The BAA Pension Scheme Newsletter

Summer 2008

In this issue
Chairman’s introduction
p2
Representing your interests
p4
Investing the Scheme’s assets
p6
Markets & performance
p7
Retirement planning takes
forward thinking
p10
Protection for your family
p11
Technology rules…..ok
p12
Figuring it out
p14
Take a walk on the webside
p15
A note for pensioners and
deferred members
p16
 • 02

Chairman’s
introduction
This edition of Focus reports on the Scheme year ending on
30th September 2007. This edition is being issued later in
the year than in previous years as we have been waiting for
the outcome of the Company’s discussions with the Unions
regarding the closure of the Scheme to new members and an
opportunity to update you on the Refinancing Proposals.
Scheme closure to new members
Since the end of the Scheme year, with effect from 16th June 2008 the Scheme
was closed to new members. The Trust Deed & Rules will now be updated
to reflect the Company’s commitment to make no change to the current
arrangements for the provision of Final Salary benefits for at least six years, and
this commitment will be extended for a further six years so long as the Scheme
deficit remains below £250 million (calculated on the methodology agreed
between the Trustees and the Company as part of the normal valuation process).
The Company has also stated it has no plans to change the Scheme even after the
12 year commitment period.

The changes to investments

The changes to investments implemented during the year have reduced the
risk in the Scheme, which should provide improved security for the benefit of
all members.

Refinancing of BAA’s debt

You may also remember that, at the time of BAA’s takeover by the ADI
Consortium, the Trustees negotiated a £300 million security package for
the Scheme as part of the purchase agreement.
 03 •

This edition of Focus

reports on the Scheme
year ending on
30th September 2007.

Recently, BAA Ltd has been trying to re-finance its debt

(raise new money/arrange additional loans at a better
interest rate to pay off the existing debt). The pension
scheme is an important part of this refinancing because
of the security and Company contribution rates agreed
at the time of the takeover. So the Trustees have been
discussing the proposals with the Company and have
reached an agreement that will further improve the
security of your benefits following the refinancing.

Your new member-nominated Trustee

We have recently completed the election process for
a new member-nominated Trustee and Dean Tully
has recently joined the Trustee Board. There will be
further elections later this year. To help you understand
more about the Trustees’ roles and responsibilities in
relation to the Scheme, we have included additional
information in this newsletter.

Focus is your newsletter, designed to update you on

the Scheme’s progress and help you understand any
issues faced by the Trustees and their advisers. So, if
you have any comments or questions, please let us
know by writing to BAA Pensions, Saxley Court,
121-129 Victoria Road, Horley, Surrey RH6 7AS or you
can email [email protected].

Stuart Condie
Chairman
On behalf of the Trustees of the BAA Pension Scheme
 • 04

Representing
your interests
Pensions have become one of the hottest
topics in current affairs, with politicians, Your Trustees
pundits and interested parties from all Chairman
Mr S Condie
sides debating the way forward for UK
retirement provision.
Member-nominated Trustees
As a member of the BAA Pension Scheme, you may not Mr T Armstrong (Aberdeen)
Ms L Gregory (resigned November 2007)
have much influence on the pensions world in general,
Mr S F Killick, MBE (Heathrow)
but you can get involved in the running of your Scheme
Mr M Roberts (Pensioner)
by becoming a Member Nominated Trustee.

The BAA Pension Scheme is run by BAA Pension Trust Company-appointed Trustees
Company, which is quite separate from BAA Ltd. Mr A Hill
Once contributions have been paid into the Scheme Mr A Flower
by BAA, they are legally ‘owned’ by the trust company
and are held entirely separately from BAA’s funds. The Other Trustees during the year
directors of the trust company – the Trustees – are Tony Ward, OBE, Services Director BAA
(resigned 30th September 2007)
responsible for managing the Scheme, investing the
Mrs R Rowson (resigned 30th September 2007)
contributions and ensuring the Scheme is run in a
professional and business-like manner, keeping pace
Independent Trustee
with the latest thinking and industry best practice.
The Law Debenture (BAA) Pension Trust
They have an obligation to act honestly and prudently,
Corporation plc
representing the interests of members of the Scheme.
Since 30th September 2007:
By Law, at least one-third of the Trustees must be
D Tully – Member-Nominated Trustee
nominated by contributing/employed members and (Gatwick) 1st April 2008
pensioners and the remainder are appointed by the Ms J Elder – Company –
Company. In the case of the BAA Scheme, 50% of the appointed 1st September 2008
Trustees are currently nominated by you, the members,
giving you an even greater say. The Company has Member-Nominated Trustees are voted for
also appointed an Independent Trustee, who brings a by members to serve a three-year term.
wealth of specialist knowledge, skills and experience to The election for a new Member-Nominated
the trustee board. Trustee for Scotland is underway and the new
Trustee will be appointed from 1st October
2008. Further elections will need to be held
as another two of the Member-Nominated
Trustees complete their three-year term at the
end of March 2009.
10
05 •

1 Make themselves familiar with the

scheme rules and its investments.

2 Carry out their duties as conscientious,

honest and prudent people would in
dealing with their own affairs.

3 Act at all times in the best interests

of all scheme beneficiaries.

4 Represent the interests of all members

(employed, deferred and pensioners).

10 Things 5 Not delegate their duties (except where

specifically permitted by law or allowed
that Trustees are by the scheme rules).

expected to do: 6 Seek expert advice in areas where this is

appropriate or required by law (trustees
are not expected to be experts in all
For many people the term ‘Trustee’ conjures up aspects of running a scheme).
an image of worthy, if rather dull, committee
types doing good work in a well meaning but
rather amateurish way. But, if there was ever any
7 Take steps to collect all money owing
to the scheme.

truth to that particular stereotype, those days

have long gone. Nowadays a pension fund is ‘big
8 Hold the scheme’s assets for the benefit
of its beneficiaries and not pay benefits
to other persons.
business’ and being one of the Trustees responsible
for running a pension scheme is a serious and
demanding job, and getting more so almost day
9 Record the transactions and
proceedings of the scheme and keep
proper accounts of the scheme.
by day. Ten of the key roles and responsibilities of
trustees are detailed alongside.
10 Communicate with members,
including providing a minimum level
of information as required by law.

The Trustees are not expected to be experts in everything they have responsibility for, so they seek professional
advice to help them. Details of the appointed professional advisers are shown below:

Actuarial Advisers Investment Lazard Asset Management Ltd

and Investment Managers State Street Global Advisors (SSgA)
Consultants Mercer Limited Capital International Ltd
Scheme Actuary Mr C Sheppard of Goldman Sachs Asset Management Ltd
Mercer Limited (removed 31st January 2008 and assets
transferred to SSgA)
Solicitors CMS Cameron McKenna LLP
Aberdeen Asset Management
Auditors Mazars LLP, Rogge Investment Management
Chartered Accountants Royal London Asset Management
Bankers Barclays Bank Plc Investment
Performance
Custodian JP Morgan Chase Measurement The WM Company
 • 06

Investing
the Scheme’s assets
As we confirmed in last year’s Focus, the proportion
of the Scheme’s assets invested in equities was
reduced to 40% following the change in ownership
At 30th September 2007 the Scheme of BAA, with a corresponding increase made to the
held the following investments:
amount invested in bonds.
Assets £m % A further change was made to the Statement of Investment Principles
in June 2007, detailing how this incresed bond allocation should be
managed with the aim of reducing the impact of fluctuations in the
Bonds 1,317.2 60
market on the funding of the Scheme. Under the new approach, all
equities are to be managed on a ‘global basis’. As a result, the Scheme
Global equities 881 40
switched its investments from UBS Global Asset Management and
Fidelity Pensions Management Limited who had UK-specific mandates,
and appointed Lazard Asset Management to run a global mandate
alongside Capital International. In addition, State Street Global
Bonds – loans to a company or Advisors were required to change the way they invest the Scheme’s
government for a set period of time in assets. Finally, three new managers – Aberdeen Fund Management,
return for a fixed rate of interest. Royal London Asset Management and Rogge Global Partners – were
appointed to invest in bonds for the Scheme.

The table below shows the different investment managers as at

30th September 2007, and the sort of investments that each manager
Equities – company shares quoted isInvestment
allowed to make.
Manager Mandate
on stock exchanges around the world.
Aberdeen Fund Management Bonds and swap overlay
If they are sold for more money than
they cost to buy, a profit is made. Capital International Global equities
Equities can also make payments to Goldman Sachs Asset Management Currency management
their owner called a dividend. Lazard Asset Management Global equities
Rogge Global Partners Bonds
Royal London Asset Management Bonds
State Street Global Advisors Global equities (incl. UK)
derivatives & swaps

Since 30th September 2007, the Trustee has removed Goldman

Sachs Asset Management as the Scheme’s active and passive currency
manager. The passive currency hedging is now carried out by one of
the Scheme’s other asset managers, State Street Global Advisors. The
assets that were being used to actively manage currencies are currently
being held in cash with the custodian whilst a review of alternatives is
being carried out.
 07 •

Markets
performance
Looking back –
the year to 30th September 2007
All major equity markets produced strong returns over the twelve month
period to 30th September 2007, with the exception of the Japanese equity
market. In the UK, the FTSE All-Share Index returned 12.2% over the year.
Of the major markets, Asia Pacific (ex-Japan) provided the highest returns
over the year, returning 40.3%. Bonds and gilts had mixed results. UK bonds
and gilts generally produced positive returns while overseas bonds provided
negative returns over the year.

The Scheme’s investments increased in value by 13.2%, in line with the

scheme-specific target (benchmark) return, resulting in an average annual
return of 14.1% over 5 years. In last year’s report we said that the outlook
for the next 12 months depended largely on movements in interest rates
and inflation. These have indeed been key with rates rising in all developed
economies. This resulted in falls in most major investment markets, with
volatility increasing markedly. As explained below, this volatility has
continued since 30th September 2007 with particular concerns about
the stability of global finanical institutions, the ‘credit crunch’.

continued on page 8
• 08

Markets
performance continued…

D Investment markets since

30th September 2007
It will not have escaped your attention that the financial markets have been in
turmoil over the past few months. The financial figures shown in this publication
relate to the Scheme’s position at the end of September but most of the market
problems started later. So what has happened and how is the Scheme affected?

The first signs of market turmoil appeared as problems with sub-prime mortgage
debt in the US started to surface. These mortgages had been packaged and sold
in “bond” form that appeared to offer additional yield with the security of asset
backing and investment grade status from credit rating agencies. A number of
structured products based on sub-prime mortgages and other lower quality debt
were both highly geared and difficult to value but had attracted investment from a
wide range of financial institutions.

Exposure was surprisingly widespread. Small regional

banks in as diverse locations as Germany and Australia
were discovered to have been heavily exposed to the
sub-prime market. Credit conditions began to tighten,
and interbank lending rates became very volatile, as
concerns about the strength of counterparties’ balance
sheets began to circulate. This resulted in the run on
Northern Rock, and its rescue by the government.

The uncertainty caused by these events caused

investors across the world to move their assets to
investments that are regarded as “safe”, such as
government bonds. Consequently, equity and corporate
bond markets have generally had negative returns since
30th September 2007 while government bond markets
have had positive returns.
z
 you?
09 •

How does the Scheme’s

investment performance affect

you?
The fixed contributions you pay into the Scheme go As agreed with the ADI Consortium as part of the
towards the cost of your benefits with the Company acquisition of BAA, and outlined in the last edition
paying the balance. All these contributions are paid of Focus, revisions were made to the Statement of
into a fund within the Scheme which is held and Investment Principles (which details how the Scheme
invested by the Trustees with the aim of gaining is invested) with the aim of reducing the key financial
sufficient investment returns to pay for the benefits risks of the Scheme. This change has already been
earned by members. a positive one for the Scheme, as it means that
the credit crunch has had less of an impact on the
Investment performance is just one of the factors Scheme than it would have done otherwise. Closing
which has an impact on the contributions from the Scheme to new members will also reduce the risks
the Company required to pay members’ benefits. to your benefits and enable further switching to safer
However, if investment performance is poor, then less volatile investments.
the Scheme may not have sufficient assets to pay
for the benefits earned by members (known as Full valuations (financial assessments) of the Scheme
a ‘deficit’) and the Trustees may need to ask the are carried out every three years with interim annual
Company to pay higher contributions. The volatility of reviews, so that the Company and the Trustees can
stockmarkets in recent years is one of the key factors make sure that the value of the Scheme’s assets and
that have led to the majority of final salary pension contributions paid in keep pace with the cost of
schemes falling into deficit. members’ benefits. The latest full valuation (as at 30th
September 2007) is being worked on at present and
the results if finalised by then will be included in your
annual Summary Funding Statement – to be issued in
September 2008.
 • 10

Retirement planning
takes f or ward
thinking
No-one likes to think they will not have enough money to
enjoy their retirement. So, when planning your retirement
there are several key questions you need to ask yourself.
What is your target pension? Your company pension may not
How much money do you think be your only source of pension
you’ll need for a comfortable income. You should look at the latest
retirement? What’s the minimum statements and illustrations of all your

–
income you’ll require to enable you possible pensions, as well as other
to do all the things you’d like to do? long-term savings and investments you
may have.
While you’ll probably save on certain
items, such as the cost of travelling The State pension is unlikely to give
to work, and you may have paid off you enough to live on in retirement,
your mortgage, you’ll still have bills to but it will be an extra contribution to
pay and you need to bear in mind the your finances. You can usually ask for
effects of inflation – the rising costs of a forecast of your likely State benefits
goods and services will have an impact by completing form BR19 available at
on the purchasing power of your your local Social Security office or by
savings over time. applying online at:
http://www.thepensionservice.gov.
At what age do you want to retire?
uk/atoz/atozdetailed/rpforecast.asp
You may be thinking about retiring
early but you need to remember that Please note: due to reorganisation
the earlier you retire the lower your within the Pension Service, the
pension is likely to be. This is because, forecasting service is unlikely to be
as your pension is likely to be paid available until later this year. We’ll give
Remember, for longer, each monthly payment is
lower to help balance out the longer
you further news when we can.

it’s never payment period. What impact will retirement have on

your family?
too early to Will you earn any income during
retirement?
Once you’ve retired your dependants
will lose the lump sum life assurance
start planning You may decide to take on some cover payable from the Scheme should
part-time work and the money you you die in the Company’s service before
for your earn will help boost your monthly you retire. However, pensions will be
retirement income.
retirement. paid to your spouse or partner and
children if you die during retirement.
 11 •

Protection f or your
family
Nobody likes to dwell too long on the subject of
death, but if the worst does happen it’s good to
know that your family and dependants will be
financially secure.
The Scheme provides a package of benefits designed to help
provide financial security for your dependants in the event of
your death. So, it is worth spending a little time reviewing the
Scheme booklet to make sure both you and your dependants
understand the circumstances in which benefits are payable.
This could save a lot of confusion and misunderstanding at a
difficult time.
In summary, if you die as a member of the Scheme:
• your spouse or registered civil partner will receive a pension,
payable for the rest of his or her life. If you are not married, the
Trustees have the discretion to pay the pension to a dependant;

• if you are still employed by the Company, your dependants will

normally receive a cash lump sum. To avoid inheritance tax, the
lump sum is payable at the Trustees’ discretion. This means they
have the final say over who receives the lump sum. Normally
they will follow your wishes provided they have been notified of
them beforehand.

Express your wishes

It’s important that you let the Trustees know your wishes. You can do
this by completing an Expression of Wish form. The form is used to
indicate to the Trustees who you would like to receive any lump sum
or dependant’s pension payable. It’s particularly important that you
complete a form if you don’t have a spouse but do have someone living
with you and who is financially dependent on you. The Trustees will
take this into account in their decision making process.

Remember also to keep your form up to date if your circumstances

change – for example, if you get married or have children.

Expression of Wish forms are available on request from the

Pensions Department.
 • 12

Technology
rules…ok
These days, hand-written letters and hard copy files have given way to emails
and computer records. Much of the information held about us from credit
card details to telephone bills and even pension scheme rights – is kept on
computer. We’d all like to think this modern way of storing data is 100% safe
and reliable but, as one large well-known retailer found to its cost, computers
can go missing.

You may remember hearing about What about our Scheme?

the problems that one company
had when one of its laptops was To administer the Scheme efficiently,
stolen. Unfortunately the laptop held the Trustees need to hold information
the personal details of many of the about you and your entitlements.
company’s employees who, naturally Without this information we may not
enough, were concerned about who be able to make sure you and your
might have access to their private family get the benefits you’re entitled
information and what they might use to when payment time comes.
it for.
All the information we collect from
And then we had the loss of you is kept fully secure and is only
HM Revenue & Customs (HMRC) released to others who need to use it
computer discs containing the for valid reasons, such as:
child benefit records of millions of
claimants. Apparently proper security • our pensions administrators – who
procedures weren’t followed. set up your pension;

In February this year, an MOD laptop • future employers – when you

was stolen that contained personal change jobs.
details of 600,000 recruits and
potential recruits, including their
passport numbers, National Insurance
numbers and bank details.
 13 •

Holding sensitive information about you

As Trustees, we are registered under the Data Protection Act 1998.
This Act treats personal information as ‘sensitive’ which means that it can’t
be disclosed to anyone not authorised to have it. We can only disclose
personal data we hold on our records to other authorised parties.
By ‘sensitive information’ we mean things like:
• your age and date of birth;
• whether you are married or in a civil partnership;
• your salary information;
• your National Insurance number.

How we aim to protect your data

To minimise the risk of loss, theft or unauthorised access of your personal
details and individual records, software security systems are in place to
prevent anyone hacking into systems from outside the Company and all
BAA computers and laptops have secure password protection.

Introducing the BAA Pension Scheme website

The Trustees are currently developing an internet site for the Scheme,
which members and pensioners will be able to access to find out the
latest information about the Scheme including:
• up-to-date news about your pension scheme;
• Scheme facts & figures;
• the latest edition of Focus;
• copies of the pension Scheme booklets;
• copies of the Expression of Wish form and Added Years form that you
can print, complete and return should you wish to make changes.
The site is scheduled for launch towards the end of 2008 and we will
be in touch with you with further details and information as to how to
access the site in the run up to the launch.
 • 14

Figuring it out
Financial highlights as at 30th September 2007

Income (£000s)

+
Contributions from members £15,466
Contributions from Company £70,717
Transfers in £4,992
Investment income £64,281
Total £155,456

Spending (£000s)

–
Pensions £51,233
Payments for leavers £2,909
Lump sums (on retirement or death) £28,714
Admin expenses and fees £8,849
Total £91,705

What it’s all worth (£000s)

Value of Scheme assets as at 30th September 2006
Income – spending
Change in market value of assets
Value of Scheme as at 30th September 2007 £2,197,585
£2,087,456
£63,751
£46,378 =
Membership at 30th September 2007

Active members Pensioners Deferred members

9,510 = 7,140 = 3,554 =

47.1% 35.3% 17.6%

 15 •

Take a walk
on the webside
You can get useful information about pensions and
retirement planning from the following websites:
www.dwp.gov.uk – for government initiatives and
information about retirement and pension benefits.

www.pensionsadvisoryservice.org.uk – the
website for The Pensions Advisory Service (TPAS);
contains free help and advice about all types of
pension arrangement.

www.pensions-ombudsman.org.uk – the
Ombudsman investigates complaints and disputes that
scheme members cannot resolve with their trustees.

www.thepensionsregulator.gov.uk – the site of the

regulator of work-based pension schemes in the UK.

www.thepensionservice.gov.uk – visit this site for

all you ever wanted to know about the State scheme.
You can also get help finding pension schemes you
have belonged to in the past, through the Pension
Tracing Service.

www.ageconcern.org.uk – a useful website

for those who have retired; contains all sorts of
information and opportunities.

www.helptheaged.org.uk – with advice on

finances, healthcare, age discrimination issues and
a free telephone helpline, this is another website
dedicated to the needs of those who have retired.

www.ifap.org.uk – use this site to find a local

Independent Financial Adviser.
 • 16

A note for pensioners and

deferred members:

Closing the Scheme – what does it mean for me?

As detailed in the Chairman’s introduction, the Scheme has now been closed to new members. While the
Company discussed this proposal with Unions and current employees, as a deferred member or pensioner,
you were not involved in the Company’s consultation.

We would like to reassure you that closing the Scheme to new members will have no impact on
the benefits paid to anyone who is currently a member or pensioner of the Scheme. The pensions
paid to current pensioners are not paid for by contributing members of the Scheme. When you were
employed you and the Company contributed to the Scheme with the aim of building up enough money to
pay your pension in retirement. If there is insufficient money to pay for the pensions that have been promised
(for example as a result of falls in stockmarkets) the Company has to meet the additional cost.

The Trustees’ powers have not been changed as a

result of the Scheme closure and the Trustees will
continue to take whatever action is appropriate, Any questions?
in both the short and the longer term, to maintain If you would like to find out more about anything
the security of your pension benefits. In the light covered in this issue, or have any questions about
of the Scheme closure, the Trustees are currently your individual benefits, you should contact the
reviewing the investment strategy and considering Pensions Team.
any impact in relation to the actuarial valuation
as at 30th September 2007, which is currently The Pensions Team can also supply you with
underway. copies of any of the Scheme’s official documents
(for example, the Report and Accounts,
Statement of Investment Principles or Trust
Deed and Rules).
Write to:
BAA Pensions
Saxley Court
121-129 Victoria Road
Horley
Surrey
RH6 7AS
Tel: 01293 821 717
Email: [email protected]

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