PENSIONWATCHMay 2017GATWICK AIRPORT PENSION PLAN (GAPP) NEWSLETTER

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Gatwick Airport Limited

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Pension Plan_REVERSE

Steve R

24.09.10

Mark Tosey

Hamish Campbell

Simon Gore

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Welcome to PENSIONWATCH

Welcome to the latest edition of the Gatwick Airport Pension Plan newsletter.

I am pleased to introduce you to this update from the Plan Trustee. In the following pages you will find the latest information about the Plan and changes in the pensions world.

The Plan has undergone significant changes this year, with a large number of members deciding to opt-out of the Plan following GAL’s membership consultation. Further information on the Plan is set out on page 4. Elsewhere in the UK, pensions continue to hit the news headlines. The government announced the introduction of a new Lifetime ISA, which offers individuals a potential new way of saving, and a reduction in the Money Purchase Annual Allowance which may affect some members. The impact “Brexit”

has had, or could have, on pension schemes has also featured in the news over the past year. Further information on these topical issues is set out on page 7.

Unlike last year, this newsletter does not include an update on the Plan’s financial position. This is because we are currently carrying out a full detailed valuation of the Plan, as part of which the level of contributions required from the employer will be reassessed. We will report the results of the valuation in the next newsletter. In the meantime, I want to remind you that the Plan continues to be backed by a strong employer, providing comfort that your benefits earned in the Plan remain secure.

As always, we hope you find this newsletter helpful and interesting. We are keen to get any feedback or any ideas for content in future issues. I would also like to remind you of the website for Plan members, where you can find a copy of this newsletter, and other information about the Plan: http://gapp.lcp.uk.com. Please do let us have your comments and ideas on both the newsletter and the website using the contact details on the back page.

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Robert HergaChair of Trustee

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YOUR TRUSTEES AND ADVISERS

Current directors

Company-nominatedRobert HergaChair General Counsel

Paul InstoneHead of Finance Operations

Simon Baker Head of Business Finance Investment & Operations

Member-nominatedChris KnowlesFire Service Station Manager

Andy GiannottiScheduler Integrator

Susan Blore Airport Security Officer

Current advisers

James Atherton FIA Scheme Actuary

Lane Clark & Peacock LLPActuarial and investment advisers

Travers Smith LLP Legal advisers

BDO LLPAuditor

Legal & General Investment Management Investment managers

BlackRock Investment Management (UK) Limited Investment managers

Capital InternationalInvestment managers

Insight Investment Management Investment managers

Ruffer LLP Investment managers

Alcentra Ltd Investment managers

GreenOak Real Estate Advisors LLP Investment managers

Lane Clark & Peacock LLP Administrators

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Important information if you are considering transferring your pensionGiven the recent increase in members who have a deferred pension with the Plan, and the recent changes to pension flexibility, it may be that some members are considering transferring out of the Plan. The Trustee wishes to draw your attention to a growing pension scam, known as Pension liberation fraud.

This can start with an unsolicited phone call or text message explaining how you can immediately release the cash value of your pension. These companies offer promises of quick cash, and often use terms such as “pension loan”, “cashback from your pension”, or “one off investment opportunities.” However, these companies often take up to 20% of the value of the pension as an initial fee. You could also end up with a tax charge of 55% of the total value of your pension.

If you are concerned about Pension Liberation Fraud, or you have any queries, you can visit www.pension-scams.com. The Pensions Regulator has also produced a booklet for pension scheme members setting out five tips to help you protect yourself from scammers.

Benefit changesFor those of you who have decided to remain accruing benefits in the Plan as you will be aware there are a number of changes to the benefit structure affecting benefits accrued after 1 March 2017. We will shortly be preparing a member booklet summarising the changes, which will be available on the Plan website.

If you decided not to continue accruing DB benefits on 1 March 2017 you will receive final confirmation of your deferred benefits with this newsletter. As with your previous annual statements, please read this, and check that your personal details are correct.

As a member of the Plan, it is important that you keep us up to date with any changes of contact details or changes in your beneficiaries. To do this, please contact the Plan’s administrators, whose details are at the back of this newsletter.

The formal valuation of the PlanEvery three years, the Trustee carries out a full formal valuation of the Plan. The Trustee is currently carrying out a valuation at 30 September 2016. During this process the level of contributions, both in respect of future service and for removing any deficit, will be set. Once this valuation is completed, the results of the valuation will be included in the next newsletter, which will be issued later this year.

PLAN NEWS

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30/09/2015 30/09/2016 01/03/2017*

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MembershipOver the past eighteen months the number of members being paid a pension from the Plan has continued to grow. Following the member consultation, many members chose to stop earning further benefits in the Plan. As a result they became deferred pensioners, who are not building up any further benefits in the Plan, but will be entitled to a pension from the Plan when they retire. There are now only 55 members still earning benefits in the Plan, as shown in the chart below:

Members still accruing benefits

Deferred pensioners

Pensioners

http://www.thepensionsregulator.gov.uk/docs/pension-scams-booklet-members.pdf

*Membership at 1 March 2017 is provisional at this stage, as it assumes those who did not decide to continue accruing benefits have become deferred pensioners, and does not take into account those who may have decided to draw benefits immediately.

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INVESTMENT UPDATE

Despite the struggling global economy, returns over the year across most asset classes were positive. Strong returns on the Plan’s invested assets, alongside contributions from Gatwick Airport and Plan members, continued to increase the Plan’s size.

� The UK’s vote to leave the EU in June 2016 was the main factor affecting markets during the third quarter of 2016, resulting in the subsequent fall in the value of Sterling which hit a 30 year low versus the Dollar. UK equities performed well driven primarily by the fall in the value of the pound which boosted the returns of UK based organisations with overseas revenues.

� Within developed markets, the US economy remained on relatively solid footing. US equities performed particularly well on the back of the strong US economy despite uncertainty heading into the US Presidential election.

� The Eurozone, once again, had a turbulent year, with weakness in the banking sector continuing across Europe and now including German banks. In the second quarter of 2016 the European Central Bank (“ECB”) began its much anticipated, full-blown quantitative easing programme and even extended it to include purchases of corporate debt. Two European firms became the first ever to offer corporate debt at a negative rate.

� Elsewhere, China suffered several mini stock market crises early in the year and devalued its currency relative to the Dollar. Japan continued to struggle in its efforts to re-inflate its economy. Deflation returned in the third quarter of 2016 despite the Bank of Japan’s asset purchase program, continuing to promise to push inflation above 2%.

The current investment strategy is summarised in the pie-chart below.

The global economy struggled over the year to 30 September 2016 and global growth estimates were revised down by the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD).

LDI Portfolio (Insight)*

UK equities (L&G)

Overseas Equities (L&G)

DGF (BlackRock)

DGF (Ruffer)

Private credit (Alcentra)

Private credit (GreenOak)

EMMAF (Capital)

20%

12.5%

12.5%17.5%

17.5%

5%5%

10%

* The LDI Portfolio (liability driven investment) consists of holdings in an LDI fund and a cash fund both held with Insight.

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INVESTMENT UPDATE (CONT’D)The annual performance of each of the Plan’s investments is shown in the table below. Please note, while the Trustees had committed assets to GreenOak, no investments had been made as at 30 September 2016.

Mandate Performance %

LDI portfolio (Insight)*LDI fund 106.2Liquidity fund 1.0

UK equities (L&G) 16.9Overseas equities (L&G) 32.1DGF (BlackRock) 1.4DGF (Ruffer) 13.5Private credit (Alcentra)** 6.5EMMAF (Capital) 19.0Total Plan 21.9Composite Plan Benchmark 21.2

* The Plan invested with Insight on 23 September 2015, and the transition of assets occurred over the second half of September and early October 2015.

** Performance figures from Alcentra are shown from 25 May 2016 which was when the initial part of the Plan’s commitment was invested.

The performance figures above illustrate strong performance over the year to 30 September 2016. Overall, global equities produced positive double digit returns over the year both in GBP and local terms but with some divergence at the regional level.

Bonds delivered strong returns over the year, in particular index-linked gilts which outperformed many equity indices and bond performance drives the performance of the LDI portfolio.

Bond performance was primarily driven by steadily decreasing yields as investors sought out safer assets as volatility increased surrounding the Brexit vote. The diversified growth funds (“DGFs”) both produced positive albeit diverging returns.

Overall, the Plan’s assets produced positive returns of 21.9%, outperforming the aggregate figure for the separate managers’ benchmarks, by 0.7%.

Over the year to 30 September 2016, the Plan committed £30m to private credit to be split between two private credit managers, Alcentra and GreenOak. Private credit is the provision of loans to companies by institutions such as pension schemes. It aims to capitalise on the changed regulatory environment which has led to a gap between traditional lenders such as banks and companies (traditionally small and medium sized) that need to borrow money. The £30m committed by the Plan will be gradually invested with the managers over time as attractive investment opportunities become available.

The Plan’s assets are spread across the asset classes shown. The LDI portfolio forms the “low risk” part of the portfolio and aims to protect the portfolio if interest rates fall or remain at the same level. The Trustee plans to increase the allocation to LDI over time to increase the level of the Plan’s protection in the event of unchanging or falling interest rates.

There is an allocation to equities to allow the Plan to benefit from the higher potential return expected from equities over the longer-term. However, equity markets tend to be relatively more volatile and higher-risk compared to most other assets. Therefore, the Plan also invests in diversified growth funds, private credit funds and an emerging market multi-asset fund.

Investing in diversified growth funds is one way for the Plan to reduce its reliance on the equity markets, whilst still seeking a higher investment return than liability driven investment. The diversified growth managers are allowed to invest in a wide range of assets (such as equities, bonds and commodities), and switch quickly between these asset classes to take advantage of market conditions as they change.

The Trustee keeps the Plan’s investment strategy under regular review to ensure that it continues to meet the desired balance between risk and expected returns.

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PENSION NEWSBREXIT – A PENSIONS STOCK TAKEYou will all be aware of the result of the June 2016 referendum, that the UK should withdraw from the European Union. Now that the dust is starting to settle, and Article 50 has been triggered, we thought it worth taking stock on some of the ways in which this might impact the Plan.

Leaving the EU is expected to have far reaching implications for the UK economy. A key consideration for the Trustee is the financial strength of Gatwick Airport Limited, and hence its ability to continue to provide support to the Plan. We have concluded that at present there is no reason for undue concern. However, we will continue to monitor the position going forward.

Existing pensions legislation is largely written into UK law, and will thus stay in place following withdrawal from the EU. The EU is currently enacting legislation in relation to pensions. The extent to which this ends up applying in the UK remains to be seen, and will depend on factors including the timetable for and terms of Brexit. We will keep you informed of significant legislative developments in future newsletters.

There has also been significant volatility in the investment markets since the referendum, further information on this is included within the Investment Update included in this newsletter.

REDUCTION IN THE MONEY PURCHASE ALLOWANCEIf you have already started drawing money from a Defined Contribution pension scheme, then you may be subject to the Money Purchase Annual Allowance (MPAA). This limits the amount of contributions you can make into a Defined Contribution pension scheme each tax year without incurring a tax charge.

Before 6 April 2017, this amount was £10,000 per year. However, this is now expected to reduce to £4,000 per year. If you think you may be affected by this change we recommend seeking advice from a financial adviser to make sure you don’t have an unexpected tax charge.

THE NEW LIFETIME ISAThe big surprise in the March 2016 Budget was the announcement of a new Lifetime ISA product. The Lifetime ISA will be available from April 2017 for the under 40s, as a separate product to the normal ISA. The £20,000 contribution limit will apply across both.

You are able to pay in up to £4,000 into a Lifetime ISA each tax year until you are 40, and at the end of the tax year you get a 25% savers bonus from the Government. The money can be taken from 60 without penalties,

and will also be available without penalty on purchasing a first home in the UK (with a purchase value up to £450,000) and on terminal ill health. The money can be taken at any time for other purposes, but in this case the bonus will be lost and a 5% penalty levied.

If you are considering saving into a Lifetime ISA we recommend seeking advice from a financial adviser to decide if this is the best product for you and your circumstances.

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CONTACT US

If you have any questions about your benefits in the Plan or for general information about the Plan then please contact the pensions team at LCP on:

Gatwick Airport PensionsLane Clark & Peacock LLP95 Wigmore StreetLondonW1U 1DQ

020 7439 2266

GatwickAdmin@lcp.uk.com

Or visit the Plan’s website:

http://gapp.lcp.uk.com/

For any queries relating to payroll deductions, please contact MyHR on:

0800 1114501

You can find information on choosing a financial adviser at:

https://www.moneyadviceservice.org.uk/en/articles/choosing-a-financial-adviser

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19112

Gatwick Airport Limited

Gatwick Airport Identity

Pension Plan_REVERSE

Steve R

24.09.10

Mark Tosey

Hamish Campbell

Simon Gore

Mac Illustrator CS3

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INFO