Introduction
This Statement has been prepared in accordance with section 35 of the Pensions Act 1995 (as amended by the Pensions Act 2004 and the Occupational Pension Plans (Investment) Regulations 2005) and with the Government’s voluntary code of conduct for Institutional Investment in the UK (“the Myners Principles”).
The Trustee will review this Statement at least every three years and in a timely manner following any significant change in investment policy.
As required by the Pensions Act, the Trustee has consulted with the Plan’s Sponsoring Employer prior to writing this Statement and have considered their recommendations and will take the Employer’s comments into account when they believe it is appropriate to do so.
The Trustee is responsible for the investment strategy of the Plan. They have obtained written advice on the investment strategy appropriate for the Plan and on the preparation of this Statement. The advice was provided by Aon Solutions UK Limited who are authorised and regulated by the Financial Conduct Authority.
Governance Structure
The Trustee is responsible for the investment of the Plan’s assets. The Trustee takes some decisions itself and delegates others.
When deciding which decisions to take themselves and which to delegate, the Trustee takes into account whether they have the appropriate training and expert advice in order to take an informed decision. The Trustee has established the following decision making structure:
Trustee
- Set structures and processes for carrying out their role.
- Negotiate with the Employer and make decisions about Plan funding and contributions.
- Set the Plan’s investment strategy, specifically the overall risk and return objectives.
- Monitor investment advisers and fund managers.
- Monitor direct investments.
- Make ongoing decisions relevant to the operational principles of the Plan’s investment strategy.
Investment Advisers
- Advise on all aspects of the investment of the Plan’s assets, including implementation.
- Advise on this Statement.
- Provide any required training.
Fund Managers
- Operate within the terms of this Statement and their written contracts.
- Select individual investments with regard to their suitability and diversification.
Custodian
- Responsible for the safekeeping of the underlying assets and perform the administrative duties attached, such as the collection of interest and dividends and dealing with corporate actions.
The Trustee has delegated part of its duties in line with the governance structure outlined above. The Trustee is confident that the delegated functions are carried out in the best interest of the beneficiaries. In addition, those who have been delegated duties have the correct expertise to do so.
The Trustee recognises that whilst functions have been delegated, they retain the responsibility for these functions.
The Trustee monitors and regularly reviews and assesses its own effectiveness, the effectiveness of the current governance structure and the performance and effectiveness of its Advisors.
The Plan’s advisers (“the Advisers”) are as follows:
- Scheme Actuary is Adam Stanley of XPS Pensions Limited
- Investment Adviser is Aon Solutions UK Limited
- Legal Advisers are Herbert Smith Freehills LLP and CMS Cameron McKenna Nabarro Olswang LLP
- AVC Adviser is Aon Solutions UK Limited
Investment Objectives
The Trustee aims to invest the Plan assets prudently to ensure that the benefits promised to members are provided.
The Trustee’s primary objectives are:
- “funding objective”- to ensure that over a reasonable period of time the Plan is fully funded using assumptions that contain a modest margin for prudence. Where an actuarial valuation reveals a deficit, a recovery plan, agreed between the Trustee and the Sponsoring Employer, will be put in place.
- “stability objective” – to take into consideration when setting the investment strategy, the desired level and volatility of contributions required from the Sponsoring Employer. The Trustee had taken account the strength of the employer covenant.
- “security objective” – to ensure that the solvency position of the Plan (as assessed on a gilt basis) is expected to improve. The Trustee has put in place a strategy that has regard to this measure and minimises the variation of this funding level within a reasonable tolerance.
The Trustee recognises that these objectives may conflict. For example, a greater allocation to more defensive assets may give greater security but may result in a level of contributions that the Sponsoring Employer may find too difficult to support. The Trustee also recognises that in resolving this conflict, it is necessary to accept some risk.
Risk Capacity and Risk Appetite
When setting the investment strategy, the Trustee has considered the appropriate risk capacity and the risk appetite for the Plan.
The risk capacity is the maximum level of risk that the Plan can take when the investment strategy is set. The Trustee also recognise that its approach to taking risk may change over time. As such, the Trustee has considered how to manage this over time and have put into place a monitoring programme and trigger strategy to reduce this as the funding level improves.
When setting the investment strategy, the Trustee incorporates this into an Integrated Risk Management (IRM) programme. Therefore, the investment strategy is considered alongside the other components of IRM, i.e. the overall funding level of the Plan and the strength of the Employer Covenant.
The risk appetite is then considered when setting the investment strategy, i.e. the risk that the Trustee feels is appropriate for the Plan after understanding the overall risk capacity.
When setting the investment strategy, the Trustee will consider the following:
- The Plan’s funding level and objectives
- The strength of the Employer covenant and its risk appetite
- The Plan’s liability profile
- The Plan’s future and any expected evolution.
- Future cashflow requirements for the Plan
- The impact of investment decisions including the Trustee governance framework and the time required to monitor the strategy
- The current expected level of return required and the expected changes in the future.
One the risk capacity and risk appetite have been understood, these will be considered alongside the Plan’s investment objectives to set the investment strategy, impacting on the overall balance of the investment.
The assets of the Plan are invested predominantly on regulated markets (with investments not on regulated markets being kept to a prudent level) and properly diversified to avoid excessive reliance on any particular asset, issuer or group of undertakings so as to avoid accumulations of risk in the portfolio as a whole.
Investment in derivatives is only made in so far as they contribute to the reduction of investment risks or facilitate efficient portfolio management and are managed so as to avoid excessive risk exposure to a single counterparty or other derivative operations.
To understand what an acceptable degree of risk is, the Trustee take expert advice. The nature of the advice is described and further details on the risks considered are detailed in later sub-sections.
Long Term Journey Plan
When setting the investment strategy, the Trustee has considered not only the initial asset allocation and key risk, but also how the investment strategy will evolve over time. The Trustee has therefore considered and implemented its long-term investment plan. The Trustee has:
- Clear long-term objectives and interim milestones. Alongside these, the investment strategy has been set to ensure that the asset allocation is appropriate to produce the required return to meet these objectives.
- A plan setting out how these long-term objectives will be met.
The Plan has a primary target of achieving a low-risk investment strategy with minimal reliance from the Employer in the future. The Plan measures its primary target versus the Technical Provisions from its actuarial valuation.
The Trustee also monitors the Plan’s progress against a secondary funding target , ‘self-sufficiency’. This is expected to be a more challenging target at which the Plan has achieved full funding on a basis which does not place any reliable on the Employer and has an appropriately derisked investment strategy.
- Steps to measure and monitor the Plan’s progress against these objectives, net of investment manager fees. On a quarterly basis, the Trustee monitors the progress versus the long-term journey plan. It is also reviewed after the results of each triennial valuation, or any other significant changes that are made to the Plan.
- The Trustee has agreed to implement a de-risking framework which will result in a reduction in return-seeking assets and an increase in interest rate and inflation hedging as the funding position improves. The Trustee has discretion to override the triggers and retain higher risk and return levels depending on market conditions and views at the time.
- A contingency plan should the Plan’s progress drift from its long-term journey plan. The Trustee, in conjunction with the Sponsoring Employer has agreed principles to bring this back into alignment which may include additional contributions and/or re-risking the investment strategy.
Risk Management Approach
The Trustee monitors the key risks on a regular basis and these are regularly assessed to assess their impact on the Plan and if there have been any significant changes to these risks. The Trustee maintains a risk register which looks at key risks in detail on an annual basis – this includes an assessment of the impact of each risk for the Plan.
Funding Risk
The Trustee recognises that the key risk to the Plan is that it has insufficient assets to make provisions for 100% of its liabilities. The Trustee has identified a number of risks which have the potential to cause deterioration in the Plan funding level and therefore contribute to funding risk. The Trustee has put measures in place to manage these risks.
Covenant Risk
Risks associated with changes in the Employer covenant are assessed on an on-going basis. The Trustee receives regular updates from the Employer on its financial position.
The Trustee takes into account the strength of the covenant when considering the Plan’s investment strategy. If the Trustee receives notification of any events which have the potential to alter the strength of the covenant, they will re-consider the continued appropriateness of the Plan’s existing investment strategy.
Liability Valuation Risk
The risk of a significant difference in the sensitivity of asset and liability values to changes in financial and demographic factors. The Trustee and its advisers considered this mismatching risk when setting the investment strategy and continue to monitor the factors and their potential impact on the Plan.
Strategic Risk
Investment risks are recognised as arising from asset allocation. Assessed triennially in conjunction with the actuarial valuation of the Plan, after which the Trustee takes advice on the continued appropriateness of the investment strategy. This may include the use of asset and liability modelling techniques.
Sequencing Risk
Sequencing risk arises as there is often a timing difference between asset performance, liability values and cashflow requirements. The timing of assets performance can negatively impact the Plan’s ability to meet required cashflows and objectives. The Trustee and its advisers consider sequencing risk when setting the investment strategy and continue to monitor asset performance and cashflow impact on the Plan.
Cashflow & Liquidity Risk
Liquidity risk (also known as cashflow risk) arises from the need to realise assets in the short term. If realisations of investments in order to meet the benefit outgo were to be made at a time when prices are depressed this could reduce the likelihood of meeting the primary objectives. To avoid this, the Trustee and its advisers manage the Plan’s cashflow requirements carefully over the short-term.
Collateral Risk
The risk of holding insufficient collateral. If there is too little collateral, the Plan may need to sell assets. Conversely, if there is too much collateral the expected return of the Plan may be too low. The Trustee and its advisers manage this risk through regular monitoring of the collateral of the relevant portfolio(s) and taking appropriate action.
Asset Risk
The failure by the fund managers to achieve the rate of investment return assumed by the Trustee. This risk is considered by the Trustee and their advisers, both upon the initial appointment of the fund managers and on an on-going basis thereafter. The Trustee and its advisers review manager performance quarterly, or more frequently if required, and meet with the fund managers regularly as part of their on-going monitoring.
The Trustee and its advisers considered diversification risk when setting the investment strategy and have also invested in strategies which are expected to maintain a sufficiently diversified portfolio of assets. The Trustee continues to seek the advice of its advisers before considering any changes to the current investment strategy.
Operational Risk
The risk of fraud, the safe keeping of assets, poor advice and acts of negligence. The Trustee has sought to minimise such risk by ensuring that all advisers and third-party service providers are suitably qualified, experienced, and that suitable liability and compensation clauses are included in all contracts for professional services received.
Self-Investment
Where fund managers operate segregated portfolios for the Plan (customised separate accounts) the Trustee does not allow investment in the Sponsoring Employer or its subsidiary companies. Where the Trustee has invested in pooled funds, the Trustee does not have the option to exclude investment in the Sponsoring Employer. Instead, the Trustee (in conjunction with its investment advisors) monitor any known exposure to the Sponsoring Employer and checks that in aggregate it remains suitably small. If the level of self-investment were to rise to an unacceptable level then remedial action would be taken. This may involve reducing the Plan’s exposure to one or more pooled funds as necessary. However, given the diverse range of investments that the Trustee has made, it is not anticipated that such action will be required.
Strategic Liability Hedge
The Trustee has implemented a strategic liability hedge that takes into account the nature, timing and duration of the Plan’s liabilities. The Plan’s liability hedge aims to manage the investment risk relative to the liabilities. The purpose of the liability hedge is to:
- Reduce the volatility in the funding level by responding to changes in interest rates and/or inflation in the same way as the liability value does;
- Generate cash flows that coincide in timing and amount with the Plan’s cash outflows;
- Seek to match the long-term cashflows of the Plan;
The Trustee recognises the importance of implementing and managing an effective strategic liability hedge. On an ongoing basis, the Trustee will monitor this versus the Plan’s objectives and whether any changes would be appropriate. Whilst the strategic liability hedge primarily aims to reduce funding level risk, the Trustee understands that there are some additional risks introduced into the portfolio, such as:
- Credit/Default;
- Liquidity;
- Collateral requirements and management;
- Counterparty risk counterparties;
- Concentration (in relation to specific issuer, sector or portfolio factors);
- Political and regulatory factors;
- Investment manager skills;
- Leverage; and,
- Basis.
Derivatives, such as interest rate or inflation rate swaps, gilt repurchase arrangements (gilt ‘repo’) etc, can be used to match liability or cash flow characteristics more closely. They can also, through the use of leverage, provide increased exposure to interest and inflation rates and reduce the proportion of the Plan’s assets that need to be held in the matching asset portfolio to achieve a given level of matching. This approach is known as Liability Driven Investment (“LDI”).
The use of LDI typically enables pension schemes to achieve an improved balance between investment risk and return but it does introduce additional risks, e.g. around the use of leverage and in relation to operational risks around the management of collateral. The Trustee has in place a monitoring process to ensure that that there is sufficient collateral available and a process should additional be required. As the level of leverage used within the Plan’s LDI portfolio is considered to be low, the Trustee does not consider this risk to be significant.
Strategic Asset Allocation
Balance Between Different Investments
The Trustee recognises that the strategic risk, in relation to meeting their objectives, arises from asset allocation. The Trustee therefore retains responsibility for setting asset allocation, and take expert advice as required from their professional advisers.
The Trustee reviews the asset allocation, as a minimum, once every three years. This is done in conjunction with its formal actuarial valuation. Setting the investment strategy is considered to be a key component of an integrated risk management approach. In practice this means that the investment strategy has been considered alongside the Sponsoring Employer covenant and the overall funding level of the Plan.
When devising the asset allocation, the Trustee addressed the following:
- The actuarial characteristics of the Plan, in particular the strength of the funding position and the liability profile.
- The need to consider a full range of asset classes;
- The risks and rewards of a range of alternative asset allocation strategies;
- The suitability of each asset class; and
- The need for appropriate diversification over geography, sectors, securities and also at the investment manager level.
Cashflow and Collateral / Liquidity Management Strategy
Realisation of Investments / Liquidity
The Trustee recognises that there is a risk in holding assets that cannot be easily realised should the need arise.
The majority of the assets held are realisable at short notice (either through the sale of direct holdings of stocks, bonds etc. or the sale of units in pooled funds).
Collateral Management
The Trustee also acknowledges the need for collateral management arising from the use of derivative instruments, e.g. those used in LDI arrangements. Derivatives can require security, in the form of cash or eligible assets, to be transferred from and to the Plan, in order to manage the counterparty credit risk arising from changes in the value of the derivatives. As well as placing liquidity and eligibility requirements on the Plan’s assets, this gives rise to operational risk.
The Trustee has appointed Insight Investment International Limited to manage the Plan’s LDI portfolio. It is also responsible for managing the collateral requirements surrounding this portfolio on a day-to-day basis.
Responsible Investment / Social, Environmental and Ethical Considerations / Climate change
In setting the Plan’s investment strategy, the Trustee’s primary concern is to act in the best financial interests of the Plan and its beneficiaries, seeking the best return that is consistent with a prudent and appropriate level of risk.
The Trustee believes that in order to fulfil this commitment and to protect and enhance the value of the Plan’s investments, it must act as a responsible steward of the assets in which the Plan invests.
The Trustee recognises that there is a risk that the extent to which ESG (Environmental, Social and Governance) factors are not appropriately reflected in asset prices and/or not considered in investment decision making processes may negatively impact the value of investments and their performance relative to targets. (Climate change may cause a material deterioration in asset values as a consequence of factors including but not limited to policy change, physical impacts and the expected transition to a low-carbon economy). The Trustee considers this risk by taking advice from their investment adviser when setting the Plan’s asset allocation, when selecting managers and when monitoring their performance.
Stewardship – Voting and Engagement
The Trustee recognises the importance of its role as a steward of capital and the need to ensure the highest standards of governance and promoting corporate responsibility in the underlying companies in which the Plan’s investments reside. To this end, the Trustee believes in active engagement with the companies and assets in which it invests, which it does through its engagement with and monitoring of its appointed investment managers. The Trustee recognises that ultimately this creates long-term value for the Plan and its beneficiaries.
The Trustee regularly reviews the continuing suitability of the appointed managers and takes advice from its investment adviser with regard to any changes. This advice includes consideration of broader stewardship matters and the exercise of voting rights by the appointed managers where applicable.
The Trustee expects the Plan’s investment managers to use their influence as major institutional investors to exercise the Plan’s rights and duties as a stakeholder including voting, along with — where relevant and appropriate — engagement with underlying investee companies.
The Trustee will, on an annual basis, ask all of its investment managers to provide their respective responsible investment policies – including their policies with respect to their stewardship practices – and details of how they integrate ESG into their investment decision making process. Should the Trustee look to appoint a new manager, it will request this information as part of the selection process. All responses will be reviewed and monitored with input from the Trustee’s investment adviser.
The Trustee engages with its investment managers as necessary for more information to ensure that robust active ownership behaviours, reflective of their active ownership policies, are being actioned. This will take the form of reporting which will be made available to Plan members upon request. Furthermore, the Trustee will ask the Plan’s investment managers to provide details about the ways in which they are undertaking these activities in comparison to their policies and relevant codes of practice. This will be reviewed at least annually with input from the Trustee’s investment adviser.
The transparency offered by the Plan’s investment managers for engagements should include objectives and relevance to the Plan, the methods of engagement and the processes for escalating unsuccessful engagements.
The transparency for voting should include voting actions and rationale with relevance to the Plan, in particular, where: votes were cast against management; votes against management generally were significant, votes were abstained; voting differed from the voting policy of either the Trustee or the asset manager. Furthermore, where voting is concerned the Trustee expects its asset managers to recall stock lending as necessary, in order to carry out voting actions.
The Trustee has not engaged a service provider to engage, undertake proxy voting actions or undertake active ownership on its behalf.
The Trustee expect the Plan’s investment managers to consider collaboration with others, as permitted by relevant legal and regulatory codes, where collaboration is likely to be the most effective mechanism for encouraging issues to be addressed.
If an incumbent manager is found to be falling short of the standards the Trustee has set out in its policies, the Trustee will engage with the manager and seek a more sustainable position, though it may ultimately replace the manager if such a position cannot be reached.
From time to time, the Trustee will consider the methods by which, and the circumstances under which, it would monitor and engage with an issuer of debt or equity, an asset manager or another holder of debt or equity, and other stakeholders. The Trustee may engage on matters concerning an issuer of debt or equity, including their performance, strategy, risks, social and environmental impact and corporate governance, the capital structure, and management of actual or potential conflicts of interest.
Members’ Views and Non-Financial Factors
At present in setting and implementing the Plan’s investment strategy the Trustee does not explicitly take into account the views of Plan members and beneficiaries in relation to ethical considerations, social and environmental impact, or present and future quality of life matters (defined as “non-financial factors” ). This will be kept under review.
Monitoring
The Trustee believes that monitoring the Plan’s investment forms part of the Integrated Risk Management (IRM). The Plan monitors the following:
Trustee recognises the importance of timely information.
| Scheme Funding Level | Monitored via an agreed process on a quarterly basis. This includes a breakdown of funding level changes into key drivers. |
| Key Risks and contingency planning | The Trustee develops the investment strategy in conjunction with advice from its advisers. The Trustee has also considered the impact of any underperformance and long-term support from the Sponsoring Employer. |
| Investment performance (net) over a range of periods | The Trustee considers the performance of the total Plan assets relative to an aggregate benchmark. The Trustee also considers the drivers of the performance including the contribution from each asset class and each investment manager. |
| Long term investment performance | The Trustee monitors the performance of the investment strategy against the long-term investment objective. The Trustee also reviews the investment objectives and if these remain appropriate. |
| Liability hedging and Collateral | The Trustee has a target hedge ratio which is monitored regularly. There is a process agreed should any de-leveraging or re-leveraging occur within the portfolio. The Trustee monitors funding level against set funding trigger levels. |
| Liquidity and cashflow | The Trustee monitors the liquidity of the overall assets, should assets need to be realised quickly. The Trustee has an agreed cashflow policy in place, to ensure that the Plan is able to meet member benefits. |
| Asset allocation | The Trustee has an agreed asset allocation with suitable ranges around this to allow for market movements, without unnecessary trading occurring. This is reviewed on a quarterly basis. |
| Investment Manager Review | The Trustee receives regular monitoring on its investment managers. The Trustee aims to meet with the investment managers on an annual basis to ensure their ongoing suitability for the Plan. |
| Charges and Fees | The Trustee considers the impact of fees on investment return and reviews fee levels for competitiveness against appropriate market comparators for the size and type of mandate |
| Responsible Investment and Stewardship | The Trustee has considered the impact of Responsible Investment and Stewardship, which is covered in detail in a separate section. |
Arrangements with asset managers
The Trustee regularly (typically at least quarterly) monitors the Plan’s investments to consider the extent to which the investment strategy and decisions of the asset managers are aligned with its policies. This includes monitoring the extent to which asset managers:
- make decisions based on assessments about medium- to long-term financial performance of an issuer of debt or equity; and
- engage with issuers of debt or equity in order to improve their performance in the medium- to long-term.
The Trustee is supported in this monitoring activity by its investment consultant.
The Trustee receives regular reports and verbal updates from its investment consultant on various items including the investment strategy, performance, and longer-term positioning of the portfolio. The Trustee focuses on longer-term performance when considering the ongoing suitability of the investment strategy in relation to the Plan’s objectives and assesses the asset managers over 3-year periods.
The Trustee also receives annual stewardship reports on the monitoring and engagement activities carried out by its asset managers, which supports the Trustee in determining the extent to which the Plan’s engagement policy has been followed throughout the year.
The Trustee shares the policies, as set out in this SIP, with the Plan’s asset managers, and requests that the asset managers review and confirm whether their approach is in alignment with those of the Trustee. Where asset managers are considered to make decisions that are not in line with the Trustee’s policies, expectations, or the other considerations set out above, the Trustee will typically first engage with the manager but may ultimately replace the asset manager where this is deemed necessary.
Before appointing a new asset manager, the Trustee reviews the governing documentation associated with the investment and will consider the extent to which it aligns with the Trustee’s policies. Where possible, the Trustee will seek to amend that documentation so that there is more alignment. Where it is not possible to make changes to the governing documentation – for example if the Plan invests in a collective vehicle – then the Trustee will express its expectations to the asset managers by other means (such as through a side letter, in writing, or verbally at Trustee meetings).
The Trustee believes that having appropriate governing documentation, setting clear expectations to the asset managers by other means (where necessary), and regular monitoring of asset managers’ performance and investment strategy, is in most cases sufficient to incentivise the asset managers to make decisions that align with the Trustee’s policies and are based on assessments of medium- and long-term financial and non-financial performance.
The Trustee reviews the Plan’s exposure to controversial sectors on an annual basis (e.g., those in contravention of the UN Global Compact). The Trustee recognises that the passive nature of its investments – all of which are held in pooled investment vehicles – limits the extent to which the Trustee can implement sector exclusions within the Plan’s portfolio. However, the Trustee believes that active engagement and monitoring, combined with long-term decision making, can add value to the Plan and its beneficiaries.
The Trustee reviews the carbon intensity of the Plan’s equity portfolio on an annual basis and expects the carbon intensity of the overall portfolio to trend downwards. Where appropriate, the Trustee will engage with managers who have a relatively high carbon intensity portfolio.
There is typically no set duration for arrangements with asset managers, although the continued appointment all for asset managers will be reviewed periodically, and at least every three years. For certain closed ended vehicles, the duration may be defined by the nature of the underlying investments.
Cost and Transparency
The Trustee is aware of the importance of monitoring its asset managers’ total costs and the impact these costs can have on the overall value of the Plan’s assets. The Trustee recognises that in addition to annual management charges, there are a number of other costs incurred by the asset managers that can increase the overall cost incurred by the investments.
The Trustee collects annual cost transparency reports covering all of the investments and requests that the investment managers provide this data in line with the appropriate Cost Transparency Initiative (“CTI”) template for each asset class. This allows the Trustee to understand exactly what it’s paying the investment managers.
The Trustee expects their investment managers to offer full cost transparency via industry standard templates. This will be reviewed where available before the appointment of any new managers and includes the existing managers held by the Plan.
Targeted portfolio turnover is defined as the expected frequency with which each underlying investment managers’ fund holdings change over a year. The Plan’s investment consultant monitors this on behalf of the Trustee as part of the manager monitoring they provide to the Trustee and flags to the Trustee where there are concerns. Where the Trustee’s monitoring identifies a lack of consistency, the Trustee will engage with the manager which may ultimately lead to a review of the its mandate.
The Trustee accepts that transaction costs will be incurred to drive investment returns and that the level of these costs varies across asset classes and by manager style within an asset class. In both cases, a high level of transaction costs is acceptable as long as it is consistent with the asset class characteristics and manager’s style and historic trends.
The Trustee evaluates the performance of its asset managers relative to their respective objectives on a regular basis via investment monitoring reports and updates from the asset managers. The Trustee also reviews the remuneration of the Fund’s asset managers on at least a triennial basis to ensure that these costs are in line with the Trustee’s investment policies (such as the policies on risk, the expected return on investments, etc) and are reasonable in the context of the kind and balance of investments held.
Addition information
Manager Implementation – Direct Investments
The Pensions Act 1995 distinguishes between investments where the management is delegated to a fund manager under a written contract and those where a product is purchased directly, e.g. the purchase of an insurance policy or units in a pooled vehicle. The latter are known as direct investments.
The Trustee’s policy is to review their direct investments and to obtain written advice about them at regular intervals. When deciding whether or not to make any new direct investments the Trustee will obtain written advice and consider whether future decisions about those investments should be delegated to the fund managers.
The written advice will consider the issues set out in the Occupational Pension Schemes (Investment) Regulations 2005 and the principles contained in this statement. The regulations require all investments to be considered by the Trustee (or, to the extent delegated, by the fund managers) against the following criteria:
- The best interests of the members and beneficiaries (and in the case of any potential conflict of interest, in the sole interests of members and beneficiaries);
- Security;
- Quality;
- Liquidity;
- Profitability;
- Nature and duration of liabilities;
- Tradability on regulated markets;
- Diversification;
- Use of derivatives (avoiding excessive exposure to a single counter-party).
- The Trustee’s investment adviser has the knowledge and experience required under the Pensions Act 1995.
Additional Voluntary Contributions (AVCs)
The Plan provides a facility for members to pay Additional Voluntary Contributions (AVCs) to enhance their benefits at retirement.
The Trustee reviews these arrangements regularly having regard to their performance, the objectives and investment advice. The Trustee has appointed an AVC Sub-Committee to deal with matters such as the investment of the AVCs on its behalf. The AVC Sub-Committee shall report back to the Trustee on any and all decisions made, although all decisions made by the AVC Sub-Committee remain the sole responsibility of the Trustee. The Trustee may follow or reject any or all of the advice offered by the AVC Sub-Committee and there is no obligation imposed or implied upon the Trustee to explain or account for its decision.
The Trustee has appointed the AVC Adviser to provide investment advice in relation to the AVCs.
Members are offered a range of funds available on the Fidelity Platform, including a lifestyle strategy and range of self-select options. The lifestyle strategy automatically moves members’ assets from higher expected return-seeking assets, which aim for long-term growth in excess of inflation, to a more broad-based asset mix with lower expected volatility as a member approaches retirement.
Since the closure of the Plan to future accrual members may no longer pay new AVCs to the Plan.
This Statement was last reviewed and updated in December 2021.
Investment Strategy and Implementation Appendix
Strategic Asset Allocation
Having considered advice from its Advisers, and also having due regard for the objectives, the liabilities of the Plan, the risks of and to the Plan and the covenant of the Employer (and the other entities which legally support the Plan), the Trustee has decided upon the following asset classes for investment of Plan assets along with a strategic target asset allocation, range and benchmark for each such asset class.
| Asset Class | Target | Benchmark |
| Equity | 5.8% | Scientific Beta Developed Balance Factor Equity Index (GBP hedged) |
| Multi Asset Credit | 5.5% | SONIA + 150 bps |
| Hedge Funds | 2.5% | SONIA + 300 bps |
| Property | 4.0% | IPD All Balanced Property Fund Total Return Index |
| Cash | 2.0% | SONIA |
| Total Growth Allocation | 19.8% | Weighted benchmark of above |
| Liability Driven Portfolio | 60.2% | Plan specific liability benchmark |
| Annuity | 20.0% | n/a |
| Total Plan | 100.0% |
Given the illiquid nature of the annuity the Trustee excludes it from any regular rebalancing and investment monitoring decisions. As a result, it has decided to monitor the Plan’s asset against the benchmark below.
| Asset Class | Target | Benchmark |
| Equity | 7.25% | Scientific Beta Developed Balance Factor Equity Index (GBP hedged) |
| Multi Asset Credit | 4.5% | SONIA + 150 bps |
| Hedge Funds | 3.125% | SONIA + 300 bps |
| Property | 5.0% | IPD All Balanced Property Fund Total Return Index |
| Cash | 2.5% | SONIA |
| Total Growth Allocation | 22.375% | Weighted benchmark of above |
| Liability Driven Portfolio | 77.625% | Plan specific liability benchmark |
| Total Plan (ex annuity) | 100% | Weighted benchmark of above |
Long Term Journey Plan
The Trustee will receive regular updates from the Scheme Actuary regarding the Plan’s funding level and make adjustments to the investment strategy as appropriate, having received and considered appropriate investment advice.
Strategic Liability Hedge
The Trustee has decided to implement interest and inflation rate hedges in order to manage liability related risks. The Trustee currently targets a hedge ratio of approximately 100% of the Plan’s interest rate risk and approximately 100% of the Plan’s inflation risk.
Rebalancing Policy
The Trustee monitors the Plan’s assets versus the Strategic Asset Allocation listed above on a quarterly basis. The Trustee expects to rebalance asset classes which exceed +/- 2.5% of their target however any decision to rebalance will be on a case by case basis. As a result asset classes may exceed this range for an extended period.