BBC PENSION SCHEME 2015 SUMMARY REPORT 1

Scheme funding: I am pleased to report that the value of the Scheme’s assets has risen to an all-time high of £12.9 billion and that our investment return was 20.1% over the year. At the same time though, the cost of providing members’ benefits has also increased due to the impact of record low government bond yields. This means that while the funding level has improved, the deficit remains sizeable. As Trustees, we continue to monitor the Scheme’s funding level and ensure its investments are managed effectively.

Scheme investments: The Scheme’s asset level has benefited from increases in the value of UK bonds and global equities this year. The Trustees sold some of the Scheme’s equity investments when the market was high and bought investments that offer stable long-term cash flows, such as UK corporate bonds, infrastructure investments and properties with long leases. We have not bought more UK government bonds because of the low level of yields.

Our thanks to Geoff Jones: The Trustees would like to thank Geoff Jones, who made a significant contribution to the Board during his nine years as a Trustee. Geoff stood down during the year and Leslie Huss-Smickler was elected to succeed him. Leslie brings great insight from his long career in pensions – see page 6.

2014 Budget flexibilities: The BBC has been working with the Trustees on initiatives through which eligible members will be able to access the new pensions freedom and flexibility announced in the 2014 Budget. The BBC will continue to consider opportunities for members as market ideas develop.  If you are eligible, the BBC will write to you with more information.

If you have any questions on pensions, or the contents of this Report, please write to me care of the Pension and Benefits Centre or email me at mypension@bbc.co.uk

WELCOME to this year’s Summary Report which contains the key facts and figures for the year to 31 March 2015 and recent Scheme and pensions news.

Bill Matthews, Chairman of the Trustees

NEWS FROM THE TRUSTEESPENSI NS2 15

FINANCESScheme assets £12.9 billionInvestment return 20.1%

SUMMARY FUNDING STATEMENT FOR 2015Funding improves to 88%

INTERVIEWwith Leslie Huss-Smickler – new Pensioner Trustee

SCHEME NEWSPension increases; July 2015 budget update; customer survey

YOUR TRUSTEES

HELP AND SUPPORT

WHAT’S INSIDE

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Pension Scheme

BBC PENSION SCHEME 2015 SUMMARY REPORT2

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Finances Accounts summary

Opening net assets of the Scheme at 1 April 2014 £10.8bn

Total income £0.6bn

Total expenditure -£0.4bn

Change in market value of investments £1.9bn

Closing net assets of the Scheme at 31 March 2015 £12.9bn

1995 2005 2010 2011 2012 2013 2014 2015

Value of the Scheme

Investment updateThe Trustees invest in a range of investments (such as equities, bonds and property) to provide sufficient money to pay members’ benefits when they are due. The Trustees consult the BBC and take advice from the Scheme Actuary and their investment consultants when deciding on policy.

What happened to investments during the year?Taking bond and equity markets together, 2014/15 was the sixth successive year of positive investment returns for financial markets and for the Scheme. The low level of short-term interest rates and inflation, and improvements in the health of developed economies contributed to the positive sentiment in financial markets. However, low interest rates have also continued to add to the estimated cost of the Scheme’s benefit commitments.

UK government bond (Gilt) yields fell steadily, with long-term fixed rate Gilt yields falling from 3.5% to 2.3% and long-term index-linked Gilt yields falling from 0.0% to -0.9%. These historically low yields are as a direct result of demand from investors who are prepared to pay for the relative security provided by Gilts. Consequently, 2014 saw a large increase in the price of UK government bonds, which increased the value of the Scheme’s holdings in such assets. The negative yield for index-linked Gilts at the year-end means that future returns on Gilt holdings are not expected to keep pace with retail price inflation.

Scheme performance Helped by the strong performance of markets, the value of the Scheme reached £12.9 billion, up from £10.8 billion a year ago. After adjusting for cash flows in and out of the Scheme, this is a return of 20.1%, following increases of 6.0% in 2013/14 and 13.1% in 2012/13.

Over the past five years, the Scheme’s investment return was 10.6% a year, while the 10-year return, a period which includes the financial crisis, was 8.9%. It is unlikely that returns will be so strong in coming years.

The financial and investment information shown in this Report is taken from the Trustees’ Annual Report & Accounts for the year to 31 March 2015. The Accounts were audited by PricewaterhouseCoopers whose audit opinion was without qualification. You can access the full Annual Report & Accounts on our website: bbc.co.uk/mypension

£8.2bn

£6.4bn

£3.9bn

£8.9bn £9.3bn

£10.3bn£10.8bn

£12.9bn

BBC PENSION SCHEME 2015 SUMMARY REPORT 3

The chart shows the performance of the Scheme over the last one and three years, and compares those figures with the Scheme’s benchmark as well as WM’s UK Pension Fund universe (net), which measures the performance of UK pension schemes.

The main contributors to the Scheme’s 20.1% investment return in 2014/15 were the Scheme’s holdings of long-dated UK bonds and global equities. The Scheme was unable to match the 24.0% return of its benchmark in 2014/15. However, over the last three years, the Scheme’s investments have outperformed both its benchmark and the average UK pension scheme as measured by the WM UK Pension Fund universe.

The year also saw a very strong return on our UK property portfolio and from other assets with long-term cash flows (such as infrastructure and private equity). The rise in the value of the Dollar also increased the Sterling value of our US investments.

The fall in the price of oil and some other commodities has been quite dramatic. Although the Scheme is fortunate to have very little direct commodity exposure, it does invest in commodity-related businesses, and emerging market equities, both of which have underperformed the US market.

The Scheme continues to hold a diversified portfolio of equities, bonds, property and other assets, with the objective of paying benefits as they fall due. During the year, the Trustees sold some of the equity investments when the market was high and bought investments that offer stable, long-term cash flows, such as UK corporate bonds, infrastructure investments and properties with long leases. However, the Trustees stopped buying UK government bonds due to the extremely low level of yields on offer.

Investment returns over 1 and 3 years

How the Scheme’s investments have changed since 2005

Scheme Benchmark* WM universe (net)

*Proxy Liability Benchmark using gilts plus 0.5% basis, as calculated by Towers Watson

1 year 3 years

Cash Bonds Alternatives including property Equities

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

% %

100

80

60

40

20

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20.1%

24.0%

9.6%10.6%

15.1%12.9%

More information about the Scheme’s finances and investments is available at: bbc.co.uk/mypension

BBC PENSION SCHEME 2015 SUMMARY REPORT4

Summary funding statement for 1 April 2015 Making sure the Scheme has enough money to pay members’ benefits is the Trustees’ main priority. The funding position over the last few years has been affected by low interest rates which has meant that, although Scheme investments have performed well or in line with expectations, the cost of providing benefits has continued to rise.

The latest interim check on 1 April 2015, shown in the chart, found that the Scheme’s funding position has slightly improved since the last interim funding update in 2014. The results of the last formal valuation in 2013 are also shown for comparison.

The main factors contributing to a better position were:

• higher than expected growth in the value of the Scheme’s investments; and

• increased BBC contributions.

The recovery planThe Trustees have agreed a recovery plan with the BBC to make good the deficit as quickly as the BBC can reasonably afford. This plan remains appropriate in light of the latest funding check.

The BBC’s extra contributions are set out below. The plan allows for investments to perform slightly better in reality than the cautious assumptions used to calculate the deficit. The next full valuation will be no later than 1 April 2016.

Funding progress

BBC deficit contributions

DeficitValue of benefits built up to date

Value of assets

* The BBC intends to make further payments into the Scheme beyond the 13-year recovery plan, unless the Scheme is fully funded on its self-sufficiency target by then.

2013 83% funded

1 April 2015

1 April 2016

1 April 2017

30 June 2017

1 April 2019

1 April 2020

1 April 2021

1 April 2022

1 April 2023

1 April 2024

1 April 2025

1 April 2026

1 April 2027*

1 April 2028*

2014 86% funded

2015 88% funded

£10.3bn

£12.3bn £12.5bn

£10.8bn

£100m £100m £100m £100m £100m

£250m £250m

£95m

£220m £240m

£120m £130m £150m £150m

£2.0bn £1.7bn

£14.6bn

£12.9bn

£1.7bn

Already paid

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Contributions to the SchemeThe BBC contributes 16.7% of pensionable salaries. This is a combined rate calculated across the four categories of membership. The member contributions are shown below:

• Old and New Benefits members pay 7.5%;

• CAB 2006 members pay 4%; and

• CAB 2011 members pay 6%.

BBC accountsYou may have seen figures quoted from the BBC’s accounts that are different from those in this report.  This is because the BBC’s accounts use figures based on accounting regulations, which require liabilities to be assessed using the expected return from corporate bonds.

We are required by the Pensions Act 2004 to share the following information with you.

What would happen if the Scheme were wound up?In the event that the Scheme were wound up, any shortfall on the ‘buy-out’ basis would become a debt on the BBC. If the BBC was not able to pay this amount in full what would happen next would depend on whether the Scheme had enough money (including any debt recoverable from the BBC) to buy out at least the level of benefits that would be payable from the Pension Protection Fund (PPF). If there was enough money, the Trustees would have to buy out benefits in this way, using the Scheme’s assets to secure as much benefit for members as they could.

If there was not enough money in the Scheme to buy out the PPF level of benefits, and the BBC itself was no longer in existence, the Scheme might enter the PPF. This acts as a safety net to provide members with some compensation when an employer becomes insolvent and their pension scheme does not have enough money to pay benefits.

Every three years, the Scheme is assessed on the basis that its benefits would be bought from an insurance company as if it had been wound up. On 1 April 2013, the estimated additional amount needed to buy the Scheme’s benefits from an insurance company was £9.1 billion. The Scheme was 53.1% funded on this ‘buy-out’ valuation basis. It is therefore possible that, if the Scheme were to wind up, you would not receive the full level of pension you had built up. In practice, if the Scheme closed to future accrual, provided the BBC were still on-going and the Scheme not wound up, the Trustees could continue to run the Scheme as a closed fund, paying benefits in full, as they fell due, if there were sufficient funds available.

We have to include these figures for information only. The BBC has no intention of winding up the Scheme. The Trustees take comfort from the fact that the BBC recognises its responsibility towards the Scheme.

There were no payments from the Scheme to the BBC since the last statement. In addition, the Pensions Regulator has not issued any financial support directions or contribution notices relating to the Scheme.

BBC PENSION SCHEME 2015 SUMMARY REPORT

More information about the PPF and the benefits that it provides is available at: pensionprotectionfund.org.uk

Or write to the PPF at: Renaissance 12 Dingwall Road Croydon Surrey CR0 2NA

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BBC PENSION SCHEME 2015 SUMMARY REPORT6

What changes have you noticed in the Scheme since you left the BBC?In the 80s, we were fortunate to have had good investment growth and a favourable tax regime. Like most other large schemes, our Scheme had a good surplus and there were improvements to benefits. The last 20 years have seen the loss of some tax relief for pension schemes, lower interest rates and people living longer. Most defined benefit (DB) schemes, including our Scheme, have moved from surplus to deficit. The BBC has made changes to manage risks. While the Scheme still represents good value for members, the increasing deficit finally resulted in the BBC closing the Scheme to new members in 2011.

More positively, I think the Scheme has:

• seen technology improvements in administering the Scheme despite increasing complexity;

• continued to deal effectively with a greater number of emails and calls to the Pension and Benefits Centre;

• continued to develop self-service facilities for BBC employees, including looking to develop more ‘what if ’ estimates in future;

• developed a strategy to move the Scheme’s investments from equities to more certain investments such as bonds; and

• developed information channels for members, with presentations and the ‘mypension’ site enabling all members to access good quality Scheme information.

What are the challenges facing the Scheme?

As I see it, the main challenges are:

• reducing the deficit in partnership with the BBC;

• ongoing low interest rates; and

• people are living longer. While this is good news it also affects the Scheme’s costs as pensions need to be paid for longer than originally thought.

Do you have any other messages for members?Although the freedoms and choice introduced by the 2014 Budget reforms do not directly affect members of DB schemes like ours, members do have the option of transferring their benefits out of the Scheme. While I welcome the new freedom and choice it is not suitable for everyone, and so it is essential that members take regulated financial advice if they are considering this option. You should also watch out for pension scammers taking advantage of the ‘buzz’ around the new pension freedoms. The scams generally take two forms:

• people under age 55 are told that they can transfer their benefits out and access their pension money before age 55 which the law does not permit; and

• people are encouraged to transfer their benefits out of their pension schemes to a non-existent investment with the promise of high guaranteed returns.

The Trustees draw members’ attention to this (in line with the Pension Regulator’s guidelines) in each transfer quote issued.

These scams can not only result in a higher tax bill but also the complete loss of pension savings! This is another reason to talk to a Financial Conduct Authority regulated financial adviser before transferring.

What do you see as the Trustees’ priorities for the future?Our main priority remains ensuring that members receive the benefits to which they are entitled. With that aim in mind, we need to continue working with the BBC to reduce the Scheme deficit. Monitoring the BBC’s covenant will also come to the fore again with Charter Renewal. The Trustees have to ensure that the Scheme is appropriately funded at the same time as taking account of the interests of the BBC.

Leslie has worked in pensions for over 40 years, including 16 years in the BBC’s Pensions Department when he left as Pensions Manager in 1994. He spent the next 17 years at BT as Pensions Policy Manager and is currently Head of Retirement Services at WEALTH at work Ltd. He is also on the committee of the BBC Pensioners’ Association.

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New pensioner Trustee: Leslie Huss-Smickler

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BBC PENSION SCHEME 2015 SUMMARY REPORT 7

Scheme news

Old Benefits and New Benefits

Career Average Benefits 2006 (CAB 2006)

Career Average Benefits 2011 (CAB 2011)

Old and New Benefits deferred pensions were increased by 1.6%.

Pensions built up to date (but not yet in payment) by CAB 2006 active and deferred members were increased by 1.6%, and for CAB 2011 members the increase was 0.5%.

2015 pension increases The exact increases under the rules of the Scheme vary between sections.

Pensions in payment were increased by the following percentages from 1 April 2015:

We made an enhancement this year, so that members received one letter that contained the pension increase information and April payslip together with the annual P60 (which shows how much pension was paid by the Scheme and the amount of tax deducted in the previous tax year). We hope that pensioners found it useful to receive all the information in one go rather than in several communications.

July 2015 budget update The Budget included changes affecting some members on higher salaries or with larger Scheme benefits. As was

trailed before the General Election, from 6 April 2016 the Lifetime Allowance will reduce to £1 million and the Annual Allowance for anyone earning over £150,000 (including pension contributions and other taxable income) will gradually reduce from £40,000 to £10,000 for anyone earning over £210,000.

To help pension savers adjust to the new Annual Allowance taper, from 6 April 2016 the pension input period (which for the BBC Pension Scheme is currently 1 April to 31 March) will be aligned with the tax year and therefore end on 5 April. Transitional rules will apply to the current tax year, which may benefit some members who wish to increase their pension saving, or who will have exceeded the Annual Allowance by the end of the current tax year. Everyone will now have an Annual Allowance of £80,000 for pension savings over the period 1 April 2015 to 5 April 2016 plus any unused allowance carried forward from 2012/13 to 2014/15.

The impact on each member is complex so if you think you might be affected by the latest changes you should seek financial advice. You can find out more about selecting an adviser and a directory of the Financial Conduct Authority authorised and regulated advisers on the Money Advice Service website.

2015 Customer Survey – thank you for your contributionEarlier this year the Pension and Benefits Centre sent a survey to active members and pensioners via email and Prospero articles to ask for their views about the services provided by the Scheme. Thank you to those who took the time to complete the survey. The results will be published on bbc.co.uk/mypension at the end of October 2015.

Looking after your dataSome of the member data (such as date of birth and salary) required for the running of the Scheme, including for paying out the right benefits, is known as ‘personal data’. The use of this data is regulated under the Data Protection Act, which places certain responsibilities on those who exercise control over the data (known as ‘data controllers’ under the Data Protection Act). Data controllers include the Scheme Trustees and may also include the Scheme Actuary and Towers Watson, so we have provided more details on the way this data is used and protected at: towerswatson.com/personal-data

1.6%

1.6%

0.5%

help&

support

BBC PENSION SCHEME 2015 SUMMARY REPORT8

Your Trustees Help and supportThe Board consists of nine Trustees, each of whom contributes his or her own blend of business knowledge and personal experience when making decisions. The Chairman is appointed by the BBC Trust. The Trustees meet regularly as a Board.

Active members elect three Trustees and pensioners elect one Trustee. All Member Nominated Trustees (MNTs) serve for a six-year term.

You can read all of the Trustees’ biographies and find other Scheme documents including the Report & Accounts, valuation reports, the Statement of Investment Principles and the Statement of Funding Principles at: bbc.co.uk/mypension. Alternatively, you can contact the pension service line for copies (see opposite).

At the time of writing the Trustees of the Scheme are:

Back row left to right: Graham Ellis, Ken MacQuarrie, David Gallagher (MNT), Andy Baker (MNT), Kevin Carter

Front row: Anne Bulford, Bill Matthews (Chairman of the Trustees), Leslie Huss-Smickler (MNT) and Grant Cassidy (MNT)

ProsperoProspero is available to all BBC pensioners (including spouses and dependants). It contains news about the Scheme, pensioners, former colleagues and the BBC. To view Prospero online visit bbc.co.uk/mypension

An audio version is also available for those with visual impairments. Alternatively, you can ask to be added to the mailing list by calling the pension service line on 029 2032 2811 or email mypension@bbc.co.uk

N E W S • M E M O R I E S • C L A S S I F I E D S • Y O U R L E T T E R S • O B I T U A R I E S • C R O S P E R O

The newspaper for BBC pensioners – with highlights from Ariel online

J u n e 2 0 1 5 • I s s u e 3

Hush Hush Hall Wood Norton in WW2Page 8

Location filmingPage 7

BBC Pensions customer surveyPage 2

Lime Grove Dubbing TheatrePage 6

Answering your questions: If you have a question about the Scheme or your pension, please call the pension service line.

The pension service line is open between 8:30 and 17:30, Monday to Friday. The number to call is 029 2032 2811.

If you would rather write to the team, please email: mypension@bbc.co.uk

or send a letter to: Pension and Benefits Centre Broadcasting House Cardiff CF5 2YQ

Information about the Scheme is also held on our website bbc.co.uk/mypension

2015 Pensioners’ Liaison Meeting This year’s Pensioners’ Liaison Meeting will be held on Thursday, 22 October from 11:00 – 13:00 at:

The Radio Theatre Broadcasting House Portland Place London W1A 1AA

If you attend, you can put questions about the Scheme to the Chief Executive Officer, a Scheme Trustee and the Scheme officers.

Spaces are limited and will be booked on a first come, first served basis. To book a place, call the pension service line on 029 2032 2811.