PAPER 14 Annex A Agenda Item 11 TPSPB

PAPER 14 (Annex A) Agenda Item 11 TPSPB Meeting 7 December 2016 Teachers’ Additional Voluntary Contribution Scheme (TAVC) information to support the Teachers’ Pension Scheme Pensions Board (TPSPB) Author : Andrew Smith, Client Manager, Prudential

The scheme at a glance 2

Scheme information • Within the TAVC there are : – 73, 532 active members – 2, 159 life insurance members – 876 deferred members – 76, 567 total members • Over the last scheme year the total contributions were : – £ 53, 318, 476 • The funds under management are : – £ 1, 456, 446, 470 3

Security and relevancy • The TAVC is regulated by The Pensions Regulator, and is administered to their best practices and guidelines by Prudential • Prudential are reviewed annually as provider of the TAVC by the Teachers’ Pensions Management Advisory Group • Monthly, quarterly and annual governance meetings are held to scrutinise Prudential's performance – These meetings are supported with Governance Reports and a Risk Register • The TAVC is available to all Teachers, irrespective of member type • The March 2014 budget introduced changes which were implemented April 2015. These changes mean that : – Teachers now have greater freedom and flexibilities regarding how and when they take their benefits – these flexibilities secure the relevancy of the TAVC into the future 4

Department Oversight and Governance Monthly • Prudential provides monthly service level reporting covering: – Levels of New Business – Performance data monitoring member quotes and claims – Administration Servicing, including correspondence levels – Complaint levels, including Ombudsman referrals – Call Centre activity • Areas of concern identified through the reporting are challenged by the Department’s contract manager with Prudential’s Client Manager as required. 5

Department Oversight and Governance Cont. Quarterly • Face-to-face meetings are held on site between the Department and Prudential’s Client Manager and their administrator to review quarterly performance and address issues arising and policy developments. • In addition to the standard reporting, quarterly meetings include a review of: – AVC service delivery Risk Register – Member movement (including new business; the membership profile; fund preferences etc. ) – Transactional summary information – In depth Call Centre analysis – Fund performance – Scheme and engagement developments – Detailed complaint analysis – Service improvements 6

Department Oversight and Governance Cont. Annually • The Management Advisory Group (MAG) meets annually to review AVC arrangements and challenge the current provider. The Group includes member employee representatives. • The MAG has opportunity to challenge the provider following a comprehensive presentation of their fund, service and administration delivery performance. • MAG determines in a closed follow-up meeting whether the incumbent provider should continue to deliver the AVC scheme for the following calendar year. • Issues arising (policy/Prudential suitability) are escalated/reported to the Scheme Advisory Board. • The Group met in June 2016 and agreed that Prudential should continue as provider. • Looking at issues around fund suitability (with profits/lifestyle) and fees (with profits issue) – linked largely with 2015 policy changes. 7

Teachers’ Investments “I was very satisfied today. Your colleague was very informative, he was able to break down all of my questions, giving me answers so that I fully understood the risks involved with the funds etcetera. I was very pleased indeed, thank you. ” Source : “Viewscast” feedback from Teacher – 18 December 2015 8

Teachers AVC funds under management (30/09/16) Fund Name Fund Value at 30/09/2016 Prudential Deposit Fund 14, 310, 567. 30 0. 98 Prudential Discretionary 22, 952, 418. 11 1. 58 Prudential UK Equity Passive 10, 057, 966. 25 0. 69 Prudential UK Equity 10, 994, 884. 88 0. 75 Prudential Fixed Interest 4, 032, 551. 73 0. 28 Prudential Index-Linked 7, 342, 354. 04 0. 50 Prudential International Equity 15, 914, 690. 41 1. 09 Prudential Long-Term Gilt Passive 10, 732, 258. 64 0. 74 7, 734, 332. 27 0. 53 1, 352, 374, 445. 98 92. 85 1, 456, 446, 469. 60 100. 00 Prudential Ethical Prudential With Profits Cash Accumulation Fund 9 % Total Fund Value

Fund performance to 30 September 2016 Quarter 1 Year Annualised 3 Year Annualised 5 Year Annualised Fund Name Fd Bmk Rel Prudential Deposit 0. 1 0. 0 0. 5 0. 5 Prudential Discretionary 8. 3 7. 8 0. 5 20. 5 17. 3 3. 2 9. 3 7. 4 1. 9 11. 6 9. 3 2. 3 Prudential UK Equity Passive 7. 9 7. 8 0. 1 16. 2 16. 8 -0. 6 6. 4 6. 6 -0. 2 10. 9 11. 0 -0. 1 Prudential UK Equity 9. 0 7. 8 1. 2 14. 6 16. 8 -2. 2 6. 6 0. 0 11. 5 11. 0 0. 5 Prudential Fixed Interest 2. 8 2. 3 0. 5 13. 3 12. 6 0. 7 9. 2 8. 8 0. 4 6. 7 6. 2 0. 5 Prudential Index-Linked 10. 5 11. 0 -0. 5 27. 0 0. 5 16. 0 0. 5 12. 7 11. 8 0. 9 Prudential International Equity 9. 8 9. 1 0. 7 29. 8 -0. 1 12. 9 12. 7 0. 2 14. 9 14. 4 0. 5 Prudential Long-Term Gilt Passive 4. 2 0. 0 23. 0 0. 0 16. 0 0. 0 11. 0 0. 0 Prudential Ethical 7. 7 7. 6 0. 1 14. 1 15. 1 -1. 0 7. 1 6. 6 0. 5 13. 4 11. 6 1. 8 The selected TAVC fund range exceeded or equalled its benchmark 31 of the 36 reporting periods. 10

Prudential With Profits fund performance 11

Service delivery for Teachers “The service that I have received this afternoon has been excellent. Both from somebody called Martin on option 2, and I was put through to Steve Hill on option 1 who went through a whole series of questions and guidance. Both were excellent, both in help and attitude. Very good customer service, thank you. ” Source : “Viewscast” comment from existing TAVC member 16 July 2015 12

Customer Service – new applications and transfers in New Business Description Performance Standard Current Performance Issue a letter of acceptance, with an Within 10 working acknowledgement of days of receipt of any cheque if the appropriate Applications appropriate, to the completed member's home application form address 97. 08% Deal with all Within 10 working correspondence days of receipt of relating to, and invest, member's wishes AVC member's fund all the value from a required transferring company information 86. 77% Transfers “I don't think there is anything you can improve on. I did want to commend Victoria. She was clear, straight forward, friendly, approachable and communicated about finances in a way I could understand as I'm one of the millions in the country who are not financially savvy. She made me feel empowered and didn't make me feel stupid which is important. I'm grateful to her for help and assistance and would like to commend her and hope you would commend her in turn. Bye-bye. ” Source: “Viewscast” comment from new TAVC member 24 July 2015 13

Customer Service – responding to enquiries and dealing with contributions Servicing: Performance Standard Current Performance Provide a substantive reply to all General written enquiries, including those Administration received by the Call Centre Within 10 working days of receiving the enquiry 94. 65% Notify employers to make Contribution changes to AVC deductions from Amendments the next monthly salary Within 5 working days of receiving the member's instructions 75. 48% Servicing 14 Description

Customer Service – enquiries and contributions (cont/d) Contributions – received / not received: Contributions Received Contributions Not received 15 Description Current Performance Standard Accurately record all 80% of payments within payments to each 10 working days of receipt individual member's and remaining 20% within fund 15 working days of receipt Description Within 10 days Within 15 days 97. 94% 100% Performance Standard Confirm volume of employers where AVC To issue letters to all contributions have been made but not employers and a report within remitted to Prudential in compliance with 14 days from the 19 th of the PA 93 month Year to Date Number of employers 179

Customer Service – providing quotations and paying member funds Quotes & Claims 16 Description Performance Standard Current Performance Provide each AVC member with an Within 10 working days of notification accurate final retirement quotation of the retirement date, last payment Retirements containing such details as the or receipt of the MBS, whichever is parties agree last 98. 07% Claims Arrange payment into a Building Within 5 working days of receiving Society / Bank Account, or direct to authorisation from the AVC member the member's home address 77. 42% OMOs Pay OMO to AVC member's chosen Within 5 working days of receiving provider authorisation from the AVC member 76. 67% Transfers Deal with all correspondence and Within 10 working days of receipt of make payment of a member's fund member's wishes and required value to a receiving scheme documentation 87. 75% Deaths Deal with all correspondence relating to a member's death. Within 5 working days of receipt and Arrange the death payment or set all the required documentation up a beneficiary's pension 85. 64%

Customer Service – handling complaints Department Description Performance (Year to Date) Performance Standard Within 15 days of receipt. Or if a Provide AVC members with substantial investigation is required, full replies to their complaints acknowledge and provide a reply by date within the dame timescale Complaints 100. 00% Completed within SLA Complaints completed relating to administration Complaints completed relating to advice Complaints upheld Department Period Received Number completed Complaints Q 1 111 98 98 83 15 51 Complaints Q 2 141 131 111 20 66 Complaints Q 3 124 134 121 13 79 17

Customer Service – over the telephone Description: Performance: NB: Answer all telephone enquiries Within 1 day and, where appropriate, provide a substantive written response within 10 working days If a written response is required, the request is passed to the appropriate administrative department Call Centre Jan Feb Mar Apr May June July Aug Sept Calls 8240 9110 9045 9901 9648 10500 8784 9119 8921 received Total Number of calls lost 60 226 274 228 53 105 67 95 46 % of 0. 7% 2. 5% 3. 0% 2. 3% 0. 6% 1. 0% 0. 8% 1. 0% 0. 5% Calls lost “I spoke to Helen, who was incredibly helpful and was stunned at the details she was able to give me. I'm more than satisfied. In fact I would recommend the Prudential surely to anyone, and on a personal basis I would recommend them try to speak to Helen. Thank you very much. ” Source : “Viewscast” comment from TAVC member 18

Teachers at retirement “I found Ian to be incredibly helpful and patient. It was good; a really easy going manner and I think he displayed excellent qualities for somebody like myself who finds this whole financial area a bit of a fog. So, thank you very much Ian. ” Source : “Viewscast” feedback from existing Teacher – 18 September 2015 19

Options at a glance 20

Budget changes Background In March 2014 the budget announcements made vast changes to how people can access their pension savings. This, accompanied with the TAVC scheme changes, has meant that from April 2015 teachers have a lot more choice as to when and how they take their benefits Teachers’ response This is reflected in the number of teachers taking an annuity. Dropping from 34% at retirement in 2013 to 13% at retirement in 2015 21

What are the Teachers doing with their AVCs? § Cash payments peaked in Q 2 post budget at over 1, 000 cases in the quarter § 50% of Teachers have taken their full fund as cash with 9% taking partial lump sums § Teachers continue to take out annuities seeing the value in a guaranteed income for life (9%) § Drawdown accounts for a high % of External Transfers “The session was very clear and helped me to understand some of the complexities of the new pension arrangements. ” 22 Source : University of Brighton Teacher 4 February 2016

Communicating with Teachers “I think you should be making all teachers aware of the AVC scheme, especially young teachers. I’ve never been offered this since I’ve been teaching – 1989. ” Source : “Viewscast” comment from new TAVC member – 18 June 2015 23

Teachers communication suite – explanatory Information https: //www. pru. co. uk/rz/teachers/england-wales Full suite of communications material to support Teachers throughout their career and beyond 24

Teachers communication suite – other communications https: //www. pru. co. uk/early/ 25 Further targeted communications to increase knowledge and engagement with TAVCs for potential new and existing members

2013 2014 Active TAVC members at scheme year end 91, 718 85, 480 79, 643 Retirements / transfers / withdrawals 7, 268 6, 643 6, 125 New members 326 395 Ratio Leavers : New members 22 to 1 16 to 1 15 to 1 2015 2016 (YTD) 75, 756 75, 095 4, 792 905 948 278 5 to 1 2. 9 to 1 A trend that continues to improve year on year 2012 New TAVC members Increased communications The impact of communication “Useful for all teachers, from those just entering, to me only 5 years away from finishing. It was clear and instructive information. Make it compulsory for all staff. ” Source : Teacher Blue Coat School December 2015 26