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2018: £8.2M Pension deficit


#41

I think that any budgetary impact will have been more in the last two years, and given that the WS accelerated next year’s contribution into this, it doesn’t look like it’s a critical influence. There was actually a credit to the P&L (albeit non cash) this year for pension costs due to the reduction in liabilities from closure.

Current year cash contribution to the DB scheme will therefore be £0.25m compared to c£600k for the DC scheme. DB contribution will rise to £1.25m p.a. for the following 5 years, though I would suspect if the scheme financial position improved again this might fall. The DC contribution may well exceed DB sometime in the next 5 years I imagine.

Therefore total pension contributions (DB and DC)this year will be under £1m, rising to just under £2m next year. On turnover of nearly £100m and total admin costs of c£17m this is quite a significant amount but no more than that. As a % of staff salary costs it’s no higher than many other organisations with DB pension funds.

Finally, with net cash of almost £15m in the balance sheet, the cash cost looks comfortably affordable. The slice of the cake for pension contributions will actually be smaller this year.

Focus on the cash costs not the swings in the deficit valuation. The former is fact, the latter is frankly a bit of a guess.


#42

This is dead right. Pensions treatment in P&L and balance sheets is an art more than a science. Look at the cash position and the underlying sales and this isn’t a factor driving the price of a bottle of wine nor should it be for the foreseeable.

No smoking gun, folks!


#43

@Jcbl a dark art at that!


#44

I’d be more inclined to believe that if TWS had kept the members updated, as promised. But they haven’t.


#45

Thank you all for an interesting discussion on what is a tricky, technical topic. It is great to see members taking an active interest in the running of your Society, and sharing their expertise so willingly. Thank you in particular to @MarkC for some very professional insights and explanations.

When we launched this category, it was intended to capture your questions for the AGM, in the same way we gather your questions in advance for an AMA, so we can do the necessary research and bring you considered replies not just from the Community team but from senior staff and the Board.

The AGM is still about 3 weeks away, so there is still plenty of time to gather your views and questions, but since this issue has been of particular interest, we have been able to bring this forward and I’m very happy to share the following response from The Society:


The Society’ s defined benefit pension scheme was closed to new entrants in 2007 and closed to all new accruals from May 2017. The scheme is a separate legal entity to The Society and is overseen by a board of Trustees who manage all elements of the scheme and determine, after taking appropriate professional advice, matters such as investment strategy.

As the liabilities of the scheme currently outweigh the assets, the accounts of The Society reflect an accounting estimate of the scale of the deficit at the balance sheet date and movements compared with last year. The accounts also note the deficit on the scheme calculated in the triennial valuation, which is prepared on a more prudent basis. The size of the accounting and triennial deficits go up and down according to market conditions, in particular inflation, interest rates and the yield on corporate bonds and gilts, meaning that the deficit could worsen or indeed it could reduce or the scheme could go into surplus.

Benefits payable to members of the scheme are set in the scheme rules. Over recent years, The Society has taken what steps it could to manage the future liabilities under the scheme by working with the Trustees to change the rules as appropriate. When all other viable and effective options to manage future liabilities had run out, The Society closed the scheme in 2017.

The financial statements of The Society for the year ended 27 January 2017 dealt at length with adjustments needed when we learned, shortly before the year end, of a legal error made in 2010. We were advised that the change to the rules that was made in 2010, which was made in good faith and on the basis of legal advice at the time, was not valid in relation to pensionable service before the date of the change. We are not at this stage able to provide any more information to members about the legal error in 2010.

The financial statements in this year’s Annual Review, for year ended 26 January 2018, reflect adjustments relating to the closure of the scheme.

Pensions are a very complex area but we hope that this will go some way to reassure you that The Society and Trustees have acted competently and in good faith at all times and have taken appropriate professional advice in this matter.


#46

I think this summarises things well, and I imagine there are very good reasons why more public comment cannot be provided on the 2010 issue at this point.

As has been said, no smoking gun here. Let’s get back to wine again!


#48

My pennyworth as a non actuary… but presumably this ‘shortfall’ has gradually accumulated over several years (unnoticed?) - so the Society accounts have over these years actually benefited to the tune of £8m approx from NOT having to pay the extra cash into the pension fund.

Now the shortfall has come to light, the ‘repayment’ is only what would have been due in anyway - and there is no loss (or gain) to the Society. Providing it all gets paid without the business going bust (unlikely considering the considerable assets in the cellars plus the value of the wholly owned property in Stevenage).

I imagine, it would be VERY easy indeed to waste much more than the £8m by setting up costly legal investigations etc. in a futile witch hunt or similarly seeking redress for ‘bad legal advice’ through the courts.


#49

Without having seen prior year accounts going back several years it’s difficult to be sure, but the funding position can move about quite significantly from one year to another, particularly if there is little hedging of the liabilities. The shortfall hasn’t just come to light, it existed at a point in time, and the current shortfall is a lot less and also existed at a point in time.

Quite a number of DB scheme sponsors, particularly non public companies, aren’t too bothered about some volatility in their funding level if their balance sheet is strong. Nor will the Trustee be if they have a good relationship with the sponsor and believe that the covenant is strong. There are costs to hedging, and it may be that it’s a matter that’s been considered and rejected in the past. I suspect it might also be reviewed regularly too.

However, some such as banks (which I know) and other financial companies have a very real interest in hedging out interest rate volatility as any worsening flows directly to their core capital and their own regulator will take a close interest in that. I can recommend the detail of the PRA stress tests to anyone with insomnia problems…

The real driver of the changes in recent years has been long term interest and long term inflation rates. A quick look at the accounts shows that the present value of liabilities rose by over £11m between 2016 and 2017. Over £8m of this arose from actuarial valuation - and is explained by a fall of 0.9% in long term interest rates and a rise of 0.5% in long term implied inflation - both of these were in large part attributable to the impact on UK financial markets in the months following the Brexit vote. That led to a very large adverse change in the discount rate used to value future cashflows.

The point about the costs of pursuing any possible legal action is a good one too. Particularly so as this isn’t a cash loss, merely a restatement of the estimated value of long term liabilities back to where they were before. Nor is that ‘cost’ £8m which seems to have been stated more than once in this thread. The movement in liabilities arising from the restated legal advice is £2.3m as is clearly stated in the financial review, and that isn’t a cash loss in any sense. Both it and the actuarial change are non cash items and the actuarial change is an educated guess - and a lot of actuaries will tell you that too, at least privately!

The sun is out, I am just back from a family funeral, and a glass of wine beckons now…


#50

Thanks Mark - excellent comments, you clearly know your stuff ! Likewise, a glass of wine seems in order - perhaps pre 2010.

I must have missed the bit where Farage et al explained there was a financial risk involved with Brexit!


#51

An interesting point but since TWS is refusing to provide any information to members there must be something happening behind the scenes


#52

Roberts post has information, so to say TWS has not provided anything is just plain incorrect. Perhaps they have not provided information to your satisfaction; that is different. It would be more helpful to state what you are looking for, but I suspect any answer is not going to satisfy everyone here asking.


#53

Sorry, I thought the fact that I quoted a reference to wasting money on seeking redress would make clear the particular point I was seeking information on. I should have said ‘any information on redress’.


#54

I was tempted to go to last year’s AGM specifically to ask about the pensions deficit but didn’t and probably won’t go this year. I don’t trust the management to give honest answers. As a result of this black hole there have been no dividends and we still have a big deficit (at least in accounting terms) to clear.

Have the management got the scheme trustees to change to change to career-average salary, cap annual increases at 2.5%, change references from RPI to CPI etc and all the other actions that other schemes are taking to reduce their liabilities or are they going to drip feed more money into this debt-ridden scheme for years and still pay no dividends?

Ideally I would like them to cap their liabilities by insuring, transferring, or doing whatever it takes to get the DB pension off their books as some other businesses have done.

Maybe then they can concentrate on the members. It is all very well saying “putting members before profit” but at the moment it is pensioners and their advisers long before there is any hint of a profit!


#55

I joined this community to talk to like minded individuals about wine and I rarely post unless the discussion is about wine. However, your post above has prompted me to change my habits for a moment to pose one question.

Have you considered the members of the pension scheme and what they may wish? (many I suspect are also members of the society).

Just because other schemes “reduce their liabilities” in the way you describe, it doesn’t make it in any way the the right thing to do. Scheme Trustees have a responsibility to the current and future pensioners much more so than to you or I, and I for one would rather see this managed in the ways that have already been proposed in the thread above.

I didn’t join the Society for the dividends, I joined for the excellent quality, good value wines - to which I shall return now.

With best wishes
Matt


#56

@Alchemist, well said!!

It may be that the Trustees are seeking to cap their liabilities - some of the steps taken do just that. However, I would say to @Kidman that ‘doing whatever it takes to get it off the books’ is not cheap. A buyout valuation of liabilities is likely to be quite a bit higher than the actuarial valuation, and it may actually make more sense to try to invest one’s way out of it, given the current level of gilt yields.

Changing to CPI isn’t as easy as it sounds. Depends what the Trust Deed says. And finally, the obligation, particularly for a non profit making body, is to fully fund the pension scheme before paying dividends to shareholders. Something that a number of UK companies should have done…

It appears that a number of changes have been made, but they can’t be made retrospectively, and quite rightly so.


#57

From the Chairman’s address at the 2018 AGM:

‘I’m sorry that I’m not able to tell you any more at this stage about progress that we have made in relation to the wrong legal advice that we believe that we received relating to the scheme in 2010.’

A careful statement which leaves open the possibility that no progress whatsoever has been made.


#58

The true cost per member is quite small . Appart from the initial £20 the cost to members is expressed in the amount we spend on our bottles. That i thinks works out at Less than a penny a bottle.
This last year the society sold 867600 bottles expressed as 723000x12 . add the total number of bottles sold over the years the deficit is paid off then divide the total deficit by number of bottles that results in a very small amount per bottle.
So whilst it may be an important issue theres no need to get to worried about it.


closed #59