MEMBER AUTUMN 2016

BRIEFING

For members of the Mitchells & Butlers Pension Plan

CHAIRMAN’S WELCOME

Through this newsletter, we wish to reassure all of our members – whether you are receiving a pension already or you are paying into the Plan – that the trustees have your best interests at heart and will always seek to act in a way that aims to protect your benefits.

In this report, we show you how we have been working to manage investment risks and returns for the Plan’s Defined Benefit assets, and how we’re developing governance of the Defined Contribution Section so that members can continue to have confidence in the way we run it.

Since the last time I wrote to you, there have also been further developments in the pensions world. These are summarised for you on pages 4-7.

This year there is no requirement to provide a summary funding statement (relating to the Defined Benefit position), because the Scheme actuary is currently working on the latest valuation. We have, however, provided an overview of what is involved in a valuation, on page 26.

I hope you find this issue of Member Briefing of interest. If you have any feedback on the contents or if there’s anything you would like to see more about in future issues, please get in touch with us using the administration teams’ details on the back page.

Mike BramleyChairman of the trustee

A year on from our last Member Briefing, and in the aftermath of the UK referendum result to leave the EU, the political and economic landscape now poses fresh challenges, opportunities and uncertainties for the country at large and for the field of pensions.

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“The trustees have your best interests at heart and will always seek to act in a way that aims to protect your benefits.”

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ON THE MENUPENSION NEWS – page 4- Pension tax allowances- Pensions dashboard- Tracing a lost pension- A new State Pension

DC SECTION – page 8Accounts, Membership, Investments, Governance, FAQs, Contributions

MANAGING THE PLAN – page 18

DB SECTION – page 20Accounts, Membership, Investments, DB News, Funding update

KEEPING IN TOUCH – back cover

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SECTIONDBDC PENSION NEWS

PENSION TAX ALLOWANCESThe changes to the Annual Allowance (AA) and the Lifetime Allowance (LTA), that were announced in the July 2015 Budget, came into effect from 6 April 2016.

The AA is the maximum amount of tax-free pension savings that you can make in a year. It is currently set at £40,000. For most people, it will remain at this level. However, for high earners with an annual income above £150,000, a tapered amount has been introduced and for some members, this allowance could be as low as £10,000.

The LTA is the tax-free limit on the total value of pension savings from all sources. From 6 April 2016, it has been reduced from £1.25 million to £1 million.

Most of our members will not be affected by these changes, but if you think you might be then you should consider talking to an independent financial adviser. Also, it’s your responsibility to keep track of how much you’re paying into various pension schemes (eg, your Mitchells & Butlers Pension Plan and any personal pensions you may have), and how much pension savings you’re building up, so you can measure it against these allowances.

It is estimated that nationally, around £400 million lies unclaimed in people’s pension pots. People have on average 11 jobs during their working life, so it’s all too easy to lose track of your former employers’ pension schemes, especially as administrators may change their name or get bought out.

A new website has been launched by the Pension Tracing Service to help people more easily and quickly find any lost pension savings.

www.gov.uk/find-pension-contact-details

The service is free to use and, although it cannot tell you whether you have benefits in that scheme or how much they are worth, it will provide you with the contact details so you can get in touch and find out.

TRACING A LOST PENSION

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PENSIONS DASHBOARDAfter much speculation about what the 2016 Budget might mean for pensions (especially pensions tax relief), the Chancellor made no real changes. However, he did announce that the government is pressing ahead with plans to launch a ‘pensions dashboard’, by 2019 at the latest. This would enable pension savers to see all of their pension pots in one place online, rather than having to log into many different providers’ websites.

A NEW STATE PENSIONSECTIONDBDC

The government has removed the previous two-tier State Pension system (Basic State Pension plus Additional State Pension) and replaced it with a system that was supposed to provide a single, flat-rate amount to everyone – but which has ended up being a little more complicated than that.

Anyone reaching State Pension Age on or after 6 April 2016 will get the new State Pension, which is currently worth a maximum of £155.65 per week. However, you will only get the full amount if you have at least 35 years of full National Insurance contributions (NICs). If you have fewer than 35 years of NICS, you won’t get the full amount.

Also, if you were ‘contracted-out’ of the Additional State Pension at any time (e.g. as a contracted-out member of the Plan, or any other pension scheme), the amount you receive under the new State Pension will be reduced in certain circumstances.

We’ve provided a bit more information about contracting-out on page 25 of this newsletter, which is mostly relevant to members of the DB Section.

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It’s very important to understand that if you have fewer than 10 years of NICs, you won’t get anything at all from the new system.

www.gov.uk/check-state-pension

You can call the Future Pension Centre on 0345 3000 168 or request a statement online at

HOW DO I FIND OUT ABOUT MY STATE PENSION?

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To find out your State Pension Age, go online to

Please note that your State Pension Age is not necessarily the same as your normal retirement date within the Plan.

If you are due to reach State Pension Age within the next five years (i.e. you are a woman born between 6 April 1953 and 5 August 1955, or a man born between 6 April 1951 and 5 August 1955), you will be able to ask for an estimate of your new State Pension. The service isn’t yet available to younger people (while the government updates its systems) but we’ll let you know when it is.

www.gov.uk/state-pension-age

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The following table summarises the Plan’s key sources of income and how that money has been paid – as benefits to members and as fees to advisers. The trustee publishes its financial accounts once a year, which are then audited by PricewaterhouseCoopers LLP. The auditors have confirmed that the 2015/16 financial statements are a true and fair reflection of the Plan’s income and expenditure.

THE YEAR IN BRIEF...

MONEY MATTERSSECTIONDC

FIND IT ON THE WEBSITEwww.mbplcpensions.com

You can download the Plan’s full Report & Accounts.

On 1 April 2015, the DC Section was worth £37.5 million

Plus money in £5.4 million

Less money out £1.1 million

Less the fall in value of our investments £1.2 million

On 31 March 2016, the DC Section was worth £40.6 million

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MEMBERSHIPSECTIONDC

MEMBERSHIP AS AT 31 MARCH 2016

1,160 active members

Total members: 2,261

1,101 deferred members

INVESTMENTSSECTIONDC

The graph shows the returns achieved by the three investment funds that are used in the Lifestyle strategy, over the last 12 months and three years to 31 March 2016.

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12 months (%)

Three years (% p.a.)

-2%

Members in the DC Section can choose to invest their Plan account in a range of investment funds selected by the trustees, with help from their professional advisers.

4%

6%

2%

0%

-4%

-3.6%

0.5%

2.0%

5.8%

DC Choice Growth Fund Index-Linked Gilt Fund Cash Fund

0.5%

5.7%

If you don’t make an investment choice, your account is invested using ‘Lifestyle’. This is a pre-determined strategy that automatically moves the money in your account from one investment to another, depending on how far away you are from retirement age. Most of the Plan’s DC members use Lifestyle.

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The table on this page show the returns achieved by the other available investment funds over the last three years to 31 March 2016.

OTHER FUNDS

12 months (%)Three years

(% p.a.)

Global Equity Index Fund -3.7 7.1

Diversified Growth Fund -3.5 2.7

Long Gilt Fund 4.1 8.6

Overseas Consensus Index Fund -1.6 7.3

UK Equity Index Fund 3.9 3.8

North America Equity Index Fund 3.6 12.7

Europe Equity Index Fund -4.3 6.8

Asia Pacific Equity Index Fund -5.4 0.3

Japan Equity Index Fund -3.2 6.6

Property Fund 10.2 12.8

Sterling Bond Fund 3.3 4.4

These figures are no indication of future performance, and investment returns can go up or down in response to market changes.

The DC Working Party is made up of:

• Martin Thomas (A Director, MABPP)

• John Appleton (C Director, MABEPP)

• Sue Maslen (C Director, MABEPP)

• James Cooper (C Director, MABPP)

• Dave Shannon (Secretary to the trustees)

• Craig Provett (Director of Compensation & Benefits)

• Lee Miles (Pensions Controller)

Susan Martindale resigned on 5 July and a replacement Company Nominated Director will be confirmed shortly.

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MANAGING THE DC SECTIONSECTIONDC

When the Plan was first set up, it was purely a Defined Benefit (DB) arrangement, providing members with a pension based on their salary and length of membership. Like many other companies, Mitchells & Butlers then introduced a Defined Contribution (DC) Section for new employees, to manage the costs and risks associated with the DB part of the Plan.

As DC becomes the ‘norm’ for company pension schemes, the Pensions Regulator (which regulates UK company pension schemes) published a DC Code of Practice 2013, setting out how trustees should go about running DC pension schemes in order to meet various legislative and regulatory requirements. The Code has been updated in 2016.

The Plan trustees recognise that the full trustee board meetings may not always have the time to look in depth at both DB and DC issues. Therefore, they have set up a DC Working Party, which aims to identify and address specific issues relating to DC benefits.

The Working Party also aims to advise the board so that it complies with the DC Code and the legislative and regulatory requirements relating to DC schemes.

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The trustees are required to publish a Chair’s Annual Statement confirming compliance with specific legislative requirements in the Plan’s Annual Report & Accounts. You can read this statement on pages 14-17 of the 2016 Report & Accounts, which will be available online at www.mbplcpensions.com from 6 October 2016.

BLACKROCK DC BUSINESS PURCHASED BY AEGONBlackRock is the company that manages the DC Section on behalf of the trustees. In May, it was announced that Aegon had acquired BlackRock’s UK DC platform and administration business. Aegon is an international life insurance, pensions and asset management company that employs over 30,000 people worldwide. The trustees expect business to continue as usual and will of course let you know of any changes in contact details for the DC Section, although this is not expected for some time, until the deal is finalised.

FAQSSECTIONDC

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ASK THE ADMINISTRATORWe asked BlackRock, the DC administrator, to tell us the number one question received by their helpline (01733 353416) over the last year.

When you wish to take your retirement benefits, you have two options directly from the Plan. If your pot value is less than £10,000 and you are aged 55 or over at the time of taking your benefits, you may be able to take your pension as a lump sum with 25% being tax free and the remaining value being taxed through PAYE. This is called a ‘Small Pot Lump Sum’.

The second option is called ‘Open Market Option’. The Open Market Option enables you to transfer your benefits to another provider so that you can take advantage of the new pension freedoms introduced in April 2015 if these options are available from your chosen provider. These freedoms allow you to take your benefits as follows:

What options are available at retirement through my Mitchells & Butlers pension account?

An annuity

an insurance policy you can buy when you retire using the money in your pension account. It pays an income for the rest of your life.

Income drawdown

under income drawdown, each year you withdraw a retirement income from a pension arrangement and leave the rest invested. You have the flexibility to take out as much money as you like each year.

Uncrystallised Funds Pension Lump Sum (UFPLS)

if you cannot take a ‘Small Pot Lump Sum’, this option enables you to take your pension fully as a lump sum, although only 25% of your pension pot is tax free and the remainder is taxed under PAYE at your marginal rate of income tax.

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These three options are not available directly through the Plan.

FIND IT ONLINEwww.blackrock.co.uk/targetplan

More information on the various pension options is available through TargetPlan.

CONTRIBUTIONSSECTIONDC

GET IN THE DRIVER’S SEAT AND TAKE CHARGE OF YOUR RETIREMENT PLANNING

The annual MOT is part and parcel of owning a car. It gives you peace of mind that you’re not putting your life – or the lives of your loved ones – in danger by driving an unsafe car.

It can be useful to think about your pension in the same way as your car. It also needs regular attention – even if that’s only once a year, to check that you’re on track for the retirement you want.

Ask yourself when you’d like to retire and what sort of income you’d like to have. There are lots of budgeting tools online that can help you work out a realistic target. Then look at your annual benefit statement, which shows how much pension you’ve built up in the Plan. Do you have any other pensions? What about your State Pension? Together, will it be enough?

FIND IT ONLINE

www.moneyadviceservice.org.uk /en/pensions-and-retirement/budgeting

This is a useful retirement planning and budgeting tool.

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Can you afford to pay in a little more?

CHECK WHAT YOU’RE PUTTING INTO YOUR PENSION.

CHECK YOUR INVESTMENTS.

In a DC pension like ours, the more you pay in, the bigger your savings pot is likely to be when you retire. We know it can be hard to find the extra money to pay into your pension, but consider this:

BUTIs your pension pot invested in the right kind of investments? If you’re using the default Lifestyle strategy, we manage the day-to-day investments for you, but you do need to let us know if you change your planned retirement date because it can affect the way your pot is invested.

FIND IT ONLINEwww.blackrock.co.uk/targetplan

You can check your Plan pension, investments and contributions any time.

* assuming investment returns of 5%

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which shows why it pays to start early!

If you give up one cup of coffee a week and pay that money into your pension

if you started just 10 years from retirement, you’d have only £334 more in your pot –

in 35 years you could have an extra £2,400 to spend*

The Plan is run by a trustee board that is made up of a number of independent, company-appointed and member-nominated trustee directors.

OUR TRUSTEE BOARD

Paul Craven has stepped down as an independent trustee director. The board would like to thank Paul for his service to the Plan. We welcome his replacement, Jonathan Duck, who joined us on 1 July 2016. Jonathan is Chief Executive of Amtico International, prior to which he held a number of divisional director roles in Bass/Six Continents.

Susan Martindale and Andrew Vaughan resigned as trustee directors and the Company appointed AAA Trustee Limited and 20-20 Trustee Services Limited on 5 July 2016.

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SECTIONDBDC MANAGING THE PLAN

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The trustee board is made up of the following trustee directors:

INDEPENDENTMike Bramley (Chairman)

Paul Craven (resigned 30/6/2016)

Martin Thomas

Law Debenture Pension Trust

Jonathan Duck (appointed 1/7/2016)

APPOINTED BY THE COMPANYSusan Martindale (resigned 5/7/2016)

Andrew Vaughan (resigned 5/7/2016)

AAA Trustee Limited (appointed 5/7/2016)

20-20 Trustee Services Limited (appointed 5/7/2016)

NOMINATED BY THE MEMBERS James Cooper

Andy Gordon

Rita Mitchell

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MONEY MATTERSSECTIONDB

On 1 April 2015, the DB Section was worth £1,554.6 million

Plus money in £66.3 million

Less money out £56.7 million

Plus the rise in value of our investments £6.9 million

On 31 March 2016, the DB Section was worth £1,571.1 million

Here is a summary of the payments into and out of the DB Section during the Plan’s financial year (which runs from 1 April 2015 to 31 March 2016). These numbers come from the Trustee’s Annual Report & Accounts, which is an in-depth financial document that is audited by PricewaterhouseCoopers LLP.

THE YEAR IN BRIEF...

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MEMBERSHIPSECTIONDB

MEMBERSHIP AS AT 31 MARCH 2016

14,339 deferred members(who no longer work for the Company)

450 deferred in-service members(who still work for the Company)

Total members: 24,597

9,808 pensioners and beneficiaries

The DB Section’s assets are invested in the Mitchells & Butlers Common Investment Fund (CIF), which is available to all the Company’s Defined Benefit pension plans.

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INVESTMENTSSECTIONDB

The CIF invests in a range of traditional assets, including equities (both publicly-traded companies and privately-owned companies), bonds and property. Splitting the assets between different types of investments helps to smooth out some of the ups and downs of the market. The way the assets are split (‘asset allocation’) evolved slightly during the year covered by this newsletter, with 61% invested in liability-matching assets (government and corporate bonds) and 39% in return-seeking assets.

2%

8%

6%

4%

0

10%

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PERFORMANCEThe DB Section’s investments grew by £6.9 million over the year (after costs), compared to a positive return of £235.8 million in 2015. The table below shows the investment return over the last 12 months, three years and five years.

Actual return

Benchmark

0.7%

6.2%

8.8%

0.7%

6.0%

8.4%

12 months to 31/3/2016

Three years (% p.a.) to 31/3/2016

Five years (% p.a.) to 31/3/2016

DB NEWSSECTIONDB

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PENSION INCREASES

Pensions in payment and deferred pensions (in excess of the Guaranteed Minimum Pension) will be increased on 1 October 2016 by 1.4% in line with the change in the Retail Prices Index (RPI) in the year ending 31 May 2016.

LEVELLING OPTIONSIf you haven’t retired yet, you will probably find that you can start claiming your Plan pension some time before your State Pension, as the State Pension Age will start to go up to 66 from December 2018, and then to 67 from 2026.

The Plan has a levelling option which, subject to the trustees’ consent, allows you to have a higher starting pension, up to a certain age, in return for a lower pension thereafter. This can help you to level out the income you receive throughout your retirement. Once you have decided to take the levelling option, you cannot switch back.

Your ‘levelling age’ is worked out by the trustees, after taking into account relevant information including State Pension Age and legislation. It might not be your State Pension Age and your pension may reduce before you are entitled to your State Pension.

You will be given full details about the levelling option shortly before you retire.

PENSION PAYMENT DATESPensions are typically paid in advance on the first working day of each month. For example, the pension you received on 1 September is to cover the period from 1 September to 30 September.

When the first of the month falls on a bank holiday or weekend, pensions are paid on the first working day of the month. In 2017, pensions will be paid on the first of the month except for 1 January, 3 April, 2 May, 2 July and 2 October. Your January 2017 pension instalment will be paid on 21 December 2016.

FIND IT ON THE WEBSITEwww.gov.uk/state-pension-age

Find out what your State Pension Age will be.

1.4%

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FIND IT ONLINEwww.gov.uk/state-pension-age

More information about the new State Pension can be found here.

AN END TO CONTRACTING-OUT

If you’re a member of the Defined Benefit Section, part of the pension you get from the Plan is your ‘Guaranteed Minimum Pension’ (GMP). Your GMP relates to any period of service when you were contracted-out of the Additional State Pension.

The Plan was contracted-out on a defined benefit basis between 1978 and 1997. This means you didn’t build up Additional State Pension while you were contracted-out, and it also means you paid lower National Insurance contributions (NICs). The ability for pension schemes to contract out ended on 6 April 2016, when the Additional State Pension effectively ceased to exist for people retiring from that date.

HOW IT AFFECTS GMP PENSION INCREASES

In exchange for the lower NICs that were payable while the Plan was contracted-out, the Plan had to promise to pay you a basic level of pension at least equivalent to what you would have received with the Additional State Pension – your GMP.

Until 6 April 2016, the increases applied to your GMP could differ from the increases applied to the other parts of your pension. This is because the government increased the State Pension and the increase was automatically applied to your GMP.

THE NEW STATE PENSION WILL NO LONGER PROVIDE THIS INCREASE ON YOUR GMPHowever, the loss of the increase may be balanced out by other factors and benefits provided by the new State Pension. This change has been introduced by the government and is outside of the control of the trustees.

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PUTTING A VALUE ON THE PLANSECTIONDB

Last year, we included a summary funding statement in our annual report to members giving you details about the funding position and financial security of the DB Section of the Mitchells & Butlers Pension Plan.

This year, because we are in the middle of an actuarial valuation, your copy of Member Briefing does not include a summary funding statement.

Every three years, the Plan is valued to determine the expected future pension payments (the liabilities) from the DB Section and how well these are funded by the assets held in the Plan. This process is called an ‘actuarial valuation’ and it is carried out by a pension professional called an ‘actuary’.

The actuary assesses the value of pensions already promised, how these pensions should be funded by the employers that participate in the Plan, and the cost of providing future DB pensions based on members’ service and earnings. The actuary has to assess many different variables to arrive at this value (for example: what is inflation expected to be like in the future? How will the Plan’s investments perform? How long might pensioners live, on average, in future?) The answers to these questions are called the ‘actuarial assumptions’. The actuary assesses the Plan at a particular date – in our case, 31 March 2016.

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The trustees and the Company use the results of the valuation to update the Schedule of Contributions, which sets out the Company’s ongoing future service contributions, and also the expected payments to be made by the Company if the valuation shows a funding shortfall (this is called the ‘Recovery Plan’).

We will send out a summary funding statement giving all details, once the valuation has been completed and the results agreed by the Company and the trustees.

The actuary also carries out annual updates, which are less detailed but provide a quick snapshot of the Plan’s financial position.

DC SECTIONIf you have any questions about your benefits in the DC Section, please contact the administration team at BlackRock:

BlackRock Employee Retirement Service Centre, PO Box 705, Peterborough PE1 1ZL

Telephone: 01733 353416Email: uk.ops@blackrock.comTargetPlan: www.blackrock.co.uk/targetplan

The benefits provided by the Plan are governed by the Plan’s Trust Deed and Rules (copies of which are available on request). Nothing in this Member Briefing confers any right to benefits save as provided by the Trust Deed and Rules and in the event of any inconsistency between this Member Briefing and the Trust Deed and Rules, the Trust Deed and Rules prevail. This Member Briefing does not constitute legal advice or financial advice and should not be relied upon as such. The description of legislation in this Member Briefing is intended as a basic guide only, not a comprehensive or exhaustive guide to the legislation.

DB SECTIONIf you have any questions about your deferred benefits in the DB Section or your pension payments, please contact the administration team at Mercer:

Mitchells & Butlers Pensions, Mercer, 4 Brindley Place, Birmingham B1 2JQ

Telephone: 0345 850 0981Email: mbplc@mercer.comMercer OneView: www.merceroneview.co.uk/mab

KEEPING IN TOUCH

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