The Trustee is responsible for ensuring that the Scheme has enough money set aside (assets) to pay pensions built up to date (liabilities). If the assets are more than the liabilities, the Scheme is said to be in surplus. If the liabilities are more than the assets, it is said to be in deficit.

The Scheme’s Actuary carries out a formal, in-depth financial health check of the Scheme every three years, called a full valuation. In the interim years the Actuary carries out annual funding reviews, which are approximate updates. Below you can see a summary of the Scheme’s financial health since 2021.

You can see from the above that the surplus has reduced over the last three years. Firstly, we would like to reassure you that your benefits remain secure and, if you are a pensioner, your pension will continue to be paid each month. Whilst it is disappointing to see that the surplus has reduced, it is still positive that the Scheme remains in surplus. This means that we have more money than we think we will need in order to pay our benefits to all our members over the coming years, and an allowance for the expenses of running the Scheme. We will continue to monitor the situation and work with the Company to ensure that the Scheme remains well-funded into the future.

The reduction in the surplus has been predominantly due to the fact that our assets have fallen in value and, whilst the value the Scheme Actuary places on members’ future benefits (the liabilities) has also fallen at the same time, it has not fallen as much. This was in part due to the extreme market volatility witnessed in the UK government bond market in the autumn of 2022. However, as set out below, the buy-out (or solvency) funding level has held up well and in fact the amount needed to secure all the benefits with an insurance company has fallen since the last valuation.

As the Scheme remains in surplus and there is an expense allowance included in calculation of the liabilities, the Company is not required to pay any contributions into the Scheme.

What if the Scheme had to wind up?

Although there are no plans to wind up the Scheme, we are required by law to let you know the Scheme’s financial position if this were to happen. On wind up, the Trustee would probably secure all members’ benefits with an insurer. The comparison of the cost of securing benefits with an insurer is the ‘buy out’ or ‘solvency’ level.

The estimated solvency level at June 2023 was 84%. This means that the amount needed, in addition to the Scheme assets, to secure all benefits with an insurance company was approximately £257 million at June 2023 (compared with £388 million at the 2021 valuation).

Why does the funding plan not call for full solvency at all times?

The full solvency position assumes that members’ benefits will be secured by buying insurance policies. Once the insurer has collected the premium, it is not able to seek additional premiums if its pricing turns out to be too optimistic and so it includes significant margins against future adverse experience. For as long as the Scheme is able to seek further contributions from the Company in the event of adverse experience, it is appropriate to include margins that are prudent but not as large as the margins in the corresponding insurance premiums.

The Pension Protection Fund (PPF)

In the unlikely event of the Scheme winding up, the Company would be legally required to finance any buy-out (or solvency) shortfall and pay enough into the Scheme to enable benefits to be completely secured with an insurance company. If the Company becomes insolvent and is unable to fully fund the Scheme, then the Pension Protection Fund (PPF) may step in.

As a member, you may worry about the security of your pension. The PPF was set up in April 2005 to protect your pension benefits. It has been set up as a type of ‘compensation scheme’ where an annual levy must be paid by all defined benefit schemes (including this Scheme). The PPF will pay a limited amount of compensation to members if an employer becomes insolvent and its scheme has insufficient money to pay a specified fraction of members’ benefits. However, any payments will generally be less than the full amounts due. Further information can be found on the PPF website at ppf.co.uk or by emailing information@ppf.co.uk

Other information required by law

The Pensions Regulator has powers to intervene in a pension scheme’s funding schedule and can impose a schedule of contributions if they feel it is necessary for the Scheme to meet the statutory funding objective. We’re happy to report that The Pensions Regulator has not used any of these powers in relation to the QinetiQ Pension Scheme.

We can also confirm that no payments have been made to the sponsoring employer from Scheme funds over the 12 months to 30 June 2023.

What next?

The next formal actuarial valuation of the Scheme is due at 30 June 2026. The Actuary will calculate interim figures at 30 June 2024 and 30 June 2025, and we will let you know these in due course.

Where can I get further information?

If you have any other questions on the actuarial valuation, or would like further information about the Scheme, please email the administration team at QinetiQ@ajg.com