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SIEMENS UK PENSION PLANS

SIEMENS UK PENSION PLANS. Member Briefings July/ August 2007. Agenda. 1. Today’s purpose 2. The need for change and the aims of the review 3. Outcome of the review The consultation process Where to get more information 6. Your questions. The UK pensions crisis. Future service costs.

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SIEMENS UK PENSION PLANS

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  1. SIEMENS UK PENSION PLANS • Member Briefings • July/ August 2007

  2. Agenda • 1. Today’s purpose • 2. The need for change and the aims of the review • 3. Outcome of the review • The consultation process • Where to get more information • 6. Your questions

  3. The UK pensions crisis

  4. Future service costs

  5. Liabilities and assets Deficit= £539m

  6. Financial Position of UK DB Plans - Actual IAS Accounting Figures September 2006

  7. Additional contributions and deficit repair

  8. Action taken to date • Defined benefit schemes closed to new entrants • Increased employee contributions/reduced future accrual rates • Reduced cap on increases to pensions in payment • Termination of future pension accruals for some acquired companies This has not been enough

  9. The aims of the review • Increase the security of the benefits that members have earned to date, by Siemens making cash payments to reduce the pension schemes’ deficits • Help to secure employment by making the company more competitive through the reduction of future pension costs • Continue to provide significant ongoing financial help to employees to build up their pension savings

  10. Pension review: members affected

  11. Outcome of the review: the Company’s proposals • Siemens will pay off all relevant pension schemes’ deficits before the end of 2007. The deficits will be calculated using the method that applies to the figures shown in company accounts. In addition, the company will put forward a plan to pay off future deficits as they arise • No change will be made to the accrued pension entitlement that relates to members’ pensionable earnings before 31 December 2007. This pension will continue to benefit from an element of linkage to your future earnings. • From 1 January 2008, members will not build additional final salary pension but will be offered a “defined contribution” pension for the future, instead • From 1 January 2008, instead of membership of a defined benefit scheme, members will be able to join the Investor Plan section of the Siemens Benefits Scheme, on specially improved terms

  12. Reminder of how pension benefits build up now • Final Salary example - member of Siemens Benefit Scheme: • 30 years pensionable service • Retires at 65 • Final pensionable salary of £30,000. • 1/60 pension build up Pension calculation 30/60 x £30,000 = £15,000 per annum

  13. Reminder of how pension benefits build up now • Defined Benefit: • Employee pays contribution • Sponsoring employer meets balance of the cost

  14. How pension builds up under defined contribution

  15. Defined Benefit and Defined Contribution - Normal Retirement Age Defined Benefit Defined Contribution • Tax free cash decision (Maximum 25% of value of benefits) • Pension basis cannot be changed i.e five year guarantee, spouse’s pension and increase basis. • Tax free cash decision (Maximum 25% of the value of the fund) • Pension secured by annuity • Basis can be decided at retirement to suit circumstances at the time.

  16. Defined Benefit and Defined Contribution – Early Retirement Defined Benefit Defined Contribution • Pension reduced • Fewer years of service • Lower pensionable salary? • Early retirement factors applied • Fewer contributions paid • Shorter investment term • Lower annuity rate

  17. Enhanced Matching • The Company will match employee contributions up to 10% on a 2 for 1 basis in year 1 • Enhanced matching will reduce to 1.5 for 1 by year 11 in increments of 0.05% • Enhanced matching will continue at 1.5 for 1 for a further 5 years • Enhanced matching payments will be made on a monthly basis together with normal matching • Contributions are made through My choice flexible benefits system

  18. Enhanced Matching

  19. Matching (assuming maximum employee contribution)

  20. Matching (assuming minimum employee contribution)

  21. The State Pension • State Second Pension (S2P): • Earnings Related tier of the State Pension • Broadly based on earnings that are subject to National Insurance • Contracting out: • Siemens Benefit Scheme contracted out • Investor Plan contracted in

  22. The State Pension Employee 9.4% Employer 9.3% HMRC National Insurance Basic State pension

  23. The State Pension Employee 11.00% Employer 12.80% HMRC National Insurance Basic State Pension State Second Pension NI Rebate Personal Pension Arrangement

  24. Example of affect on take home pay – salary £29,700 Your tax bill reduces because your taxable salary has gone down This is broadly 9.4% of your earnings between £433 and £2,903 a month + 1% on earnings above this AFTER BEFORE As your contributions are based on a higher pensionable salary, this figure is now less (due to the salary conversion process) As a result of My choice your salary is already reduced to take account of your contributions paid through salary conversion This has increased as it is now 11% of your earnings between £433 and £2,903 a month and 1% on earnings above this Overall your take home pay is now less

  25. Enhanced Revaluation Basis • Pensions earned to date are not “frozen”: a substantial element of salary linkage is proposed • Salary* linkage of benefits earned to 31 December 2007, subject to a maximum of Retail Prices Index + 2% in any year for 15 years • Benefits will never be less than those of a member who left on 31 December 2007 and received the revaluation required by law • * Based on “Final Pensionable Salary” in the Defined Benefit scheme

  26. Overview of pension revaluation

  27. Overview of pension revaluation

  28. Year to year capped salary linkage Pension at 31/12/07: 10 x £24,000 x 1/60ths= £4,000

  29. Year to year capped salary linkage Pension at 31/12/07: 10 x £24,000 x 1/60ths= £4,000

  30. Year to year capped salary linkage Pension at 31/12/07: 10 x £24,000 x 1/60ths= £4,000

  31. Year to year capped salary linkage Pension at 31/12/07: 10 x £24,000 x 1/60ths= £4,000

  32. Minimum level of increase

  33. Death Benefits from 01/01/2008 • Investor Plan • Greater of: 3 x death benefit salary plus value of member account • and • 6 x death benefit salary • Plus • Deferred Pension • Dependant’s pension from pension built up until 31/12/2007 (if applicable) • For details of what applies in your scheme you can contact the Helpdesk: • Internal tel: x720 5555 (option 6) • External tel: 0845 6039972 • Email: pensions.review.css.uk@siemens.com

  34. Deficit Payments • The 2007 “balance sheet” deficit will be paid off by 31 December 2007 • Any “balance sheet” deficits arising in future years will generally be paid off by the Company before the next year’s valuation (subject, in some cases to a cap to cover extreme market developments)

  35. Deficit Payments • The Company’s cash payments are expected to be several hundred £million • The actual amounts will depend on the “balance sheet” deficits calculated at 30 September 2007 • These payments give added security to the pension earned by members to 31 December 2007

  36. Illustrative ‘before and after’ comparisons

  37. Siemens Benefits SchemeIllustrative “before and after” comparisons; A member who keeps their take home pay the same.

  38. Siemens Benefits SchemeIllustrative “before and after” comparisons; A member who keeps their take home pay the same.

  39. Siemens Benefits SchemeIllustrative “before and after” comparisons; A member aiming to get the maximum company contribution

  40. Siemens Benefits SchemeIllustrative “before and after” comparisons; A member aiming to get the maximum company contribution

  41. Consultation process • The company wishes to consult for longer than the legal requirement of 60 days • Consultation involves an exchange of views and the establishment of a dialogue • Consultation means working in a spirit of co-operation and taking into account the interests of both groups • Ultimately, the company will have to make a decision based on the input and information it receives during the consultation

  42. Where do you get more information? • Speak to one of your local employee consultative forum representatives • Read Defined Benefit Pensions Review Proposals updates • Pension Review Helpdesk [internal tel 720 5555 (option 6); external tel:0845 6039972; email pensions.review.css.uk@siemens.com] • Log on to the intranet at: http://intranet.css.siemens.co.uk/pensions • How do you make your views known? Complete feedback form enclosed with update

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