Statement of Investment Principles for the Warner Howard Limited Pension and Life Assurance Plan

Statement of Investment Principles for the Warner Howard Limited Pension and Life Assurance Plan

 

1.        Introduction 

1.1.        Legislative Requirements

The Trustees of the Warner Howard Limited Pension and Life Assurance Plan (“the Plan”) have drawn up this Statement of Investment Principles (“SIP”, “the Statement”) to comply with the requirements of the Pensions Act 1995, the Pensions Act 2004, the Occupational Pension Schemes (Investment) Regulations 2005, and the Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2018 and 2019.  The Statement is intended to affirm the investment principles that govern decisions about the Plan’s investments.  In preparing this Statement the Trustees have consulted Personnel Hygiene Services Limited (“the employer”) on the Trustees’ investment principles. 

The Trustees confirm that they have considered written advice from Capita Pension Solutions Limited (“Capita”) (Formerly Gissings Consultancy Services Limited) before preparing this SIP. Capita is authorised and regulated by the Financial Conduct Authority. The Trustees believe that Capita is qualified to give advice by reason of the firm’s ability in and practical experience of financial matters and knowledge and experience of the management of the investments of UK pension schemes.

The Trustees have sent copies of the SIP to their appointed investment manager.

1.2.        Plan Constitution

The Plan is governed by the trust deed and rules dated 7 July 1997.  Under the deed the Trustees for the time being are granted the power to take all decisions regarding the investments held for the purposes of the Plan.  Any decision may be made by a majority of the Trustees present at a quorate trustees’ meeting.

The Trustees may delegate investment powers.  Section 36(2) of PA95 requires that where any decisions about investments constitute regulated investment business under the Financial Services Act 1986 (FSA) the delegate is appropriately authorised under the FSA.  If the investment activity does not constitute investment business the Trustees must take all reasonable steps to satisfy themselves that the delegate has appropriate knowledge and experience.  Under section 34(5) of PA95 the Trustees may delegate any function to a sub-committee comprising at least two trustees.

The Trustees’ policies regarding delegation are set out in section 4 of the SIP below.  The delegations made are set out in Appendix A.

 

2.        Investment Objectives

2.1.        Plan Benefits

The principal benefit paid to members of the Plan under the trust deed is a pension based on the length of plan membership and the member’s salary near retirement.  Pensions increase in payment. Pension accrued in excess of Guaranteed Minimum Pension (“GMP”)  pre 6 April 1997 does not attract any increase. Pension accrued in excess of GMP post 6 April 1997 increases at LPI.

The Trustees take the nature of the Plan’s liabilities into account when making decisions about the Plan’s investments.

2.2.        Objectives

For the purposes of this SIP the Trustees have adopted the following overall investment objective: “to hold a portfolio with relevant funds to be ready for the full buyout at contract inception, this naturally includes an initial full buy-in (“bulk annuity contract”) with Aviva Life & Pensions UK Limited (“Aviva”) (the insurer) and any residual cash held as investments at Legal & General Assurance (Pensions Management) Limited (“LGIM”).”

In addition, the Trustees have traditionally identified the following funding objectives, which are now largely superseded by holding buy-in policies for the membership of the Plan. The objectives do however still apply to some remaining benefit payments, GMP equalisation payments and expenses:

1. To ensure the objectives are consistent with the assumptions made by the Scheme Actuary in determining the funding of the Scheme.
2. To ensure that sufficiently liquid assets are available to meet ongoing expenses. All benefit payments will be paid by the insurer as they fall due.

The Trustees recognise the objectives may conflict.

2.3.        Risks

The Trustees are aware of and pay close attention to a range of risks inherent in investing the assets of the Plan. The Trustees believe that the current investment strategy is appropriate given the Plan’s aim to fund the residual expenses, benefits and GMP equalisation, alongside the bulk annuity contract with Aviva. The Trustees’ policy on risk management is as follows:

·          That the investment managers appointed may underperform its benchmarks.

·          That the Trustees are forced to sell assets at depressed prices to meet ongoing expenses.

·          That assets are lost through the failure of procedures for safekeeping.

·          That the Trustees make inappropriate decisions.

·          That the Trustees’ advisers give bad advice.

 

3.        The Trustees’ Policies

The Trustees’ policies for the Plan are set out below. The Trustees will review their SIP on an annual basis in order to reflect any changes to their policies and formally assess their procedures and decisions.

The current arrangements entered into by the Trustees are set out in the Appendices to this statement.  Appendix A contains details of the advisers appointed who assist the Trustees on investment matters.  Appendix B contains details of the disposition of the Plan’s assets.  Appendix C describes the fee structures applying to the Trustees’ investment arrangements. 

3.1.        Policy on Custody Risk

The Trustees are not responsible for the appointment of the custodian to pooled funds in which the Trustees invest.  This responsibility falls on the Trustees of the pooled funds. The Trustees obtain from LGIM a report from the manager’s accountant on its custodial activity (FRAG 21) and review it.

3.2.        Policy on Poor Decision Making and Poor Advice

The Trustees will take advice on all investment decisions other than those involving regular investment of contributions or regular disinvestment to meet the Trustees obligations under the trust deed. 

If a minority of the Trustees present at a quorate meeting to consider such advice dissents from the majority opinion, the Trustees will at the request of the minority obtain a review of the advice given by their investment adviser from an independent third party.

3.3.        Policy on Appointing Investment Managers

The Trustees have selected LGIM and Aviva as the Plan’s appointed Investment Managers (“the Investment Managers”), albeit that Aviva manage a bulk annuity contract rather than explicit investment funds.  The Investment Managers are regulated under the Financial Services and Markets Act 2000.

The Trustees will seek advice on the capabilities of investment managers prior to any mandate being awarded. The review of investment managers will include consideration of the ability of the investment managers to provide adequate information to Plan members on the performance of the fund.

The Trustees will usually meet with prospective managers prior to awarding a mandate.

The Trustees will consider the effect of the appointment of any single investment manager on the likely volatility of returns of the Plan’s assets as a whole before making that appointment.

The Trustees will not enter into any agreement with an investment manager prior to receiving advice on the proposed form of agreement from their investment adviser and their lawyer.

The above principles would apply equally to the selection of investment managers who are appointed to manage Additional Voluntary Contributions on behalf of the Trustees.

The Trustees have a bulk annuity contract with Aviva and a rolling contract with LGIM. The rolling contract with LGIM can be terminated with immediate effect, allowing for the lead time to perform an asset transfer to a new manager.

3.4.        Policy on Stock Selection

The Trustees are not authorised under the FSA to manage pension scheme assets.  The Trustees delegate all stock selection decisions to their appointed investment managers and monitor the investment managers in conjunction with their advisers.

3.5.        Policy on Monitoring Investment Managers

The Trustees along with their investment adviser meet the Investment Managers at least once a year.

The Trustees review their investment managers’ transaction costs on a regular basis. If the costs are not acceptable to the Trustees they will take advice and may decide either to replace or to constrain either investment managers’ actions.

The Trustees monitor the remuneration, including incentives, that are paid to their Investment Managers and how they reward their key staff who manage client funds, along with how the pay and incentives motivate employees who manage client funds.

As part of the monitoring that the Trustees carry out on a regular basis, they should ensure that this policy is in line with their investment strategy.

The Trustees monitor LGIM’s assessment of the businesses invested in, the performance over the medium to long-term and considers whether this is a holistic look at all relevant aspects of performance (i.e. does it look beyond purely accountancy measures). The Trustees must consider if LGIM is incentivised to make decisions on a short-term basis or on a medium to long-term basis and does this coincide with the business assessments. The Trustees must be conscious of whether LGIM is incentivised by the agreement to engage with the investee business and to what extent does any engagement focus on improving medium to long-term performance.

The Trustees monitor the performance of their Investment Managers on a quarterly basis. This monitoring is reviewed by looking at the reports produced by their Investment Managers.

The Trustees have set performance objectives, including time periods, consistent with the investment strategy set out in this statement.

The Trustees will monitor costs of buying, selling, lending and borrowing investments and will look to monitor the costs breakdown regularly, as long as the Investment Managers provide these costs using the Cost Transparency Initiative template. The Trustees will also ensure that, where appropriate, their Investment Managers monitor the frequency of transactions and portfolio turnover. If there are any targets then the Trustees will monitor compliance with these targets.

3.6.        Policy on Financially material considerations over the Plan’s time horizon

The Trustees believe that their main duty, reflected in their investment objectives, is to protect the financial interests of the Plan’s members.  The Trustees believe that ESG considerations (including but not limited to climate change) and stewardship in the selection, retention and realisation of their investments is an integral part of this duty and can contribute to the generation of good investment returns, albeit that this is limited by investing solely in fixed income assets and insurance contracts. Legislation requires that the Trustees form a view of the length of time that they consider is needed for the funding of future benefits by the investments of the Plan. The Trustees recognise that this is a defined benefit plan closed to new entrants with an ageing membership and is largely invested in a bulk annuity contract with an insurer and some residual fixed income assets. Accordingly, the Trustees have formed the view that the appropriate time horizon of this Plan is over the shorter term, which gives limited scope for ESG considerations to be financially material.

The Trustees have elected to invest in pooled funds and cannot, therefore, directly influence the ESG policies, including the day-to-day application of voting rights (only applicable for equity funds, which the Plan doesn’t currently hold), of the funds in which they invest.  However, the Trustees will consider these policies in any future selections and will seek to deepen their understanding of their existing managers’ policies by reviewing these regularly. In cases where they are dissatisfied with a manager’s approach they will take this into account when reviewing them. They are also keen that their managers are signatories of the UN Principles of Responsible Investment, which is currently the case.

The Trustees believe that stewardship is important, through the exercising of rights (including voting rights) attaching to investments. The Trustees are keen that their managers can explain when, and by what practical methods, the manager monitors and engage with relevant persons about relevant matters in this area. They will be liaising with LGIM and Aviva but are unable to obtain any details of the voting behaviour (including the most significant votes cast on the Trustees’ behalf) because the investments are fixed income in nature. The Trustees are also keen that their managers are signatories of the UK Stewardship Code. This is currently the case.

The Trustees would monitor any voting carried out by LGIM and their custodians on their behalf. They would do this by receiving reports from LGIM which should include details of any significant votes cast and proxy services that have been used.

The Trustees are aware that ESG and stewardship considerations involve an ongoing process of education for themselves and engagement with their investment managers. To that end they dedicate time regularly to the discussion of this topic and intend to review and renew their approach periodically with the help of their investment consultants, where required.  Consequently, the Trustees expect the Plan’s investment managers to have effective ESG policies (including the application of voting rights) in place and look to discuss the investment managers’ ESG policies with them when the manager attends Trustee meetings. 

Non financial matters, including members’ views are currently not taken into account.

3.7.        Policy on Taking Investment Decisions

The Trustees take into account the complexity of their investment arrangements in setting their processes for decision making.

Where the Trustees believe that they can achieve sufficient understanding in order to make well-informed decisions about investment matters they will not delegate the decision. All Trustees undergo training in investment matters and if any decisions the Trustees are called on to make require further training the Trustees will obtain it from appropriate advisers.

3.8.        Policy on Dissemination of Investment Information

The Trustees will review this SIP annually having taken advice from their investment adviser and consulted the employer.  The Trustees will provide an annual communication to their members covering:

·          Details of the funds invested in by the Plan;

·          A description of the investment managers used by the Plan;

·          Investment objectives for the fund and the managers’ approach in an attempt to achieve these objectives;

·          The investment performance of each fund;

·          Summarised information from the Trustees’ monitoring of their investment managers and their decision making;

·          Any important investment developments;

·          Any significant changes to the SIP;

·          Compliance with Myners principles.

 

4.        The Trustees’ Policies

The Trustees’ policies are set out below. 

4.1.     Policy in the event of Contribution Default by the Employer.

The Trustees monitor the employer’s financial strength as part of their regular reviews of investment strategy.  The Trustees are aware as a result of this review of the profitability of the employer’s business and the cash flow generated by the business as revealed by the latest statutory accounts.  The Trustees are also aware of the net asset value of the business. 

In particular the Trustees have received from the employer confirmation that the employer will pay contributions at the minimum rates set out in the Schedule of Contributions required under PA95.  If the employer fails to make contributions expected in accordance with the Schedule, the Trustees will seek clarification from the employer of the reasons for the default.  If in the Trustees’ opinion contributions are unlikely to continue to be received in accordance with the Schedule, the Trustees will seek investment advice as to whether their current investment strategy remains appropriate.

4.2.     Policy the event of Employer Insolvency

Should the employer become insolvent the Trustees will immediately review their investment strategy having taken advice from their investment adviser.

4.3.     Policy on Liquidity Risk

The Trustees currently do not need to disinvest to meet their obligations under the trust deed. The Trustees will review the position should the Plan’s circumstances change.

The Trustees’ agreement with LGIM allows immediate partial and full disinvestment of funds, with settlement at most 3 workings days after instruction. 

4.4.     Policy on Concentration Risk

The Trustees have taken advice when setting the investment strategy for the Plan and have decided to invest in pooled funds.

The Trustees have taken investment advice when setting limits within which their investment managers must operate. These limits are set out in Appendix B.

The Trustees believe that the arrangements detailed in Appendix B ensure that their portfolio is sufficiently diverse that the risk of failure of any individual investment will not significantly impact on their ability to pay the benefits promised under the trust deed.

The Trustees will review their arrangements if any individual investment exceeds 5% of the total value of the Plan’s assets. For this purpose, the Trustees will ignore any pooled fund investments and will look through to the value of the underlying assets in those funds. 

The Trustees believe that these arrangements ensure that the assets held in individual members’ accounts will be sufficiently diverse that the risk of failure of any individual investment will not significantly impact the level of pension.  

4.5.     Policy on Setting Strategy

The investment strategy is the asset allocation that the Trustees believe is the most appropriate for the Plan, taking into account the nature of the liabilities they expect to have to meet.

The Trustees will review their investment strategy after every actuarial valuation of the Plan taking advice from their investment adviser.  The review will take the form of an asset and liability modelling study (unless the Trustees’ investment adviser indicates that such a study is unnecessary).  As part of the review the Trustees will examine the impact on volatility in the Plan’s funding level arising from decisions made about the investment arrangements, including decisions about the investment strategy, about active and passive management and about manager selection.  The Trustees will take into account the likely impact on their ability to pay benefits should the Plan fail to be fully funded on both an ongoing and discontinuance basis.

The review will also take into account the risk of changes in the Plan’s position arising from changes in the Plan’s liabilities.

The Trustees will also review the appropriateness of their existing strategy on any significant change in the Plan’s circumstances, for example if the employer ceases to make contributions.

4.6.     Policy on Setting Asset Allocation

The Trustees have taken advice from their investment advisers on appropriate limits within their asset allocation should be allowed to vary from the strategic benchmark, given the Trustees objectives.

The Trustees delegate the decision on asset allocation around their long-term strategic benchmark to their investment managers within the limits set out in Appendix B. The investment managers manage the asset allocation within these limits.

Contributions are paid to LGIM in line with the strategy set out in Appendix B.

The Trustees have considered a full range of investment opportunities.

The Trustees will review the asset allocation of the fund at least every three years.

4.7.     Policy on Active and Passive Management 

The Trustees consider whether each mandate awarded should be managed passively (in which case the investment managers’ performance target will be to match the benchmark return) or actively (in which case the investment managers’ performance target will be greater than the benchmark return).  The Trustees’ decisions will be based on:

·      The degree to which the Trustees’ investments should be allowed to differ from their strategic benchmark given the objectives set out in section 2.2 above.

·      The opportunities within the asset class to generate returns in excess of the benchmark return.

·      The ability of active investment managers to generate returns above the benchmark. 

The Trustees have chosen to invest in passively managed funds and there is no active management now.

 

5.        Compliance with  the Myners Principles

The Trustees have aimed to comply with the Myners principles and have taken advice from Capita on what principles it is sensible for them to adopt.  In the following areas they have elected not to comply for the reasons stated below.

·      The Trustees do not have any support staff in-house as they do not believe that this is necessary since they can call upon the services of Capita as required.  As a result they are not fully complying with part of principle 1.

·      The Trustees do not receive payment for carrying out their Trustee duties. As a result the Trustees are not complying with part of principle 1.

·      The Trustees plan the management of the Plan but have not drawn up a business plan.  As a result they are not fully complying with part of principle 1.

·      The Trustees have appointed advisers to provide both actuarial and investment services.  As a result they are not complying fully with principle 4.

 

Signed

(on behalf of all the Trustees by David Finlayson (Trustee))

 

 

 

……………………………………………………

 

Signed 17 June 2022

……………………………………………….

Date

Appendix A

A.1      Appointments Made

 

The following advisers assist the Trustees: 

Plan Actuary:                        Rebecca Brown

Capita

65 Gresham Street

London

EC2V 7NQ

 

Investment Adviser:            Capita 

                                               (address as above)

 

Pensions Consultant:         Capita

                                               (address as above)

 

Auditor:                                  Pricewaterhousecoopers LLP

One Kingsway

Cardiff

                                                CF10 3PW

 

Lawyer:                                 CMS Cameron McKenna LLP

                                               Mitre House

                                               160 Aldersgate Street

                                               London

                                               EC1A 4DD

 

In addition the Trustees have made the following appointments:

Investment managers:        Legal & General Assurance (Pensions Management) Limited

Temple Court
11 Queen Victoria Street
London

EC4N 4TP

 

Aviva Life & Pensions UK Limited

Wellington Row

York

YO90 1WR

 

Additional Voluntary Contributions Managers:

                                               Legal & General Assurance (Pensions Management) Limited

 

A.2      Delegations Made

The Trustees have delegated the selection of all individual investments held within the pooled funds they hold units, to the manager of the pooled funds.

 

A.3      Reports Received

The Trustees receive quarterly reports from LGIM detailing returns achieved.

The Trustees receive annual summaries of governance and SRI policies from their investment managers.

The Trustees receive reports on transaction costs from their investment managers.

The Trustees receive copies of their investment managers’ annual reports on compliance with FRAG 21

The Trustees receive annual reports from their pensions consultant on compliance with PA95.

The Trustees receive an annual report from their investment adviser on the appropriateness of their current SIP.

The Trustees receive a report from an independent auditor on their annual Plan accounts.

Appendix B – Investment Arrangements

 

B.1      Strategic Benchmark/ Manager Structure

The Trustees’ short-term asset allocation strategy for the residual cash, excluding the bulk annuity contract at Aviva which covers the full liabilities of the members of the Plan, is set out in the following table:

 

 

The assets are to be invested in the following pooled funds managed by Legal & General Assurance (Pensions Management) Limited.

 

AVC Investments

Legal & General Investment Management

B.2      Investment of Contributions/ Disinvestment to Meet Cashflow

Since the Plan’s closure to new entrants, contribution income is likely to be less than benefit outgo.

B.3      Controls on Investment Activity

There are no additional controls on investment activity imposed by the Trustees through their agreements with the investment managers.

B.4      Self-Investment

The Trustees do not hold any assets in employer related investments.  The Trustees have prohibited their investment managers from holding any employer related investments.

 

Appendix C – Fee Structures

C.1      Advisers

The Plan’s investment advisers are paid for on a time-spent fee basis.  No commission arrangements are used.  The Trustees believe that this approach ensures that all advice is impartial and independent.

C.2      Investment Manager

Legal & General Assurance (Pensions Management) Limited has a standard pooled fund charging structure as follows:

 

 

In addition, Legal & General Assurance (Pensions Management) Limited charges an annual flat fee of £1,000.