Statement of Investment Principles
Statement of Investment Principles for the Warner Howard Limited Pension and Life Assurance Plan
1.1 Legislative Requirements
The Trustees of the Warner Howard Limited Pension and Life Assurance Plan (“the Plan”) have drawn up this Statement of Investment Principles (“the Statement”) to comply with the requirements of the Pensions Act 1995, the Pensions Act 2004, the Occupational Pension Schemes (Investment) Regulations 2005, and the Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2018 and 2019. The Statement is intended to affirm the investment principles that govern decisions about the Plan’s investments. In preparing this Statement the Trustees have consulted Personnel Hygiene Services Limited (“the employer”) on the Trustees’ investment principles.
The Trustees confirm that they have considered written advice from Capita Employee Solutions (“Capita”) (Formerly Gissings Consultancy Services Limited) before preparing this SIP. Capita is authorised and regulated by the Financial Services Authority. The Trustees believe that Capita is qualified to give advice by reason of the firm’s ability in and practical experience of financial matters and knowledge and experience of the management of the investments of UK pension schemes.
The Trustees have sent copies of the SIP to their appointed investment managers.
1.2 Plan Constitution
The Plan is governed by the trust deed and rules dated 7 July 1997. Under the deed the Trustees for the time being are granted the power to take all decisions regarding the investments held for the purposes of the Plan. Any decision may be made by a majority of the Trustees present at a quorate trustees’ meeting.
The Trustees may delegate investment powers. Section 36(2) of PA95 requires that where any decisions about investments constitute regulated investment business under the Financial Services Act 1986 (FSA) the delegate is appropriately authorised under the FSA. If the investment activity does not constitute investment business the Trustees must take all reasonable steps to satisfy themselves that the delegate has appropriate knowledge and experience. Under section 34(5) of PA95 the Trustees may delegate any function to a sub-committee comprising at least two trustees.
The Trustees’ policies regarding delegation are set out in section 4 of the SIP below. The delegations made are set out in Appendix A.
2. Investment Objectives
2.1 Plan Benefits
The principal benefit paid to members of the Plan under the trust deed is a pension based on the length of plan membership and the member’s salary near retirement. Pensions increase in payment. Pension accrued in excess of GMP pre 6 April 1997 does not attract any increase. Pension accrued in excess of GMP post 6 April 1997 increases at LPI.
The Trustees take the nature of the Plan’s liabilities into account when making decisions about the Plan’s investments.
For the purposes of this draft SIP the Trustees have adopted the following overall investment objective: “to seek a pre-retirement return of 1.94% above the yield available on long-term UK fixed interest gilts and a post-retirement return of 0.44% above the yield available on long-term UK fixed interest gilts.”
In addition, the Trustees have identified the following funding objectives:
1. To return the on-going funding level of the Plan to 100% of the projected past service liabilities and then to maintain the funding level at least at this level.
2. To have a stable contribution rate and reduce volatility in the Company’s balance sheet, as a consequence of the Plan.
3. To meet the liabilities of the Plan in the event that the Plan discontinues.
The Trustees recognise the objectives may conflict.
The Trustees have identified a number of risks that may affect their ability to meet investment objectives. These are:
- That the funding level of the Plan may fall through the achievement of lower than expected investment returns on the assets held. This risk applies to any of the bases on which the Plan’s funding is assessed, i.e. on an ongoing basis or on the basis that the Plan winds up.
- That the fund managers appointed may underperform their benchmarks.
- That the Trustees are forced to sell assets at depressed prices to meet benefit payments.
- The failure to spread investment risk (risk of lack of diversification) with the consequence that an individual investment may fail which constitutes a large part of the Plan’s assets.
- The risk of a shortfall of liquid assets relative to the immediate liabilities (cash flow risk).
- That the employer fails to make adequate contributions to the Plan to meet benefit promises.
- That the employer becomes insolvent.
- That the funding level of the Plan may fall because of changes in the value or nature of the Plan’s liabilities, for example as a result of the sale of a business by the employer.
- That assets are lost through the failure of procedures for safekeeping.
- That the Trustees make inappropriate decisions.
- That the Trustees’ advisers give bad advice.
3. The Trustees' Policies
The Trustees’ policies for the Plan are set out below. The Trustees will review their SIP on an annual basis in order to reflect any changes to their policies and formally assess their procedures and decisions.
The current arrangements entered into by the Trustees are set out in the Appendices to this statement. Appendix A contains details of the advisers appointed who assist the Trustees on investment matters. Appendix B contains details of the disposition of the Plan’s assets. Appendix C describes the fee structures applying to the Trustees’ investment arrangements.
3.1 Policy on Custody Risk
The Trustees are not responsible for the appointment of the custodian to pooled funds in which the Trustees invest. This responsibility falls on the Trustees of the pooled funds. The Trustees obtain from their fund managers a report from the manager’s accountant on its custodial activity (FRAG 21) and review it.
3.2 Policy on Poor Decision Making and Poor Advice
The Trustees will take advice on all investment decisions other than those involving regular investment of contributions or regular disinvestment to meet the Trustees obligations under the trust deed.
If a minority of the Trustees present at a quorate meeting to consider such advice dissents from the majority opinion, the Trustees will at the request of the minority obtain a review of the advice given by their investment adviser from an independent third party.
3.3 Policy on Appointing Investment Managers
The Trustees will seek advice on the capabilities of fund managers prior to any mandate being awarded. The review of fund managers will include consideration of the ability of the investment manager to provide adequate information to Plan members on the performance of the fund.
The Trustees will usually meet with prospective managers prior to awarding a mandate.
The Trustees will consider the effect of the appointment of any single investment manager on the likely volatility of returns of the Plan’s assets as a whole before making that appointment.
The Trustees will not enter into any agreement with a fund manager prior to receiving advice on the proposed form of agreement from their investment adviser and their lawyer.
The above principles apply equally to the selection of investment managers who are appointed to manage Additional Voluntary Contributions on behalf of the Trustees.
The Trustees have a rolling contract with their Investment Manager. This can be terminated with immediate effect, allowing for the lead time to perform an asset transfer to a new manager.
3.4 Policy on Stock Selection
The Trustees are not authorised under the FSA to manage pension scheme assets. The Trustees delegate all stock selection decisions to their appointed investment managers and monitor the investment managers in conjunction with their advisers.
3.5 Policy on Monitoring Investment Managers
The Trustees along with their investment adviser meet Legal & General Assurance (Pensions Management) Limited (the ‘Investment Manager’) at least once a year.
The Trustees review their fund manager’s transaction costs on a regular basis. If the costs are not acceptable to the Trustees they will take advice and may decide either to replace or to constrain either fund manager’s actions.
The Trustees monitor the remuneration, including incentives, that are paid to their Investment Manager and how they reward their key staff who manage client funds, along with how the pay and incentives motivate employees who manage client funds.
As part of the monitoring that the Trustees carry out on a regular basis, they should ensure that this policy is in line with their investment strategy.
The Trustees monitor the Investment Manager's assessment of the business invested in performance over the medium to long-term and considers whether this is a holistic look at all relevant aspects of performance (i.e. does it look beyond purely accountancy measures). The Trustees must consider if the Investment Manager is incentivised to make decisions on a short-term basis or on a medium to long-term basis and does this coincide with the business assessments. The Trustees must be conscious of whether the Investment Manager is incentivised by the agreement to engage with the investee business and to what extent does any engagement focus on improving medium to long-term performance.
The Trustees monitor the performance of their Investment Manager on a quarterly basis. This monitoring is reviewed by looking at the reports produced by their Investment Manager.
The Trustees have set performance objectives, including time periods, consistent with the investment strategy set out in this statement.
The Trustees will monitor costs of buying, selling, lending and borrowing investments and will look to monitor the costs breakdown annually, as long as the Investment Manager provides these costs using the Cost Transparency Initiative template. The Trustees will also ensure that, where appropriate, their Investment Manager monitors the frequency of transactions and portfolio turnover. If there are any targets then the Trustees will monitor compliance with these targets.
3.6 Policy on Financially material considerations over the Plan’s time horizon
The Trustees believe that their main duty, reflected in their investment objectives, is to protect the financial interests of the Plan’s members. The Trustees believe that ESG considerations (including but not limited to climate change) and stewardship in the selection, retention and realisation of their investments is an integral part of this duty and can contribute to the generation of good investment returns. Legislation requires that the Trustees form a view of the length of time that they consider is needed for the funding of future benefits by the investments of the Plan. The Trustees recognise that this is a defined benefit plan closed to new entrants with an ageing membership and is looking to wind up in the near future. Accordingly, the Trustees have formed the view that the appropriate time horizon of this Plan is over the medium term, which gives plenty of scope for ESG considerations to be financially material.
The Trustees have elected to invest in pooled funds and cannot, therefore, directly influence the ESG policies, including the day-to-day application of voting rights, of the funds in which they invest. However, the Trustees will consider these policies in all future selections and will seek to deepen their understanding of their existing managers’ policies by reviewing these at least annually. In cases where they are dissatisfied with a manager’s approach they will take this into account when reviewing them. They are also keen that all their managers are signatories of the UN Principles of Responsible Investment, which is currently the case.
The Trustees believe that stewardship is important, through the exercising of rights (including voting rights) attaching to investments. The Trustees are keen that their managers can explain when, and by what practical methods, the managers monitor and engage with relevant persons about relevant matters in this area. They will be liaising with their managers (including their passive managers) to obtain details of the voting behaviour (including the most significant votes cast on the Trustees’ behalf). The Trustees are also keen that their managers are signatories of the UK Stewardship Code. This is currently the case.
The Trustees will monitor the voting being carried out by the Investment Manager and custodians on their behalf. They will do this by receiving reports from their Investment Manager which should include details of any significant votes cast and proxy services that have been used.
The Trustees are aware that ESG and stewardship considerations involve an ongoing process of education for themselves and engagement with their investment managers. To that end they dedicate time regularly to the discussion of this topic and intend to review and renew their approach periodically with the help of their investment consultants, where required. Consequently, the Trustees expect the Plan’s investment managers to have effective ESG policies (including the application of voting rights) in place and look to discuss the investment managers’ ESG policies with them when the managers attend Trustee meetings.
Non financial matters, including members’ views are currently not taken into account.
3.7 Policy on Taking Investment Decisions
The Trustees take into account the complexity of their investment arrangements in setting their processes for decision making.
Where the Trustees believe that they can achieve sufficient understanding in order to make well-informed decisions about investment matters they will not delegate the decision. All Trustees undergo training in investment matters and if any decisions the Trustees are called on to make require further training the Trustees will obtain it from appropriate advisers.
3.8 Policy on Dissemination of Investment Information
The Trustees will review this SIP annually having taken advice from their investment adviser and consulted the employer. The Trustees will provide an annual communication to their members covering:
- Details of the funds invested in by the Plan;
- A description of the fund managers used by the Plan;
- Investment objectives for the fund and the managers approach in an attempt to achieve these objectives;
- The investment performance of each fund;
- Summarised information from the Trustees’ monitoring of their fund managers and their decision making;
- Any important investment developments;
- Any significant changes to the SIP;
- Compliance with Myners principles.
4. The Trustees’ Policies
The Trustees’ policies are set out below.
4.1 Policy in the event of Contribution Default by the Employer
The Trustees monitor the employer’s financial strength as part of their regular reviews of investment strategy. The Trustees are aware as a result of this review of the profitability of the employer’s business and the cash flow generated by the business as revealed by the latest statutory accounts. The Trustees are also aware of the net asset value of the business.
In particular the Trustees have received from the employer confirmation that the employer will pay contributions at the minimum rates set out in the Schedule of Contributions required under PA95. If the employer fails to make contributions expected in accordance with the Schedule, the Trustees will seek clarification from the employer of the reasons for the default. If in the Trustees’ opinion contributions are unlikely to continue to be received in accordance with the Schedule, the Trustees will seek investment advice as to whether their current investment strategy remains appropriate.
4.2 Policy the event of Employer Insolvency
Should the employer become insolvent the Trustees will immediately review their investment strategy having taken advice from their investment adviser.
4.3 Policy on Liquidity Risk
The Trustees currently do not need to disinvest to meet their obligations under the trust deed. The Trustees will review the position should the Plan’s circumstances change.
The Trustees’ agreement with Legal & General Assurance (Pensions Management) Limited allows immediate partial and full disinvestment of funds, with settlement at most 3 workings days after instruction.
4.4 Policy on Concentration Risk
The Trustees have taken advice when setting the investment strategy for the Plan and have decided to invest in pooled funds.
The Trustees have taken investment advice when setting limits within which their investment managers must operate. These limits are set out in
The Trustees believe that the arrangements detailed in Appendix B ensure that their portfolio is sufficiently diverse that the risk of failure of any individual investment will not significantly impact on their ability to pay the benefits promised under the trust deed.
The Trustees will review their arrangements if any individual investment exceeds 5% of the total value of the Plan’s assets. For this purpose, the Trustees will ignore any pooled fund investments and will look through to the value of the underlying assets in those funds.
The Trustees believe that these arrangements ensure that the assets held in individual members’ accounts will be sufficiently diverse that the risk of failure of any individual investment will not significantly impact the level of pension.
4.5 Policy on Setting Strategy
The investment strategy is the asset allocation that the Trustees believe is the most appropriate for the Plan in the long term taking into account the nature of the liabilities they expect to have to meet.
The Trustees will review their investment strategy after every actuarial valuation of the Plan taking advice from their investment adviser. The review will take the form of an asset and liability modelling study (unless the Trustees’ investment adviser indicates that such a study is unnecessary). As part of the review the Trustees will examine the impact on volatility in the Plan’s funding level arising from decisions made about the investment arrangements, including decisions about the investment strategy, about active and passive management and about manager selection. The Trustees will take into account the likely impact on their ability to pay benefits should the Plan fail to be fully funded on both an ongoing and discontinuance basis.
The review will also take into account the risk of changes in the Plan’s position arising from changes in the Plan’s liabilities.
The Trustees will also review the appropriateness of their existing strategy on any significant change in the Plan’s circumstances, for example if the employer ceases to make contributions.
4.6 Policy on Setting Asset Allocation
The Trustees have taken advice from their investment advisers on appropriate limits within their asset allocation should be allowed to vary from the strategic benchmark, given the Trustees objectives.
The Trustees delegate the decision on asset allocation around their long-term strategic benchmark to their investment managers within the limits set out in Appendix B. The investment manager manages the asset allocation within these limits.
Contributions are paid to Legal & General Assurance (Pensions Management) Limited in line with the strategy set out in Appendix B.
The Trustees have considered a full range of investment opportunities.
The Trustees will review the asset allocation of the fund at least every three years.
4.7 Policy on Active and Passive Management
The Trustees consider whether each mandate awarded should be managed passively (in which case the investment manager’s performance target will be to match the benchmark return) or actively (in which case the investment manager’s performance target will be greater than the benchmark return). The Trustees’ decisions will be based on:
- The degree to which the Trustees’ investments should be allowed to differ from their strategic benchmark given the objectives set out in section 2.2 above.
- The opportunities within the asset class to generate returns in excess of the benchmark return.
- The ability of active investment managers to generate returns above the benchmark.
The Trustees have chosen to invest in passively managed funds.
5. Compliance with the Myners Principles
The Trustees have aimed to comply with the Myners principles and have taken advice from Capita on what principles it is sensible for them to adopt. In the following areas they have elected not to comply for the reasons stated below.
- The Trustees do not have any support staff in-house as they do not believe that this is necessary since they can call upon the services of Capita as required. As a result they are not fully complying with part of principle 1.
- The Trustees do not receive payment for carrying out their Trustee duties. As a result the Trustees are not complying with part of principle 1.
- The Trustees plan the management of the Plan but have not drawn up a business plan. As a result they are not fully complying with part of principle 1.
- The Trustees have appointed advisers to provide both actuarial and investment services. As a result they are not complying fully with principle 4.
Signed (on behalf of all the Trustees by David Finlayson (Trustee))
29 September 2020
A.1 Appointments Made
The following advisers assist the Trustees:
Plan Actuary: Tom Dalton, Capita, 17-19 Rochester Row, Westminster, London. SW1P 1JB
Investment Adviser: Capita (address as above)
Pensions Consultant: Capita (address as above)
Auditor: Pricewaterhousecoopers LLP, One Kingsway, Cardiff. CF10 3PW
Lawyer: CMS Cameron McKenna LLP, Mitre House, 160 Aldersgate Street, London. EC1A 4DD
In addition the Trustees have made the following appointments:
Fund manager: Legal & General Assurance (Pensions Management) Limited, Temple Court, 11 Queen Victoria Street, London. EC4N 4TP
Additional Voluntary Contributions Managers: Legal & General Assurance (Pensions Management) Limited
A.2 Delegations Made
The Trustees have delegated the selection of all individual investments held within the pooled funds they hold units, to the managers of the pooled funds.
A.3 Reports Received
The Trustees receive quarterly reports from their investment manager detailing returns achieved.
The Trustees receive annual summaries of governance and SRI policies from their investment manager.
The Trustees receive reports on transaction costs from their investment manager.
The Trustees receive copies of their investment manager’s annual reports on compliance with FRAG 21
The Trustees receive annual reports from their pensions consultant on compliance with PA95.
The Trustees receive an annual report from their investment adviser on the appropriateness of their current SIP.
The Trustees receive a report from an independent auditor on their annual Plan accounts.
Appendix B – Investment Arrangements
B.1 Strategic Benchmark/ Manager Structure
The Trustees’ long-term asset allocation strategy is set out in the following table:
|Asset class||Strategic Benchmark (%)|
|Fixed Interest Government Bonds||12|
|Index-linked Government Bonds||19|
The assets are to be invested in the following pooled funds managed by Legal & General Assurance (Pensions Management) Limited.
|Fund||Investment manager||Proportion of total assets||Benchmarks||Performance Target|
|Global Equity Fixed Weights Index (60:40)||Legal & General Assurance||33%||60% FTSE All Share 40%||Track the benchmark|
|Over 15 year Gifts Index||(Pensions Management) Limited||12%||FTSE-A Government (Over 15 Year)||Track the benchmark|
|Over 5 Year Index-Linked Gifts Index Fund||19%||FTSE-A Government (Over 5 Year)||Track the benchmark|
|Investment Grade Corporate Bond-Over 15 Year - Index||36%||iBoxx £ Non-Gift 15 Year+||Track the benchmark|
The Trustees will not terminate the mandate with Legal & General Assurance (Pensions Management) Limited for reasons of underperformance alone before the expiry of an evaluation timescale of 3 years, unless in the opinion of the Trustees it warrants immediate action.
Legal & General Investment Management
B.2 Investment of Contributions/ Disinvestment to Meet Cashflow
The Plan’s contribution income is in excess of benefit outgo. However, since the section is closed to new entrants this situation is likely to reverse as the Plan matures.
B.3 Controls on Investment Activity
There are no additional controls on investment activity imposed by the Trustees through their agreements with the investment managers.
The Trustees do not hold any assets in employer related investments. The Trustees have prohibited their fund managers from holding any employer related investments.
Appendix C – Fee Structures
The Plan’s investment advisers are paid for on a time-spent fee basis. No commission arrangements are used. The Trustees believe that this approach ensures that all advice is impartial and independent.
C.2 Fund Managers
Legal & General Assurance (Pensions Management) Limited has a standard pooled fund charging structure as follows:
|Fund||Charge omn Asset managed (% p.a)|
|Global Equity Fixed Weights (60:40) Index||0.16|
|Over 15 Year Gift Index||0.10|
|Investment Grade Corporate Bond - Over 15 Year -Index||0.15|
|Over 5 Year Index-linked Gifts Index||0.10|
In addition, Legal & General Assurance (Pensions Management) Limited charges an annual flat fee of £1,500.