Chairman’s introduction

Actuarial Valuation

Pension liberation fraud

Financial overview

Benefit statements

Benefits on death

POPULAR REPORT 2012For members of the DDS Pension Plan

Chairman’s introduction

Welcome to the 2012 edition of the Annual Popular Report, in which we tell you about developments in the Delphi Diesel Systems Pension Plan (the ‘Plan’) during 2012. In this report we have provided an update on the following areas:

• Pension liberation fraud

• Benefit statements

• Benefits on death

• The Triennial Actuarial Valuation

The purpose of the Popular Report is to not only include an update on the facts and figures, but also to keep you up to date on key developments and provide you with the reassurance that the Plan is being well managed. We welcome any feedback you might have and, in particular, if you have any suggestions for future articles, please let us know.

Andy Evans Chairman

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Pension liberation fraud

The UK Pensions Regulator has expressed concern over companies who are approaching members of occupational pension schemes, trying to entice them to transfer their pension out of the scheme with either ‘pension loans’ or ‘cash incentives’. This is known as pension liberation fraud and it is becoming more common.

Companies are contacting members out of the blue and duping them into transferring their funds to rogue pension arrangements. One technique that pension fraudsters use is to send a large portion of the pension transfer overseas. This makes the money harder to trace and retrieve when the scam is closed down, and allows those running the scheme to spend the money in jurisdictions that normally have less regulation than the UK.

For the majority of pension scheme members, accessing a pension before age 55 is not a right and could result in an ‘unauthorised payment’ charge. If a transfer is made to a fraudulent pension scheme, the unauthorised payment charge to the member is 55% of the value paid, regardless of any loss the member has suffered.

In addition, fees deducted from the transfer value for the transfer are unlikely to be recovered. Such fees tend to be very high and could be 20% or more of the transfer value paid in some cases. Most of the time, people targeted by pension fraudsters or scammers are not informed of the potential tax consequences involved or the fact they may lose virtually all of their pension.

What to look out for:

• Unsolicited text messages• Transfer to be completed very quickly• A bonus paid on transfer• Transfers to overseas schemes• Access to your pension before age 55.

Members who joined the Plan prior to 6 April 2006 can retire from the age of 50 with a reduced pension.

The Trustee of the Plan has put in place steps to check the receiving pension scheme is bona fide before any transfer payment is made.

Benefit statements

Last year, members were able to view their benefit statement online for the first time. This year members will have received a postcard with a unique password to access their statement online or a paper statement if requested.

For any members who have not been online to check their statement or have had trouble in accessing the statement, the process is to visit the website www.pensiondepartment.co.uk and click on the Pension Statement icon (as shown on the left).

The logon ID is your National Insurance number and the unique password is on

the postcard. You will then be directed to another screen which asks you to change your password and put in a valid email address. The website will send you an email with a link back to the site to enable you to logon with your National Insurance number and the password you have created.

Why has the process changed? Over the course of the year some members wanted to view their statement again but had forgotten or lost the password they had created. The Pensions Department then had to ask the website providers to re-set passwords.

From August, members have been able to reset their password by clicking the link on the website ‘forgot my password’. You will be asked for your National Insurance number, then an email with a link to reset your password will be sent back to you. When you click the link you will be asked to provide a piece of information i.e. date of birth. You will then be allowed to generate a new password. A message will be displayed confirming the password has been changed successfully, and then the normal logon process should be followed.

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Benefits on death

The Plan provides benefits whether you die while still working for the Company or after you retire.

On death in service there is a lump sum, a pension for a spouse and pensions for any children in full-time education up to the age of 23.

The Plan is set up under a Deed of Trust and payment of the lump sum is at the discretion of the Trustee, which means it does not form part of your estate and is not subject to inheritance tax.

Members are invited to complete an expression of wish form to provide the Trustee with guidance on the beneficiary they would like to receive the lump sum. As well as the expression of wish form the Trustee may request additional information from the family, for example, whether the member had a Will, or had financial dependants.

Regardless of whether the member dies in service or in retirement a pension will also be payable to a spouse or civil partner.

Completion of the expression of wish form does not entitle another beneficiary to receive payment of the pension. For example, if you are living with a partner and nominate them to receive your lump sum death in service benefit, subject to agreement of the Trustee, they will do so. However, they will not receive payment of a pension. Likewise, in retirement any nomination form completed whilst in service does not entitle a partner to receive a pension on death.

It is important that your expression of wish form is up to date, especially if your circumstances have changed.

Forms are available on the Pension Website (www.pensiondepartment.co.uk) and on completion should be returned to your HR Department.

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Funding Level

The Plan’s funding level as at 31 December 2011 was 72%, compared to 69% as at 31 December 2008.

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Actuarial Valuation

What is an Actuarial Valuation?By law, the Plan must carry out a financial health check at least every three years and this is known as an Actuarial Valuation. The purpose of this is to assess the expected cost of paying for or settling the benefits to the members that have built up to the Valuation Date (the liabilities) and compare this with the assets held by the Plan. If the assets are less than the liabilities then a Recovery Plan is agreed between the Trustee and the Company to make up the shortfall.

The assets have increased because of the contributions paid into the Plan by the Company and the returns achieved on the Plan’s assets.

Assets

The assets (excluding AVC investments) of the Plan increased from £183.6m to £270.0m over the period.

300

250

200

150

100

50

0

£270.0m

£183.6m

2011 2008

Asse

ts (£

m)

Liabilities

The Plan’s liabilities increased from £266.4m to £375.3m over the period.

400

350

300

250

200

150

100

50

0

2011 2008

Liab

ilitie

s (£

m)

£375.3m

£266.4m

80

70

60

50

40

30

20

10

02011 2008

72%69%

Fund

ing

(%)

Valuation Summary (31/12/2011)

The Actuary compares these two figures for the Actuarial Valuation:

• Assets - The money the Plan has available

• Liabilities - The money expected to be needed to pay benefits to the members

Actuarial Valuation

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Why has the deficit increased? People are living longer which means that the assumption of the amount of future pensions to be paid has increased.

Market conditions over the period mean that the estimated current cost of providing the same benefits in the future is more than previously anticipated.

Recovery PlanTo address the deficit of £105.3m, the Trustee has worked with the Company and agreed a Recovery Plan. As part of the Recovery Plan, the Company agreed to make the following contributions to the Plan to remove the deficit by 31 December 2021:

• £2.5m in 2012

• £13.3m from 2013 to 2021

The Company will also pay 16.2% of pensionable pay to cover the cost of future accrual in the Plan for active members.

During the period between Valuations, the Trustee will monitor the funding of the Plan on a regular basis.

Deficit

The Plan has a deficit of £105.3m at 31 December 2011 compared to £82.8m at 31 December 2008.

120

100

80

60

40

20

02011 2008

£105.3m

£82.8m

Defi

cit (

£m)

Financial overview

Investment Matching portfolio – this consists of investments in nominal gilts, index-linked gilts and SWAPs in line with the liability hedging strategy.

Equities – investments in company shares listed on the major stock exchanges of countries in Europe, Asia and America, and in some developing economies in Europe, Asia and South America.

Property – a combination of UK investment properties including offices, shops and industrial units. The objective is to achieve income and capital returns.

Alternative investments – a range of different investments that seek to achieve consistently better returns regardless of how the markets move. The types of investments will vary for each market.

Bonds – these are investments in loans issued by governments and companies around the world.

Hedging – a process that removes the movements of foreign currencies when compared to Sterling. This reduces the volatility of overseas investments and ensures that the Plan receives the local market return. 9.4%: Investment Grade

Corporate Bonds

6.5%: High Yield Corporate Bonds

7.4%: Emerging Market Bonds

24.7%: Developed Markets Equity

6.5%: Emerging Markets Equity

4.9%: Property

4.7%: Commodities

9.8%: Hedge Funds

26.3%: Matching Portfolio

Spread of investments as at 31 December 2012:

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Financial overview

Membership numbersThe total Plan membership decreased by 26 to 4,386 members. Employee members fell by 98 to 2,348, while pensioner members increased by 71 and deferred members increased by 1.

2012 2011

Pensioners 1,124 1,053

Deferred members 914 913

Active members 2,348 2,446

Total 4,386 4,412

As at December 2012:

Income & expenditureIncome £’000

Company contributions 13,695

Employee contributions 208

AVC contributions 582

Transfers in -

Other income -

Total 14,485

Expenditure £’000

Pensions 9,500

Lump sum commuted pension 2,909

Death benefits 427

Payments to and on account of leavers 1,981

Administration expenses 842

Total 15,659

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£’000

Fund value 1 January 2012 282,504

Net withdrawals from dealing with members (1,174)

Net returns on investments (after deduction of management expenses) 23,570

Fund value 31 December 2012 304,900

Financial overview

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Financial overview

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Investment performance2012 started on a hopeful note as worries about a global double dip recession and the break-up of the eurozone seemed to be overblown. Strong data supporting a US economic recovery helped to drive equity and bond market returns. However, optimism diminished from April onwards when concerns about economic and political problems in the eurozone resurfaced.

Sentiment shifted once again in June. News of the financial bailout for Spain to help its ailing banks, the perceived positive outcome of the second round of Greek elections on 17 June and the European Union summit agreement all served to provide a degree of welcome relief to the markets.

This generally upbeat mood continued into the third quarter, as central bank actions helped to bolster investor sentiment. In particular, the European Central Bank (ECB) pledged to do ‘whatever it takes’ to support Europe.

Investors focussed on several key areas during the final quarter of 2012: the US Presidential election in November and the looming US fiscal cliff; leadership change and slowing growth in China; and ongoing worries over the economic health of the eurozone. On the positive side of the equation, GDP growth in the US remained stable, it was confirmed that the UK finally managed to drag itself out of recession during the third quarter of 2012, and the leadership in China appeared to transition smoothly. Most markets finished the year strongly.

The Plan’s performance

Diesel 2012 Three years Five years

Plan 8.53% 6.90% 1.48%

Benchmark 8.32% 6.55% 2.11%

Relative 0.21% 0.35% -0.63%

Diesel 2011 Three years Five years

Plan 0.60% 9.60% 0.80%

Benchmark 0.60% 9.20% 1.50%

Relative 0.00% 0.40% -0.70%

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Contact us

The Pensions Department Griffin HouseOsborne RoadLuton LU1 3YT

team@thepensiondepartment.co.uk

IMPORTANTCompletion of a nomination form will greatly assist the Trustees in the payment of your lump sum benefit in the event that you die in service.

Forms are available for download from the Pension Website at:

www.pensiondepartment.co.uk