BRIGGS PENSION SCHEME (2001) (THE “SCHEME”)
ANNUAL GOVERNANCE STATEMENT FOR THE SCHEME YEAR ENDING 5 APRIL 2019
1.1 This statement has been prepared in accordance with the Occupational Pension Schemes (Scheme Administration) Regulations 1996 (the “Regulations”).
1.2 A number of the requirements of the Regulations which are referred to in this statement relate only to a “default arrangement” (as defined in the Regulations). During the past scheme year, the Scheme’s default arrangement was for funds to be invested in the Diversified Fund to age 55 and then begin quarterly switches to the Pre-retirement Fund and then at age 60 to the Cash Fund so that by age 65 twenty five percent of a Members pot is invested in Cash Fund and seventy five percent is in Pre-retirement Fund.
1.3 The Scheme’s default arrangement has been altered from 1 October 2019 so that funds are invested in the Diversified Fund to age 55 and then begin quarterly switches to the Retirement Income Multi-Asset Fund and then at age 60 to the Cash Fund so that by age 65 twenty five percent of a Members pot is invested in Cash Fund and seventy five percent is in Multi-Asset Fund. The reasons for this change are based on investment advice from the Scheme’s financial advisor, the change in the market and due to requirements of its Members targeting a drawdown pension arrangement upon taking their pension.
2. STATEMENT OF INVESTMENT PRINCIPLES
2.1 The Trustee has prepared a Statement of Investment Principles (a “SIP”) governing decisions about investments for the purposes of the default arrangement. The SIP has been kept under quarterly review and was last amended in September 2018, in consultation with Broadstone Corporate Benefits Limited. A new SIP has been approved in September 2019 to reflect the new default arrangement to apply from 1 October 2019. A copy of the latest Statement of Investment Principles prepared in accordance with regulation 2A of the Occupational Pension Schemes (Investment) Regulations 2005 is attached at Appendix 1 of this statement.
2.2 The SIP covers the following key matters in relation to the default arrangement:
• the Trustee’s aims and objectives in relation to the investments held in the default arrangement;
• the Trustee’s policies on issues such as: the kinds of investments to be held; the balance between different kinds of investments; risks, including the ways in which risks are to be measured and managed; the expected return on investments; the realisation of investments; and the extent (if at all) to which social, environmental or ethical considerations are taken into account when selecting, retaining or realising investments;
• an explanation of how these aims, objectives and policies (which together form the Trustees’ “default strategy”) are intended to ensure that assets are invested in the best interests of Members whose benefits are invested in the default arrangement.
3. REVIEW OF DEFAULT STRATEGY AND DEFAULT ARRANGEMENT
3.1 The Trustee reviews the default strategy and performance of the default arrangement regularly and at least every three years.
3.2 Each regular review focusses, in particular, on the extent to which the return on investments relating to the default arrangement (after deduction of any costs and charges which are relevant to those investments) is consistent with the Trustee’s aims and objectives in respect of the default arrangement (as recorded in the SIP). The Trustee may also at times undertake reviews of specific aspects of the SIP and the performance of the default arrangement.
3.3 The most recent review was carried out on 19th September 2019. This was a regular review carried out by Broadstone Corporate Benefits Limited. They reviewed and reported to the Trustee Board on the suitability and appropriateness of the funds for the Members, the length of Lifestyling and other funds’ performance in the market.
3.4 Following the review, the Trustee has concluded that the investment strategy of the default arrangement needed to be modified to reflect the changing requirements of its Members based on the investment advice noted in paragraph 3.3. Consequently, the Trustee has decided that changes to the default arrangement are to be made from 1 October 2019. The strategy will change from a lifestyling approach targeting annuity purchase at retirement to one aimed at a draw-down approach, where Members’ funds remain invested. This decision was made following a consultation exercise with the membership.
3.5 There is also a website which holds information about the Scheme. This can be found at www.briggsplc.com. The information on the website includes details of the Scheme’s default fund, information about charges and transaction costs and an illustrative example of the cumulative effect of charges and transactions.
4. CORE FINANCIAL TRANSACTIONS
4.1 The Trustee needs to ensure that certain transactions (known as “core financial transactions” relating to the Scheme are processed promptly and accurately.
For these purposes, “core financial transactions” are (broadly):
• investment of contributions made to the Scheme by Members and the employer;
• transfers into and out of the Scheme of assets relating to Members;
• switches of Members’ investments between different funds within the Scheme; and
• payments from the Scheme to or in respect of Members (eg. payment of death benefits).
4.2 During the past Scheme year, the following arrangements have been in place to ensure that core financial transactions have been processed promptly and accurately:
a) The Scheme has a service level agreement in place with its Administrator, Charterhouse Consultancy Ltd, which includes relevant key performance indicators (KPIs) regarding the
accuracy of and timescales for processing core financial transactions;
b) the Administrator has processes in place to assist in meeting the requirements of the service level agreement which include a separate team dedicated to the processing of contributions and investment fund switches/transfers and two-person checking of all investment and banking transactions and monthly bank reconciliations;
c) the Employer works to ensure compliance with the Payment Schedule by paying contributions into the Scheme account by the stipulated date for investment;
d) checks are carried out by the Employer and by the Administrator by review of internal procedures;
e) the Administrator provides an annual report which sets out the Administrators performance against KPIs and reports on any errors identified in relation to the processing of core financial transactions, together with steps taken to rectify those errors, that it presents at the September quarterly meeting; and
f) No material issues regarding the processing of contributions and financial transactions taken in respect of the Scheme were identified during the scheme year.
4.3 The Trustee believes that transactions were processed promptly and accurately during the Scheme year.
5. CHARGES AND TRANSACTION COSTS
5.1 Each year, the Trustee gathers information on charges and member-borne transaction costs relating to the Scheme. In this context, “charges” means (subject to some specific exceptions, such as charges relating to pension sharing orders) all administration charges other than transaction costs. “Transaction costs” are costs incurred as a result of the buying, selling, lending or borrowing of investments.
5.2 The Employer pays all costs in relation to the general running of the Scheme. The Trustee Directors have been made fully aware of the level of these costs.
5.3 The table below sets out details of the levels of charges and transaction costs for each of the funds in which members’ benefits have been invested during the past Scheme year which are payable by members.
5.4 The Transaction costs include those incurred by the fund when assets are bought and sold. The fund manager seeks to minimise any transaction costs resulting from the impact of cash flows into and out of the fund by adding an ‘anti-dilution offset’. In some periods the magnitude of this offset can more than reduce these costs, giving a net gain to the fund.
Fund (*=default arrangement)
(all held with Legal & General) Administration
Indirect fees (from sub-funds within the fund) Transaction costs within the fund
Diversified Fund* 0.30% pa 0.02% -0.05%
(Fixed Interest Fund) 0.15% pa 0.00% -0.03%
Cash Fund 0.125% pa 0.00% 0.00%
Retirement Income Multi-Asset Fund 0.35% pa 0.03% 0.03%
This information was provided directly from Legal and General Investment Manager (“LGIM”) and these indirect transaction costs have been calculated assuming a static fund structure as at 31 March 2019.
6 “GOOD VALUE” ASSESSMENT OF CHARGES AND TRANSACTION COSTS
6.1 Each year, the Trustee Directors also assess the extent to which the charges and transactions costs described above represent “good value” for Members.
6.2 Whether something represents “good value” is not capable of being precisely defined, but for these purposes the Trustee Directors consider that charges and transaction costs may be viewed as representing “good value” for Members where the combination of costs and the quality of what is provided in return of those costs is appropriate for the Scheme membership as a whole, when compared to other options available in the market.
6.3 In particular, “good value” is not purely about achieving the lowest possible costs. The Trustee Directors’ assessment therefore also takes into consideration non-financial and indirect benefits to Members such as: the quality of the customer service and support provided to Members; the extent to which Member communications are user-friendly, accessible and clear, with information being available on the Employer’s website; the efficiency of the Scheme’s administration services; the quality of fund management and fund performance as against the Trustee Directors’ investment objectives; and the robustness of the Scheme’s governance structures and processes.
6.4 Against that background, in order to assess whether the charges and transaction costs under the Scheme represent “good value”, the Trustee has:
• ensured that charges borne by the Member are below the charges cap of 0.75% with the largest fund charge being the 0.35% on the Retirement Income Multi-Asset Fund;
• obtained benchmarking data from Broadstone Pensions and Investment Ltd and Legal and General Investment Management Ltd regarding the performance of the various investment funds currently offered by the Scheme;
• considered information regarding the range of services provided to Members and the service levels achieved during the past Scheme year.
6.5 Following that review, and a more thorough annual review in September of each year, the Trustee Directors have concluded that overall, the charges and transaction costs under the Scheme continue to represent good value for Members when compared with the other options available in the market. In reaching this conclusion, the following factors were considered:
a) That the costs borne by the Employer for the Scheme as a whole are relatively high when compared to benchmarks provided by Regulator of schemes of a similar size, but the Trustee Directors are satisfied that they are appropriate for the membership. In this judgement it is recognised that the costs borne by the Members are particularly low and, taken together with the Employer costs, are appropriate.
b) The Employer covers the general running costs and so no deductions are made from Members accounts other than the investment charges from LGIM, noted in paragraph 3.1.
c) These charges are low relative to other schemes.
d) Members at the age of 65 and 70 receive pension counselling from an IFA paid for by the Employer.
e) The Trustee Directors remain vigilant in respect of the administration costs borne by the Employer. They seek opportunities to contain these costs (if the opportunity arises) without significant diminution to the quality of the Scheme.
f) The Trustee Directors are aware of the requirement to report on transaction cost from 6th April 2019 and will work with their advisers to ensure that this information is collected.
7. ILLUSTRATIVE EXAMPLES OF CUMULATIVE COSTS AND CHARGES
One important factor considered by the Trustee Directors when assessing whether charges and transaction costs under the Scheme represent “good value” is the cumulative impact on Members’ benefits from those charges and costs.
Whilst the circumstances of each individual Member will vary, to help Members understand the effect of costs and charges on their benefits, the Trustee Directors have produced an illustrative example of that cumulative impact for a representative range of the funds in which Members’ benefits have been invested in the past Scheme year.
The table in the Appendix 2 to this statement sets out these illustrative examples, and explains the assumptions on which those examples have been based (for example, as to future levels of inflation and investment growth). When preparing this table, the Trustee has taken into account specific guidance from the Department for Work & Pensions, and have followed the approach set out in that guidance.
8. TRUSTEE KNOWLEDGE AND UNDERSTANDING
8.1 In order to be able properly to exercise their functions, the Trustee directors of the Scheme need to have a working knowledge of the following documents relating to the Scheme:
• the Scheme’s trust deed and rules;
• the SIP; and
• any other documents recording policy for the time being adopted by the Trustee relating to the administration of the Scheme generally.
They also need to have an appropriate level of knowledge and understanding of matters such as the law relating to pensions and trust, and the principles relating to investment of pension scheme assets. The combined knowledge and understanding together with available advice enables the Trustee Directors to properly exercise their functions.
To ensure the Trustee Directors have the necessary level of knowledge and understanding, the following steps have been undertaken during the past Scheme year:
a) The Trustee Directors review on a quarterly basis the training which has been undertaken to identify their specific training needs and any gaps in their knowledge;
b) the Trustee Directors and their relevant advisers have prepared trustee training programme based upon the results of the self-assessment process;
c) There is a bespoke training plan available for new Trustee Directors who are also required to complete relevant modules of the Pensions Regulator’s “Trustee Toolkit” online training programme;
d) The Trustee Directors are involved in updating the Deed & Rules for the Scheme. Past changes have included the implementation of salary sacrifice (SXP), along with other documents which help them understand and provide them with knowledge of the Scheme;
e) The Trustee Directors have recently updated the Member Handbook to reflect the Scheme’s current administration, as well as applicable legislation and legal requirements;
f) The Trustee Directors have updated the SIP in both September 2018 and September 2019.
g) External advisors attend quarterly meetings as requested to provide information to the Trustee Directors or give recommendations as necessary. In September 2018, Eversheds Sutherland (International) LLP, legal advisors to the Scheme, attended the meeting to provide an overview of all the legal advice given to the Scheme over the year as well as any actions required of the Trustee as well as updates from the industry; and
h) The Trustee Directors review an annual evaluation of the entire Trustee Board’s knowledge in order to ascertain further training that might be required in the future.
8.2 In addition the Trustee Directors have obtained legal, accounting, investment and consulting advice as and when required during the past Scheme year, including but not limited to:
a) Seeking legal advice sought from Eversheds Sutherland (International) LLP;
b) Taking investment advice from Broadstone Corporate Benefits Limited;
c) Considering administration information from the Scheme’s Administrators Charterhouse Consultancy Limited, including an annual administration report;
d) Use of the Pension Regulators website and its Codes of Practice; and
e) Reviewing performance information from LGIM.
8.3 During the Scheme year, the Trustee Directors have also undertaken an evaluation of the skills-set and experience of the Trustee board as a whole by taking account of the training undertaken during the past scheme year and the results of the self-assessment process. In particular:
• Broadstone Corporate Benefits Limited have relevant financial knowledge and experience to enable the Trustee Directors to comply with their duties in relation to investment of the Scheme’s assets; and
• Able Governance Limited, represented by Nick Boyes, as an independent trustee has extensive experience of pensions law and practice.
9. CONSTITUTION OF THE BOARD
9.1 The requirement under section 241 to 243 of the Pensions Act 2004 and the Pension Regulator’s Code of Practice 8 has been met. The Board remains properly constituted. The Trustee Directors ensure:
(a) That arrangements are in place, and implemented, which provide for at least one-third of Directors of the Trustee Company, to be Member-nominated; and
(b) The Trustee Directors review on a quarterly basis if the Board remains appropriate;
(c) A succession plan is in place.
Signed by Mr R. Buxton, 19th September 2019
Briggs Pension Scheme (2001) – Statement of Investment Principles Sept 2019
We, the Trustee Directors of the Briggs Pension Scheme (2001), fulfil our obligations under Section 35(1) of the Pensions Act 1995 as follows:
1. We are responsible for the investment of the Scheme assets. We take some decisions ourselves and delegate others (either directly or indirectly) to external parties such as the investment consultant or investment manager.
2. Scheme assets are currently invested with Legal and General Investment Management (LGIM), one of the UK’s biggest asset managers. All assets are held by a third party custodian appointed by the investment manager.
3. All day to day investment decisions for the assets of the Scheme are delegated to LGIM who are properly qualified and authorised investment managers of pooled pension fund portfolios. We review them annually, to ensure that the manner in which they make investments on our behalf is suitable for the Scheme, and appropriately diversified.
4. Appropriate written advice will always be taken from properly qualified and authorised investment consultants before the appointment or review of any such investment manager. The investment consultant will also advise on all aspects of the investment of the Scheme assets, provide any required training and advise on suitability of the benchmarks used.
5. We will select investment managers who will hold only the kinds of investments, which are deemed to be suitable for schemes such as ours. Our investment consultant advises us on this as appropriate.
6. We monitor regularly all investment decisions affecting the Scheme, and the overall investment performance of our investment managers, with the assistance of our investment consultants.
7. We believe that the consideration of financially material Environmental (including climate change), Social and Governance (ESG) factors in investment decision making can lead to better risk adjusted investment returns. We expect our investment manager, when exercising discretion in investment decision making, to take financially material ESG factors into account. On an ongoing basis we (delegating to the investment consultant where appropriate) assess the ESG integration capability of our investment manager.
8. Where ESG factors are non-financial (i.e. they do not pose a risk to the prospect of the financial success of the investment) we believe these should not drive investment decisions. We expect our investment manager, when exercising discretion in investment decision making, to consider non-financial factors only when all other financial factors have been considered and in such a circumstance the consideration of non-financial factors should not lead to a reduction in the efficiency of the investment. Members’ views are not sought on non-financial matters (including ESG and ethical views) in relation to the selection, retention and realisation of investments.
9. We believe that in order to protect and enhance the value of the investments, over the time horizon over which the benefits are paid, we must act as a responsible asset owner. We cannot exercise ownership responsibilities directly as we do not hold investments directly. We expect our investment manager, to exercise its voting rights at annual and extraordinary general meetings of companies. We have seen the policy objectives of our investment manager regarding voting and engagement and believe that they are compatible with our own policy. We expect our investment manager to report to us on the implementation of, and any changes to, their policies on voting and engagement.
10. We expect our investment manager, to exercise ownership rights attracted to investments, including voting and engagement rights, in order to safeguard sustainable returns over this time frame. On an ongoing basis we will assess the stewardship and engagement activity our investment manager (delegating to the investment consultant where appropriate). This will be done by reviewing the investment manager’s voting and engagement policy, summary reports detailing the engagement and voting activity undertaken by the investment manager, and asking questions directly to the investment manager.
11. We recognise that members have different investment needs and that these change during the course of their working lives. We also recognise that members have different attitudes to risk. Our objective therefore is to make available a range of investment options that, whilst avoiding complexity, assists the members in achieving their objectives.
12. We believe that the three main investment risks are:
• That investment returns do not keep pace with inflation
• That investment conditions just prior to retirement increase the cost of turning members’ fund values into retirement benefits
• Falls in fund values prior to retirement lead to a reduction in retirement benefits.
We also consider other risks members may face, including operational, liquidity and manager risks.
13. Our investment modelling assumes a target retirement age for members of 65. Unless members exercise their right to vary it, a default lifestyle approach (referred to as the Freedom Lifestyle Strategy) will apply. After taking advice from our investment consultant, within this lifestyle strategy the LGIM Diversified Fund will be used until 10 years before age 65, before being progressively switched to the LGIM Retirement Income Multi-Asset Fund and the LGIM Cash Fund over the period between age 55 and 65, and the resulting mix will remain until actual retirement age if over 65.
Members may elect for the lifestyle switching to commence at a different age other than age 55 years. Those members who have reached age 55 at 1 January 2014 will remain invested in the LGIM Diversified Fund until 5 years before age 65 before being progressively switched to LGIM Retirement Income Multi-Asset Fund and the LGIM Cash Fund over the period between age 60 and 65.
14. The default Freedom Lifestyle Strategy is designed to provide a long-term real return for younger, middle-aged and older pensioner members. The objective of the Retirement Income Multi-Asset Fund is to provide long-term investment growth up to and during retirement, and to facilitate the drawdown of retirement income. The objective for the Cash Fund is to provide for the payment of a lump sum on retirement.
15. Assets in the default option are invested in the best interests of members and beneficiaries, taking into account the profile of members. In particular, we have considered high level analysis of the retirement options selected and intended by members in order to inform decisions regarding the default investment option. Based on this understanding of the membership, a default investment option that targets drawdown in retirement is considered appropriate.
We will continue to review the default investment strategy over time.
16. Members may exercise their right to choose the annuity lifestyle approach (referred to as the Annuity Lifestyle Strategy). Within this lifestyle strategy the LGIM Diversified Fund will be used until 10 years before age 65, before being progressively switched to the LGIM Pre-Retirement Fund and the LGIM Cash Fund over the period between age 55 and 65, and the resulting mix will remain until actual retirement age if over 65.
17. Members may elect for the lifestyle switching to commence at a different age other than age 55 years.
18. The Annuity Lifestyle Strategy is designed to manage the volatility of annuity pricing for older members.
19. Members may choose to allocate contributions between the individual funds, in which case lifestyle switching will not be applied.
20. Our investment managers have discretion to vary the balance of investments within the Diversified Fund and the Retirement Income Multi-Asset Fund within agreed ranges, which are monitored. Advice is taken from our investment consultant to ensure that this approach remains suitable.
21. The investment policies of our selected managers are and will be suitably diversified, to spread the risks of investing in any one investment market, currency or asset. This is monitored by us at our regular meetings with our investment managers.
22. Our agreed investment policies have the aim of achieving a real return on assets. Specific investment objectives may be agreed with our investment managers after consultation with our investment consultant.
23. We may realise investments from our portfolios in order to make payments of benefits and costs under the Scheme. The selection of investments to be so realised is at the discretion of our investment managers. They also have discretion to realise investments within the portfolios for the purpose of making new investments, subject of course to reporting to us.
24. We have taken appropriate written advice from our advisors, Broadstone Corporate Benefits Limited, in preparing this statement, as required by the Pensions Act.
25. Also as required by the Pensions Act, we have consulted the employer during the preparation of this statement.
26. We will keep this statement under review to ensure that these principles remain appropriate to the Scheme, and to ensure that the reviews mentioned in the statement are carried out. It will be an agenda item at least annually, and we will revise this statement when appropriate. Our investment advisers have been retained to conduct a formal review every three years.
The Trustees of the Briggs Pension Scheme (2001) Date: 19th September 2019