Ulster Bank Pension Scheme (NI)

Ulster Bank is part of the Royal Bank of Scotland Group

Members’ Newsletter2014

The Chairman’s message

In the pages that follow you can read a summary of the Ulster Bank Pension Scheme’s annual report & accounts and get an overview of the Trustee Board’s activities over the past year.

Our article on page 6 explains some changes that have been made to the way the Scheme’s assets are invested and also tells you how those investments have performed over the last year.

On page 10 we’ve included the latest pension news, to bring you up to date with what has an impact on our

Scheme. In his 2014 Budget speech

the Chancellor announced some significant changes to the rules that apply to pension savings and there is an update on these on page 11.

In May, we sent you a report on the results of the Scheme’s most recent valuation, effective 31 December 2012, which was completed in March 2014. This showed that the Scheme’s funding level at the valuation date was 80% but 12 months later I am pleased to say this had improved to 98%. As in previous years, the Trustee Directors and the Bank have continued to work together constructively to ensure the security of your pension benefits. The updated position as at 31 March 2014 is given on page 8.

I hope that you find this report helpful and that it gives you a good understanding of the Scheme and current pensions issues.

Michael McKavanagh

Members’ newsletter 20142

I’m pleased to send you the 2014 Members’ Newsletter, updating you on the latest developments in your Scheme and the world of pensions.

Contents Financial highlights 4Investment report 6Funding report 8Pension news 10Keep in touch 12

The Scheme’s estimated funding level has improved to 98%.

“We always welcome your feedback on how we can help you better understand your benefits. Please contact us via Pension Services, using the details on the back page.”

Your Trustee Board

Members’ newsletter 2014 3

This newsletter is available in large print, Braille or audio on request from Pension Services.

From left to right: Sean Murphy; John Burns*; Jaynette Stirling*; John Hart*; Robert Irvine; Michael McKavanagh (Chairman); John Turkington; Michelle Hutchinson. *Trustee Directors nominated by the membership.

Absent from the photograph is Ken Kennedy, pictured here.

Financial highlights

£ Opening asset value at 1 January 2013 652,292,602

Money into the Scheme:

- employer contributions 42,209,202 - member contributions 1,090,205 - member transfers-in 741,173 - net investment returns 59,561,670 Sub-total 103,602,250

Money out of the Scheme:

- benefit payments 18,786,953 - member transfers out 420,374 - expenses 789,275 Sub-total 19,996,602

Closing asset value at 31 December 2013 735,898,250

Scheme financesThe following table shows the payments into and out of the Scheme over the 12 months ending 31 December 2013.

The Scheme’s formal report & accounts for the year ended 31 December 2013 have been audited by Deloitte LLP, who have confirmed that they show a true and fair view of the Scheme’s financial transactions over the period.

We have summarised the report & accounts here to make it easy for you to read, but you can ask to see the full version if you want to. Just contact Pension Services to request a copy. Their contact details are on the back page.

Members’ newsletter 20144

MembershipThe following chart shows the Scheme’s membership figures at the end of 2013.

ACTIVE MEMBERS

1,610DEFERRED MEMBERS

2,014PENSIONER/DEPENDANT MEMBERS

1,061

2013

TOTAL MEMBERS 4,685

Members’ newsletter 2014 5

The RBS PeopleCharity The RBS PeopleCharity is for the benefit of RBS employees, past and present, and their dependants for the relief of financial hardship. The trustees of the charity have asked us to pass on this information to you. They will consider applications from potential beneficiaries with savings of less than £23,250 whose weekly household income from all sources, before deduction of tax and other statutory contributions, does not exceed £400.

The trustees’ investment strategy is designed to ensure the long-term future of the charity and in order to protect the underlying assets of the charity they set aside an annual budget for the provision of grants, which varies year on year depending on investment and other income, such as donations. In addition, the charity trustees want to help as many eligible beneficiaries as possible, therefore grants are restricted to one per eligible household within any 12-month period.

One-off grants of up to £250 are typically used for items such as eye tests and spectacles, State dental care, essential household items, or as a contribution towards special equipment e.g. a PC for a sight impaired person. The trustees can make grants of up to £1,000 towards the cost of a funeral, as long as the payment of the grant benefits a surviving former employee or a dependant, and not the beneficiaries under a Will. They also make grants towards the cost of personal care, including care home fees, supported living and other adjustments that would enable beneficiaries to continue to live at home.

To apply for a grant, please contact the charity for an application form.

Email: RBSpeoplecharity@rbs.co.uk

Postal address: The RBS PeopleCharity, PO Box 1391, Croydon CR9 1YE

Members’ newsletter 20146

Investment reportThe Trustee Directors are responsible for setting and managing the investment strategy of the Scheme. They have set up an Investment Review Committee (IRC) to focus on this important and complex aspect of managing the Scheme.

The IRC is made up of Bank employees and members of the Trustee Board. In December 2013, Richard Harding (a representative of Ulster Bank Ltd) was appointed to replace Colin Kelly, following his resignation from the IRC.

The IRC regularly considers the investment of the Scheme’s assets, in consultation with its investment advisor, RBS Investment Executive Ltd. In March 2013, Aon Hewitt was appointed to provide further oversight in respect of the investment programme.

New strategyIn 2013 the Trustee Directors implemented a new investment strategy. The new strategy seeks to protect the Scheme

overall return

+9.4%

Investment performance As a result of the new investment strategy, the Trustee Directors also updated the benchmark by which they measure the Scheme’s investment performance. This took effect from 1 July 2013. In the first six months that the new benchmark was used, the Scheme assets returned 5.0% compared to the benchmark of 5.2%. Over the whole of 2013, the Scheme assets returned 9.4%.

against movements in interest rates and inflation, which affect the value of the liabilities. During 2013, the amount of ‘liability hedging’ to achieve this was increased substantially.

The Board also sought to simplify the Scheme’s investments by removing 13 managers and appointing one new manager (State Street Global Advisors). A number of actively managed investments were replaced with passively managed investments. The majority of hedge funds were removed and the plan is to remove the remaining hedge funds during the course of 2014.

“The Trustee Directors have outlined their investment aims for the Scheme in the Statement of Investment Principles, which is available from Pension Services.”

Members’ newsletter 2014 7

Split of assetsThis chart shows how the Scheme’s assets were split across different types of investments at the end of 2013. The Trustee Directors aim to spread the investments so that if one fund manager performs poorly, or if a particular area of the market experiences a fall, the impact on the Scheme is minimised.

%

Passive equity 34.0

Equity futures economic exposure 5.8

Private equity 0.5

Passive credit 18.3

Emerging markets credit 1.3

Property 5.8

Hedge funds 1.0

Alternatives 5.9

Cash and liability hedging 27.4

TOTAL 100.0

Funding reportEvery year, the Trustee Directors are required to send you an annual Summary Funding Statement to keep you fully informed about the financial health of the Scheme.

Members’ newsletter 20148

We sent you an update earlier this year, following the completion of the 31 December 2012 triennial valuation. The following pages repeat some of that information but also provide an updated position as at March 2014.

The table below compares the results of the 2012 valuation with the estimated funding position at 31 December 2013 and a further updated estimate carried out as at 31 March 2014.

Formal valuation as at 31 December 2012 Estimated position as at 31 December 2013

Estimated position as at 31 March 2014

The value of the Scheme’s liabilities £812.0m £746.3m £765.0m

The value of the Scheme’s assets £648.8m £729.8m* £746.0m

Leading to a (shortfall)/surplus of (£163.2m) (£16.5m) (£19.0m)

Ongoing funding level 80% 98% 98%

%£=

* The value of the Scheme’s assets are estimated before the audited accounts are finalised and exclude the value of members’ Additional Voluntary Contributions.

Recovery PlanAs there was a deficit at 31 December 2012, the Trustee Board and Bank had to agree a plan to remove the deficit, called a Recovery Plan. This new plan requires the Bank to pay contributions of £38.6m per annum commencing on 1 April 2014 for a period of five years and four months (six years and seven months from the valuation date). The amount of the contribution will increase annually in line with inflation (measured by the Retail Price Index) on 1 January each year, with the initial increase on 1 January 2015.

This contribution covers both the requirement to clear the existing deficit of £163.2m at 31 December 2012 and to provide funding for future benefits. In addition to this contribution, Scheme expenses are also funded separately by the Bank.

The improved funding position in 2013 has provided further opportunities to reduce the level of risk within the Scheme, which will in turn improve the security of members’ benefits.

Intervention by the Pensions Regulator The Pensions Regulator can make changes to a scheme, give directions on working out its liabilities, or impose a Schedule of Contributions. We are pleased to say that it has not needed to use its powers in this way for the Ulster Bank Pension Scheme.

Members’ newsletter 2014 9

Alternative valuationAs part of the triennial valuation, as required by the Regulator, the Scheme’s Actuary also estimates the funding position of the Scheme if it were to secure all member benefits by purchasing insurance policies. At 31 December 2012 this cost was estimated at £1,094m, representing a shortfall relative to the assets in the Scheme of £445.2m. The fact that we monitor this position does not imply that there is any intention on the part of either the Bank or the Trustee Board to wind up the Scheme. Also, it is rare that a pension scheme would secure the benefits in this manner as the liabilities are significantly increased by the cost of purchasing insurance policies.

* The value of the Scheme’s assets are estimated before the audited accounts are finalised and exclude the value of members’ Additional Voluntary Contributions.

Pension newsPension increases With the exception of pension increases that are guaranteed as specified in the Rules or which are statutory, pension increases from the Scheme are paid at the discretion of the Trustee Directors in consultation with the Bank. This year, once again, the decision was made not to grant discretionary increases to pensions in payment. This position will be kept under review while the Bank continues to return to full strength and taking into account the ongoing funding position.

State pensionsThe proposed changes that we mentioned in last year’s newsletter have now been passed into law, with the passage of the Pensions Act 2014 in May.

The legislation allows for the introduction of a single-tier State pension, which will replace the basic State pension and the additional State pension (S2P, previously known as SERPS) from 2016. The Act also provides for a new type of voluntary national insurance contribution, called Class 3A. This will allow pensioners who reach State pension age before 6 April 2016 to top-up their additional State pension.

The planned increase in State pension age from 66 to 67 between 2026 and 2028 has also passed into law.

Members’ newsletter 201410

MNT election results Last year we invited members to stand in an election for the three member-nominated Trustee Director positions that would become vacant as of March 2014.

At the conclusion of the nomination process there were only three nominations. A fourth member withdrew their nomination when advised that the existing three member-nominated Trustee Directors had been nominated.

As a result, John Burns, Jaynette Stirling and John Hart were therefore deemed to have been automatically re-elected for a further six-year term.

Members’ newsletter 2014 11

Budget 2014The pension changes announced in March during the annual Budget speech are a major shake-up of the UK pensions industry.

The Chancellor said that the Government wants to give people much more flexibility and choice in how they can use their retirement savings, particularly people with defined contribution (DC) benefits – for example, if you have paid Additional Voluntary Contributions and have not yet drawn them out of the Scheme or used them to buy an annuity – and also people with small pensions/pension pots.

Current pensioners who are receiving a pension from the Scheme are not affected, unless you have benefits elsewhere that you have not yet drawn.

Under the proposals, from April 2015 no one will have to buy an annuity with their defined contribution savings.

Temporary measures have been put in place for people retiring before April 2015, to help them access more of their retirement savings. This includes raising the limits that apply to people who want to cash in low-value pension pots, from £18,000 to £30,000. This will also apply to people with low-value defined benefit (DB) type pensions.

The Government has also said that anyone wishing to transfer benefits from a DB scheme into a DC arrangement should first receive impartial, regulated advice.

These proposals are not yet law and could change in future, but in the meantime you may wish to speak to an independent financial adviser, especially if you are close to retiring. You can find a local adviser on this website: www.unbiased.co.uk

Keep in touchRBS Pension Services provides pension administration services on behalf of the Trustee Board. The team provides dedicated services for all members of the Bank’s various pension schemes, including payment of benefits, provision of quotes and projections, sending out scheme communications, and answering any questions you may have about your benefits.

Data protectionWe hold information about you in order to provide your pension benefits (such as pensions, lump sums, death benefits), which may include information obtained from third parties. This information may be shared with: • Companies within the Royal Bank of Scotland Group (please

contact us if you do not want us to share your information with these companies);

• Other third parties who assist us in administering your benefits (e.g. updating personal data, calculating and paying benefits);

• Those where we have your permission to do so; and • Those where we are required to do so by law. If you want a

copy of the information we hold about you, please contact us.

Tell us if your details changeRemember to let us know if your address changes. A current address makes it easier for us to tell you about developments in the Plan and also to pay your benefits without delay. You should review and, if necessary, update your Nomination Form if your marital status changes or you become a parent. This form lets the Trustee Directors know how you would like to see any benefits paid out in the event of your death.

Write to us:Royal Bank of Scotland Group, City Link House, 4 Addiscombe Road, Croydon CR9 5PB, UK (Depot Code 190)

Call us:UK 0808 100 4242International +44 208 535 1842

Send an email:rbspensionplans@rbs.co.uk

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