Chairman’s Defined Contribution Governance Statement 2022

1. Introduction

The Plan is required to produce a yearly statement to describe how governance requirements have been met in relation to: 

  • the investment options in which members’ funds are invested (this means the default arrangements and other funds members can select or have assets in, such as “legacy” funds);
  • the requirements for processing financial transactions;
  • the charges and transaction costs borne by members; 
  • the net investment returns for each investment option members were able to select during the Plan year;
  • an illustration of the cumulative effect of these costs and charges;
  • a ‘value for members’ assessment; and
  • Trustee knowledge and understanding.

This statement has been prepared in accordance with the Occupational Pension Schemes (Charges and Governance) Regulations 2015 and covers the period 1 January 2021 to 31 December 2021. 

2. The default investment arrangements

The Plan has the Auto Enrolment (“AE”) section, which is used as a Qualifying Scheme for auto-enrolment, and the Money Purchase 2003 (“MP03”) section, which is not. Together these are the Defined Contribution (‘DC’) sections of the Plan (“DC Sections”). Members who do not opt in to or are not eligible for the MP03 section are auto enrolled into the AE section. Members of both sections are given the same investment choices and have the same default investment strategies.

Some members of the DC Sections of the Plan make their own investment choices from the range of investment options made available by the Trustee, but those who do not make an explicit choice regarding the investment of their funds are placed automatically into a default arrangement. After taking advice, the Trustee decided to make the default arrangement a lifecycle strategy, which means that members’ assets are automatically moved between different investment funds within the default lifecycle arrangement as they approach their target retirement date. 

There are three separate default lifecycle strategies: the ‘Drawdown lifecycle’, the ‘Cash lifecycle’ and the ‘Annuity lifecycle’. Details of how member contributions are invested into the different default lifecycle strategies are set out below. 

Where an explicit choice has not been made by the member, contributions are invested into the ‘Drawdown lifecycle’. From 27 October 2021, the Drawdown lifecycle is also the default arrangement for members who make Additional Voluntary Contributions (“AVCs”). This applies to all existing members that have assets invested in the MP03 and AE sections that are targeting drawdown and also new members. This does not apply, however, to AVC benefits where the member has no assets already invested in the Drawdown lifecycle through the MP03 or AE sections or is a defined benefit (“DB”) member with AVC benefits but no assets in these aforementioned DC sections. 

The asset allocations in the years leading up to retirement for the Drawdown lifecycle is shown below: 

Prior to 27 October 2021 members who made AVCs and who did not make an explicit choice for their AVC assets were placed into the ‘Cash lifecycle’, which was the default arrangement for AVCs. From 27 October 2021, this lifecycle is also the default lifecycle option for existing members with AVC benefits within the Plan who do not have assets invested in the Drawdown lifecycle or are DB members with AVC benefits who do not have assets invested in the MP03 or AE sections of the Plan. The strategy is also open for members to select if they wish to. The asset allocations in the years leading up to retirement for the Cash lifecycle is shown below:

The Plan also has a legacy default lifecycle arrangement, the ‘Annuity lifecycle’, into which the assets of a number of members close to retirement were transferred into as part of the last investment strategy review. The strategy is also open for members to select if they wish to. The asset allocations in the years leading up to retirement for the Annuity lifecycle is shown below:

The Trustee is responsible for investment governance, which includes setting and monitoring the investment strategy for the default lifecycle arrangements.

Details of the objectives and the Trustee’s policies regarding the default arrangements can be found on page 77 of the ‘Statement of Investment Principles’ (“SIP”) here.

The objective of the default lifecycle arrangement, as stated in the SIP, is as follows: 

“The objective of the main default option for the DC sections, the drawdown lifecycle, is to generate returns significantly above inflation whilst members are some distance from retirement, but then to switch automatically and gradually to lower risk investments as members near retirement.”

The objectives of all of the default lifecycle arrangements, including the cash default arrangement and the annuity default arrangements, as stated in the SIP, are as follows: 

“The aim of all the default lifecycle strategies 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. The asset allocation throughout the default lifecycle strategies 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.

In the initial growth phase, the above lifecycle options are invested to target a return significantly above inflation, and then in the 15 years before retirement, they switch gradually into less risky assets, with the asset allocation at retirement being designed to be appropriate for members wishing to access drawdown (in the case of the Drawdown Lifecycle), take their pot as cash (the Cash Lifecycle) or purchase an annuity at retirement (Annuity Lifecycle).” 

The default lifecycle arrangements are described above and each of the asset allocation tables can be found here.

The Trustee considers these approaches to be in the best interest of relevant members. The default lifecycle arrangements meet the requirements for social, environmental and governance considerations set out in the SIP. 

The BlackRock sterling liquidity fund is also considered to be a default investment strategy due to the redirection of member contributions between May 2020 and October 2020 without explicit consent during the temporary suspension of dealing of the Threadneedle Pensions property fund. The aims and objectives of the strategy are 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 and to achieve an investment return that is in line with its benchmark. 

On a quarterly basis the performance of the funds after charges (which can be found on page 18 of the Report and Financial Statements) comprising the default arrangements are reviewed by the Investment Committee. Throughout the year ended 31 December 2021, investment returns for passive funds have generally tracked their respective benchmark and have performed in accordance with their stated objectives as set out in the SIP. The performance of the active funds within the lifecycle arrangements has been more varied, which is expected as the benchmark is less likely to be an exact match for the fund given the use of active management. Where performance is not in line with benchmarks or objectives, the Investment Committee has investigated the deviation with the Plan’s investment consultants and investment managers in order to establish if any further action is necessary. The reviews that took place during the year concluded that the default lifecycle arrangements were performing broadly as expected. Although several enhancements were made to the strategies, this was not as a direct result of the performance of that fund. The changes are discussed further below. 

The default lifecycle arrangements and self-select funds are formally reviewed to assess their ongoing suitability, including the default lifecycle arrangement’s investment strategy at least every three years or immediately following any significant change in investment policy or the Plan’s membership profile. The last review of the default lifecycle and fund arrangements took place over the course of several meetings during 2020 and 2021, from 10 June 2020 to 24 March 2021. Following this review, several enhancements were made to the default lifecycles with effect from 27 October 2021. The Trustee decided to replace the use of the BlackRock over 15 year corporate bond fund within the lifecycles with an allocation to lower risk short-dated credit, through the introduction of a white-labelled fund (a fund exclusively offered to Plan members, that contains one or more underlying investment fund), the Short duration credit fund. The Trustee also agreed to introduce a new white-labelled fund within the Annuity lifecycle, to replace the Blended index linked gilt fund, called the Annuity targeting fund. This incorporates a small allocation to fixed interest gilts alongside the current index-linked gilts allocation to better align the allocation to the Plan pension option. With regard to members holding both DC and AVC benefits, the Trustee decided to change the default strategy for the AVC portion of their pot from the Cash lifecycle to the Drawdown lifecycle (so the DC and AVC benefits are considered as a whole for these members). The Trustee also undertook a review of the Plan’s Environmental, Social and Corporate Governance (“ESG”) offerings and decided to add a new BMO responsible global equity fund to the self-select investment range with effect from 27 October 2021. In addition, the Trustee decided to close the Jupiter ecology fund to new members, although it will remain open for members who are already invested in this fund. The Trustee concluded in this review that it was comfortable that all default and self-select options remain appropriate subject to the changes above being implemented.

The next full triennial review of the investment arrangements is due to start in June 2023.

3. Core financial transactions

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 the Trustee has in place with Aviva incorporates specific service level agreements (“SLAs”) which include targets for the accurate and timely processing of core financial transactions. The Trustee monitors the performance against these SLAs via quarterly 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 were processed using monthly Aviva reporting data; 
  • a quarterly reconciliation of the Plan’s membership transactions to Aviva records; and
  • an annual reconciliation of membership using data supplied from Aviva against membership held on the pension administration database.

The Trustee has received assurance from Aviva via management reporting and oral assurance that they have adequate internal controls, including review procedures, and inbuilt automated controls within their systems, to ensure that core financial transactions relating to the Plan were processed promptly and accurately during the year. Any issues identified by the Trustee as part of its review processes (set out below) would be raised with the administrators immediately, and steps would be taken to resolve the issues.

The processes the Trustee has in place for monitoring of core financial transactions are as follows: 

  • Review of quarterly SLA reporting from Aviva, covering reporting on each type of transaction for the number of cases processed, and how many days each has taken. It has been noted that throughout the year there have still been instances where the performance has fallen below target. Management have continued to work closely with Aviva to ensure that measures have been put in place to rectify the issues.
  • Review of quarterly management reporting against agreed SLAs from management, detailing what activities have taken place, and what, if any, exceptions have occurred.
  • The Trustee has appointed the Audit and Risk Committee to review the Breaches Register half yearly, where any statutory or legal breaches would be reported. It was identified in 2021 that there were some historic discrepancies relating to the documentation supplied to members for a limited number of transfers out processed. These have been investigated and it has been concluded that no members were disadvantaged, and that all transfers were accurately processed in line with members requests.  The Trustee is satisfied that the response was prompt and robust, and the control framework currently in place would prevent a similar incident from recurring. 

Based on its review process, the Trustee is satisfied that over the period covered by this statement:

  • Both the Plan and the DC provider were operating appropriate procedures, checks and controls and operating within the agreed SLAs;
  • There have been no material administration errors in relation to processing core financial transactions; and
  • Whilst SLA performance has at times been lower than the SLA target (as noted above), the Trustee is satisfied that this is being addressed and will continue to monitor performance of Aviva’s services over the remainder of 2022 and into 2023. 

4. Member-borne charges and transaction costs 

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

These are annual fund management charges plus any additional fund expenses, such as custody costs, but excluding transaction costs; this is also known as the total expense ratio (“TER”). The TER is paid by the members and is reflected in the unit price of the funds. The stated charges include administration costs, since these are met by the member.

The Trustee is also required to separately disclose transaction cost figures that are borne by members. In the context of this Statement, the transaction costs shown are those incurred when the Plan’s investment managers buy and sell assets within investment funds but are exclusive of any costs incurred when members invest in and switch between funds. The transaction costs are borne by members.

The charges and transaction costs have been supplied by Aviva (the Plan’s provider), and by the Plan’s legacy AVC providers. When preparing this section of the Statement the Trustee has taken account of the relevant statutory guidance. Due to the way in which transaction costs have been calculated it is possible for figures to be negative; since transaction costs are unlikely to be negative over the long term the Trustee has shown any negative figure as zero as part of the projections below.

4.1 Default arrangements

The default arrangement for the Plan is the Drawdown lifecycle arrangement. For the period covered by this Statement, annualised charges and transaction costs are set out in the following table:

Years to selected retirement date (SRA)TERTransaction costs
150.26%0.02%
100.35%0.12%
50.34%0.13%
At retirement0.34%0.13%
Drawdown lifecycle – Default arrangement annualised charges and transaction costs

For the period covered by this Statement, annualised charges and transaction costs for the Cash lifecycle arrangement are set out in the following table:

Years to SRATERTransaction costs
150.26%0.02%
100.35%0.12%
50.34%0.13%
At retirement0.14%0.02%
Cash lifecycle – Default arrangement annualised charges and transaction costs

The Annuity lifecycle arrangement is a legacy lifecycle arrangement and an alternative option for members, for the period covered by this Statement, annualised charges and transaction costs are set out in the following table.

Years to SRATERTransaction costs
150.26%0.02%
100.35%0.12%
50.34%0.12%
At retirement0.17%0.00%
Annuity lifecycle – Default arrangement annualised charges and transaction costs

The BlackRock sterling liquidity fund‘s TER is 0.14%, with transaction costs over the period covered by this statement at 0.02%. 

The TERs for all of these arrangements are 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.

4.2 Self-select options

In addition, there is a range of 12 separate funds which may be chosen by members as an alternative to the default lifecycle arrangements. These funds allow members to take a more tailored approach to managing their own pension investments. The Jupiter ecology fund was closed to new members on 27 October 2021, however members with an existing investment were allowed to remain invested. The Annuity targeting fund is a blended fund used as part of the annuity lifecycle, however, this fund is not available for members to self-select on a standalone basis.  

Total expense ratios (“TERs”) for each fund for 2021 are shown below, but current charges can also be found on the Plan’s website at www.pearson-pensions.com/library. The underlying funds used within the main default arrangement are shown in bold.

Fund NameTER
2021
Total transaction
costs 2021
Blended Global Equity Fund0.26%0.02%
BlackRock UK Equity Index Fund0.19%0.22%
BlackRock World ex UK Equity Index Fund0.19%0.04%
Jupiter Ecology Fund0.89%0.01%
Threadneedle Pensions Property Fund0.84%0.22%
Blended Index Linked Gilt Fund0.18%0.04%
Annuity targeting fund*0.18%(0.01)%
BlackRock Over 15 year Corporate Bond Index Fund0.19%0.11%
BlackRock Over 15 year Gilt Index Fund0.19%0.01%
BlackRock Institutional Sterling Liquidity Fund0.14%0.02%
Blended Multi Asset Fund0.64%0.34%**
MFS Meridian Global Equity Fund0.74%0.04%
Short duration credit fund*0.21%0.10%
BMO responsible equity fund*0.74%0.16%
Funds transaction costs

Over the year, the Trustee negotiated with Aviva on the Plan’s fund charges, resulting in lower TERs for most of the Plan’s funds.   

* These funds were added to the Plan on 27 October 2021.

** This cost has been calculated manually by Aviva based on limited data provided by the external managers and may not reflect the full transaction costs over the period. The Trustee will continue to work with Aviva to ensure managers provide transparent and accurate transaction costs for the next Chairman’s Defined Contribution Governance Statement.

Legacy AVC fund charges and transaction costs

The following funds were available to members as legacy options for AVCs. These options are now closed to future contributions. Transaction costs listed in the table below are subject to a floor of zero so as not to assume a negative cost over the longer term.

Fund NameTER
2021
Total transaction
costs 2021
Prudential – Cash Accumulation With-Profits11.24%0.06%
Prudential – Deposit Fund1,20.00%0.00%
Clerical Medical – With-Profits Fund30.50%0.24%
Clerical Medical – Balanced Pension Fund0.50%0.25%
Clerical Medical – Cash Fund0.50%0.00%
Clerical Medical – Far Eastern Pension Fund0.50%0.55%
Clerical Medical – UK Equity Tracker Fund40.50%0.03%
Clerical Medical – Ethical Fund50.50%(0.05)%6
Royal London – Crest Secure Fund21.45%0.00%
Phoenix Life – Managed Pension Fund1.03%0.24%
Phoenix Life – With-Profits Fund1.04%0.24%
Legacy Funds transaction costs

1 Data shown for the Prudential funds as at 30 June 2021.

2 There are no explicit charges and/or transaction costs for this fund, but charges are deducted before the bonus is declared. The Trustee is working with the provider to confirm these charges. 

3  The Trustee is working with the provider to confirm which funds the Plan has assets invested in over the Plan year and the charges for these funds. 

4 Transaction cost shown for the Clerical Medical UK equity tracker fund covers the year to 31 October 2021.

5 Transaction cost shown for the Clerical Medical ethical fund covers the year to 30 November 2021.

6 Movements in prices at the point of transaction can result in cost savings and therefore negative transaction costs.

Whilst TER and transaction cost data for the majority of the AVC funds available to members has now been obtained, the Trustee will continue to work with its advisers to source the most up to date transaction cost information for any remaining funds. The Trustee’s advisers will continue to liaise with the AVC providers to attempt to obtain this information by requesting this information on a regular basis with the aim of including it in next year’s statement.

4.3 Illustration of charges and transaction costs

The illustrations show how different costs and charges can impact the pension pot over certain periods of time, 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 default lifecycle arrangement or 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 these scenarios, it is possible to identify how much the charges over the years will effect the pension value.

The “before costs” figures represent the savings projection assuming an investment return with no deduction of member borne charges or transaction costs. The “after costs” figures represent the savings projection using the same assumed investment return but after deducting member borne charges (ie the TER) and an allowance for transaction costs.

The transaction cost figures used in the illustration are those provided by the managers over the past four years, subject to a floor of zero (so the illustration does not assume a negative cost over the long term). We have used the average annualised transaction costs over the past four years as this is the longest period over which figures were available, and should be more indicative of longer-term costs compared to only using figures over the Plan year.

The illustration is shown for the Drawdown lifecycle, since this is the arrangement with the most members invested in it, the two alternative default lifecycles (the Cash lifecycle and the Annuity lifecycle) and two funds from the Plan’s self-select fund range. The two self-select funds shown in the illustration are:

  • the fund with highest annual member borne costs – this is the Threadneedle pensions property fund
  • the fund with lowest annual member borne costs – this is the BlackRock sterling liquidity fund, which is also a legislative default investment option.

Illustration of effect of costs and charges for typical funds within the Plan

Projected pension pot in today’s money

Years invested Default option
(Drawdown Lifecycle)
AVC default option
(Cash Lifecycle)
Legacy default option
(Annuity Lifecycle)
Before
costs £
After
costs £
Before
costs £
After
costs £
Before
costs £
After
costs £
1 2,600 2,600 2,600 2,600 2,600 2,600
3 6,400 6,300 6,400 6,300 6,400 6,300
5 10,300 10,200 10,300 10,200 10,300 10,200
10 20,700 20,400 20,700 20,400 20,700 20,400
15 32,200 31,500 32,200 31,500 32,200 31,500
20 45,000 43,700 45,000 43,700 45,000 43,700
25 59,000 56,900 59,000 56,900 59,000 56,900
30 73,200 69,500 73,200 69,500 73,200 69,500
35 85,300 79,600 85,300 79,600 85,300 79,600
40 96,500 88,700 90,500 83,800 90,900 84,300
Drawdown Lifecycle / Cash Lifecycle / Annuity Lifecycle – Projected pension pot in today’s money

Projected pension pot in today’s money

Years invested Default option (BlackRock Sterling Liquidity Fund) Threadneedle pensions property fund
Before
costs £
After
costs £
Before
costs £
After
costs £
1 2,600 2,500 2,600 2,600
3 5,900 5,900 6,300 6,200
5 9,200 9,200 10,000 9,700
10 16,800 16,700 19,600 18,600
15 23,700 23,400 29,800 27,600
20 29,900 29,400 40,500 36,500
25 35,500 34,900 51,700 45,400
30 40,600 39,700 63,400 54,300
35 45,200 44,100 75,800 63,200
40 49,300 48,000 88,800 72,200
BlackRock Sterling Liquidity Fund / Threadneedle pensions property fund – Projected pension pot in today’s money

Notes

  • Values shown are estimates and are not guaranteed. The illustration does not indicate the likely variance and volatility in the possible outcomes from each strategy/ fund. The numbers shown in the illustration are rounded to the nearest £100 for simplicity.
  • Projected pension pot values are shown in today’s terms, and do not need to be reduced further for the effect of future inflation.
  • Annual salary growth and inflation is assumed to be 2.5%. Salaries could be expected to increase above inflation to reflect members becoming more experienced and being promoted. However, the projections assume salaries increase in line with inflation to allow for prudence in the projected values.
  • The starting pot size used is £800. This is the approximate median pot size for active members aged 25 years and younger in the MP03 and AE sections (as these members can be expected to have around 40 years to retirement)
  • The projection is for 40 years, being the approximate duration that the youngest Plan member has until they reach the Plan’s Normal Pension Age. 
  • The starting salary is assumed to be £22,300. This is the approximate median salary for active members aged 25 or younger. 
  • Total contributions (employee plus employer) are assumed to be 8% of salary per year. This is the median total contributions for active members aged 25 or younger. 

The projected annual returns used are as follows:

  • Drawdown lifecycle*: 2.0% above inflation for the initial years, gradually reducing to a return of 0.4% above inflation at the ending point of the lifecycle.
  • Cash lifecycle*: 2.0% above inflation for the initial years, gradually reducing to a return of 2.0% below inflation at the ending point of the lifecycle.
  • Annuity lifecycle*: 2.0% above inflation for the initial years, gradually reducing to a return of 1.6% below inflation at the ending point of the lifecycle.
  • BlackRock sterling liquidity fund: 2.0% below inflation
  • Threadneedle pensions property fund: 1.0% above inflation
  • No allowance for active management outperformance has been made. 

* We have used the annual return assumption of the BlackRock over 15 year corporate bond index fund for the Short duration credit fund and we have used the annual return assumption of the Blended index-linked gilt index fund for the Annuity targeting fund. These funds were added during the Plan year and therefore have not yet been set annual return assumptions.

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.

5. Investment return

This section states the annual return, after the deduction of member borne charges and transaction costs, for all investment options that members can select or could select during the year, and in which assets relating to members were invested during the scheme year. 

For the arrangements where returns vary with age, such as for the default strategies, returns are shown over the year for a member aged 25, 45, 55 and 60 at the start of the period the returns are shown over. The Blended global equity fund, used in the Plan’s lifecycles, was only launched on 8 March 2018, so five-year performance of the lifecycles is not yet available. The Trustee plans to make five-year performance available as soon as possible.

Drawdown lifecycle net returns over period to year end 31 December 2021

Age of the member at the start of the period1 year (%)
2519.4
4519.4
5511.1
609.4
Drawdown lifecycle net returns over period to year end 31 December 2021

Cash lifecycle net returns over period to year end 31 December 2021

Age of the member at the start of the period1 year (%)
2519.4
4519.4
5511.1
604.7
Cash lifecycle net returns over period to year end 31 December 2021

Annuity lifecycle net returns over period to year end 31 December 2021

Age of the member at the start of the period1 year (%)
2519.4
4519.4
5511.1
605.8
Annuity lifecycle net returns over period to year end 31 December 2021

Self-select fund net returns over period to year end 31 December 2021

Fund name1 year (%)
Blended global equity fund19.4
BlackRock UK equity index fund18.0
BlackRock world ex UK equity index fund22.6
Jupiter ecology fund19.6
Threadneedle pensions property fund21.4
Blended index linked gilt fund4.5
BlackRock over 15 year corporate bond index fund(6.1)
BlackRock over 15 year gilt index fund(7.3)
BlackRock institutional sterling liquidity fund10.0
Blended multi asset fund7.6
MFS Meridian global equity fund18.6
Short duration credit fund20.3
BMO responsible equity fund220.0
Self-select fund net returns over period to year end 31 December 2021

1 From May 2020 the BlackRock sterling liquidity fund is also considered to be a default investment option due to redirection of member contributions without explicit consent, during the temporary suspension of dealing of the Threadneedle Pensions property fund.

2 These funds were added to the Plan on 27 October 2021.

Legacy AVC fund net returns over period to year end 31 December 2021

Fund name1 year (%)
Prudential – cash accumulation with-profits6.0
Prudential – deposit fund0.1
Legacy AVC fund net returns over period to year end 31 December 2021

At the time of writing, we had not yet received net returns from the Plan’s remaining AVC providers. We will continue to work with our advisers to source net returns for the remaining AVC funds, with the aim of including the information in the next Statement.

6. Value for members assessment 

The Trustee has assessed the extent to which member borne charges and transaction costs detailed above represent good value for money to members. 

The Trustee reviews all member-borne charges (including transaction costs where available) annually, with the aim of ensuring that members are obtaining value for money given the circumstances of the Plan. The date of the last review was the date of this report, 24 May 2022. The Trustee notes that value for money does not necessarily mean the lowest fee, and the overall quality of the service received has also been considered in this assessment. The Trustee’s investment advisers have confirmed that the fund charges are competitive for the types of funds available to members.

The Trustee assesses the performance of the Plan’s investment funds (after all charges) in the context of their investment objectives on a quarterly basis. The returns on the investment funds members can choose during the period covered by this Statement have broadly been consistent with their stated investment objectives. The Jupiter ecology fund underperformed against its benchmark over the longer term due to the benchmark including a large proportion of a stock not held in the Jupiter portfolio. Overall performance of this fund is considered to have been strong, but this fund has now been removed from the available fund range which members can make new selections from, although members who previously held an investment in the fund have been permitted to remain invested. The MFS global equity fund’s underperformance over the year has largely been due to an underweight to the large technology stocks relative to the index which performed particularly well over the period. Where the Trustee has any concerns that a fund is not providing returns in line with its objective, a review is carried out to assess whether any change is required, noting however, that short term performance is not used as criteria for the Trustee to change an investment option.

In carrying out the assessment, the Trustee also considers the other benefits members receive from the Plan, which include (amongst other aspects):

  • The design of the default arrangements and how these reflect the interests of members.
  • The range of investment options and strategies.
  • The efficiency of administration processes, the quality of communications, support services and Plan governance, including the benefit of an in-house pensions team, solely focused on the Plan.
  • 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.

The Trustee has taken advice from its investment advisers, who have analysed the Plan against their benchmark, which is based on pension schemes of a similar size from the client portfolio of our investment adviser. The results of the Trustee’s assessment, on a scale from ‘very good’ to ‘poor’ are as follows:

  • Charges – Very good – Members bear the cost of administration charges but fees are reasonably competitive. As part of the implementation of the changes in the investment strategy the Trustee was able to negotiate lower fees for most of the funds. 
  • Administration – Good – The administration services provided by Aviva are of a good standard. The Trustee is continuing to engage with the administrator to improve performance relative to SLAs. 
  • Governance – Very good – The Trustee and pensions team are very committed to the Plan, demonstrated by the dedicated level of resources and commitment to training. During 2022 the Trustee and the pensions team will be reviewing the Plan’s governance to assess compliance with the Pension Regulator’s Single Code of Practice, which is expected to be published later this year.
  • Communications – Very good – The Trustee and the administrator issue timely and relevant information to members. Members receive bespoke targeted communications at certain key stages and as they approach retirement. Members also have access to tools and modelling via Aviva’s MyWorkplace and the Plan’s website.
  • Default investment strategy – Very good – The strategies broadly achieved their objectives over the year. The Trustee has implemented the agreed changes recommended by its investment advisers. The next review will be in June 2023.
  • Investment range – Very good – The self-select fund range provides access to most asset classes, some specialist options and alternative lifestyle strategies. The Trustee has implemented the agreed changes recommended by its investment advisers.
  • At-retirement services – Good – Support and guidance offered to members are reasonable. Aviva, the Plan’s DC provider now provides at retirement services to members of the AE section. The pensions team are monitoring how this is working.
  • Plan design – Good – The Plan’s design and contribution structure are reasonable and encourage members to take advantage of the extra matching contributions.

Having considered the various aspects of the Plan, the Trustee is comfortable that the Plan is offering good value to members for costs and charges they incur 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 MP03 Section, provides £2 of contributions by the employer for every £1 contributed by the employee, up to the employer contributing a maximum of 16% of the employee’s pensionable salary, depending on age. Contributions provided by the employer for the AE section of the Plan are in line with legislation. Most members of the AE section currently have the option to switch into the MP03 section, subject to meeting the eligibility criteria. 

7. Trustee knowledge and understanding 

The Plan’s Trustee is required to maintain appropriate levels of knowledge and understanding to run the Plan effectively. The Trustee has measures in place to comply with the legal and regulatory requirements regarding knowledge and understanding of relevant matters, including investment, pension and trust law. 

Details of how the knowledge and understanding requirements have been met during the period covered by this Statement are set out below.

As set out on pages 7 and 8 of the of the Report and Financial Statements , a review of 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 DC arrangements and make appropriate decisions. 

The Plan’s Trustee Directors are required to maintain appropriate levels of knowledge and understanding to run the Plan effectively. Each Trustee Director must:

  • Be conversant with the trust deed and rules of the Plan, the Plan’s statement of investment principles and any other document recording policy for the time being adopted by the Trustee relating to the administration of the Plan generally,
  • have, to the degree that is appropriate for the purposes of enabling the individual to exercise properly his or her functions as a trustee director, knowledge and understanding of the law relating to pensions and trusts and the principles relating to the investment of the assets of occupational pension schemes.

The Trustee has measures in place to comply with the legal and regulatory requirements regarding knowledge and understanding of relevant matters, including investment, pension and trust law. The Pensions Director aims to identify training needs on any topics that become relevant, as well as the trustee directors themselves raising any training needs informally in meetings and other communications, and more formally via the annual Trustee evaluation questionnaire. Any Trustee Knowledge & Understanding (TKU) requirements are shared with the Chairman each year and incorporated into the Trustee Action Plan. In addition, the trustee directors also receive various legal updates from the Plan’s lawyers. Some of the trustee directors have also undertaken individual training across a range of topics which has been recorded within TKU records held by the Pensions Director.

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. All changes to Plan rules are approved by the Trustee. The SIP is available on the website and is also regularly discussed in Trustee and committee meetings and reviewed at least annually.

All new trustee directors are asked to complete the Pension Regulator’s trustee toolkit (an online learning programme, designed to help trustees of occupational pension schemes meet the minimum level of knowledge and understanding required by law), and receive detailed briefings from both the Pensions Director and key advisers, as well as other Plan staff as required, which are tailored to the individuals’ existing knowledge and expertise.

The Trustee believes that 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 collectively providing experience of governance, pension fund management, administration, investment, finance, audit and member representation.

The Chairman’s Defined Contribution Governance Statement was approved by the Trustee on 24 May 2022 and signed on its behalf by: 

J A B Joll
Chairman


Previous Chair’s Statements


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