Pension Fund Annual Review

Summary Funding Update

One of the main responsibilities of the Trustee is to monitor the finances of the Fund to ensure there’s enough money to pay all of the benefits promised to members, both now and for many years into the future.

In part, this is achieved through a review of the funding position. A comprehensive review, known as an Actuarial Valuation (Valuation), is completed every three years by a qualified and independent Actuary. The most recent Valuation of the fund was carried out at 31 March 2019.

You might like to watch our video called Managing the funding.

2020 Summary Funding Statement

What does the Valuation look at?

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The aim of the Valuation is to assess the funding position of the Fund. To do this the Actuary has to determine:

  • How much money each Section needs to cover the benefits members have built up? If the Fund has more invested money (assets) than money needed to pay promised benefits (liabilities) it has a ‘surplus’. If the Fund has more liabilities than assets it has a ‘shortfall’. Where a shortfall exists at a full Valuation it is up to the Trustee and the Society to agree how this will be cleared and over what timescale.
  • What contributions need to be paid to cover the cost of providing future benefits? The Society’s contributions are worked out by deducting contributions made by Active members from the estimated amount needed to pay future benefits promised. These contributions are then paid until the next full Valuation is carried out.

How is the funding position calculated?

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The funding position is calculated on an ongoing basis and on a solvency basis:

  • The ongoing basis assumes that the Society will continue to support the Fund if necessary. Certain assumptions are made by the Actuary about future economic and financial conditions and the Fund’s membership. While the assumptions cannot be guaranteed, they are agreed by the Trustee and the Society as being suitable.
  • The solvency basis assumes that the Fund is ended (wound up) on the Valuation date and looks at whether there is enough money in each Section of the Fund to buy individual pensions for every member.

The funding position is a ‘snapshot’ of the Fund on a single day. However, in practice the liabilities are paid over a very long period of time. In fact some of the liabilities may not be paid for another 30 or 40 years. Several factors can affect the funding position, including life expectancy, investment performance, interest rates and inflation levels. The Fund’s assets are invested over the long term, and therefore, fluctuations in funding levels are to be expected.

What were the results of the 31 March 2019 Valuation for each Section?

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The formal Valuation results at 31 March 2019 are shown below. You will see that the Nationwide Section had a shortfall of £180 million and the Cheshire & Derbyshire Section had a surplus of £17 million at 31 March 2019.

Nationwide Section
Money invested (assets) £5,925m
Money needed to provide all benefits (liabilities) £6,105m
Funding level 97%
Cheshire & Derbyshire (C&D) Section
Money invested (assets) £336m
Money needed to provide all benefits (liabilities) £319m
Funding level 105%

As the Valuation is only undertaken every three years, at 31 March each intervening year the Actuary undertakes further estimates of the financial health of the Fund (an interim funding position). These use the 2019 Valuation assumptions, and then updates them to allow for the changes in market conditions.

What is the interim funding position at 31 March 2020?

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Nationwide Section
Money invested (assets) £6,171m
Money needed to provide all benefits (liabilities) £6,429m
Funding level 96%
Cheshire & Derbyshire (C&D) Section
Money invested (assets) £360m
Money needed to provide all benefits (liabilities) £347m
Funding level 104%

The Nationwide Section’s shortfall increased from £180 million at 31 March 2019 to £258 million at 31 March 2020. The main reason was because the returns on the assets were much lower than expected in the first quarter of 2020 as a result of the pandemic.

The Cheshire & Derbyshire Section’s surplus dropped from £17 million at 31 March 2019 to £13 million at 31 March 2020, also as a result of the asset returns being lower than assumed.

You should be aware that the funding level of both Sections will vary over time and the Trustee will continue to regularly monitor the funding positions.

Why does the Nationwide Section have a shortfall and the Cheshire & Derbyshire Section have a surplus?

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The Cheshire & Derbyshire Section was created in 2010, following the merger of the Nationwide Pension Fund with the previous Cheshire and Derbyshire pension schemes. The Cheshire and Derbyshire pension schemes had a more positive funding position than the Nationwide Pension Fund prior to the merger and this position has been safeguarded post-merger.

What is being done about the shortfall in the Nationwide Section?

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Following negotiations between the Society and the Trustee, a plan was agreed to clear the shortfall revealed at the 31 March 2019 Valuation, by the Society paying additional lump sum contributions of:

  • £61 million paid in July 2019;
  • £61 million to be paid in November 2020; and
  • £61 million to be paid in July 2021.

The Society and Trustee are considering putting in place a contingent asset to provide increased security for members’ benefits.  Should an appropriate contingent asset be put in place, the contributions payable in November 2020 and July 2021 will not be due.  In addition, £25 million of the contribution due in July 2021 will only be paid if the Nationwide Section still has a funding shortfall in early 2021.

What contributions need to be paid to cover the cost of providing future benefits?

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As part of the full Valuation the Actuary estimates how much money needs to be paid into the Fund to meet the cost of future benefits being built up by Active members. This cost is expressed as a percentage of Active members’ pensionable salaries. Following the 2019 Valuation, the Society and Trustee agreed to maintain the Society’s ongoing contribution rate of 31.5% of pensionable salaries. Active members continue to contribute at 7% of their pensionable salary.

How will my pension be paid if the Fund is wound up?

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As part of the full Valuation, the Actuary works out what would have happened if the Fund had been wound up on the Valuation date. This is known as a solvency Valuation where the Actuary estimates if there’s enough money to buy individual insurance policies to provide full pensions for every member. The table shows the solvency positions of both Sections of the Fund at 31 March 2019. The combined shortfall for both Sections of £3,477 million represents the amount of money that would be required from the Society were the Fund to be wound up at this date.

Nationwide Section
Money invested (assets) £5,925m
Money needed to provide all benefits (liabilities) £9,350m
Funding level 63%
Cheshire & Derbyshire (C&D) Section
Money invested (assets) £336m
Money needed to provide all benefits (liabilities) £388m
Funding level 87%

The funding level on a solvency basis is always lower than on the ongoing basis as the cost of providing all members’ benefits straight away through insurance policies (pension annuities) is much higher than paying for them over the future life of the Fund. Also, insurance companies are required by law to take a very cautious approach to pricing pension annuities, which includes setting aside extra capital and reserves. In addition, their prices will include their costs and a profit margin.

In the unlikely event that the Fund is wound up and the Society is unable to meet any shortfall (for example because it became insolvent) additional security is provided through the Pension Protection Fund (PPF), which has been set up by the Government to assist schemes in such circumstances. The PPF would normally take over the Fund and pay compensation to members. More information is available on their website at

Why do we include information about the Fund winding up?

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This is a legal requirement. It doesn’t mean the Society is thinking of winding up the Fund, or that the Trustee has any reasons to expect the Society to become insolvent.

Other information required by legislation

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Legislation requires the Trustee to say whether any surplus funds have been paid to the Society from the Fund in the period since the last Summary Funding Statement was issued. The Trustee can confirm that there has not been any such payment over the period. The Trustee can also confirm that the Fund has not been modified by The Pensions Regulator, or had any directions or Schedule of Contributions imposed by it.