Chairman's Review - Trustee Board

Employees of UK companies within the Kingfisher Group may join either the Pension Scheme or the Retirement Trust, subject to certain eligibility conditions.

The Pension Scheme is a ‘final salary scheme’ and provides benefits based on a member’s salary and service.

The Retirement Trust is a ‘money purchase scheme’ and provides benefits based on what a member’s accumulated fund value will purchase at retirement.

This Report gives information about both the Scheme and the Trust and their management during the last Scheme year.

Once again, the past year has seen a lot of press comment about pensions, whether in relation to falling stock markets, funding deficits, closure of final salary pension schemes or unfulfilled pension promises. Almost without exception, the story has been one of gloom and doom, but nevertheless, the vast majority of pension schemes nationwide continue, like ours, to provide pension and other benefits throughout the working lives of their members, and serve an irreplaceable purpose in ensuring a more comfortable lifestyle in retirement.

Clearly, the Kingfisher Pension Scheme and the Kingfisher Retirement Trust haven’t been immune to the difficult investment conditions of recent years, but the Trustees, with the assistance of their actuarial and investment advisers, have remained vigilant in ensuring the long-term security of benefit entitlements within the Kingfisher pension arrangements. In particular, during the past year and following completion of an asset/liability remodeling exercise, the Trustees undertook a substantial realignment of the Pension Scheme’s strategic asset allocations in line with the results of the remodeling exercise and several new investment managers were appointed.

A further actuarial valuation of the Pension Scheme was carried out by the Scheme Actuary at 31 march 2002 following the transfer out of assets in respect of the Woolworth Group, Time Retail and Superdrug companies. The valuation showed that the Scheme remains in balance, with a small surplus on the statutory funding basis, but also confirmed that the Company’s long-term contribution rate should be increased to 13.9% of pensionable salaries. The Company has agreed to this increase.

Following on from the valuation, the Trustees also undertook a major review of the factors applied to pensions to ensure cost neutrality to the Scheme in the event that members retire or leave the Pension Scheme either earlier or later than normal retirement date. The effect has been to bring these factors into line with the prevailing economic conditions with consequent benefits for both the fund and members. For the twelfth year running, pensions have been increased in line with inflation.

You will see from this year’s accounts that there was a large reduction in the Pension Scheme’s asset value. Of course, the adverse investment conditions accounted for a substantial part of the reduction, but another contributory factor was completion of the bulk transfers in respect of members formerly employed by the General Merchandise division. Whilst these members ceased to participate in the Pension Scheme as at 31 March 2002, the associated transfer of assets was made during the financial year under review. The corresponding bulk transfer from the Retirement Trust was smaller, and the effect on the asset value was therefore less marked.

Most of the Retirement Trust’s assets are invested in Eagle Star’s with-profit pension fund. In December 2002, Eagle Star announced that the fund would no longer be open to new schemes, although it remains open to contributions from existing clients. The Trustees consider that the fund remains a viable investment medium for the time being, but its progress will be carefully monitored in the future.

All of the activity described above wasn’t achieved without much hard work on the part of the Group Reward and Benefits Department, and I would like to take this opportunity to thank its members for their continuing effort during another year of considerable change.

In July 2003, Kingfisher announced the separation of the Electricals business from its Home Improvement business. The post-demerger arrangements have now been made; broadly all members (including pensioners and deferred members) of both the Pension Scheme and the Retirement Trust employed (or formerly employed) by Comet Group plc will join new pension arrangements to be set up by Comet Group plc. The assets of both the Pension Scheme and the Retirement Trust are held under trust and are entirely separate from Kingfisher Group. Members’ benefit entitlements earned up to the date they cease to participate in the Kingfisher schemes will be fully protected under both the terms of the trusts and pensions law.

Shortly after the end of the scheme year, Neil Lister, who was Head of Pensions, resigned and I should like to thank him for his valuable contribution during his time with us. Colin Hately, the current Pensions Manager, has been appointed as Head of Pensions and I look forward to working with Colin in his new role.

Roger Jones

The Scheme and the Trust are managed by Kingfisher Pension Trustee Limited, a company established specially to act as Trustee. As the Trustee is a company, there have to be directors; the directors of this trustee company form the Trustee Board and are colloquially termed ‘Trustees’.

Trustees are drawn from all levels within the Kingfisher Group, including Val Struthers who is a pensioner. In addition, two of the Trustees, John Martin and Charles Woodward, are not employed within the Group and are chosen for their complete independence as well as their knowledge and experience of pension matters.

Before taking up their appointment, new Trustee Board directors receive both external and internal training.

The Trustee Board monitors and oversees both the Scheme and the Trust through committees, which focus on specific aspects of day-to-day operations. The four Committees (Accounts and Audit, Benefits, Investment and Sealing) report separately to the Trustee Board. The role of each Committee is briefly explained opposite.

Changes to the Trustee Board
There is no set term of appointment to the Trustee Board, but appointments are reviewable after four years, or earlier if there is a change in a director’s employment or personal circumstances. The power to appoint and remove Trustees rests with Kingfisher plc.

Tiku Patel (e-Kingfisher) resigned from the Trustee Board on 7 May 2002.

Under the terms of the Pensions Act 1995, Kingfisher plc opted out of the requirement to appoint Member Nominated Trustees. Following the completion of the bulk transfers related to the demerger of the Woolworths Group and sale of Time Retail and Superdrug, Kingfisher proposed new arrangements for the appointment of Trustees. The proposals have been approved by the Trustees and Scheme members in accordance with the Pensions Act 1995.

Accounts & Audit Committee
Membership: Charles Woodward (Chairman); Helen Chandler; Ian Edwards; Brian Venters and Liz Wright.

The role of the Committee is to:

• approve the Accounts of the Scheme and Trust and the Report to members;
• arrange and approve the process of auditing the Accounts;
• monitor controls and record keeping; and
• approve budgets and monitor the expenses of running the Scheme and Trust.

Benefits Committee
Membership: Roger Jones (Chairman); Helen Chandler; Brian Venters; Neil Lister (non-Trustee).

The Committee meets as necessary to exercise the Trustee’s discretionary powers, particularly in relation to:

• the distribution of lump sum death benefits; and
• the granting of ill-health early retirement pensions (for Kingfisher Pension Scheme members).

After the end of the Scheme year, Neil Lister resigned and Tony Stanworth was appointed in his place.

Investment Committee
Membership: Tony Stanworth (Chairman); Ian Edwards; Terry Hartwell; John Martin; Val Struthers; Helen Weir (non-Trustee) (appointed from 5 November 2002)

The Trustee Board agrees the Statements of Investment Principles of the Pension Scheme and Retirement Trust. Day-to-day investment management is undertaken by external managers. The role of the Committee is to:

• make recommendations to the Trustee Board on strategy issues;
• monitor and review the managers; and
• decide on manager appointments and terminations.

Sealing Committee
Membership: Tony Stanworth and Roger Jones.

The role of the Committee is to authorise the affixing of the company seal to relevant documents.