Follow up letter to Paul Early

From: Alan Evans

Subject: Plan Funding and Follow up Meeting

Hello Paul,

As mentioned in my earlier email we would appreciate the opportunity to meet, discuss and understand our overall situation.

The recent Trustee Summary Funding Statement tells us that the decline in value of schemes assets exceeded the decline in scheme liabilities resulting in the loss of surplus and a poorer funding ratio.

We take no comfort in a plan that has lost so much value coupled with the spectre of zero discretionary increases and a future strategy that aspires towards a buy-out.

Summary Funding Position

Analysis of the Summary Funding position indicates that across the combined HP and Digital Pension Plans:

Total Asset values declined by  £1,596.7 million (39%)

Total Target level funding declined by £1,240.7 million (33%) (6% lower decline than asset values)

From a combined surplus of  £331.5 million (108.7% funding level)

To a combined deficit of  £24.5 million (99.0% funding level which is a decrease of 9.7% on 2021 valuations )

Loss of value – surplus and deficit   £356 million 

If the LDI “crisis” forced the sale of assets – at a loss to the plan – then it is assumed this is the key reason for value of assets declining more than the value of liabilities and the situation was somewhat more complex and nuanced than “…lower than expected investment returns”. 

Discussion and clarification

It is stated within industry press articles that many plans benefitted from the rise in interest rates resulting in improved funding positions – but – a small percentage of plans saw their funding position deteriorate.

This is why it is important and useful for us to get your perspective – and a few areas we would like to discuss include:

• The scale of leverage within the LDI strategy and why assets declined more than liabilities
• The way in which the LDI assets were managed during the crisis

• Trustee awareness and understanding of the implications of the strategy itself 
• What “learnings” Trustees have taken from the impact on the plan?
• What changes are being introduced based on these learnings?

• What is the strategy for getting the plan back into a level of surplus that has the potential to support future discretionary increases?

I look forward to hearing from you.

Regards,

Alan