Money Matters

Investment of assets
One of the Trustees’ principal responsibilities is the investment of the schemes’ assets. For each scheme, they draw up a Statement of Investment Principles which is reviewed regularly, and sets out details of the investment objectives and the investment process. For the Retirement Trust, all of the assets (other than cash required for transaction purposes) are presently invested in the range of funds managed by Eagle Star, while for the money purchase section of the Pension Scheme they are invested in a range of funds managed by Standard Life. Although the general comments about scheme investments apply to all of our pension arrangements, the more specific comments about funding and investment returns apply mainly to the final salary section of the Pension Scheme.

Briefly, the investment objectives are to achieve a return on the Scheme’s assets over the longer term that exceeds the growth of the Scheme’s liabilities consistent with an acceptable degree of risk. A copy of the Statement of Investment Principles can be obtained by writing to the Group Pensions Department at the address shown here.

The strategy to achieve the investment objectives involves the Scheme’s assets being spread across a number of asset classes and geographic areas. The Investment Committee selects the appropriate managers for each particular asset class who are given specific objectives to achieve. The type of managers employed include both “passive” (index-tracking) managers as well as active managers (who are expected to produce higher investment performance than the index-tracking managers over the longer-term, but with greater fluctuations in their returns over the shorter term)

Taking all portfolios together, the return achieved by the Scheme during the year to 31 March 2004 was 19.2%. Over three and five year periods, the annual returns were -0.5% and 0.8% respectively.

Accounts
Another of the Trustees’ principal responsibilities is to keep accounts for the pension schemes. We show opposite a summary of the Annual Accounts of the Pension Scheme which have been audited by KPMG.

Actuarial Review
The financing of the Pension Scheme (but not the Retirement Trust) is subject to regular review by the Scheme Actuary.The main purpose of the review (also known as an actuarial valuation) is to assess the adequacy of the fund and the level of contributions necessary to maintain the financial soundness of the Scheme in relation to benefits that have accrued and will accrue to members and their dependants. These reviews normally occur every three years.

A valuation was carried out at 31 March 2002 which showed a small surplus of assets over the cost of benefits earned to the valuation date, and the employer contribution rate was maintained at the level of 13.5% (except for B&Q at 13.9%) of pensionable earnings for the three year period to the next valuation. Members (except those covered only for the lump sum death benefit) contributed 5% of pensionable earnings to the Scheme.

Although a valuation was carried out at 31 March 2002, the Trustees have decided that an additional valuation should be carried out at 31 March 2004 following the bulk transfer out of Comet members. Until the results of the valuation are known, the employers have agreed to increase their contributions to 20% of pensionable earnings.