2016 Members’ Newsletter

Ulster Bank Pension Scheme

The actuarial valuation of the Scheme as at 31 December 2015 is currently under way. This is a complex process and we will bring you the results in next year’s newsletter. In the meantime, there is a reminder on page 8 about the funding position as at 31 December 2014, estimated by the Scheme Actuary.

On 23 June 2016, the people of the United Kingdom voted to leave the European Union. This decision has led to short-term volatility in the markets, particularly leading to falls in long-term interest rates, which increases the value of the Scheme’s liabilities. The Scheme is well protected against these movements, which helped avoid the worst of the impact from unexpected movements in interest rates. You can find out more about the Scheme’s investment strategy on page 6.

Welcome to the 2016 newsletter for members of the Ulster Bank Pension Scheme. You’ll find an update on the Scheme’s position as well as more information about the latest pensions news.

In 2015, contributions totalling £44 million from the employer and employees were paid to the Scheme. You can read more about the Scheme’s finances on page 4.

We have recently appointed a new director, John Browne, to the Board of Trustees, to whom I give a very warm welcome. John replaces Michelle Hutchinson, who resigned from the Board in June 2016. I’d like to thank Michelle for her contribution to the Board and wish her well for the future.

Finally, we have included some news about pensions in general on page 10 which we hope you will find useful and of interest. If you have any comments about the information in this newsletter, we would like to hear from you. Please get in touch via Pension Services, using the contact details on the back page.

Michael McKavanagh Chairman of the Trustee Board

The Chairman’s message

Members’ newsletter 20162

Michael McKavanagh (Chairman)

John Browne (from September 2016)

John Burns* John Hart*

Michelle Hutchinson (to June 2016)

Robert Irvine

* Trustees nominated by the members

Ken Kennedy Sean Murphy

Jaynette Stirling*

Your Trustee Board Contents Financial highlights 4

Investment report 6

Funding report 8

Pension news 10

Keep in touch 12

Members’ newsletter 2016 3

John Turkington

Scheme financesThe table shows the payments into and out of the Scheme over the 12 months to 31 December 2015.

The Scheme’s formal Annual Report and Accounts for the year ended 31 December 2015 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.

The Annual Report and Accounts have been summarised here to provide you with an overview of the Scheme’s financial transactions, but a copy of the full report is available from Pension Services, on request.

Financial highlightsOpening asset value at 1 January 2015

£ 894,523,334

Money into the Scheme:

- employer contributions 43,272,187- member contributions 1,082,973- member transfers in -- other income -- net investment returns 787,755Sub-total 45,142,915

Money out of the Scheme:

- benefit payments 21,944,396- member transfers out 127,939- expenses 559,876

Sub-total 22,632,211

Closing asset value at 31 December 2015 917,034,038

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MembershipThe following chart shows the Scheme’s membership as at 31 December 2015

PENSIONER/DEPENDANT MEMBERS

1,180 TOTAL MEMBERS = 4,646

ACTIVE MEMBERS

1,430DEFERRED MEMBERS

2,036

Members’ newsletter 2016 5

Investment reportIn 2015, the Scheme’s assets increased in value by £22.5 million to a total of £917 million.

The Trustee Board is responsible for investing the Scheme’s assets in order to pay pensions to members now and in the future. The Investment Review Committee oversees the management of the Scheme’s investments with the help and support of specialist advisers, RBS Investment Executive Ltd (RIEL) and Aon Hewitt Ltd.

The investment strategy seeks to deliver growth within managed levels of risk. To this end, the Scheme’s growth assets are invested across a range of different asset classes. The Scheme also has a liability hedging strategy which aims to offset changes in the value of the liabilities as a result of unexpected fluctuations in interest rates and inflation.

In 2015, the mix of growth assets was broadly unchanged.

Performance of the Scheme’s assets to 31 December 2015

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Scheme performance (% per annum)0.2% 1 year

9.2% 3 years

7.4% 5 years

Quoted equity – Europe ex UK 5%

Quoted equity – UK 5%

Quoted equity – N America 8%

Quoted equity – Japan 2%

Quoted equity – Asia ex Japan 1%

Quoted equity – emerging markets 4%

Private equity 1%

Credit – investment grade 24%

Credit – emerging markets 1%

UK property 4%

Other property 1%

Reinsurance 2%

Emerging market bonds 1%

Regulated utilities 2%

Gilts, index linked Gilts and swaps 37%

Cash and liquidity 2%

TOTAL 100%

2015

Members’ newsletter 2016 7

The actual asset allocation in place at 31 December 2015 (excluding AVCs) is shown below:

Split of assets

Each year, the Trustee Directors provide you with an update on the financial health of the Scheme in their Summary Funding Statement. Normally, this update is included in the annual newsletter, but in years when a full valuation of the Scheme is performed, there is a delay in having this information.

A full valuation is required every three years and so one falls due as at 31 December 2015 (the previous one was dated 31 December 2012). This new valuation is well in progress and the Trustee Board is in the process of discussing the preliminary results – the intention is to get the results and future contributions agreed with the bank in advance of 31 March 2017, the statutory deadline by which the valuation needs to be completed.

The results of this new valuation will be communicated to you once they have been agreed but this year, we have included information on the funding level of the Scheme up to 31 December 2014 (you will also have seen these details in last year’s newsletter). The table below compares the results of the December 2012 actuarial valuation with the estimated funding position as at 31 December 2013 and 31 December 2014.

Note that the formal valuation at 31 December 2012 is based on the Scheme’s membership at that date. The estimates at 31 December 2013 and 31 December 2014 are based on a broad analysis of membership experience – these figures will not be as accurate as a full formal valuation. The 31 December 2015 valuation will be based on updated Scheme membership information.

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Funding report

Formal valuation as at 31 December 2012

Estimated position as at 31 December 2013

Estimated position as at 31 December 2014

The value of the Scheme’s liabilities £812.0m £746.3m £938.7m

The value of the Scheme’s assets £648.8m £731.9m £890.1m

Leading to a shortfall/surplus of (£163.2m) (£14.4m) (£48.6m)

Ongoing funding level 80% 98% 95%

Recovery PlanAs there was a deficit at 31 December 2012, the Trustee Board and the bank agreed a plan to remove the deficit, called a Recovery Plan. This plan requires the bank to pay contributions of £38.6 million per annum, commencing 1 April 2014 for a period of five years and four months. The contributions increase annually in line with inflation (measured by the Retail Price Index) on 1 January each year, with the first increase in 2015. Over 2016, this means the bank will be paying around £40 million into the Scheme.

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

As part of the 31 December 2015 valuation process, the Trustee Board and the bank will review the contributions being paid into the Scheme. This includes deficit contributions as well as those to fund future benefits, and the Scheme’s expenses.

Provident FundDuring 2014 and 2015, a retrospective review was carried out by the bank of the terms offered to those members of the Provident Fund section who had left the bank as a result of redundancy. It was found that some members were entitled to receive immediate pensions, and for those members who opted to take their pension, the pensions have been put into payment. The bank injected funds into the Scheme in 2016 to match this liability and the overall effect on the funding level is nil.

Payments to Ulster Bank LimitedThere have not been any payments to the bank out of Scheme funds in the last 12 months.

Intervention by the Pensions RegulatorThe 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.

Alternative valuation basisAs part of the triennial valuation, as required by the Pensions 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 £1,094 million, representing a shortfall relative to the assets in the Scheme of £445.2 million.

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.

This alternative valuation will also be completed as part of the 31 December 2015 process and information on this will be included in next year’s newsletter.

Members’ newsletter 2016 9

A reminder about tax allowances Changes to both the Annual Allowance (AA) and the Lifetime Allowance (LTA) came into effect in April 2016. These allowances affect the amount you can save tax-effectively into any UK-registered pension scheme and apply to people who are still paying into a pension and/or have not yet started to draw their pension – they don’t apply to you if you are already receiving your pension.

Currently, the AA is set at £40,000. This is the maximum amount of tax-free pension savings that you can make in a year. For most people, it will remain at this level. However, with effect from April 2016, a tapered AA has been introduced for high earners and for some, their AA may be as low as £10,000.

The LTA is the tax-free limit on the total value of pension savings you make over your working lifetime from all sources. From April 2016, it was reduced from £1.25 million to £1 million; from 2018, it will be indexed in line with CPI.

Only a few members will be affected by these changes, but if you believe they do affect you, you should seek independent financial advice. You can find an independent financial adviser in your area at www.unbiased.co.uk.

The new State PensionThe State Pension has changed for anyone who reaches State Pension Age on or after 6 April 2016. From this date a new State Pension has been introduced to replace the basic State Pension and additional State Pension (the earnings-related top-up formerly known as State Second Pension or SERPS).

The new State Pension is £155.65 per week and requires 35 years or more of National Insurance contributions or credits. However, if any of your qualifying years were contracted out, your new State Pension will be subject to deductions reflecting the fact that you paid lower NI contributions during that time.

Anyone who reached State Pension Age before 6 April this year will still receive the basic State Pension and is unaffected by the changes.

When contracting-out ceased from April 2016, active members as well as the bank started paying higher NI contributions, which will count towards the new State Pension. The bank has recently written separately to active Scheme members about this.

You can get a forecast of your State Pension at www.gov.uk/check-state-pension or call the Future Pension Centre on 0345 3000 168.

Members’ newsletter 201610

Pension news

New Lifetime ISASaving for your future has just become easier. From April 2017, if you’re under 40, you can open a Lifetime ISA and pay in up to £4,000 a year from post-tax earnings. The government will also contribute £1 for every £4 you save. This new Lifetime ISA is a flexible way to supplement your retirement savings, just like paying Additional Voluntary Contributions into the Scheme. You can find out more at www.gov.uk/government/publications/lifetime-isa-explained.

Thinking about your own pensionIf you think you may not be saving enough, or would like to retire early, you might want to consider paying Additional Voluntary Contributions (AVCs). Paying AVCs is tax-efficient and helps you save on National Insurance contributions. Don’t forget that changes to your pension count as an Anytime election for our members who are employees of the bank.

To find out more about what your pension offers you, to start paying AVCs or increase them, go to RBSelect at www.rbspeople.com/rbselectonline. You’ll need your login details to make any changes but if you click on Learnmore, you don’t need to log in and you’ll find lots of useful information about what a great benefit your pension is. We save our newsletter there too so you can view it whenever you wish. Alternatively, please contact Pension Services with any questions you have.

Members’ newsletter 2016 11

Beware of pension scamsThe new pension freedoms that became available last year have brought with them increased opportunities for scammers, who have a variety of tricks to catch you out. For most people, the offers will be bogus and victims can end up losing most, if not all, of their pension savings.

Scammers may claim that you can access your pension pot before age 55. They may approach you out of the blue over the phone, via text message or in person door-to-door. They may try to entice you with upfront cash, offer a free ‘pension review’ or try to lure you in with so-called ‘one-off’ investment opportunities. They may even pretend that the government has asked them to contact you.

Only in rare cases, like terminal illness, can pension scheme members take their pension before the age of 55. Members who agree to a transfer may lose all their savings and may still be subject to tax charges of over half their transfer value for taking an unauthorised payment.

If you are considering transferring your benefits, it is recommended that you always seek independent financial advice. Don’t proceed unless you are absolutely certain your money will be safe. Once you transfer, it’s too late. A lifetime’s savings can be lost in a moment. You can find out more at www.pension-scams.com.

Keep in touchPension Services provide 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.

Is your Nomination Form up to date?You should review and, if necessary, update your Nomination Form if you get married or divorced, enter or leave a civil partnership, or become a parent. This form lets the Trustee Directors know who you would like to receive any benefits that would be paid in the event of your death.

Data protectionWe hold information about you in order to provide your pension benefits (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 (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 (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 would like a copy of the information we hold about you, please contact us.

Write to us:RBS Pension Services, City Link House, 4 Addiscombe Road, Croydon CR9 5PB (Depot Code 190)

Call us:Active members: UK – 0808 100 4242 International – +44 208 535 1842 Deferred members and pensioners: 020 7649 9499

Contact us via:Active members: click Contact HR on any HR page on intouch

Deferred members and pensioners: email rbspensionplans@rbs.co.uk

Tell us if your details changeRemember to let us know if you change your address. A current address makes it easier for us to tell you about developments in the Scheme and also to pay your benefits without delay.

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