This is the fund which contains the assets necessary to pay all of the Guaranteed liabilities, which are the benefits earned by members during their employment with British Coal and the annual RPI increase on these benefits, ie all benefits except Bonus Augmentations.

The Bonus Augmentation Fund

This contains the members’ share of surplus; Bonus Augmentations awarded since 31 October 1994 are paid from the assets of this Fund.

The Guarantor’s Fund

This contains the balance of the Guarantor’s share of surplus and its liabilities consist of the Trustees’ obligation to pay its share of surplus to the Government in 10 annual instalments.



The Investment Reserve

This is the balance of British Coal’s share of surplus from valuations before 1994. This money will be available as first call to meet a deficiency in the Guaranteed Fund but, if not required for this purpose, will be payable to the Government over a period of not less than 25 years from 31 October 1994.

The Valuation Process

Valuations of the Scheme are normally carried out every three years, although the Trustees with the agreement of the Guarantor can vary this period. The purpose of the valuation is for the Scheme’s Actuary to assess whether the long term value of the assets held is sufficient to meet the liabilities. The liabilities are the total costs, estimated by the Actuary, of paying pensions and other benefits for the remaining life of the Scheme. If the assets are greater than its liabilities a surplus exists. A surplus in the Guaranteed Fund is split equally between the Guarantor’s Fund and the Bonus Augmentation Fund. Surpluses in the Guarantor’s Fund and the Bonus Augmentation Fund are retained in those funds. If the assets are less than the liabilities there is a deficit and action has to be taken to correct this. This is achieved first by transfers between the various sub funds, and then by an injection of new money by Government.

The valuation result is based on a series of assumptions made by the Actuary about the likely long term rates of return on various classes of investments, on economic factors like the rate of inflation and on assumptions about the life expectancy of the members of the Scheme and their dependants. Given the number of assumptions that are involved it is very unlikely that the valuation result will reflect what actually happens in practice. As with any prediction of the future, there is enormous scope for the actual outcome to vary widely from that predicted. Valuations are therefore carried out at regular intervals to check that the Scheme has sufficient assets and to review the assumptions to see if they need to be changed.