaryPensionable Service to 31 July 2011 XX 3/80thFinal Pensionable SalaryPensionable Service to 31 July 2011 XX Pension: Lump Sum: No change

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 15 Actuarial update

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 16 What is the purpose of an actuarial valuation Assets Liabilities Is there enough money in the Scheme to cover accrued benefits? How much should be paid into the Scheme in future years?

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 17 Results of the actuarial valuation The reasons for the change in funding position from 2007 to 2010 are as follows: Poor investment returns Lower yields, increasing value of future benefits Effect of longer life expectancies Your benefits are not directly affected by the Scheme’s funding position Shortfall£6m £16m Funding Level 93% 84%

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 18 Future contributions from 1 August 2011 Cost of accruing benefits on CARE basis 11.7% of Pensionable Salary Members’ contributions (by Pensions Plus) 7.05% of Pensionable Salary The University is meeting the shortfall by additional contributions of 5.8% of Pensionable Salary Assuming investment returns are met as expected, this will meet shortfall over a 17 year period Overall, the University is contributing 17.5% of Pensionable Salary, an increase of 0.4% Trustees and University engaged in long-term management of Scheme

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 19 Questions

towerswatson.com © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 20 Contact Details David Gordon Senior Consultant \\Wwp\data\General Data Edinburgh\D\UniAberdeen\2011\TW agm 2011 ppt.ppt