Chair's Statement


This statement has been prepared in accordance with the Occupational Pension Schemes (Charges and Governance) Regulations 2015.

 

Governance

As set out in the Trustee’s Report the governance of the Plan, including arrangements with respect to Defined Contribution members, their contributions and benefits, is undertaken by the Trustee through its board and committees.

The Trustee’s priority is to provide a strong and stable pension scheme which operates in the interests of its members and to achieve this the Trustee Board and its Committees meet regularly to develop and agree strategy, monitor performance, discuss and explore issues relevant to the governance and administration of the Defined Contribution (DC) arrangements and make appropriate decisions. Meeting dates are agreed more than a year in advance and follow a formal agenda, for which the staff of the Plan and advisers prepare papers.

Trustee Directors have put in place arrangements for ensuring that they take personal responsibility for keeping themselves up-to-date with relevant developments and maintain training logs on an ongoing basis. The Pensions Director maintains a record of all Trustee Knowledge & Understanding (TKU) undertaken during the year, with any TKU compliance requirements shared with the Chairman each year, and incorporated into the Trustee Action Plan. Documents and guidance with Plan specific information, including Plan Rules, are provided via the digital board book system to all Trustee Directors and Committee members. The Pensions Director aims to identify training needs on any topics that become relevant and training is given in Trustee meetings, by Plan staff or advisers.

All new Trustee Directors during the year have completed the Pension Regulator’s trustee toolkit, and have received detailed briefings from both the Pensions Director and key advisers, as well as other Plan staff as required, tailored to individuals’ existing knowledge and expertise.

All changes to Plan rules are approved by the Trustee, and a Trustee questionnaire each year identifies whether Trustee Directors feel they have any further training needs. Elements of the Plan Rules are regularly discussed in Trustee meetings.

The Statement of Investment Principles (SIP) can be found in Appendix 1 below and is also regularly discussed in Trustee and committee meetings. The combined knowledge and understanding of the Trustee directors, the independent members of certain committees and the staff of the Plan, together with external advice where appropriate, enables the Trustee to exercise properly its functions by providing collectively experience of governance, pension fund management, administration, investment, finance, audit and member representation.

 

The default lifecycle arrangement

Some members of the DC Sections of the Plan make their own investment choice but those who do not make an explicit choice regarding the investment of their funds are placed automatically into the default lifecycle arrangement. This aims to ensure that members’ pension savings are invested in appropriate funds at the appropriate times, based on the number of years until their selected retirement date.

The objective of the default lifecycle arrangement is to provide members with the potential for higher levels of growth during the accumulation of their retirement savings through exposure to equity and diversified growth funds and then to diversify gradually their investments in the years approaching retirement, in order to reduce volatility and safeguard members’ benefits near retirement. The default lifecycle arrangement is described on page 17 of the Plan’s financial statements and the asset allocations in the years leading up to retirement are shown below.


By investing in this manner, the Trustee takes into account members’ greater capacity for risk early on and reduced capacity for risk in later years. The Trustee considers this approach to be in the best interest of relevant members and relevant beneficiaries.

The default lifecycle arrangement meets the requirements for social environmental and ethical considerations set out in the Trustee’s Statement of Investment Principles which is available on the Plan’s website www.pearson-pensions.com/library

The Trustee reviewed the ongoing suitability of the default lifecycle arrangement in 2017/2018, having taken advice from its investment consultants and the resulting investment transition took place in April 2018. Further details of the changes made can be found at www.pearson-pensions.com/investment-change

The next scheduled review is due to take place in June 2020.

On a quarterly basis the performance of funds after charges comprising the default lifecycle arrangement is reviewed by the Investment Committee. Throughout the year ended 31 December 2018, investment returns have generally tracked benchmarks, and have performed in accordance with the objectives of the fund. Where performance is not in line with benchmarks, the Investment Committee have investigated the underperformance with the investment consultants and fund managers in order to establish if any further action is necessary.

 

Administration

The Trustee has a specific duty to secure that core financial transactions (including the investment of contributions, transfer of member assets into and out of the Plan, transfers between different investments within the Plan and payments to and in respect of members) relating to the DC Sections are processed promptly and accurately.

The Trustee delegates responsibility for this to the staff of the Plan and the Plan’s DC provider, Aviva. The agreement with Aviva incorporates specific service level agreements (SLAs) which include targets for the accurate and timely processing of core transactions. The Trustee monitors the performance against these SLAs via regular reports.

The staff of the Plan and Aviva have set up various controls to ensure the accuracy of processing core financial transactions, for example:

  • a reconciliation to ensure all contributions have been processed using monthly Aviva reporting data;
  • a reconciliation of monies disinvested for member refunds to amounts returned to the Plan by Aviva; and
  • an annual reconciliation of membership using data supplied from Aviva against membership held on the pension administration database.

The Trustee considers that the requirements for processing core financial transactions specified in the Administration Regulations have been met.

 

Charges and transaction costs paid by members

The Administration Regulations also require the Trustee to make an assessment of charges and transactions costs borne by members of the DC Sections and the extent to which those charges and costs represent good value for members.

The current default lifecycle arrangement attracts an average management charge of 0.34% of assets under management. The annual management charge for individual members is between 0.29% and 0.45% depending on where they are in the lifecycle (between 0.28% and 0.67% prior to the April 2018 investment transition). This is much lower than the maximum allowed of 0.75% and the Trustee is satisfied that it has negotiated good terms for members taking account of the expected growth in the size of the DC Sections as a result of auto-enrolment.

In addition, there is a range of 11 separate funds (13 funds prior to the April 2018 transition) which may be chosen by members as an alternative to the default lifecycle arrangement. These funds attract annual management charges of between 0.18% and 1.16% (and between 0.28% and 1.20% prior to the April 2018 transition), and allow members to take a more tailored approach to managing their own pension investments.

Annual management charges for each fund are shown below but can also be found on the Plan’s website at

www.pearson-pensions.com/library

Fund Name Annual
Management
Charge
Jan 18 - Apr 18
Annual
Management
Charge
May 18 - Dec 18
Total
transaction
costs 2018 
Blended multi asset N/A 0.86%
0.29%
BlackRock over 15 year corporate bond index fund
0.28%
0.18%
0.09%
BlackRock UK equity index fund 0.30%
0.18%
0.05%
Jupiter ecology fund  1.20% 1.16%
0.05%
MFS Meridian global equity fund
N/A
0.96% 0.03%
BlackRock world ex UK equity index fund 0.30%
0.19%
0.03%
BlackRock institutional sterling liquidity fund N/A
0.18%
0.02%
BlackRock over 15 year gilt index fund 0.28%
0.18%
0.02%
Blended index linked gilt fund N/A
0.18%
0.00%
Blended global equity fund 1.00%
0.29%
-0.03%
Threadneedle pensions property fund N/A
0.91%
Unavailable
BlackRock (30:70) currency hedged global equity
index fund
0.28% N/A N/A
Threadneedle pensions property fund 0.95%
BlackRock over 5 years index-linked gilt index fund 0.28%
Money market fund
0.28%
Schroder Life intermediated diversified growth fund 1.00%
BlackRock market advantage strategy fund 0.55%
Standard Life investments global absolute return
strategies fund
1.10%


Aviva have provided transaction cost information from fund managers for all funds except Threadneedle pensions property fund which are not available at this stage but they are working with the manager to get the required underlying data as soon as possible. Transaction costs include both implicit and explicit costs. There is no standard way of calculating these implicit costs. The Financial Conduct Authority (FCA) has stipulated that a calculation methodology called ‘slippage cost’ should be used. This calculates the difference between the mid-price valuation immediately prior to the transaction and the actual execution price. Where information is not available, an alternative method is used to calculate implicit costs.

While these costs are important, they should not be looked at in isolation but should be viewed within the context of the performance of the fund or funds chosen as these costs are, ultimately, reflected in the performance of the fund.

 

Value for members

The Trustee has assessed the extent to which charges and transaction costs detailed above represent good value for money to members. Consideration has been given to how the charges and transaction cost borne by members (the cost of membership) compare with the services and benefits provided by the Plan (the benefits of membership). The Trustee has also compared the level of charges in each fund with the levels of return each has delivered to members, and with available information on other schemes.

The benefits of membership include (amongst other things):

  • The design of the default lifecycle arrangement and how this reflects the interest of members.
  • The range of investment options and strategies.
  • The efficiency of administration processes, the quality of communications, support services and scheme governance, including the additional benefit of an in-house pensions team, solely focussed on the Plan’s arrangements.
  • Access to retirement planning tools through the Aviva member site.
  • Access to factsheets and guidance provided on the Plan website.
  • Additional ill health and death benefits for Plan members.
  • Access to additional discounts and benefits on a range of products with the Plan’s DC provider, Aviva.

    Having considered the various aspects of the Plan, the Trustee is confident that the Plan is offering good value to members and will continue to monitor this.

    In addition to value provided by the Plan to members, members also benefit from employer contributions, which in the case of the Money Purchase 2003 Section, provides £2 of contributions by the employer for every £1 contributed by the employee. Contributions provided by the employer for the Auto-enrolment section of the Plan are in line with legislation.

Illustrations

The illustrations show how different costs and charges can impact the pension pot over certain periods oftime, based on a selection of investment funds. Statutory guidance from The Pensions Regulator has been taken into account in the preparation of these illustrations. Under each investment fund, there are two columns. The first shows the projected pension values assuming no charges are taken. The second shows the projected pension values after costs and charges are taken. By comparing the two you can see how much the charges over the years will impact your pension fund.

Illustration of effect of costs and charges for typical funds within Money Purchase 2003 Section



The assumptions used for this illustration are:

  1. Year 1 is when members start saving and therefore their pot balance is £nil. Contributions are assumed to be paid £500 monthly increasing in line with assumed earnings inflation of 2.5% each year.
  2. Cash flows are discounted at 2.5% a year.
  3. Values shown are estimates and are not guaranteed.
  4. Growth rates are based on the assumptions permitted by the Conduct of Business Sourcebook (CoBS) of the FCA.


Illustration of effect of costs and charges for typical funds within the Auto Enrolment Section


  1. Year 1 is when members start saving and therefore their pot balance is £nil. Contributions are assumed to be paid £100 monthly increasing in line with assumed earnings inflation of 2.5% each year.
  2. Cash flows are discounted at 2.5% a year.
  3. Values shown are estimates and are not guaranteed.
  4. Growth rates are based on the assumptions permitted by the Conduct of Business Sourcebook (CoBS) of the FCA

The Chairman’s Defined Contribution Governance Statement was approved by the Trustee on 25 June 2019 and signed on their behalf by:

J A B Joll
Chairman



Appendix 1

 

This Statement of Investment Principles (SIP) has been prepared by the Plan Trustee (Pearson Pension Trustee Limited) of the Pearson Pension Plan (the Plan) to comply with the requirements of the Pensions Acts 1995, as amended, the Occupational Pension Schemes (Investment) Regulations 2005 and to reflect the Government's Voluntary Code of Conduct for Institutional Investment in the UK.

The Plan Trustee has consulted with the Principal Employer on the content of this document.

Effective date: This SIP is effective from 24 May 2018.

 

1. Strategy – Final Pay Sections

Investment Objectives – Final Pay Sections

The Trustee's objectives for the Final Pay Sections are:

  • An overall objective to invest the Plan’s assets in such a way that sufficient money is available to meet the liability to provide benefits to the members of the Plan into the future. This includes, where possible and agreed with the Principal Employer, discretionary increases to pensions in payment in excess of the guarantees in the Plan Rules, so that total pension increases broadly aim to protect against cost of living increases.
  • A shorter term objective of endeavouring to invest the Plan’s assets to achieve returns in excess of the growth in the liabilities, whilst maintaining a prudent approach to meeting the Plan’s liabilities.
  • The Trustee is targeting a self-sufficiency investment portfolio and the primary focus is accurate cashflow matching and risk control.


Allocation of Assets – Final Pay Sections

Asset allocation is considered regularly by the Trustee and reviewed in detail following each actuarial valuation. The Trustee divides the assets of the Plan into two sections the Insurance Portfolio and the Main Portfolio which are composed as follows:

  • The Insurance Portfolio consists of assets which are held in the form of insurance contracts matching a portion of the liabilities of the Plan.
    The insurer pays the Plan an amount equal to the pension payment in respect for the members underlying the policy. These insurance contracts are assets of the Plan and the pension liability remains within the Plan.

    Towards the end of 2017 the Plan purchased two separate buy-in policies with Aviva Life & Pensions UK Limited (Aviva) and Legal and General Life Assurance Limited (L&G). The two policies covered approximately two thirds of the pensioner member's liabilities at the time of the transactions.
  • The Main portfolio consists of all Plan assets outside of the Insurance Portfolio. The Main portfolio is composed of Matching and Return Seeking assets.
    • The Matching Assets are assets which produce cashflows that can be expected to match the cashflows for a proportion of the membership. The Matching Assets include bonds, inflation linked property, and infrastructure. Liability Driven Investment is a key component of the Plan's Matching Assets as it allows it to match a higher proportion of the expected liability cashflows.
    • The Return Seeking Assets are invested with a long term horizon to generate the returns needed to provide the remaining expected cashflows for the beneficiaries. This portfolio is invested in a diversified portfolio of return seeking assets. The Return Seeking Assets are expected to be formed of an allocation to Diversified Growth Funds (DGFs), Property, Private Equity and Infrastructure.

During the third and fourth quarters of 2017 the Plan purchased two separate buy-in policies, as a result the Plan's total allocation, as at 31 October 2017, was 88% to the Insurance portfolio and Matching Assets and 12% to Return Seeking assets. The actual allocation depends on the relevant market values and so will fluctuate over time.

This is a low risk asset allocation which maintains a low probability of requiring further contributions from the Plan's Sponsor in excess of those already agreed. Progress has been made towards reaching this asset allocation following strong performance of the Plan's investments and corresponding increase in the self-sufficiency funding level. Debt payments from the Plan's Sponsor, relating to the Financial Times and Penguin corporate activity (triggering what is called a Section 75 Debt payment), is expected to result in the Plan being fully funded on a self- sufficiency funding level basis by the end of 2020.

The primary focus of the Plan's allocation of investments is accurate cashflow matching and risk control.

The Insurance Portfolio is cashflow matching as it provides payments which are expected to exactly match the benefit payments for the insured members.

Liability Driven Investment is a key component of the Plan's Matching Assets as it allows for accurate cashflow matching and risk reduction.

A small allocation to Return Seeking Assets has been maintained in the Plan's self-sufficiency asset allocation to provide a buffer for any changes in actuarial assumptions, longevity risk, and to potentially allow for discretionary increases to members in certain scenarios as described in the investment objectives.

Based on asset-liability modelling as at 31 December 2014, the asset allocation strategy, allowing for planned de-risking, was expected to generate a return of 3.2% per annum with an acceptable level of volatility over the next ten years. The expected return of the Plan's asset allocation, incorporating the two buy-in transactions, was checked in 2017 to ensure it remained appropriate immediately following the transactions. The Plan's investment strategy is due to be fully reviewed and modelled in 2018 alongside the Actuarial Valuation. The allocation to each asset class will vary due to market movements and will be kept under review by the Trustee.

2. Strategy – Money Purchase Sections

Investment Objectives – Money Purchase Sections

The Trustee's objective for the Money Purchase Sections is to make available to members of the Money Purchase Sections an appropriate range of investment options to which members and the Company will contribute in order to provide each member with a fund which will be used to secure his or her benefit at retirement.


Investment Strategy – Money Purchase Sections

Alongside the Final Pay Sections are the Money Purchase Sections, which are treated entirely separately and look to provide each member with an appropriate range of Funds to select as well as ensuring that the strategy for each of the Lifecycle options is appropriate for the variety of members taking part.
The investment choices should provide appropriate exposures to generate income and capital appreciation which, combined with member and employer contributions, will help towards the provision of a sufficient retirement benefit.
The investment funds offered to members are provided by the Aviva investment platform and consist of the following asset classes:

  • Equity
  • Bonds
  • Diversified Growth
  • Property
  • Cash

3. Risks

The table below sets out the key risks in relation to both the Final Pay and Money Purchase Sections.

Risk Final Pay Sections Money Purchase Sections
Funding
Insufficient assets to cover accrued liabilities.
Managed by careful structuring of the funding and investment arrangements, along with regular monitoring. The liabilities equal the assets, but there is a related risk of not meeting members' reasonable expectations in terms of pension proceeds on retirement, bearing in mind members' contributions and fund choices. This is managed through careful design of the lifecycle strategies and offering an appropriate fund range, along with regular monitoring.
Mismatching
A difference in the sensitivity of asset and liability values to financial and demographic factors.
This is considered when setting the investment strategy and managed through regular reviews of the investment strategy.

The Insurance portfolio is expected to perfectly match the liabilities of the insured members.
Interest Rate
The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. These fluctuations will affect the valuations of both assets and liabilities (the Scheme Actuary values the Final Pay Sections liabilities with reference to UK Government bond yields).
This is managed by formal review of the sensitivity between the assets and liabilities after each triennial valuation, or if there are any significant changes to the profile of the liabilities, or major changes in investment markets. The Insurance portfolio is expected to perfectly match the liabilities of the insured members. The liabilities equal the assets, but there is a related risk of not meeting members' reasonable expectations in terms of pension proceeds on retirement, and this will be subject to interest rate and inflation risk. This is managed through careful design of the lifecycle strategies and offering an appropriate fund range, along with regular monitoring.
Inflation
The risk that the fair value or future cash flows from an investment will fluctuate due to changes in realised or expected inflation. The Plan's liabilities are often directly linked to inflation and the risk is that the assets do not also have this sensitivity.
Longevity
Related to the increasing life expectancy of pensioners and policy holders. This can result in higher than expected payout.
This is currently managed by including a buffer in the targeted returns and a funding reserve in the Main portfolio; and through the purchase of buy-in policies held within the Insurance portfolio. Not applicable since members decide how to take their own benefits.
Credit
The risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an obligation.
This is managed by ensuring that appropriate guidelines are in place. The Trustee receives regular reports from the managers setting out the extent of credit risk within their portfolios and, in particular, whether any agreed guidelines have been breached.

For the Insurance Portfolio the Plan is exposed to the risk that an insurer defaults on its obligation to pay the pensions of the insured members. This risk is mitigated as the two policies have been purchased on a collateralised basis. Collateral pools are held within accounts in the Plan's name at the Plan's Custodian. Should the insurer fail, the Trustee takes back the collateral pool.

The collateral contained in these accounts is in the form of Gilts and Corporate bonds and are governed by contractual guidelines one of which is that the bonds contained in the collateral pools must be of Investment grade. This means that they have a rating of BBB- or above.
The Plan's Money Purchase Sections are subject to credit risk associated with the underlying investments. A wide range of funds are available to allow members to suitably diversify their investments to manage this risk. This is also considered when setting the lifecycle strategies.
Currency
The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The Plan assets are, for the most part, Sterling denominated, as are the Plan's liabilities. A small level of currency risk remains in relation to the investment in overseas assets.

The Trustee takes a long term view on currency risk and accepts some of the short term volatility in currency markets to avoid the costs associated with currency hedging.
The Trustee has discussed currency risk for Money Purchase Sections members and determined that members are reasonably well protected in the Lifecycle strategies given that the risk relates primarily to the global equity exposure which is reduced from 15 years before retirement. Members who self-select their own Funds are able to manage this risk themselves and all members are made aware of the currency risks in relation to relevant investments through the available literature.
Other Price
The risk that the fair value or future cash flows of a financial asset will fluctuate as all investments are subject to idiosyncratic price risks.
These risks are managed by ensuring that the portfolio is well diversified both across asset classes and within each individual asset class. In addition the Trustee takes advice from its investment consultant as to the continuing suitability of the asset classes and managers in which it invests. Other price risks are managed through regular reviews of the investment strategy and fund managers.
Investment managers
This risk arises from a failure to meet target returns.
This is managed by the Investment Committee which closely monitors the performance of the managers and receives formal quarterly reports from the investment consultant giving views on each manager's continuing appropriateness.
Diversification
This risk relates to an inadequate spread of investments and sources of return.
This is managed by spreading the Plan's investments over a range of asset classes and is considered as part of each investment strategy review. The Trustee has selected a wide range of funds to be available to allow members to suitably diversify their investments to manage this risk. This is also considered when setting the lifecycle strategies.
Covenant
This risk relates to the possibility of the failure of the Plan’s sponsor.
This risk is managed through the appointment of an independent third party covenant advisor and the monitoring of a number of key metrics, such as the size of the Plan's deficit in relation to the Company, on a quarterly basis.
Pension Conversion
There are risks relating to the point of retirement for members and the approach they take to retirement, in other words whether they take cash, transfer to an income drawdown provider or purchase an annuity.
Not applicable as these risks are borne by the Scheme not the members. These risks are considered when designing the lifecycle strategies and determining the fund range and are managed through regular monitoring.
Cash flows
This risk relates to a shortfall of liquid assets relative to the Plan's immediate liabilities.
This is managed by regular monitoring of liquidity levels and expected outgo. All of the funds used are all daily dealt so sufficient liquidity should be available to members if they required cash for any outflow.
Operational
This risk relates to fraud, poor advice or negligence.
Operational risk is reduced as far as possible by due diligence on the appointment and review of managers and advisers, and by contracts of engagement. Additional controls are provided by the regular reviews of the Plan and its operations carried out by Pearson plc's internal audit team and external auditors.
Political
This is the risk of an adverse influence on investment values arising from political intervention.
It is managed through regular reviews of the investment strategy, and fund managers. Relevant government consultations will be discussed with the investment consultant in advance of any anticipated changes.

4. Implementation – Final Pay Sections

Insurance Portfolio

The Plan holds two Insurance policies details of which are outlined below.

Investment Manager/Insurer Objective
Aviva Life & Pensions UK Limited To make payments to the Plan which are expected to match the benefit payments of the insured members.
Legal and General Assurance Society Limited To make payments to the Plan which are expected to match the benefit payments of the insured members.


Matching Assets

The Plan's assets invested in matching asset classes are outlined below.

Investment Manager/Insurer Objective
Legal & General Investment Management To manage a bespoke Liability Driven Investment mandate, benchmarked against the Plan's expected liability cashflows. This mandate includes UK fixed interest government securities, UK index-linked government securities, interest rate and inflation swaps and other derivative instruments or bonds as appropriate.
LaSalle Investment Management To manage a portfolio of RPI linked properties.
Infrared Capital Partners To manage an infrastructure portfolio.
Aberdeen To manage an infrastructure portfolio.


Return Seeking Assets

The Plan's assets invested in Return Seeking assets are outlined below.

Investment Manager Objective
LaSalle Investment Management To manage a portfolio of property investments.
Pantheon Ventures To manage a portfolio of Unquoted Equity 'Fund of Funds'. Pantheon invests in a range of different Fund of Fund products which provide the Plan with diversification across global regions (US, Europe and Asia), strategies and vintages.
EQT The EQT Fund will make primarily controlling and co-controlling investments in infrastructure investments located in Northern and Eastern Europe with the flexibility to invest globally.
Alinda To invest in large economic infrastructure assets, predominantly from the secondary market. These assets will predominantly be sourced from the US and Western Europe.
Meridiam To manage an infrastructure portfolio with an emphasis on the Transportation (primarily roads) and Social sectors in Continental Europe.
CB Richard Ellis To manage a diversified exposure to pan-European real estate (excl. UK) through investment in Investment Funds and/or Property Related Assets.
BlackRock To manage a Diversified Growth Fund.
Standard Life

To manage a Diversified Growth Fund.



Choosing investments

In general individual investment managers have discretion in the timing of the purchase and sale of investments and in considerations relating to the liquidity of those investments. Additional realisations may be required to ensure that the Plan's benefit payments and other expenditure can be met.

The Trustee, and investment managers (to the extent delegated), will use the criteria set out in the Occupational Pension Schemes (Investment) Regulations 2005, when selecting investments on behalf of the Plan. The Trustee expects the investment managers to give effect to the principles in this statement as far as is reasonably practical.

The Trustee has agreed a series of investment restrictions for each manager where there is a separate Investment Management Agreement (IMA) in place. The Trustee will monitor the continuing tenure of the Investment Managers, including the competitiveness of their fee structures, from time to time, based on advice from the Investment Committee and the external investment adviser. The Trustee will also utilise compliance reporting provided by the custodian, Bank of New York Mellon, in the monitoring of Investment Managers.

5. Fund range – Money Purchase Sections

A list of funds that are currently provided are shown below, along with their investment objectives:

Fund Objective
Blended Global Equity Fund The fund aims to provide returns consistent with the composite benchmark by investing in a range of funds that provide exposure to global equities, including emerging markets.
MFS Global Equity Fund An actively managed fund invested in a portfolio of equity securities of global issuers. The Fund aims to outperform the MSCI World Index.
Aquila UK Equity Index Fund A passively managed fund invested in shares of UK companies which aims to achieve a return that is consistent with the return of the FTSE All Share Index.
Blended Multi Asset Fund The fund aims to outperform its benchmark by 3.75% per annum over rolling 5 year periods investing in a range of asset types, which might include global equities, fixed income, property and other assets.
Threadneedle Pensions Pooled Property Fund An actively managed fund invested in property with a performance objective of achieving a return above the AREF/IPD UK Quarterly Property Fund Index.
Aquila World ex-UK Index Fund A passively managed fund primarily invested in shares of overseas companies, with a performance objective of achieving a return in line with the FTSE All-World Developed ex-UK Index.
Blended Index Linked Gilt Fund The fund aims to perform in line with its benchmark by investing in a range of funds that provide exposure to both long and short dated UK index linked gilts.
Aquila Over 15 Year Corporate Bond Fund A passively managed fund primarily invested in investment grade corporate bonds denominated in Sterling that have a maturity period of 15 years or longer. The fund aims to achieve a return in line with the iBoxx Sterling Non-Gilts Over 15 Years Index.
Aquila Over 15 Year Gilt Index Fund A passively managed fund primarily invested in UK government fixed interest securities that have a maturity period of 15 years or longer. The fund aims to achieve a return in line with the FTSE UK Gilts Over 15 Years Index.
BlackRock Sterling Liquidity Fund The fund seeks to maximise current income consistent with the preservation of capital and liquidity through the maintenance of a portfolio of high quality short-term “money market” instruments.
Jupiter Ecology Fund An actively managed fund invested worldwide in companies that demonstrate a positive commitment to the long-term protection of the environment. The fund aims to provide long term capital growth consistent with a policy of protecting the environment. The fund measures performance relative to the FTSE World and the FTSE Environmental Technology 100 Index.


Lifecycle Options

The aim of the Lifecycle Options is to ensure that members' funds are invested in appropriate funds at the appropriate time, based on their age and the number of years until their selected retirement date. The Lifecycle Options’ strategies involve a phased switching approach as described below:

The Drawdown Lifecycle is the default Lifecycle Option for the Plan and initially invests in the Blended Global Equity Fund. Starting from 15 years from retirement this holding is gradually switched into the Blended Multi Asset Fund such that 12 years from selected retirement age the member is invested 72% in the Blended Global Equity Fund and 28% in the Blended Multi Asset Fund. 12 years from retirement the Aquila Over 15 Year Corporate Bond Index and the Blended Index Linked Gilt Fund are gradually incorporated such that at retirement members are invested in the following proportions: 32% Blended Global Equity Fund, 28% Blended Multi Asset Fund, 20% Aquila Over 15 Year Corporate Bond Index and 20% Blended Index Linked Gilt Fund.

The Plan also makes available two additional Lifecycle strategies for members to self-select:

The Annuity Lifecycle invests members’ money in the same way until 5 years before retirement from when the member is gradually switched into a combination of 75% Blended Index Linked Gilt Fund and 25% BlackRock Sterling Liquidity fund.

The Cash Lifecycle invests members’ money in the same way until 5 years before retirement from when the member is gradually switched to the BlackRock Sterling Liquidity fund.


Choosing investments

The Trustee decides which fund options to put forward to members. When deciding to add or remove investment fund options the Trustee will use the criteria set out in the Occupational Pension Schemes (Investment) Regulations 2005.

In general individual investment managers have discretion in the timing of the purchase and sale of investments and in considerations relating to the liquidity of those investments. Additional realisations may be required to ensure that the Plan's benefit payments and other expenditure can be met.

6. Default Investment - Money Purchase Sections

Requirement for a default

The Plan Trustee is required to designate a default arrangement into which members who are automatically enrolled are invested. The Trustee has designated the Drawdown Lifecycle (as outlined in section 5) as the default arrangement for the Plan.


Default design


The default Lifecycle strategy was constructed following analysis of the membership of the Plan. This analysis took into account factors such as age, salary, contribution level, accumulated fund values and term to retirement to identify different types of member in order to test alternative investment strategies. The design of the default Lifecycle strategy reflects this analysis having carried out multiple simulations of future economic and investment scenarios.


Objective of the default


The aim of the Drawdown Lifecycle strategy is to provide members with the potential for higher levels of growth during the accumulation of their retirement savings though exposure to equity and diversified growth funds and then to gradually diversify their investments in the years approaching retirement, in order to reduce volatility while still providing suitable exposure to growth assets, as appropriate for members who are expected to take their funds flexibly, through income drawdown.

The asset allocation throughout the default Lifecycle strategy and the phasing of the gradual switching of investments takes into account members' greater capacity for risk early on and reduced capacity for risk in later years.


Reviewing the default


The default Lifecycle strategy will be reviewed periodically with reference to the manner in which members are expected to take their benefits from the Plan. This periodic review will also take into account any significant changes in the demographic profile of the relevant members, changes in available investment options and market conditions.


Compliance with the Investment Regulations

The Trustee's policies in relation to the default arrangement in respect of matters set out in Regulation 2(3) of the Occupational Pension Schemes (Investment) Regulations 2005, as amended, are those set out in the previous sections.

7. General

Division of responsibilities

The Plan Trustee has ultimate responsibility for decision making on investment matters. In order to ensure that such decisions are taken effectively, the Plan Trustee uses other bodies either through direct delegation or in an advisory capacity. These groups include:

  • Investment Committee
  • Property Trustee (Pearson Pension Property Trustee Limited)
  • Money Purchase Working Party
  • Investment Managers and Custodian
  • External Advisors such as the Scheme Actuary and Investment Adviser
  • In house Pensions department.

Each group has a range of responsibilities which have been agreed by the Plan Trustee.


Additional Voluntary Contributions (AVCs)

The Plan provides a facility for members to pay AVCs to enhance their benefits at retirement. The members are offered a range of funds in which to invest their AVC payments. This includes the option to pay AVCs to the funds outlined in the Fund Range – Money Purchase Sections on pages 10 and 11, or the AVC Lifecycle Option.

The AVC Lifecycle Option invests members’ money in the same way as the Cash Lifecycle noted above.


Direct Investments


Assets directly held by the Trustee, including policies of assurance such as AVCs, will be regularly reviewed to ensure that they continue to be appropriate. Written advice will be obtained from the Investment Adviser when reviewing, buying or selling direct investments.

The Trustee will use the criteria set out in the Occupational Pension Schemes (Investment) Regulations 2005 when selecting direct investments and will exercise its powers in accordance with this statement.


Socially Responsible Investment (Environmental, Social and Governance Factors)


The Plan Trustee's policy is that the extent to which, environmental, social, governance or ethical considerations are taken into account is left to the discretion of the Investment Managers. Currently, the Plan's active Investment Managers have mandates that allow the exercise of such discretion. However, the Plan’s Investment Committee (IC) proactively monitors all of the Plan’s active investment managers. In addition to the usual quarterly monitoring, the active investment managers are required to attend IC meetings, typically once a year. These Manager presentations provide an opportunity for the IC to discuss responsible investment along with other aspects of the manager’s mandate and are considered an important aspect of these discussions.

It is not appropriate for the Plan's passive Investment Manager to take account of social, environmental or ethical considerations in selecting investments for their portfolio but their corporate governance policy reflects the key principles of socially responsible investment.

In addition to the above the IC also undertakes the following:

  • When appointing new active investment managers, their approach to socially responsible investment and environmental, social and governance factors is incorporated into the selection process and referenced in their Investment Management Agreements.
  • The IC reviews the Plan’s responsible investment policy, typically once a year. The latest investment manager policies are also reviewed and developments in responsible investment are discussed.
  • The Plan monitors whether its Investment Managers are signatories of the UN Principles for Responsible Investment (PRI). The IC encourages investment managers to become PRI signatories and requests explanations where they are not.

The Money Purchase Sections includes the Jupiter Ecology Fund as an option for members who wish to invest in a fund focussed on environmental protection.


Corporate Governance


It is the Plan Trustee's policy to encourage the Plan's Investment Managers to pursue a policy of engagement, where appropriate, with companies in which they invest.


Custody

The Trustee employs Bank of New York Mellon (BNY Mellon) as the Plan's global custodian and monitors its ongoing suitability on a periodic basis. A list of responsibilities has been devised for the custodian.


Investment Adviser

Aon Hewitt Limited has been appointed as Investment Adviser. It has the knowledge and experience required under the Pensions Act 1995.


Review of SIP

In drawing up this document, the Plan Trustee has sought advice from the Plan's Investment Consultant, Aon Hewitt Limited, and the Scheme Actuary, and has consulted with the Investment Managers.

This SIP will be reviewed typically annually or immediately following a change of investment policy. Written advice on any changes will be taken from the Investment Adviser and the Sponsoring Company will also be consulted.


Policy on Rights Attaching to Investments

The Plan Trustee is in agreement with the principles of effective stewardship included in the Financial Reporting Council UK Stewardship Code, and has requested the Investment Managers to comply with these principles.

 

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