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  • 7/31/2019 Portman Reports and Accounts 20062007

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    FOR THE YEAR ENDED

    5 APRIL 2007

    Scheme Registration Number: 101500944

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    Portman Building Society Pension and Assurance Scheme

    Annual Report

    For the year ended 5 April 2007

    Contents

    Page

    Scheme Advisers and Principal Employer 1 - 3

    Trustee's Report 4 - 12

    Statement ofTrustee'sResponsibilities 13

    Independent Auditors' Report 14 - 15

    Financial Statements 16 - 17

    Notes to the Financial Statements 18 - 27

    Actuarial Certificate 28

    Compliance Statement 29 - 31

    Independent Auditors' Statement about Contributions 32 - 33

    Statement ofTrustee'sResponsibilities in respect of Contributions 34

    Summary of Contributions payable 35

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    Portman Building Society Pension and Assurance Scheme

    Annual Report

    For the year ended 5 April 2007

    Scheme Advisers and Principal Employer

    Scheme Actuary

    Christian Hardy F.I.A.

    (appointed 24 August 2006)

    Mercer Limited (formerly Mercer Human Resource Consulting Limited)1 Tower Place WestTower PlaceLondon EC3R 5BU

    Anne H Craig F.F.A (resigned 28 June 2006)Mercer Limited (formerly Mercer Human Resource Consulting Limited)

    Independent Auditors

    KPMG LLPDukes Keep

    Marsh LaneSouthampton SO14 3EX

    Investment Managers

    Legal & General Investment Management LimitedBucklersbury House3 Queen Victoria StreetLondon EC4NH

    Pacific Investment Management Company103 Wigmore StreetLondon W1U 1QS

    Additional Voluntary Contribution (AVC) Providers

    Royal & Sun Alliance Insurance Group plcExecutive PensionsNewhall PlaceLiverpool L69 3HS

    Prudential Assurance Company Limited25 Cannon Street

    London EC4M 5TA

    Page 1

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    Portman Building Society Pension and Assurance Scheme

    Annual Report

    For the year ended 5 April 2007

    Nationwide Building SocietyNationwide House

    Pipers Way

    Swindon SN38 1GN

    Norwich Union Life & Pensions limitedColegate Bussiness CentreP O Box 520Norwich NR3 1BH

    Schroder Hermes Limited31 Gresham StreetLondon EC2V 7QA

    Fidelity Investment Management Limited25 Cannon StreetLondon EC4M 5TA

    Legal Adviser

    Cameron McKenna LLPMitre House

    160 Aldersgate StreetLondon EC1A 4DD

    Scheme Administrator

    Mercer Limited (formerly Mercer Human Resource Consulting Limited)

    Westgate House52 WestgateChichesterWest Sussex PO19 3HF

    Scheme Consultants

    Mercer Limited (formerly Mercer Human Resource Consulting Limited)1 Tower Place WestTower PlaceLondon EC3R 5BU

    Page 2

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    Portman Building Society Pension and Assurance Scheme

    Annual Report

    For the year ended 5 April 2007

    Investment Custodian

    JP Morgan Chase Bank, N.A.125 London Wall Street

    London EC2Y 5AJ

    Bank

    National Westminster plc5 East StreetChichesterWest Sussex PO19 1HH

    Secretary to the Trustee

    David Cook

    Principal Employer

    Nationwide Building SocietyNationwide House

    Pipers Way

    Swindon SN38 1GN

    Contact for further informationand complaints about theScheme

    David CookPensions DepartmentNationwide House

    Pipers WaySwindon SN38 1GN

    Page 3

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    Portman Building Society Pension and Assurance Scheme

    Trustee's Report

    For the year ended 5 April 2007

    Introduction

    The Trustee of the Portman Building Society Pension and Assurance Scheme is pleased to present itsReport together with the financial statements for the year ended 5 April 2007. The Scheme is a definedbenefit scheme. The Scheme has been closed to new members since 1 October 2001.

    Management of the Scheme

    In accordance with the Occupational Pension Schemes (Member-nominated Trustees and Directors)Regulations 1996, two of the Trustee Directors are nominated by the members under the rules notified tothe members of the Scheme, to serve for a period of three years.

    With effect from 14 September 2006 the Trustee of the Scheme has been Portman Pension TrusteesLimited whose Directors are:

    M P Nicholls Chair until 28 July 2006 (resigned 28 July 2006)R Sharp (resigned 28 July 2006)P Howard (appointed 6 April 2006)

    (resigned 28 August 2007)

    P M Vaz Chair until 28 August2007

    (resigned 28 August 2007)

    A R James

    Pensioner-nominated

    D L Smy

    Member-nominated

    (resigned 20 December 2006)

    S J Peters (appointed 28 July 2006)(resigned 28 August 2007)

    A Lakin (appointed 28 July 2006)(resigned 28 August 2007)

    M Wade Member-nominated (appointed 11 May 2007)M Rennison (appointed 28 August 2007)R Walther Chair from 28 August

    2007

    (appointed 28 August 2007)

    J Wrighthouse (appointed 28 August 2007)J Wood Member-nominated (appointed 28 August 2007)

    The Member-nominated Trustee Directors may be removed before the end of their three year term onlyby agreement of all the remaining Trustee Directors, although their appointment ceases if they cease to bemembers of the Scheme. In accordance with the trust deed, the Principal Employer, Nationwide BuildingSociety, has the power to appoint and remove the other Trustee Directors of the Scheme.

    Trustee Directors are invited to attend Trustee meetings; decisions require the majority support of thoseTrustee Directors present. During the year under review, five Trustee meetings were held.

    The way the Scheme Trustees were structured changed during the year. On 14 September 2006, a TrusteeCompany (Portman Pension Trustees Limited) was formally created and replaced the existing Trusteemanagement structure. The Trustee Directors remained largely the same and are described above.

    Page 4

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    Portman Building Society Pension and Assurance Scheme

    Trustee's Report

    For the year ended 5 April 2007

    New MNT Regulations

    Under the Pensions Act 2004, from 6 April 2006 scheme trustees, including those whose sponsoringemployers opted out of the 1996 Member-nominated Trustee requirements, are required to ensure that atleast one third of trustees, or directors of a trustee company, are nominated by and selected by themembers. Schemes with an opt out in place under the 1996 Regulations will have to comply with thesenew requirements by October 2007 at the latest.

    Further information about the Scheme is given in the explanatory booklet which is issued to all therelevant members.

    Governance and Risk Management

    Following on from the work started last year, the Trustee has in place a business plan which sets out itsobjectives in areas such as administration, investment, funding and communication. This, together with alist of the main priorities and timetable for completion, helps the Trustee run the Scheme efficiently andserves as a useful reference document.

    The Trustee has also focused on risk management. A risk register is in place which sets out the key risks

    to which the Scheme is subject along with the controls in place to mitigate these.Trustee Knowledge and Understanding

    The Pensions Act 2004 requires trustees to have sufficient knowledge and understanding of pensions andtrust law and be conversant with the Scheme documentation. The Pensions Regulator has published aCode of Practice on Trustee Knowledge and Understanding to assist trustees on this matter which becameeffective from 6 April 2006. The Trustee has agreed a training plan to enable it to meet theserequirements.

    Principal Employer

    The Scheme is provided for all eligible employees of the Principal Employer. On 27 August 2007,Portman Building Society merged with Nationwide Building Society. From this date, Nationwide becamethe Principal Employer to the Scheme. The Principal Employer's registered address is NationwideBuilding Society, Nationwide House, Pipers Way, Swindon, SN38 1GN.

    Page 5

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    Portman Building Society Pension and Assurance Scheme

    Trustee's Report

    For the year ended 5 April 2007

    Financial development and actuarial status

    The financial statements on pages 16 to 27 have been prepared and audited in accordance with theRegulations made under Sections 41 (1) and (6) of the Pensions Act 1995. They show that the value ofthe fund increased from 194,331,401 at 5 April 2006 to 210,062,636 at 5 April 2007.

    An actuarial valuation was carried out as at 5 April 2006 and the related Summary Funding Statement hasbeen issued to all members. The actuarial certificate certifying the schedule of contributions is shown on

    page 28 of the Annual Report.

    Actuarial position of the Plan

    An actuarial valuation of the Plan was carried out with an effective date of 5 April 2006. This was thefirst valuation carried out under the scheme specific funding requirements of the Pensions Act 2004. Thekey assumptions used for calculating the technical provisions and future contribution requirement for thePlan were:

    Principal actuarialassumptions for valuation as at

    5 April 2006

    Investment return pre-retirement

    6.75% p.a.

    Investment return post-retirement 4.75% p.a.

    RPI price inflation 2.75% p.a.

    Salary increases 3.75% p.a.

    Pension increases in payment * 2.75% p.a.

    Non-retired members mortality PA92 mc year of birth tables

    Retired members mortality PA92 mc year of birth tables

    * where 5% LPI applies

    The valuation assessed that the technical provisions were 98% covered by the market value of the assetsat the effective date.

    As a result of the valuation, employer contributions to the Plan were set at 22.4% of pensionable salariesfrom 1 January 2007.

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    Portman Building Society Pension and Assurance Scheme

    Trustee's Report

    For the year ended 5 April 2007

    Membership

    Details of the membership of the Scheme are given below:

    2007

    2006

    Active members

    Active members at the end of the year 627 699

    Pensioners

    Pensioners at the end of the year 441 396

    Members with preserved benefits

    Members with preserved benefits at the end of the year 1,516 1,517

    Total membership at the end of the year 2,584 2,612

    Pensioners include individuals receiving a pension upon the death of their spouse.

    In addition to the above, there were 2,029 (2006:1,057) members included in the Scheme for lifeassurance benefits only.

    These membership figures do not include movements notified to the Administrator after the completion ofthe annual renewal.

    Subsequent year end event

    On 24 August 2007, the assets and liabilities of the Lambeth Building Society Pension & AssuranceScheme were transferred into the Scheme. the Trustees of both schemes took independent professional

    advice to ensure the transfer was in the best interests of the members before agreeing to the transfer. Thebenefits of the ex-Lambeth Scheme members will not change as a result of the merger.

    Page 7

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    Portman Building Society Pension and Assurance Scheme

    Trustee's Report

    For the year ended 5 April 2007

    Investments

    General

    All investments, with the exception of the AVC assets, have been managed during the year under reviewby Legal & General Investment Management Limited and Pacific Investment Management Company.There is a degree of delegation of responsibility for investment decisions. The investment strategy isagreed by the Trustee after taking appropriate advice. Subject to complying with the agreed strategy,which specifies the target proportions of the fund which should be invested in the principal marketsectors, the day-to-day management of the Scheme's asset portfolio, which includes full discretion forstock selection is the responsibility of the investment managers.

    Investment principles

    The Trustee has produced a Statement of Investment Principles in accordance with Section 35 of thePensions Act 1995. A copy of the Statement is available on request. The main priority of the Trusteewhen considering the investment policy is to ensure that the promises made about members' pensions may

    be fulfilled.

    The Myners Review and Code of Best Practice

    During the year, the Trustee, in conjunction with its professional advisers, has continued its work ofreviewing the Scheme's level of compliance with the recommendations contained in the Government'sCode of Best Practice. This ongoing review is aimed at benchmarking the Scheme's level of compliancewith these recommendations and identifying any actions that still need to be taken.

    The Trustee understands that the primary purpose of the Code of Best Practice is to ensure that theTrustee has the right skill set and decision-making structures and also that it has clear objectives for the

    Scheme and an appropriate and well-documented strategy in place for achieving these objectives. In asimilar vein, the Trustee knows that it should set explicit goals for the fund managers used by the Scheme.

    Progress has continued to be made against the principles set out in the Code. The Trustee has compliedwith the requirements for setting clear objectives and making strategic asset allocation decisions for theScheme. The Trustee has agreed explicit mandates, appropriate benchmarks and performance targetswith each of the investment managers. The Statement of Investment Principles is reviewed regularly andis available to all members on request. Continued compliance with these principles is monitored by theTrustee.

    In addition, the Trustee Directors undertake appropriate training developed from a review of their trainingneeds and skills to ensure effective decision-making. The Trustee has established a training log that

    records the training the Trustee Directors have received and highlights possible future training that wouldbe of use. Where appropriate, it takes independent expert advice.

    Page 8

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    Portman Building Society Pension and Assurance Scheme

    Trustee's Report

    For the year ended 5 April 2007

    The Trustee now awaits the publication by the Government of a revised Code. It will consider whatchanges are required in the light of the new recommendations

    Review of investment performance

    Economic Background

    The Bank of Englands Monetary Policy Committee (MPC) increased interest rates by 0.25% to 5.25%in January 2007, their highest level in five years, having also increased rates in August and November2006. The Consumer Price Index increased to 3.1% in March 2007 and as a result the Governor has hadto write to the Chancellor explaining why inflation has fallen outside its target range (currently 1% to3%). Commentators are widely predicting that interest rates are likely to increase by a further 0.5%during 2007.

    Interest rates in the Eurozone rose over the year from 2.5% to 3.75%. The Euro area economy hascontinued to grow at above its trend rate, with annualised growth reaching 3.3% in the last quarter of2006. Cheaper oil (relative to mid-2006) and the strength of the Euro mean that inflation has been

    contained, increasing only slightly in January. However, with the level of unemployment in the Euro areafalling, the reduction in spare capacity could put upward pressure on inflation.

    In the US, the Federal Reserve Board (the Fed) held interest rates at 5.25% for the third quarter insuccession, having begun the year at 4.75%. Despite concerns over slowing housing markets and inparticular lending in the subprime mortgage sector, the Fed announced that its predominant concernremains the risk that inflation will fail to moderate as expected.

    The Bank of Japan (BoJ) increased interest rates to 0.25% in July 2006 ending its long held near zero-rate policy and in February of this year increased rates once again by 0.25% to 0.5% making it the highestlevel in more than a decade. This was attributed to a moderately expanding economy. However it iswidely predicted that without significant inflationary pressures, the BoJ is unlikely to raise interest rates

    further in the short term.

    Sterling appreciated against all the major currencies over the year, in particular the US Dollar and theYen. Shortly after the end of the year Sterling broke through the $2:1 barrier.

    At the end of the first quarter of 2007, Brent crude oil prices went above the $68 per barrel mark from justover $60 per barrel this time last year. Oil prices rose above $70 in April last year and eventually hit ahigh of $78.78 per barrel for Brent crude oil on 14th July, due to strong global demand. Since then therehas been a general decline in oil prices, despite OPECs decision to further cut its output from February2007.

    Page 9

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    Portman Building Society Pension and Assurance Scheme

    Trustee's Report

    For the year ended 5 April 2007

    Equities

    In the UK, the FTSE All Share Index rose by 11.4% over the year. Mid cap stocks (FTSE Mid 250Index) and small cap stocks (FTSE SmallCap) outperformed the wider market over the year, returning22.9% and 13.6% respectively. Large cap stocks (FTSE 100) however underperformed the FTSE All-Share Index, returning 9.4%.

    The FTSE W USA Index returned 12.4% in local currency terms but fell by 0.3% in Sterling terms due to

    the strong appreciation of Sterling over the year.

    The Europe (ex UK) stock market was the best performing market globally, with the FTSE W Europe (exUK) Index returning 13.7% to the Sterling investor and 17.6% in local currency terms.

    The FTSE W Japan Index returned -10.8% and 1.3% to Sterling and local investors respectively and wasthe worst performing market to the Sterling investor

    The Asia Pacific (ex Japan) region returned 12.6% to Sterling investors and 20.7% in local currencyterms over the year.

    Bonds

    Over the year, UK bond markets generally produced marginally positive returns, albeit lagging behindequity returns. The FTSE A Over 15 Year Gilts Index however fell by 1.6% over the year, whilst theFTSE A Over 5 Year index-linked Gilts Index returned 2.2% and the Merrill Lynch Sterling Non GiltsIndex returned 0.9%. Overseas bonds fell by 5.0% in Sterling terms, but rose by 3.2% in local currencyterms.

    Investment Performance

    The total fund and benchmark returns to 31 March 2007 (the nearest reportable date that figures are

    available) are as follows:

    1 Year

    (% )

    3 Year

    (% p.a.)

    S ince

    Incept ion*

    (% p.a.)

    Total Scheme 7.4 13.2 6.2

    Benchmark 7.2 13.1 5.9

    * Since inception is taken to be 1 July 2001.

    All returns are quoted gross of fees.

    Total fund returns are estimated by Gissings to 31 December 2003 and Mercer Investment Consultingthereafter.

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    Portman Building Society Pension and Assurance Scheme

    Trustee's Report

    For the year ended 5 April 2007

    Total fund returns include Fidelity and Schroder to December 2005, Barclays Global Investor fromJanuary 2004 to December 2005 and Legal & General and PIMCO from December 2005.

    Market Va lue o f Assets

    as at 31 .03.07

    Market Va lue o f Assets

    as a t

    31.03.06Investment Manager

    (m) (%) (m) (%)

    Legal & General 149.3 70.1 132.6 67.2

    PIMCO 59.9 28.3 61.1 31.0

    Annuity Policy 3.5* 1.6 3.5* 1.8

    Total Scheme 212.7 100.0 197.2 100.0

    Source: Investment Managers.

    * As at 30 May 2005.

    The table below shows the asset allocation of the Scheme versus the benchmark as at 31 March 2007 and31 March 2006.

    Asset Class

    Asset

    D ist r ibut ion as

    at 31 March

    2007

    %

    Benchmark

    A l locat ion as a t

    31 March 2007

    %

    Asset

    D is t r ibut ion as

    at 31 March

    2006

    %

    Benchmark

    A l locat ion as a t

    31 March 2006

    %

    UK Equities 34.7 32.5 33.7 32.5

    Overseas Equities* 35.4 32.5 33.5 32.5

    North America 11.3 11.0 11.2 11.0

    European (ex UK) 12.4 11.0 11.7 11.0Japanese 5.5 5.3 5.3 5.3

    Pacific Basin (exJapan)

    6.2 5.2 5.3 5.2

    UK Fixed Income 28.3 35.0 31.0 35.0

    Annuity Policy** 1.6 - 1.8 -

    Total Scheme 100.0 100.0 100.0 100.0

    Source: Investment Managers.

    * Overseas equities are 75% hedged back to sterling.

    ** As at 30 May 2005.

    As at 5 April 2007, the total value of the Scheme was 212.7m equating to a 70%:30% equity:bond split.

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    Portman Building Society Pension and Assurance Scheme

    Trustee's Report

    For the year ended 5 April 2007

    Custodial arrangements

    The custodian is responsible for the safekeeping of share certification and other documents related to theownership of listed investments. For the Schemes segregated holdings (bond assets), the Trustees areresponsible for the appointment of the custodian and, with effect from December 2005, have appointedJPMorgan Chase Bank as the custodian. The investments with Legal & General are invested in pooledfunds. The Trustees have no direct ownership of the underlying assets of the pooled funds. The

    safekeeping of the assets within the pooled funds is performed on behalf of Legal & General bycustodian banks specifically appointed to undertake this function.

    PFT Limited have been appointed by the Trustee as custodian of the cash held in connection with theadministration of the Scheme.

    The Trustee is responsible for ensuring the Scheme's assets continue to be securely held. They reviewthe custodian arrangements from time to time.

    Signed on behalf of the Trustee Company on __________________

    - - - - - - - - - - - - - - - - - - - - - -Trustee Director

    - - - - - - - - - - - - - - - - - - - - - -Trustee Director

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    Portman Building Society Pension and Assurance Scheme

    Statement of Trustee's Responsibilities

    For the year ended 5 April 2007

    The financial statements are the responsibility of the Trustee. Pension scheme regulations require theTrustee to make available to Scheme members, beneficiaries and certain other parties, audited financialstatements for each Scheme year which:

    show a true and fair view of the financial transactions of the Scheme during the Scheme year and

    of the amount and disposition, at the end of that year, of the assets and liabilities, other thanliabilities to pay pensions and benefits after the end of the Scheme year, in accordance with

    applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted

    Accounting Practice), and

    contain the information specified in the Schedule to the Occupational Pension Schemes

    (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996,

    including a statement as to whether the financial statements have been prepared in accordance

    with the Statement of Recommended Practice, "Financial Reports of Pension Schemes" (Revised

    November 2002).

    The Trustee has supervised the preparation of the financial statements and has agreed suitable accountingpolicies, to be applied consistently, making any estimates and judgements on a prudent and reasonablebasis.

    The Trustee is also responsible for making available certain other information about the Scheme in theform of an Annual Report.

    The Trustee is responsible under pensions legislation for ensuring that there is prepared, maintained andfrom time to time revised a schedule of contributions showing the rates of contributions payable towardsthe Scheme by or on behalf of the Employer and the active members of the Scheme and the dates on or

    before which such contributions are to be paid. The Trustee is also responsible for keeping records inrespect of contributions received in respect of any active member of the Scheme and for monitoringwhether contributions are made to the Scheme by the employer in accordance with the schedule ofcontributions. Where breaches of the schedule occur, the Trustee is required by the Pensions Acts 1995and 2004 to consider making reports to the Pensions Regulator and the members.

    The Trustee also has a general responsibility for ensuring that adequate accounting records are kept andfor taking such steps as are reasonably open to them to safeguard the assets of the Scheme and to preventand detect fraud and other irregularities, including the maintenance of appropriate internal controls.

    Page 13

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    Portman Building Society Pension and Assurance Scheme

    Independent Auditors' Report to the Trustee of the PortmanBuilding Society Pension and Assurance Scheme

    For the year ended 5 April 2007

    We have audited the financial statements of Portman Building Society Pension and Assurance Schemefor the year ended 5 April 2007 which comprise the fund account, the net assets statement and the relatednotes. These financial statements have been prepared under the accounting policies set out therein.

    This report is made solely to the Scheme Trustee, in accordance with the Pensions Act 1995 andRegulations made thereunder. Our audit work has been undertaken so that we might state to the Scheme

    Trustee those matters we are required to state to them in an auditors' report and for no other purpose. Tothe fullest extent permitted by law, we do not accept or assume responsibility to anyone other than theScheme Trustee, for our audit work, for this report, or for the opinions we have formed.

    Respective Responsibilities ofTrustee and Auditors

    As described in the Statement of Trustee Responsibilities on page 13, the Scheme Trustee is responsiblefor obtaining an Annual Report, including audited financial statements prepared in accordance withapplicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).

    Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory

    requirements and International Standards on Auditing (UK and Ireland).

    We report to you our opinion as to whether the financial statements show a true and fair view and containthe information specified in the Schedule to the Occupational Pension Schemes (Requirement to obtainAudited Accounts and a Statement from the Auditor) Regulations 1996 made under the Pensions Act1995. We also report to you if, in our opinion, we have not received all the information and explanationswe require for our audit.

    We read the Trustee Report and other information contained in the Annual Report and consider whether itis consistent with the audited financial statements. We consider the implications for our report if webecome aware of any apparent misstatements or material inconsistencies with the financial statements.Our responsibilities do not extend to any other information.

    Basis of audit opinion

    We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issuedby the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant tothe amounts and disclosures in the financial statements. It also includes an assessment of the significantestimates and judgements made by or on behalf of the Trustee in the preparation of the financialstatements, and of whether the accounting policies are appropriate to the Scheme's circumstances,consistently applied and adequately disclosed.

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    Portman Building Society Pension and Assurance Scheme

    Independent Auditors' Report to the Trustee of the PortmanBuilding Society Pension and Assurance Scheme

    For the year ended 5 April 2007

    We planned and performed our audit so as to obtain all the information and explanations which weconsidered necessary in order to provide us with sufficient evidence to give reasonable assurance that thefinancial statements are free from material misstatement, whether caused by fraud or other irregularity orerror. In forming our opinion we also evaluated the overall adequacy of the presentation of information inthe financial statements.

    Opinion

    In our opinion, the financial statements:

    show a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the

    financial transactions of the Scheme during the Scheme year ended 5 April 2007 and of the

    amount and disposition at that date of its assets and liabilities (other than liabilities to pay

    pensions and benefits after the end of the Scheme year); and

    contain the information specified in Regulation 3 of and the Schedule to the Occupational Pension

    Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor)

    Regulations 1996 made under the Pensions Act 1995.

    KPMG LLP

    Chartered AccountantsRegistered AuditorSouthampton

    Date:

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    Portman Building Society Pension and Assurance Scheme

    Financial Statements

    For the year ended 5 April 2007

    FUND ACCOUNT

    2007

    2006

    Note

    Member related transactions

    Additions

    Contributions 3 8,116,880 31,874,637Transfers in 4 - 27,545,004Other income 5 25,945 83,136

    8,142,825 59,502,777

    WithdrawalsBenefits 6 (4,526,215) (3,325,383)Payments to and on account of

    leavers 7 (825,070) (1,543,045)Other payments 8 (484,749) (476,508)Administrative expenses 9 (766,033) (482,120)

    (6,602,067) (5,827,056)

    Net additions from member

    related transactions

    1,540,758

    53,675,721

    Returns on investmentsInvestment income 10 2,644,850 2,370,024Investment management expenses 11 (340,084) (206,982)Change in market value of

    investments 12 11,885,711 28,555,785

    Net returns on investments 14,190,477 30,718,827

    Net increase in the fund duringthe year 15,731,235 84,394,548

    Net Assets at 6 April 2006 194,331,401 109,936,853

    Net Assets at 5 April 2007 210,062,636 194,331,401

    The notes on pages 18 to 27 form part of these financial statements.

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    Portman Building Society Pension and Assurance Scheme

    Financial Statements

    As at 5 April 2007

    NET ASSETS STATEMENT

    2007 2006

    Note

    Investments 12 209,945,158 194,487,882

    Net current assets/(liabilities) 13 117,478 (156,481)

    Net Assets at 5 April 2007 210,062,636 194,331,401

    The notes on pages 18 to 27 form part of these financial statements.

    The financial statements on pages 16 to 27 were approved on behalf of Portman Pension Trustees Limitedon __________________

    Signed on behalf of the Trustee Company

    - - - - - - - - - - - - - - - - - - - - - -Trustee Director

    - - - - - - - - - - - - - - - - - - - - - -Trustee Director

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    Portman Building Society Pension and Assurance Scheme

    Notes to the Financial Statements

    For the year ended 5 April 2007

    1.

    Basis of preparation

    The financial statements have been prepared in accordance with the Occupational Pension Schemes(Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, andwith the guidelines set out in the Statement of Recommended Practice, "Financial Reports ofPension Schemes" (revised November 2002).

    The financial statements summarise the transactions of the Scheme and deal with the net assets at

    the disposal of the Trustee. They do not take account of obligations to pay pensions and benefitswhich fall due after the end of the Scheme year.

    The actuarial position of the Scheme, which does take account of such obligations, is dealt with inthe actuarial valuation carried out as at 5 April 2006 and the related Summary Funding Statementhas been issued to all members.

    2. Accounting policies

    The principal accounting policies are set out below.

    2.1 Accruals concept

    The financial statements have been prepared on an accruals basis.

    2.2

    Valuation of investments

    Quoted securities have been valued at the middle market price at the close of business at the yearend. The market values of fixed interest and index-linked securities exclude interest accruedbetween the last interest payment date and the year end.

    The market value of pooled investment vehicles is taken as the average of the bid and offer prices atthe accounting date, as advised by the investment managers.

    The AVC investments include building society accounts and insurance policies with Royal & SunAlliance Insurance Group plc, Prudential Assurance Company Limited, Nationwide BuildingSociety, Norwich Union Life & Pensions limited, Schroder Hermes Limited and FidelityInvestment Management Limited. The market value of the policies of assurance has been taken asthe surrender values of the policies at the year end, as advised by the AVC providers.

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    Portman Building Society Pension and Assurance Scheme

    Notes to the Financial Statements

    For the year ended 5 April 2007

    Investments in overseas currencies are translated into Sterling at the exchange rates ruling at theyear end. Stock index futures contracts are valued at market prices at the year end and have beenreflected in the financial statements on the basis of associated economic exposure. Anycorresponding liability is included in the other investment liabilities. The associated economicexposure of a futures contract is the value of an amount of securities which if held as an alternativeto the futures contract, would provide a similar return in the market to that obtained on the futurescontract. All gains and losses on contracts (including transaction costs) are included in the changein market value of investments.

    2.3 Contributions and benefits

    Contributions and benefits are accounted for in the period in which they fall due.

    Normal contributions received during the year have been in accordance with the schedule ofcontributions.

    Augmentations relate to the cost of augmenting benefits of certain retiring members, as advised bythe Actuary.

    The Scheme has purchased annuity policies to cover certain pensions in payment. The cost ofacquiring these policies is included in the fund account in the year of purchase and represents thecost of discharging the obligations of the Scheme to the relevant members at the time of purchase.

    2.4

    Transfers

    Individual transfers are accounted for when the transfer has been agreed by both parties and thereceiving scheme has accepted liability for the transfer.

    Group transfers are accounted for on the accruals basis where the Trustee has agreed to accept theliability for members' benefits.

    2.5 Investment and other income

    Dividends on securities are accounted for when the securities are quoted ex-dividend. Interest onfixed interest and index-linked securities is accounted for as it accrues. Interest on bank deposits isaccounted for as it accrues. Income from investments includes the related tax credits. Income fromforeign currency holdings is translated into sterling at the rate applicable on the date of thetransaction.

    2.6 Administrative expenses and investment management expenses

    Administration expenses and investment management expenses are met by the Scheme.

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    Portman Building Society Pension and Assurance Scheme

    Notes to the Financial Statements

    For the year ended 5 April 2007

    3.

    Contributions

    2007

    2006

    Contributions from employer:

    Normal 3,113,583 2,361,130

    Special 2,611,280 28,833,721

    Augmentations 1,740,000 1,750

    7,464,863 31,196,601

    Contributions from members:

    Normal 631,257 664,228

    AVCs 20,760 13,808

    652,017 678,036

    8,116,880 31,874,637

    The employer special contributions consist of monthly amounts of 170,000 until December 2006,changing to 291,667 per month from January 2007, plus an amount of 206,279 representing theremaining unallocated assets transferred to the DB section upon the closure of the DC section lastyear.

    4. Transfers in

    2007 2006

    Group transfers in from other schemes - 27,545,004

    The group transfer in 2006 was in respect of retained benefits transferred into the Scheme from theStaffordshire Building Society Pension and Assurance Scheme.

    5. Other income

    2007 2006

    Claims on term insurance policies - 62,788

    Interest on cash deposits held by the Trustee 25,945 20,348

    25,945 83,136

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    Portman Building Society Pension and Assurance Scheme

    Notes to the Financial Statements

    For the year ended 5 April 2007

    6.

    Benefits

    2007

    2006

    Pensions

    3,509,992

    2,818,679

    Commutations and lump sums on retirement 934,499 410,632

    Lump sums on death in service - 73,464

    Death benefits 17,906 -

    Purchase of annuities 63,818 22,608

    4,526,215 3,325,383

    The value of pensions is arrived at after netting off annuity income of 21,100 (2006: 18,803)from the annuity policies referred to in note 12.

    7. Payments to and on account of leavers

    2007 2006

    Refunds to members leaving service - 11,181

    Payments for members joining state scheme

    2,079

    -

    Group transfers to other schemes

    -

    1,003,894

    Individual transfers to other schemes 822,991 527,970

    825,070 1,543,045

    The group transfer out in 2006 related to the wind up of the DC section of the Scheme.

    8. Other payments2007 2006

    Premiums on term insurance policies 484,749 476,508

    Term insurance is secured by policies underwritten by Canada Life, Norwich Union, Legal &General and Scottish Equitable.

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    Portman Building Society Pension and Assurance Scheme

    Notes to the Financial Statements

    For the year ended 5 April 2007

    9.

    Administrative expenses

    2007

    2006

    Administration

    628,756

    376,376

    Audit 19,975 18,571

    Legal 66,420 37,510

    PPF levy 6,312 29,112

    Miscellaneous expenses 44,570 20,551

    766,033 482,120

    10. Investment income

    2007 2006

    Fixed interest 2,595,696 2,333,564

    Index-linked - 1,037Interest on cash deposits - 9,975

    AVCs

    49,154

    25,448

    2,644,850

    2,370,024

    11. Investment management expenses

    2007 2006

    Administration management and custody 340,084 206,982

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    Portman Building Society Pension and Assurance Scheme

    Notes to the Financial Statements

    For the year ended 5 April 2007

    12.

    Investments

    2007

    2006

    Quoted securities

    Fixed interest

    - UK Public sector 46,001,560 43,413,116

    - Overseas Public sector 13,184,736 15,812,296- Forward currency contracts sold (6,674,533) (11,973,284)

    52,511,763 47,252,128

    Pooled investment vehicles

    Managed funds - other

    - UK 73,884,546 66,468,594

    - Overseas 75,433,110 66,149,025

    149,317,656 132,617,619

    Cash deposits

    - Sterling (55,188) 1,120,984

    - Cash backing forward currency

    6,523,281

    11,888,602

    6,468,093 13,009,586

    AVC investments 729,673 720,904

    209,027,185 193,600,237

    Income receivable 917,973 887,645

    209,945,158 194,487,882

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    Portman Building Society Pension and Assurance Scheme

    Notes to the Financial Statements

    For the year ended 5 April 2007

    The movements in total investments during the year were as follows:

    Market

    value

    at 6 April

    2006

    Cost of

    investments

    purchased

    Proceeds of

    sales of

    investments

    Change in

    market

    value

    Market value

    at 5 April

    2007

    Fixed interest 59,225,412 539,450,707 (535,313,250) (4,176,573) 59,186,296

    Pooled investmentvehicles - managedfunds 132,617,619 702,000 - 15,998,037 149,317,656

    Forward currencycontracts sold (11,973,284) 303,930,742 (298,646,688) 14,697 (6,674,533)

    AVC investments 720,904 70,865 (111,646) 49,550 729,673

    Sub total 180,590,651 844,154,314 (834,071,584) 11,885,711 202,559,092

    Cash deposits 1,120,984 (55,188)

    Cash backing

    forward currency 11,888,602 6,523,281

    Income receivable 887,645 917,973

    194,487,882

    209,945,158

    The Trustee holds insurance policies that secure pensions payable to specified beneficiaries. Thesepolicies remain assets of the Trustee but, as is permitted under current regulations and accountingpractice, the Trustee has decided that these policies need not be valued in the net assets statement.

    The Fixed Interest investments figure includes values representing the position of futures, swapsand options at the year end.

    PIMCO enter into foreign currency contracts in order to hedge the exchange rate risk on theunderlying foreign currency investments. The liability for the Forward Currency contracts sold atthe year end is covered by the Cash backing forward currency at the year end. PIMCO also usederivatives to both hedge interest rate risk and for investment purposes.

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    Portman Building Society Pension and Assurance Scheme

    Notes to the Financial Statements

    For the year ended 5 April 2007

    Concentration of investments

    The following investments account for more than 5% of the Scheme's net assets as at 5 April 2007or 5 April 2006:

    2007 2006

    % %

    Legal & General UK Equity Index 35.2 34.1

    Legal & General European Equity Index 9.5 8.8

    Legal & General North American Equity Index 8.8 8.5

    AVC investments

    The Trustee holds assets which are separately invested from the main fund, in the form ofindividual building society accounts and insurance policies. These secure additional benefits, on amoney purchase basis, for those members who have elected to pay AVCs. Members participatingin this arrangement receive an annual statement made up to 5 April each year, confirming theamounts held to their account and the movements during the year. The total amount of AVC

    investments at the year end is shown below.

    2007

    2006

    Royal & Sun Alliance Insurance Group plc - 20,700

    Prudential Assurance Company Limited 1,812 1,760

    Nationwide Building Society 341,647 306,786

    Norwich Union Life & Pensions limited 126,506 155,241

    Schroder Hermes Limited 119,684 96,575Fidelity Investment Management Limited 31,429 20,967

    Legal & General 108,595 118,875

    729,673 720,904

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    Portman Building Society Pension and Assurance Scheme

    Notes to the Financial Statements

    For the year ended 5 April 2007

    13.

    Net current assets/(liabilities)

    2007

    2006

    Current assets

    Claim on term insurance policies - 62,788

    Interest on cash deposits 780 -

    Pensions paid in advance 238,406 200,429

    Cash deposits held with Scheme Administrator 526,339 364,556

    765,525 627,773

    2007 2006

    Current liabilities

    Contributions received in advance - 206,279

    Lump sums on retirement 115,208 4,566Death benefits - 73,395

    Purchase of annuities

    10,542

    -

    Taxation

    8,242

    8,242

    State scheme premiums 44,072 44,727

    Administrative expenses 116,209 114,305

    Investment management expenses 118,774 97,740

    Sundry creditors 235,000 235,000

    648,047 784,254

    Net current assets/(liabilities) 117,478 (156,481)

    Sundry creditors relate to a provision made for outstanding rectification issues in the final accountsof the Staffordshire Pension and Assurance Scheme.

    Cash deposits

    This amount represents the balance applicable to the Scheme on the PFT Limited Clients' TrustAccount. The account is held with the National Westminster plc.

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    Portman Building Society Pension and Assurance Scheme

    Notes to the Financial Statements

    For the year ended 5 April 2007

    14.

    Related party transactions

    A R James and P M Vaz, who are not employed by Portman Building Society, received fees duringthe year for acting as Trustee Directors of the Scheme. These payments are included within themiscellaneous expenses.

    Of the six Trustee Directors, one is an active member of the Scheme and one is a pensioner.

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    Actuarial Certificate

    given for the purposes of Section 227 of the Pensions Act 2004(Certification of Schedule of Contributions)

    Name of Scheme:

    Portman Building Society Pension and

    Assurance Scheme

    Adequacy of Rates of Contributions

    1.

    I certify that, in my opinion, the rates of the contributions showninthis schedule of contributionsare such that the statutory funding objective can be expected to be met by the end of the periodspecified in the recovery plan dated 31 January 2007.

    Adherence to statement of funding principles2. In hereby certify that, in my opinion, this schedule of contributions is consistent with the Statement

    of Funding Principles dated 31 Janury 2007.

    The certification of the adequacy of rates of contributions for the purposes of securing that thestatutory funding objective can be expected to be met is not a certification of their adequacy for thepurpose of securing the Scheme's liabilities by the purchase of annuities, if the Scheme were woundup.

    Signature Christian Hardy

    Name Christian Hardy

    Date of signing

    31 January 2007

    Address Mercer Human Resource Consulting Limited1 Tower Place WestTower PlaceLondon EC3R 5BU

    Qualification Fellow of the Institute of Actuaries

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    Portman Building Society Pension and Assurance Scheme

    Compliance Statement

    For the year ended 5 April 2007

    Constitution

    The Scheme was established by an interim trust deed and is governed by a definitive trust deed dated18 August 1999, with subsequent amendments.

    Taxation status

    In accordance with the provisions of Schedule 36 of the Finance Act 2004, the Scheme became aregistered pension scheme under Chapter 2 of part 4 of the Finance Act 2004 with effect from 6 April2006. The Trustee knows of no reason why this approval may be prejudiced or withdrawn.

    A-Day Changes

    The Trustee and the Employer have been working together to assess the impact of the Pensions Act 2004and Finance Act 2004 on the Scheme. An announcement has been issued to members which outlines theimpact of this legislation and the Rules of the Scheme have been updated to reflect these changes.

    Matters relating to the Scheme's Advisers

    With effect from 28 June 2006 Anne H Craig resigned as Actuary to the Scheme and Christian Hardy wassubsequently appointed. The following statement has been received from Anne H Craig:

    "I can confirm that, in my opinion, there are no circumstances connected with my resignation whichsignificantly affect the interest of the members of, prospective members of, or beneficiaries under, theScheme".

    Pension increases

    Any pensions payable which relate to Pensionable Service on or after 1 August 2000 (1 May 2000 for ex-

    Staffordshire Scheme members) shall be increased annually by the increase in the Retail Price Index or, ifless, 5%.

    Pensions in payment for service prior to 1 August 2000 (1 May 2000 for ex-Staffordshire Schememembers) will be increased by 5% per annum.

    Preserved pensions were increased in accordance with statutory requirements.

    Calculation of transfer values

    Transfer values paid during the year were calculated and verified in the manner required by the

    Regulations. None of the transfer values paid was less than the amount required by the Regulations.

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    Portman Building Society Pension and Assurance Scheme

    Compliance Statement

    For the year ended 5 April 2007

    Employer-related investment

    There was no employer-related investment at any time during the year.

    The Pensions Regulator

    The statutory body that regulates occupational pension schemes is the Pensions Regulator and can becontacted at:

    The Pensions RegulatorNapier HouseTrafalgar PlaceBrighton BN1 4DW

    Telephone: 0870 6063636

    Email: [email protected]

    Website: www.thepensionsregulator.gov.uk

    Pension tracing

    A pension tracing service is carried out by the Department for Work and Pensions. This service can becontacted as follows:

    Pension Tracing Service

    The Pension ServiceTyneview ParkWhitley RoadNewcastle upon Tyne NE98 1BA

    Telephone: 0845 6002537

    Website: www.thepensionservice.gov.uk

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    Portman Building Society Pension and Assurance Scheme

    Compliance Statement

    For the year ended 5 April 2007

    The Pensions Advisory Service

    Any concerns connected with the Scheme should be referred to David Cook, Secretary, who will try toresolve the problem as quickly as possible. Members and beneficiaries of pension schemes who haveproblems concerning their scheme which are not satisfied by the information or explanation given by theadministrators or the trustees can consult with The Pensions Advisory Service. A local advisor canusually be contacted through a Citizen's Advice Bureau. Alternatively the Service can be contacted at:

    The Pensions Advisory Service11 Belgrave RoadLondon SW1V 1RB

    Telephone: 0845 6012923

    Email: [email protected]

    Website: www.pensionsadvisoryservice.org.uk

    Pensions Ombudsman

    In cases where a complaint or dispute cannot be resolved, normally after the intervention of The PensionsAdvisory Service, an application can be made to the Pensions Ombudsman for him to investigate anddetermine any complaint or dispute of fact or law involving occupational pension schemes. The addressis:

    Pensions Ombudsman11 Belgrave RoadLondon SW1V 1RB

    Telephone: 0207 8349144

    Email: [email protected]

    Website: www.pensions-ombudsman.org.uk

    Pension Protection Fund

    The Pension Protection Fund (PPF) came into being on 6 April 2005 and its first levy for 2005/2006was based on membership numbers. The PPF levy for 2006/2007 will consist of two parts: a scheme-based levy (20%) based on the Schemes PPF liabilities, and a risk-based levy (80%) based on the level ofunderfunding in the Scheme and the risk of the sponsoring employer becoming insolvent. Schemes whichare more than 125% funded will not have to pay the risk-based levy. The total levy which the PPFexpects to raise in respect of UK pension schemes in 2006/2007 is estimated at 575 million.

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    Portman Building Society Pension and Assurance Scheme

    Independent Auditors' Statement about Contributions

    made under Regulation 4 of the Occupational Pension Schemes (Requirement to obtainAudited Accounts and a Statement from the Auditor) Regulations 1996, to the Trustee

    of the Portman Building Society Pension and Assurance Scheme

    For the year ended 5 April 2007

    We have examined the Summary of Contributions payable under the schedule of contributions to thePortman Building Society Pension and Assurance Scheme in respect of the Scheme year ended5 April 2007 which is set out on page 35.

    This statement is made solely to the Scheme Trustee, in accordance with the Pensions Act 1995 andRegulations made thereunder. Our work has been undertaken so that we might state to the SchemeTrustee those matters we are required to state to them in an auditors' statement about contributions and forno other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility toanyone other than the Scheme Trustee, for our work, for this statement, or for the opinions we haveformed.

    Respective Responsibilities ofTrustee and Auditors

    As described on page 34, the Scheme Trustee is responsible, under the Pensions Act 2004, for ensuringthat there is prepared, maintained and from time to time revised a schedule of contributions which sets out

    the rates and due dates of certain contributions payable towards the Scheme by or on behalf of theEmployer and the active members of the Scheme. The Trustee has a general responsibility for procuringthat contributions are made to the Scheme in accordance with the schedule of contributions.

    It is our responsibility to provide a statement about contributions paid to the Scheme and to report ouropinion to you.

    We read the Trustee's Report and other information in the Annual Report and consider whether it isconsistent with the Summary of Contributions. We consider the implications for our statement if webecome aware of any apparent misstatements or material inconsistencies with the Summary ofContributions.

    Basis of Statement about Contributions

    We planned and performed our work so as to obtain all the information and explanations which weconsidered necessary in order to give reasonable assurance that contributions reported in the Summary ofContributions have been paid in accordance with the relevant requirements. For this purpose, the workthat we carried out included examination, on a test basis, of evidence relevant to the amounts ofcontributions payable to the Scheme and the timing of those payments. Our statement about contributionsis required to refer to those exceptions which come to our attention in the course of our work.

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    Portman Building Society Pension and Assurance Scheme

    Independent Auditors' Statement about Contributions

    made under Regulation 4 of the Occupational Pension Schemes (Requirement to obtainAudited Accounts and a Statement from the Auditor) Regulations 1996, to the Trustee

    of the Portman Building Society Pension and Assurance Scheme

    For the year ended 5 April 2007

    Statement about Contributions payable under the schedule

    In our opinion contributions for the Scheme year ended 5 April 2007 as reported in the Summary ofContributions and payable under the schedule have, in all material respects, been paid at least from 6April 2006 to 30 January 2007 in accordance with the schedule of contributions certified by the Actuary

    on 20 December 2005, and subsequently, in accordance with the schedule of contributions certified by theActuary on 31 January 2007.

    KPMG LLP

    Chartered Accountants Date:Dukes Keep

    Marsh LaneSouthampton SO14 3EX

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    Portman Building Society Pension and Assurance Scheme

    Statement of Trustee's Responsibilities in respect of

    Contributions

    For the year ended 5 April 2007

    The Scheme's Trustee is responsible under pensions legislation for ensuring that there is prepared,maintained and from time to time revised a schedule of contributions showing the rates of contributionspayable towards the Scheme by or on behalf of the Employer and the active members of the Scheme andthe dates on or before which such contributions are to be paid. The Scheme's Trustee is also responsiblefor keeping records of contributions received in respect of any active member of the Scheme and forprocuring that contributions are made to the Scheme in accordance with the schedule.

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    Portman Building Society Pension and Assurance Scheme

    Summary of Contributions payable

    For the year ended 5 April 2007

    During the year ended 5 April 2007, the contributions payable to the Scheme by the Employer were asfollows:

    5April

    2007

    Contributions payable under the schedule of contributions:

    Contributions from employer:

    Normal 3,113,583

    Special 2,611,280

    Augmentations 1,740,000

    7,464,863

    Contributions from members:

    Normal 631,257

    Contributions payable under the schedule (as reported on by the Scheme auditor) 8,096,120

    Other contributions payableAVCs 20,760

    Contributions reported in the financial statements

    8,116,880

    Signed on behalf of the Trustee Company on __________________

    - - - - - - - - - - - - - - - - - - - - - -Trustee Director

    - - - - - - - - - - - - - - - - - - - - - -Trustee Director