Chairman's Review

I am pleased to present my review of the Scheme year ended 31 March 2007.

Once again, the past year has seen almost unprecedented media coverage on pensions with further stories of schemes closing and funding issues. This year has also seen much political debate from all parties about the need for individuals to be saving more for their futures as the cost of State provision continues to escalate.

This year also saw the introduction of new Inland Revenue legislation, which radically overhauled the existing eight Inland Revenue regimes and replaced them with one, simplified, regulatory environment designed to enable individuals to better understand their pension entitlements and the amount that could be saved and continue to enjoy tax relief. You will have received a number of communications from both the Trustees and the Company explaining in detail how this affected you, and I would like to thank the Pensions Team for the success of these communications. I firmly believe they have been able to explain complicated subjects in a clear, simple and concise manner.

Obviously this has had a significant impact on the workloads of the Pensions Team and again I would on behalf of the Trustees like to express our thanks for all their efforts over the year.

Last year, I reported that the Trustees had undertaken a review of the Scheme's Investment Strategy with an objective over the longer term to achieve a return on the Scheme's assets that exceeds the growth of the Scheme's liabilities, consistent with an acceptable degree of risk. As I reported last year, longevity, inflation and wage increases are significant risks to the value of the liabilities. In the past 12 months, the Trustees have implemented a new strategy designed to mitigate the effect of inflation on the Scheme by entering into a number of contracts with Investment banks which in essence, mean the value of assets will move in line with the liabilities as inflation rates change. Further work is being undertaken in respect of mortality risk and I hope to report further on the subject next year.

This year, the Scheme will undergo its formal three yearly valuation which will enable the Trustees and the Company to assess the funding position of the Scheme in much greater detail and agree contribution rates to ensure we remain on track to achieve our long term funding objectives, which I have previously reported as being 'fully funded on a Gilts basis (least risk) by 2024'. At the last valuation, the Company agreed to increase their contributions to '40m per annum, plus of course, to invest a further '250m over a three year period. The bulk of these contributions have now been paid with the final '60m to be paid across later this year. Without wanting to 'second guess' the outcome of this years valuation, this will of course have a positive effect on funding meaning greater security for members.

As last year, we will be sending all members a Summary Funding Statement which will give details of the Scheme's financial position to ensure all members are kept fully informed about the Scheme.

On the Trustee Board structure, Roger Blundell retired as a Trustee during the year and has been replaced by Tony Williams, Group HR Director. I would like to thank Roger for his efforts over the years and welcome Tony to the Board.

On the subject of Trustees, new legislation will require a change to the way Member Trustees are elected as Trustee Directors and further announcements will be made later this year. This will be your chance to 'have your say' in the way the Scheme is managed and I look forward to the opportunity of discussing this in detail with many of you later this year.

Finally, I am pleased to announce that following an Independent Review commissioned by the Company, it has been agreed to purchase new computer systems for the Pensions Team which will revolutionise the way they both work, and communicate with the membership. Significant work will be undertaken over the next 12 to 18 months with announcements made to you as the work develops.

Tony Stanworth
Chairman
Kingfisher Pension Trustee Ltd