The Transport Act 2000 (Civil Aviation Authority Pension Scheme) Order 2001

1.  Introduction

1.1  The calculations required to place an actuarial value on the assets and liabilities of the Scheme (and consequential allocation of such assets and liabilities between the CAA Section and the NATS Section) will be made by the Actuary as at the Effective Date.

1.2  Words and expressions in this Appendix (and the Schedule to it) shall have the meanings set out in Appendix 1 of this Deed unless otherwise indicated in this Appendix 6.

2.  The General Method of Calculation

2.1  The notional share of the assets of the Scheme attributable to HIAL Members at the Effective Date (the HIAL Fund) will be determined in accordance with the terms of the letter between Mr L W Priestley on behalf of the Trustees of the Scheme and Mr H M Lawson of HIAL dated 1 April 1995 and countersigned by Sir Christopher Chataway for the Civil Aviation Authority and Mr S J Ainsworth for Bacon & Woodrow.

The market value of the HIAL Fund will then be deducted from the total market value of the assets of the Scheme at the Effective Date prior to the allocation of the remaining assets of the Scheme between the CAA and NATS Sections. Following such allocation, the HIAL Fund will form part of the assets of the CAA Section.

2.2  No calculation of liabilities in respect of HIAL Members at the Effective Date will be required.

2.3  The assets of the Scheme which are attributable to additional voluntary contributions made by members pursuant to the rules of the Scheme in order to provide additional pension benefits determined on a money purchase basis (the AVC Fund) will be excluded prior to the allocation of the assets of the Scheme between the CAA and NATS Sections. The AVC Fund shall be allocated between the Sections of CAAPS by reference to the allocation of the Member to whom that part of the AVC Fund is attributable.

2.4  The liabilities of the Scheme for and in respect of Members at the Effective Date will be determined by reference to the benefits set out in this Deed together with any subsequent benefit changes notified to Members up until the Effective Date. In addition, provision will be made for an improvement in the rate of pension payable to a Spouse or Dependant on death after retirement (or in deferment) from 60% to 2/3rds of the Member’s pension for all Current Pensioners, Deferred Pensioners and Current Members employed by CAA and NATS as at the Effective Date.

2.5  All of the calculation results will be rounded to an accuracy of £0.1 million (nearer).

2.6  The membership of the Scheme (excluding HIAL Members) on the day prior to the Effective Date will be subdivided into the following categories for the purpose of the calculations:—

• Current Members employed by CAA (CAA Active Members)

• Current Members employed by NATS (NATS Active Members)

• Pensioners who were formerly Current Members and who are not in receipt of a pension from the Scheme (Deferred Pensioners)

• Persons who are in receipt of a pension or other benefit in respect of a Member from the Scheme (including Spouses, Qualifying Children and Dependants) (Current Pensioners)

2.7  Under Clause 3.1 of this Deed, separate CAA and NATS Sections are established within the Scheme. Under Clause 3.2 of this Deed NATS Active Members are allocated to the NATS Section together with the corresponding actuarial liabilities. Under Clause 3.3 of this Deed, all CAA Active Members, Deferred Pensioners and Current Pensioners are allocated to the CAA Section together with the corresponding actuarial liabilities.

3.  Methods and Assumptions

3.1  The actuarial liabilities in respect of CAA Active Members and NATS Active Members at the Effective Date will be calculated on a past service reserve basis on the assumptions set out in this Part 3 of this Appendix 6.

3.2  The actuarial liabilities in respect of Deferred Pensioners and Current Pensioners at the Effective Date will be calculated on a past service reserve basis on the assumptions set out in Part 3 of this Appendix 6 and then multiplied by 1.14 in order to provide for a strengthening of the basis.

3.3  Financial assumptions

Return on investments	Derived from yields on the FTSE Actuaries Government Securities 20 year index at the Effective Date together with an adverse margin provision of −0.5% post retirement and an outperformance premium adjustment of +1.0% pre retirement (except in relation to Deferred Pensioners where an adverse margin provision of −0.5% applies).
Price inflation	Derived from the difference in yields on ordinary gilts and index-linked gilts at the Effective Date (as specified in the Schedule to this Appendix 6).
Future increases in pensionable salaries
due to seniority and length of service	Age related scale (as specified in the Schedule to this Appendix 6).
due to general pay increases	Taken as equal to price inflation plus 1.5% pa, subject to a minimum annual increase of 0%.
Future increases to the earnings cap	Equal to price inflation, subject to a minimum annual increase of 0%.
Pension increases in payment	In excess of the Guaranteed Minimum Pension (GMP), equal to price inflation, subject to a minimum annual increase of 0%. Increases on post 5.4.88 GMPs are allowed for having regard to price inflation, subject to a minimum annual increase of 0% and a maximum annual increase of 3%.
Pension increases in deferment	Equal to price inflation, subject to a minimum annual increase of 0%.
GMP increases in deferment	Allowance for fixed rate revaluation at the relevant rate.
The financial assumptions will be rounded to one decimal place (nearer).

3.4  Demographic assumptions

Mortality before retirement	Men and women: Standard table AM80 rated down by 2 years.
Mortality in retirement	Men: Standard table PMA80 (base) rated down 5 years. Women: Standard table PFA80 (base) rated down 5 years.
Ill health retirements	Allowance consistent with Scheme experience (as specified in the Schedule to this Appendix 6).
Other early retirements	No allowance except for air traffic control officers (ATCOs) (as specified in the Schedule to this Appendix 6).
Withdrawals	Allowance has been made for withdrawals from service consistent with Scheme experience (as specified in the Schedule to this Appendix 6).
Family Details	Husbands three years older than their wives. In respect of CAA Active Members, NATS Active Members and Deferred Pensioners 100% of members married at retirement or earlier death. For Current Pensioners, marital status is as per membership data held by the pensions administrators of the Scheme.

3.5  Procedural assumptions

Commutation	None.
Age	Age taken as age nearest birthday at the Effective Date.
Withdrawals	Members withdrawing from service are assumed to be entitled to deferred pensions.
S Category	Active members assumed to retire at 60 without early retirement factor.

3.6  The value of assets of the Scheme will be the market value of the assets at the Effective Date. It is assumed that audited accounts will be available for this purpose.

3.7  No explicit allowance will be made for administration or investment expenses.

3.8  The actuarial liabilities in respect of Members attributed to each Section of the Scheme at the Effective Date will be determined in accordance with the actuarial method and assumptions set out above. Assets of an equivalent market value to the actuarial liabilities will then be allocated to each Section.

3.9  The balance of the assets of the Scheme remaining after the allocation in under paragraph 3.8 above will be allocated to the CAA and NATS Sections in proportion to the actuarial liabilities of the Current Members allocated to the respective Sections.

3.10  The calculations in paragraphs 3.8 and 3.9 of this Appendix 6 shall determine the assets allocated to each Section. It is anticipated that the Trustees (in consultation with the members of the Section Strategic Asset Allocation Committees (SSAAC) of the CAA Section and the NATS Section, which are to be created at the Effective Date) will decide (prior to the Effective Date) on the nature of the assets representing the appropriate market value to be allocated to each Section. To the extent that no decision is made by the Effective Date, the remaining assets (or the totality of assets if no agreement at all is reached) will be allocated so that the assets for the Current Pensioners and Deferred Pensioners are provided, as far as possible, by bonds/cash and the remainder of assets will be allocated by class of asset in strict proportion to that revealed by paragraphs 3.8 and 3.9 above.

3.11  As it will be impracticable to carry out a full set of calculations, in accordance with the terms of this Schedule, on the Effective Date, the following method will be adopted. Two weeks prior to the Effective Date, an approximate set of calculations will be carried out. The assets of the Scheme will then be allocated, at the Effective Date, in accordance with these calculations. Subsequently, a full and final set of actuarial calculations will be carried out as at the Effective Date. The Actuary will use his reasonable endeavours to ensure that the final results will be available within two months following the Effective Date. In the event that the full and final set of actuarial calculations reveal that a Section has been allocated excess assets, such excess assets will be re-allocated to the other Section together with an adjustment representing the appropriate investment return between the Effective Date and the date of final payment (the Relevant Period). The appropriate investment return will be determined on such basis as may be decided by the Trustees (in consultation with the members of the SSAACs) prior to the Effective Date. If no decision is made prior to the Effective Date, in the case that it is the CAA Section which has been allocated the excess assets, the appropriate investment return will be determined as the investment return on the assets allocated to the CAA Section excluding the bond/cash portfolio over the Relevant Period and, in the case that is the NATS Section which has been allocated the excess assets, the appropriate investment return will be determined as the investment return on the assets allocated to the NATS Section over the Relevant Period. It is assumed that the SSAACs will reach agreement as to the nature of the assets to be transferred. In the event that such agreement is not reached, then payment will be in cash.