The Trustee has made available a range of investment funds for members. Each member is responsible for specifying one or more funds for the investment of their account, having regard to their attitude to the risks involved. If a member does not choose an investment option, their account will be invested into the default option applicable to them, which is managed as a “lifecycle” strategy (ie it automatically combines investments in proportions that vary according to the time to retirement age). The lifecycles are 100% invested in equities until twenty years from a member’s target retirement age from which point they transition gradually into less risky assets appropriate to the outcome targeted.
The Scheme has different default strategies for members, depending on the type of benefits they have. The default options have been designed to be in what the Trustee believes to be the best interests of the majority of the members based on the demographics of the Scheme’s membership.
Your default arrangement
The Scheme has two main default lifecycle arrangements: the Flexible Income Strategy and the Lump Sum Strategy. These lifecycle strategies were set as the default investment arrangement for two distinct cohorts of members, those with DC only benefits and those who are “Hybrid” members (former DB active members on 30 June 2015 who became active DC members from 1 July 2015), respectively.
For DC only members - the default lifecycle, the Flexible Income Strategy, transitions from the Global Equities – Passive Fund into the Diversified Assets – active Fund and then de-risks into the Global Bonds – active Fund and the Cash – active Fund as the member nears retirement; this is appropriate for those who want to take their benefits in the form of income drawdown in retirement. This is due to a belief that (based on the demographic profile of the membership and the generous contribution structure) members are likely to accrue large pots, and hence likely to drawdown their pension pot gradually in retirement. Market trends and scheme experience since the introduction of Pension Freedoms in 2015 also indicate that members with larger pots are moving away from purchasing annuities and are choosing to drawdown their retirement income instead.
For Hybrid members - the default lifecycle, the Lump Sum Strategy, targets a cash lump sum at retirement. It transitions from the Global Equities – passive Fund into the Diversified Assets – active Fund and the Global Bonds – active Fund and then de-risks into the Cash – active Fund as the member nears retirement. The rationale for this is that many Hybrid members are expected to take a tax-free cash lump sum at retirement, utilising their DC benefits to provide this (as it is usually more advantageous) before giving up DB benefits.
As a material proportion of members have been shown to leave their pots invested past retirement, the Trustee has ensured that both the Flexible Income Strategy and Lump Sum Strategy continue to de-risk after the member’s target retirement date. This was introduced following the triennial investment strategy review in 2017.
The Trustee is required to calculate the percentage of the Scheme’s assets within the default arrangements allocated to each of the following asset classes. In line with the DWP’s guidance the Trustee has also shown this asset allocation for different ages as at the Scheme year end.
Flexible Income Strategy (main default for members with only a DC pension pot)
Asset class
Allocation 25 y/o %
Allocation 45 y/o %
Allocation 55 y/o %
Allocation at retirement %
Cash
0.0
0.0
1.0
29.5
Corporate bonds (UK and overseas)
0.0
0.0
13.6
30.2
UK government bonds
0.0
0.0
2.8
2.8
Overseas government bonds
0.0
0.0
3.8
14.0
Listed equities
100.0
100.0
69.7
15.7
Private equity
0.0
0.0
0.0
0.0
Infrastructure (direct)
0.0
0.0
0.0
0.0
Property (direct)
0.0
0.0
0.8
0.6
Private debt
0.0
0.0
1.7
1.3
Other1
0.0
0.0
6.9
5.8
Total2
100.0
100.0
100.0
100.0
1Other includes gold, emerging market climate bonds, sustainable convertible bonds, insurance linked securities and derivatives. 2Figures may not sum due to rounding.
Lump Sum Strategy (main default for members with Hybrid benefits)
Asset class
Allocation 25 y/o %
Allocation 45 y/o %
Allocation 55 y/o %
Allocation at retirement %
Cash
0.0
0.0
1.0
33.1
Corporate bonds (UK and overseas)
0.0
0.0
13.6
41.4
UK government bonds
0.0
0.0
2.8
1.3
Overseas government bonds
0.0
0.0
3.8
23.5
Listed equities
100.0
100.0
69.7
0.0
Private equity
0.0
0.0
0.0
0.0
Infrastructure (direct)
0.0
0.0
0.0
0.0
Property (direct)
0.0
0.0
0.8
0.0
Private debt
0.0
0.0
1.7
0.0
Other1
0.0
0.0
6.9
0.8
Total2
100.0
100.0
100.0
100.0
1Other includes gold, emerging market climate bonds, sustainable convertible bonds, insurance linked securities and derivatives. 2Figures may not sum due to rounding.
Annuity Purchase Strategy (legacy default and current self-select (“Freechoice” option)
Asset class
Allocation 25 y/o %
Allocation 45 y/o %
Allocation 55 y/o %
Allocation at retirement %
Cash
0.0
0.0
1.0
25.0
Corporate bonds (UK and overseas)
0.0
0.0
13.6
27.0
UK government bonds
0.0
0.0
2.8
48.0
Overseas government bonds
0.0
0.0
3.8
0.0
Listed equities
100.0
100.0
69.7
0.0
Private equity
0.0
0.0
0.0
0.0
Infrastructure (direct)
0.0
0.0
0.0
0.0
Property (direct)
0.0
0.0
0.8
0.0
Private debt
0.0
0.0
1.7
0.0
Other1
0.0
0.0
6.9
0.0
Total2
100.0
100.0
100.0
100.0
1Other includes gold, emerging market climate bonds, sustainable convertible bonds, insurance linked securities and derivatives. 2Figures may not sum due to rounding.
Cash Lifecycle (legacy default arrangement)
Asset class
Allocation 25 y/o %
Allocation 45 y/o %
Allocation 55 y/o %
Allocation at retirement %
Cash
0.0
0.0
1.0
100.0
Corporate bonds (UK and overseas)
0.0
0.0
13.6
0.0
UK government bonds
0.0
0.0
2.8
0.0
Overseas government bonds
0.0
0.0
3.8
0.0
Listed equities
100.0
100.0
69.7
0.0
Private equity
0.0
0.0
0.0
0.0
Infrastructure (direct)
0.0
0.0
0.0
0.0
Property (direct)
0.0
0.0
0.8
0.0
Private debt
0.0
0.0
1.7
0.0
Other1
0.0
0.0
6.9
0.0
Total2
100.0
100.0
100.0
100.0
1Other includes gold, emerging market climate bonds, sustainable convertible bonds, insurance linked securities and derivatives. 2Figures may not sum due to rounding.
Cash active (default) Fund (additional default arrangement)
Asset class
Allocation 25 y/o %
Allocation 45 y/o %
Allocation 55 y/o %
Allocation at retirement %
Cash
100.0
100.0
100.0
100.0
Corporate bonds (UK and overseas)
0.0
0.0
0.0
0.0
UK government bonds
0.0
0.0
0.0
0.0
Overseas government bonds
0.0
0.0
0.0
0.0
Listed equities
0.0
0.0
0.0
0.0
Private equity
0.0
0.0
0.0
0.0
Infrastructure (direct)
0.0
0.0
0.0
0.0
Property (direct)
0.0
0.0
0.0
0.0
Private debt
0.0
0.0
0.0
0.0
Other1
0.0
0.0
0.0
0.0
Total2
100.0
100.0
100.0
100.0
1Other includes gold, emerging market climate bonds, sustainable convertible bonds, insurance linked securities and derivatives. 2Figures may not sum due to rounding.
There are no performance fees attached to the default arrangements and therefore performance fees make up 0% of the of the average value of the assets held by that default arrangement.
There are two additional legacy default arrangements: the Annuity Purchase Strategy and the Cash Lifecycle. These strategies are no longer used as default options for new members. A number of members who were within one year of their target retirement age at the time of the asset transition were allowed to remain invested in these legacy default lifecycles.
The Annuity Purchase Strategy transitions members from the Global Equities – passive Fund into the Diversified Assets – active Fund and then de-risks into the Fixed Annuity Tracker – passive and Cash – active Funds as the member nears retirement. The objective of the Strategy is to be appropriate for members intending to take their benefits in the form of an annuity at retirement.
The Cash Lifecycle transitions members from the Global Equities – passive Fund into the Diversified Assets – active Fund and then de-risks into the Cash – active Funds as the member nears retirement. The objective of the Strategy is to be appropriate for members seeking to take their entire pot as a cash lump sum at retirement. Following the changes in 2018, this Lifecycle was replaced by the Lump Sum Lifecycle as the default for Hybrid members. The Cash Lifecycle is not available for new investment by members.
Statement of Investment Principles
The Trustee is responsible for the Scheme’s investment governance, which includes setting and monitoring the investment strategy for the Scheme’s default arrangements.
Details of the objectives and the Trustee’s policies regarding the default arrangements can be found in a document called the ‘Statement of Investment Principles - Defined Contribution’ ('SIP'). The Scheme’s most recent DC SIP covering the default arrangements is attached to this Statement.
As stated in the SIP, the Trustee aims to provide default arrangements that the Trustee believes to be in the best interests for those members that do not wish to make their own investment decisions. As at the end of the Scheme Year, the Scheme’s Flexible Income Strategy and the Lump Sum Strategy’s objectives were to generate returns significantly above inflation whilst members are some distance from retirement, but then to switch automatically and gradually into less risky assets as the member nears retirement with the asset allocation at retirement being designed to be appropriate for members who wish to flexibly take their benefits through an income drawdown arrangement or remain invested in the Scheme or in the case of the Lump Sum Strategy, take their retirement pot as cash.
The objectives of the Scheme’s other default arrangements are noted in the applicable sections above.
Review and monitoring of the default arrangements
The Trustee is responsible for the Scheme’s investment governance, which includes setting and monitoring the investment strategy for the Scheme’s default arrangements.
Details of the objectives and the Trustee’s policies regarding the default arrangements can be found in a document called the ‘Statement of Investment Principles’ (“SIP”). The Scheme’s most recent DC SIP covering the default arrangements is attached to this annual statement regarding governance.
As stated in the SIP, the Trustee aims to provide a default investment option that the Trustee believes to be reasonable for those members that do not wish to make their own investment decisions. The Scheme’s current default options’ objectives are to generate returns significantly above inflation whilst members are some distance from retirement, but then to switch automatically and gradually into less risky assets as the member nears retirement with the asset allocation at retirement being designed to be appropriate for members who wish to flexibly take their benefits through an income drawdown arrangement or remain invested in the Scheme or in the case of the Lump Sum strategy, take their retirement pot as cash.
The Trustee formally reviews the strategy and performance of the default arrangements in detail at least every three years or immediately following any significant change in investment policy or the Scheme’s member profile. No detailed review was carried out during the Scheme Year. The last detailed review was carried out on 12 September 2017 and the next formal investment strategy and performance review is intended to take place in June 2020.
The Trustee also carries out interim annual reviews of the default arrangements alongside all available options to members. This review includes analysis of the membership, using the latest available membership data, to review whether the strategy and performance of the default arrangements remain appropriate; the last interim annual review within the Scheme Year took place on 19 February 2019 and concluded that the arrangements remained appropriate.
The Trustee also reviews the performance of the default arrangements against their aims, objectives and policies on a quarterly basis, through a performance report provided by their investment advisers, LCP. This review includes an analysis of fund performance and member activity to check that the risk and return levels meet expectations. The Trustee reviews that took place during the Scheme Year concluded that the default arrangements were performing broadly as expected.
Reviews of other investment arrangements during the Scheme Year
The Trustee also carries out an annual review of its Additional Voluntary Contributions (AVC) arrangements with the last review being on 23 May 2019. This review highlighted no material concerns with the AVC arrangements.
On 31 December 2019, following the transfer of Equitable Life’s business, members with Equitable Life With profits investments were uplifted to compensate for loss of guarantees and transferred to a unit-linked Secure Cash Fund with Utmost Life and Pensions. The Trustee plans to transfer these investments to the Lump Sum Strategy in 2020 to allow members to benefit from reduced fees and increased investment choice.
View the DC Statement of Investment Principles
If you would like to view the full DC Statement of Investment Principles here
The Trustee is required to set out the charges incurred by members during the Scheme Year in this Statement. As the sponsoring employer pays the DC investment fund annual management charges, platform expenses and all other administration expenses, the member borne charges are limited to the additional fund expenses incurred by the underlying managers in the day-to-day running of the funds (for example, custodian fees etc), with the exception of some legacy AVCs funds
The Trustee carried out a value for members’ assessment, looking back over the Scheme year to 31 December 2019. The Trustee is required to assess the extent to which member borne charges and transaction costs for the Scheme Year represent good value for members.
The Sponsoring employer currently pays the AMC platform expenses and administration costs. Additional expenses (“AE”) are covered by members and are those costs incurred in the management of the underlying funds which are, by nature, flexible and therefore fall outside of the AMC. The Trustee has provided an illustration of the impact of the charges and costs on members pension pots for the default options and four funds from the Freechoice range.