Dear Sir
December 2003
Financial Position of the Merchant Navy Officers Pension Fund
A few months ago, I reported to you within the "Summary Annual Report 2003" that the triennial Actuarial Valuation of the fund was carried out as at 31 March 2003 and the Trustee Board expected the results to be available for their consideration towards the end of 2003.
The Trustee Board has now received the preliminary results of the Actuarial Valuations as at 31 March 2003. There was a separate valuation for each of the Old Section and the New Section and the principal conclusions are set out below.
As this letter is being sent to both Old and New Section members, aspects of it will only apply to you according to the Section(s) in which you have benefits.
Old Section
This is the Section of the Fund in which benefits accrued for service prior to April 1978.
There is an actuarial surplus as at March 2003 of £167 million. This compares to £140 million at the last Valuation as at March 2000. The Trustee Board was able to switch many of the investments of the Old Section into fixed interest securities some years ago and this has helped protect the Old Section from the decline in stock markets over the last 3 years or so.
The Trustee Board will need to determine what discretionary pension increase might be awarded on this occasion. This will be the subject of further consideration by the Trustee Board and I expect to advise you of the outcome in the New Year.
New Section
This Section relates to benefits accrued for service since April 1978. It is closed to new members but existing contributors continue to accrue benefits.
At the date of the last Actuarial Valuation (March 2000) there was a deficit of some £8 million. This has increased to £194 million at March 2003.
While the increase in the deficit has not been as much as the fall in the market value of investments, changes in world stock market valuations have obviously had a significant effect. In the New Section there were not sufficient assets to protect the benefits by switching into fixed interest securities and some 70% of the portfolio is in shares, the prices of which have fallen significantly over the last 3 years although there has been some upward movement since the Valuation date of 31 March 2003. However in the long term shares are anticipated to outperform fixed interest securities and this assumption is explicit in the calculation of the value of the assets made by the Actuary. A switch into fixed interest would therefore increase the deficit substantially.
The deficit is entirely related to past service liabilities and the Actuary has confirmed that the current joint contributions from employers and members cover the cost of the future service benefits accruing for the declining number of contributing members. There is therefore no requirement, at this stage, to change the current benefit structure or the joint contribution rate.
You will be aware that the actuarial deficit will need to be made good by Participating Employers, the definition of whom will be established by the Court case instigated by the Trustee Board and referred to in the "Summary Annual Report 2003". The result of the case will hopefully be known by the middle of 2004.
The actuarial deficit of £194 million is calculated as at 31st March 2003 and in order that the apportionment of the liabilities can be done on up to date figures, reflecting in particular any changes in the investment position, the Trustee Board has instructed that a further financial assessment is made as at 31st March 2004 to assess whether the figure of £194 million remains appropriate for the purposes of the apportionment.
It can be expected that the payments made by employers to make good the deficit will be spread over a reasonable period of, say, 10 years.
The Trustee Board will continue to closely monitor the extent of the deficit and this will require that formal Valuations be completed at least triennially with the next Valuation therefore being due as at 31st March 2006.
Finally, I will write to Old Section members again in the Spring regarding discretionary pension increases and later in the year regarding the Court case and actions taken in respect of the New Section deficit.
If you have any query, please write to me or telephone the MNOPF Member Liaison Service on 01372 200200.
Yours sincerely
Peter McEwen
Chairman