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The Welcome Break Pension Plan (“The Plan”)

Statement of Investment Principles – July 2020

1. Introduction

The Trustees of the Welcome Break Pension Plan (the “Plan”) have drawn up this Statement of Investment Principles (the “Statement”) to comply with the requirements of the Pensions Act 1995 (the “Act”) and associated legislation including the Occupational Pension Schemes (Investment) Regulations 2005 (as amended). The Statement is intended to affirm the investment principles that govern decisions about the Plan’s investments. The Trustees’ investment responsibilities are governed by the Plan’s Trust Deed and Rules, of which this Statement takes full regard.

In preparing this Statement the Trustees have consulted a suitably qualified person by obtaining written advice from Mercer Limited (“the Investment Consultant”). In addition, consultation has been undertaken with the Sponsoring Company (the “Sponsor”) to ascertain whether there are any material issues of which the Trustees should be aware when setting their objectives and agreeing the Plan’s investment arrangements.

Defined Benefit Section

2. Process For Choosing Investments

The Trustees have appointed Mercer to act as discretionary investment manager, by way of Mercer’s Dynamic De-risking Solution, to implement the Trustees’ strategy whereby the level of investment risk reduces as the Plan’s funding level improves. In this capacity, and subject to agreed restrictions, the Plan’s assets are invested in multi- client collective investment schemes (“Mercer Funds”) managed by a management company (Mercer Global Investments Management Limited (“MGIM”)). MGIM has appointed Mercer Global Investments Europe Limited (“MGIE”)) as investment manager of the Mercer Funds. In practice, MGIE delegates the discretionary investment management for the Mercer Funds to third party investment managers based in countries such as Ireland, UK and USA and those sub-investment managers will manage either a sub-fund or certain segments of a sub-fund. Mercer has expertise in identifying, selecting and combining highly rated fund managers who are best placed and resourced to manage the Plan’s assets on a day to day basis.

In considering appropriate investments for the Plan, the Trustees have obtained and considered the written advice of Mercer, whom the Trustees believe to be suitably qualified to provide such advice. The advice received and arrangements implemented are, in the Trustees’ opinion, consistent with the requirements of Section 36 of the Act (as amended).

3. Investment Objectives

The Trustees understand that taking some investment risk, with the support of the Sponsor, is necessary to improve the Plan’s ongoing and solvency funding positions. The Trustees recognise that growth asset investment will bring increased volatility of the funding level, but invest in the expectation of improvements in the Plan’s funding level through outperformance of the liabilities over the long term.

The Trustees’ primary objective is to act in the best interest of the members. The main objective of the Trustees is therefore to improve the funding position of the DB Section to firstly achieve 100% funding on the Technical Provisions assumptions and thereafter target being fully funded on actuarial assumptions for the liabilities which allow a relatively low risk investment strategy to be adopted.

The Trustees recognise this ultimately means investing in a portfolio of bonds but believe that at the current time some investment in equities and other growth assets (“Growth Portfolio”) is justified to target enhanced return expectations and thereby target funding level improvements. The Trustees recognise that this introduces investment risk and these risks are discussed below.

The Trustees will seek to avoid significant volatility in the contribution rate.

The objectives set out above and the risks and other factors referenced in this Statement are those that the Trustees determine to be financially material considerations. Non-financial considerations are discussed in section 14.

4. Risk Management and Measurement

There are various risks to which any pension scheme is exposed. The Trustees’ policy
on risk management over the Plan’s anticipated lifetime is as follows:

  • The primary risk upon which the Trustees focus is that arising through a mismatch between the Plan’s assets and its liabilities and the Sponsor’s ability to support this mismatch risk.
  • The Trustees recognise that whilst increasing investment risk increases potential returns over a long period, it also increases the risk of a shortfall in returns relative to that required to cover the Plan’s liabilities as well as producing more volatility in the Plan’s funding position.
  • The Trustees’ willingness to take on investment risk is dependent on the continuing financial strength of the Sponsor and its ability to contribute to the Plan. The strength of the Sponsor and its perceived commitment to the Plan is monitored by the Trustees and the level of investment risk taken may increase/decrease should either of these change
  • To control the risk outlined above, the Trustees, having taken advice, set the split between the Plan’s Growth and Matching Portfolios such that the expected return on the overall portfolio is sufficient to meet the objectives outlined in Section 3. As the funding level improves, investments will be switched from the Growth Portfolio into the Matching portfolio with the aim of reducing investment risk.
  • Whilst moving towards the target funding level, the Trustees recognise that even if the Plan’s assets are invested entirely in the Matching Portfolio there may still be a mismatch between the interest-rate and inflation sensitivity of the Plan’s assets and the Plan’s liabilities due to the mismatch in duration between assets in the Matching Portfolio and actuarial liabilities and longevity risk (the risk that the assumptions made about members’ life-expectancy are not borne out).
  • The Trustees recognise the risks that may arise from the lack of diversification of investments. To control this risk, the Trustees have delegated the asset allocation decisions within the Growth and Matching Portfolios to Mercer (subject to certain restrictions). Subject to managing the risk from a mismatch of assets and liabilities,

Mercer aims to ensure the asset allocation policy in place results in an adequately diversified portfolio. Investment exposure is obtained via pooled vehicles. Mercer provides the Trustees with regular monitoring reports regarding the level of diversification within the portfolio.

  • To help the Trustees ensure the continuing suitability of the current investments, the Trustees delegate responsibility for the hiring, firing and ongoing monitoring of the Plan’s investment managers to Mercer. Mercer provides the Trustees with regular reports regarding the appointed investment managers to monitor consistency between the expected and experienced levels of risk and return.
  • There is a risk that the day-to-day management of the assets will not achieve the rate of investment return expected by the Trustees. The Trustees recognise that the use of active investment managers involves such a risk. However, for specific asset classes they believe that this risk is outweighed by the potential gains from successful active management. Likewise, passive management will be used for one of a number of reasons, namely to diversify and reduce risk and when investing in certain asset classes where, due to relatively efficient markets, the scope for added value is limited.
  • To help diversify manager-specific risk, within the context of each of the Growth and Matching Portfolios, the Trustees expect that the Plan’s assets are managed by appropriate underlying asset managers.
  • Investment may be made in securities that are not traded on regulated markets. Recognising the risks (in particular liquidity and counterparty exposure) such investments will normally only be made with the purpose of reducing the Plan’s mismatch risk relative to its liabilities or to facilitate efficient portfolio management. In any event the Trustees will ensure that the assets of the Plan are predominantly invested on regulated markets
  • The Trustees recognise the risks inherent in holding illiquid assets. The Trustees have carefully considered the Plan’s liquidity requirements and time horizon when setting the investment strategy and manage liquidity risk by ensuring illiquid asset classes represent an appropriate proportion of the overall investment strategy.
  • The Plan is subject to currency risk because some of the investment vehicles in which the Plan invests are denominated or priced in a foreign currency. To limit currency risk, the Trustees (with Mercer’s advice) set a target non-sterling currency exposure and Mercer manages the level of non-sterling exposure using currency hedging derivatives such as forwards and swaps.
  • The Trustees recognise that environmental, social and corporate governance concerns, including climate change, have a financially material impact on return. Section 14 sets out how these risks are managed.
  • Should there be a material change in the Plan’s circumstances, the Trustees will advise Mercer who, together with the Trustees, will review whether and to what extent the investment arrangements should be altered; in particular, whether the current de- risking strategy remains appropriate

5. Investment Strategy

The Trustees, with advice from the Plan’s Investment Consultant and the Scheme Actuary, review the Plan’s investment strategy regularly. These reviews consider the Trustees’ investment objectives, their ability and willingness to take risk (the risk budget) and how this risk budget should be allocated and implemented (including de- risking strategies).

The Trustees engage Mercer to implement their de-risking strategy by way of its Dynamic De-risking Solution. The approach undertaken relates the asset allocation to the Plan’s funding level (on an actuarial basis using a single discount rate of 0.5% p.a. in excess of the appropriate gilt yields i.e. “gilts + 0.5% basis”). The de-risking rules mandate the following practices:

  • To hold sufficient growth assets to target full funding on a “gilts +0.5%” basis when a suitably strong funding level is achieved;
  • To reduce the volatility in the funding level by reducing un-hedged liability exposures;
  • To monitor the progress in the funding level and to capture improvements in the funding level promptly, if and when they arise.

The de-risking triggers which form the basis of the Plan’s dynamic investment strategy are set out in a separate document – the Statement of Investment Arrangements (“SIA”).

The de-risking strategy is formally reviewed on an approximately annual basis to ensure that it remains appropriate.

For the avoidance of doubt, once the funding level has moved through a trigger point and investment risk has been reduced in accordance with the de-risking strategy, the asset allocation will not be automatically “re-risked” should the funding level subsequently deteriorate.

The Trustees have delegated the allocation of assets within the growth and matching portfolios to Mercer, subject to the restrictions set out in the SIA.

Rebalancing ranges have been set within the growth and matching portfolios to ensure the Plan’s assets remain invested in a manner which is consistent with the de-risking strategy. The ranges have been designed to ensure that unnecessary transaction costs are not incurred by frequent rebalancing. Rebalancing ranges around the target allocation are detailed in the SIA.Responsibility for monitoring the Plan’s asset allocation and undertaking any rebalancing activity, is delegated to Mercer. Mercer reports quarterly to the Trustees on any breaches to the range restrictions.

6. Realisation of Investments

The Trustees on behalf of the Plan hold shares in the Mercer Funds. In its capacity as investment manager to the Mercer Funds, MGIE, and the underlying third party asset managers appointed by MGIE, within parameters stipulated in the relevant appointment documentation, have discretion in the timing of the realisation of investments and in considerations relating to the liquidity of those investments.

7. Cash flow and cash flow management

Cash flows, whether positive or negative, are used to move the Plan’s asset allocation and allocation to the individual underlying investment managers back towards the strategic allocation appropriate at that point in time given the level of de- risking that may have occurred.

8. Rebalancing

As noted, responsibility for monitoring the Plan’s asset allocation and any rebalancing activity is delegated to Mercer. Mercer reviews the balance between the Growth and Matching portfolios on an ongoing basis. If at any time the actual balance between the Growth and Matching portfolios is deemed to be outside an agreed tolerance range, Mercer will seek to rebalance these allocations back towards the target allocations. Although Mercer has discretion to vary the tolerance range, it is the intention that the Growth Portfolio allocation will not drift by more than 5%, in absolute terms, away from the relevant target allocation.

The ranges have been designed to ensure that unnecessary transaction costs are not incurred by frequent rebalancing.

In the event of a funding level trigger being breached, the assets will be rebalanced to bring them in line with the reduced growth portfolio weight, under the new de- risking band, as defined in the SIA.

9. Sponsor Related Investment

The Trustees note the legislation in relation to limits in sponsor related investment. Given the size of the Sponsor, in the context of the global markets in which the Plan invests, and the diversified investment strategy, the Trustees consider it very unlikely that their investments could be in breach of the legislative constraints.

10. Additional Assets

Assets in respect of the Plan’s Defined Contribution Section are held with Legal & General Investment Management. Members’ additional voluntary contributions (“AVCs”) are held with Legal & General Investment Management and Standard Life.

Defined Contribution Section and AVCs

11. Investment Objectives

The Trustees recognise that members have different investment goals and that these may change during the course of their working lives. They also recognise that members have different attitudes to risk. The Trustees’ objective is to make available to members a range of investment options which seek to allow members to set an investment strategy that meets their needs and risk tolerances. The Trustees also recognise that members may not believe themselves qualified to take investment decisions. As such the Trustees make available a Default Lifestyle Option (in respect of the DC Section only).

These objectives translate to the following principles:

  • Offering members of the DC Section a ‘Lifestyle’ approach for the default investment strategy and ensuring that the other investment strategy options allow members to plan for their specific retirement objectives;
  • Making available a range of pooled investment funds which serve to meet the varying investment needs and risk tolerances of Plan members. This includes offering both passively and actively managed investment funds;
  • Providing general guidance as to the purpose of each investment option;
  • Encouraging members to seek independent financial advice from an appropriate
    party in determining the most suitable option for their individual circumstances;
  • In determining an appropriate balance between providing flexibility and choice, as well as simplicity and cost control, the Trustees aim to make available a range of options which satisfy the needs of the majority of members.
  • The Trustees periodically review the suitability of the options provided and from time to time will change or introduce additional investment funds as appropriate.

12. Default Lifestyle Strategy

With regards to the default lifestyle investment strategy:

  • The growth phase structure invests in equities and other growth-seeking assets, and is intended to provide growth with some downside protection and some protection against inflation erosion.
  • As a member’s pot grows, investment risk will have a greater impact on member outcomes. Therefore, the default lifestyle investment strategy seeks to reduce investment risk as the member approaches retirement.
  • Based on their understanding of the Plan’s membership and the requirements of legislation and the Plan’s Rules about how members of the DC Section can take their benefits, the Trustees have implemented a default lifestyle investment strategy that targets an investment portfolio suitable for a member wishing to take 75% of their DC fund as an inflation linked pension and 25% of their fund as a tax free cash lump sum.
  • The Trustees will review the default lifestyle strategy over time, at least triennially, or after significant changes to the Plan’s demographics, if sooner

The Trustees have produced a statement of investment principles in respect of the default lifestyle strategy.

13. Risk

The Trustees have considered risks from a number of perspectives. The list below is not exhaustive but covers the main risks that the Trustees consider and how they are managed.

Year
Default Fund 0.25% (TER % p.a.)
Multi Asset Fund
Pot size with no Charges Incurred
Pot size with Charges Incurred
Least Expensive Fund 0.10% (TER % p.a.)
Index Linked Gilt Fund
Pot size with no Charges Incurred
Pot size with Charges Incurred
Next Most Expensive Fund 0.18% (TER % p.a.)
Blended Fund
Pot size with no Charges Incurred
Pot size with Charges Incurred

Risk

How it is managed

How it is measured

Inflation Risk

The real value (i.e. post inflation) value of members’ accounts decreases.

The Trustees provide members with a range of funds, across various asset classes, with the majority expected to keep pace with inflation (with the exception of the money market and fixed interest bond funds).

Members are able to set their own investment allocations, in line with their risk tolerances.

The Trustees consider the real returns (i.e. return above inflation) of the funds, with positive values indicating returns that have kept pace with inflation.

Pension Conversion Risk

Members’ investments do not match how they would like to use their pots in retirement.

The Trustees make available a lifestyle strategy for DC members, targeting members taking their DC assets 75% as a pension increasing in payment with inflation and 25% as a tax-free cash lump sum.

The Trustees believe that this is the most appropriate target for the default investment strategy given the majority of members are subject to a DB underpin requiring the majority of DC benefits to be taken as a pension increasing in payment in line with inflation.

The Trustees consider the returns of the funds used within the switching phase of the lifestyle strategy relative to changes in annuity prices.

The Trustees consider whether the target investment strategy for the default remains appropriate as part of their regular reviews of the DC Section’s investment arrangements.

Market Risk

The value of securities, including equities and interest bearing assets, can go down as well as up.

The Trustees provide members with a range of funds, across various asset classes. Members are able to set their own investment strategy in line with their risk tolerances.

The Trustees monitor the performance of external investment funds on a quarterly basis.

Counterparty Risk

A counterparty, either an underlying holding or pooled arrangement, cannot meet its obligation.

Delegated to external investment manager.

Members are able to set their own investment allocations, in line with their risk tolerances.

The Trustees monitor the performance of external investment funds on a quarterly basis.

Currency Risk

The value of an investment in the members’ base currency may change as a result of fluctuating foreign exchange rates.

The Trustees provide diversified investment options that invest in local as well as overseas markets and currencies.

Delegated to investment managers.

Members are able to set their own investment allocations, in line with their risk tolerances.

The Trustees monitor the performance of external investment funds on a quarterly basis.

The Trustees consider the movements in foreign currencies relative to pound sterling.

Operational Risk

A lack of robust internal processes, people and systems.

Outsourced to the Investment Consultant.

Members are able to set their own investment allocations, in line with their risk tolerances.

The Trustees consider the ratings of investment strategies from their Investment Consultant and monitor these on a quarterly basis.

Liquidity Risk

Assets may not be readily marketable when required.

The Trustees access daily dealt and daily priced pooled funds through a unit-linked insurance contract from LGIM.

The Trustees consider the pricing and dealing terms of the funds underlying the unit-linked insurance contract.

Valuation Risk

The value of an illiquid asset is based on a valuer’s opinion, realised value upon sale may differ from this valuation.

The multi-asset fund may hold illiquid assets. In such cases, the management of valuation risk is delegated to the external investment manager.

The majority of the DC Section’s assets are invested solely in liquid quoted assets.

The Trustees monitor the performance of funds on a quarterly basis, and where relevant delegate the monitoring of valuation risk to the Investment Consultant.

Environmental, Social and Governance Risk

ESG factors can have a significant effect on the performance of the investments held by the Plan e.g. extreme weather events, poor governance.

Delegated to external investment managers.

The Trustees’ policy on ESG risks is set out in Section 16 of this Statement.

The Trustees review their external investment managers’ policies and actions in relation to this on a regular basis.

Manager Skill / Alpha Risk

Returns from active investment management may not meet expectations, leading to lower than expected returns to members.

The Trustees make available some actively managed funds to DC members where they deem it appropriate; for example, multi- asset funds.

The actively managed funds made available are highly rated by their Investment Consultant, based on forward-looking expectations of meeting objectives.

The Trustees consider the ratings of investment strategies from their Investment Consultant during the selection process.

The Trustees monitor performance and rating of funds on an ongoing basis relative to the fund’s benchmark and stated targets/objective

In selecting assets, the Trustees consider the liquidity of the investments in the context of the likely needs of members. All assets are daily dealing and therefore should be realisable based on member demand.

The items listed above are in relation to what the Trustees consider ‘financially material considerations’. The Trustees believe the appropriate time horizon over which to assess these considerations should be viewed at a member level. This will be dependent on the member’s age and their Selected Retirement Age. Non-financial considerations are discussed in section 14.

Assets in respect of members’ AVCs are invested in a range of investment funds. The AVC arrangements are reviewed periodically to ensure that the investment profile of the funds available remains consistent with the objectives of the Trustees and the needs of the members. More information on the AVC providers is detailed in the SIA.

Arrangements are in place to monitor the DC and AVC investments to help the Trustees check that nothing has occurred that would bring into question the continuing suitability of the current investments.

The Trustees look to ensure members of all risk profiles are catered for within the DC and AVC investment arrangements. The Trustees also offer members a lifestyle investment strategy for DC benefits in order to reduce the volatility of investment returns relative to the benefits expected to be taken for members that are approaching retirement.

14. DB and DC Sections and AVCs

Environmental, Social and Corporate Governance (ESG), Stewardship, and Climate Change

The Trustees believe that ESGfactors may have a material impact on investment risk and return outcomes, and that good stewardship can create and preserve value for companies and markets as a whole. The Trustees also recognise that long-term sustainability issues, particularly climate change, present risks and opportunities that increasingly may require explicit consideration. The Sponsor’s views on ESG matters will be accounted for, noting that they may not necessarily result in a change in the Trustees’ investment decisions.

DB Section

As noted above, the Trustees have appointed Mercer to act as discretionary investment manager in respect of the Plan’s assets and such assets are invested in a range of Mercer Funds managed by MGIE. Asset managers appointed to manage the Mercer Funds are expected to evaluate ESG factors, including climate change considerations, and exercise voting rights and stewardship obligations attached to the investments, in accordance with their own corporate governance policies and current best practice, including the UK Corporate Governance Code and UK Stewardship Code.

The Trustees consider how ESG, climate change and stewardship is integrated within Mercer’s investment processes and those of the underlying managers in the monitoring process. Mercer is expected to provide reporting on a regular basis, at least annually, on ESG integration progress, stewardship monitoring results, and climate-related metrics such as carbon foot printing for equities and/or climate scenario analysis for diversified portfolios.

Member views

Member views are not taken into account in the selection, retention and realisation of investments.

Investment Restrictions

The Trustees have not set any investment restrictions in relation to particular Mercer Funds.

Trustees’ policies with respect to arrangements with, and evaluation of the performance and remuneration of, asset managers and portfolio turnover costs

When engaging Mercer as discretionary investment manager to implement the Trustees’ investment strategy outlined in section 5, the Trustees are concerned that, as appropriate and to the extent applicable, Mercer is incentivised to align its strategy and decisions with the profile and duration of the liabilities of the Plan, in particular, long-term liabilities.

As Mercer manages the Plan’s assets by way of investment in Mercer Funds, which are multi-client collective investment schemes, the Trustees accept that they do not have the ability to determine the risk profile and return targets of specific Mercer Funds but the Trustees expect Mercer to manage the assets in a manner that is consistent with the Trustees’ overall investment strategy as outlined in section 5. The Trustees have taken steps to satisfy themselves that Mercer has the appropriate knowledge and experience to do so and keeps Mercer’s performance under ongoing review.

Should Mercer fail to align its investment strategies and decisions with the Trustees’ policies, it is open to the Trustees to disinvest some or all of the assets invested managed by Mercer, to seek to renegotiate commercial terms or to terminate Mercer’s appointment.

To evaluate performance, the Trustees receive, and consider, investment performance reports produced on a quarterly basis, which present performance information and commentary in respect of the Plan’s funding level and the Mercer Funds in which the Plan is invested. Such reports have information covering fund performance for the previous three months, one-year, three years and since inception. The Trustees review the absolute performance and relative performance against a portfolio’s and underlying investment manager’s benchmark (over the relevant time period) on a net of fees basis. The Trustees’ focus is on the medium to long-term financial and non-financial performance of Mercer and the Mercer Funds.

Neither Mercer or MGIE make investment decisions based on their assessment about the performance of an issuer of debt or equity. Instead, assessments of the medium to long-term financial and non-financial performance of an issuer are made by the underlying third party asset managers appointed by MGIE to manage assets within the Mercer Funds. Those managers are in a position to engage directly with such issuers in order to improve their performance in the medium to long term. The Trustees are, however, able to consider Mercer’s and MGIE’s assessment of how each underlying third party asset manager embeds ESG into their investment process and how the manager’s responsible investment philosophy aligns with the Trustees’ own responsible investment policy. This includes the asset managers’ policies on voting and engagement.

Section 14 provides further details of the steps taken, and information available, to review the decisions made by managers, including voting history and the engagement activities of managers to identify decisions that appear out of line with a Mercer Fund’s investment objectives or the objectives/policies of the Plan.

The asset managers are incentivised as they will be aware that their continued appointment by MGIE will be based on their success in meeting MGIE’s expectations. If MGIE is dissatisfied then it will, where appropriate, seek to replace the manager.

The Trustees are long-term investors and are not looking to change their investment arrangements on an unduly frequent basis. However, the Trustees do keep those arrangements under review, including the continued engagement of Mercer using, among other things, the reporting described above.

The Trustees monitor, and evaluate, the fees it pays for asset management services on an ongoing basis taking into account the progress made in achieving its investment strategy objectives as outlined in section 3. Mercer’s, and MGIE’s, fees are based on a percentage of the value of the Plan’s assets under management which covers the design and annual review of the de-risking strategy, and investment management of the assets. In addition, the underlying third party asset managers of the Mercer Funds also charge fees based on a percentage of the value of the assets under management. In some instances, some of the underlying managers may also be entitled to charge fees based on their performance.

MGIE reviews the fees payable to third party asset managers managing assets invested in the Mercer Funds on a regular basis with any negotiated fee savings passed directly to the Plan. Mercer’s, MGIE’s, and the third party asset managers’, fees are outlined in a quarterly investment strategy report prepared for the Trustees, excluding performance-related fees and other expenses involved in the Mercer Funds not directly related with the management fee.

Details of all costs and expenses are included in the Mercer Funds’ Supplements, the Report & Accounts and within the Plan’s annualized, MiFID II compliant Personalised Cost & Charges statement. The Plan’s Personalised Cost & Charges statement also include details of the transaction costs associated with investment in the Mercer Funds.

The Trustees do not have an explicit targeted portfolio turnover range, given the de- risking mandate, but rebalancing ranges have been designed to avoid unnecessary transaction costs being incurred by unduly frequent rebalancing. Performance is reviewed net of portfolio turnover costs, with the review of portfolio turnover of the underlying investment managers undertaken by MGIE.

DC Section and AVCs

As the DC assets are invested in pooled funds, the Trustees have given the appointed investment managers full discretion in evaluating ESG factors, including climate change considerations, and exercising voting rights and stewardship obligations attached to the investments. The Trustees accept that by using pooled investment vehicles for its investments, the Plan’s voting rights are exercised by its investment managers in accordance with their own corporate governance policies, and taking account of current best practice including the UK Corporate Governance Code and the UK Stewardship Code.

The Trustees will consider ESG and climate change in manager selection and strategy decisions based on the ratings provided by their consultant, however, the prominent weighting on decisions will be expectations of future performance and the impact on member outcomes.

The Trustees will review their consultant’s ESG ratings for the investment managers on an annual basis. A change in ESG rating does not mean that the fund will be removed or replaced automatically.

The Trustees have not set any investment restrictions on the appointed investment managers in relation to particular products or activities, but may consider this in the future. Member views are not explicitly taken into account in the selection, retention and realisation of investment funds but the Trustees will consider how to cater for members who might engage on ESG matters.

The below table sets out the Trustee’s approach to implementation and engagement. The list below is not exhaustive, but covers the main areas considered by the Trustees.

Policy Statement

The Trustees’ Position

How the arrangement with the asset manager incentivises the asset manager to align its investment strategy and decisions with the trustees' policies

The underlying investment managers are appointed based on their capabilities and, therefore, their perceived likelihood of achieving the expected return and risk characteristics required for the asset class being selected.

The underlying investment managers are aware that their continued appointment is based on their success in delivering the mandate for which they have been appointed to manage. If the Trustees are dissatisfied, then they will look to replace the manager.

If the investment objective for a particular manager’s fund changes, the Trustees may review the fund appointment to ensure it remains appropriate and consistent with the Trustees’ wider investment objectives.

How the arrangement incentivises the asset manager to make decisions based on assessments about medium to long-term financial and non-financial performance of an issuer of debt or equity and to engage with issuers of debt or equity in order to improve their performance in the medium to long-term

The Trustees considers their investment consultant’s assessment of how each underlying investment manager embeds ESG into its investment process and how the manager’s responsible investment philosophy aligns with the Trustees’ responsible investment policy. This includes the underlying investment managers’ policy on voting and engagement. The Trustees will use this assessment in decisions around selection, retention and realisation of manager appointments.

In addition, on an annual basis, it is the Trustees’ policy to review the ESG policies of each of the underlying managers along with their voting and engagement records.

How the method (and time horizon) of the evaluation of the asset manager's performance and the remuneration for asset management services are in line with the trustees' policies

The Trustees receive investment manager performance reports on a quarterly basis, which present performance information over multiple time periods. The Trustees review the absolute performance against a suitable index used as the benchmark on a net of fees basis.

Whilst the Trustees’ focus is on long-term performance, they also take shorter-term performance into account.

If an underlying manager is not meeting performance objectives, or their investment objectives for the fund have changed, the Trustees may review the suitability of the manager, and change managers where required.

How the trustees monitor portfolio turnover costs incurred by the asset manager.

The Trustees consider portfolio turnover costs as part of the annual value for money assessment.

How the trustees define and monitor targeted portfolio turnover or turnover range.

As the Plan invests through pooled funds, the Trustees are unable to define target portfolio turnover ranges for funds. The Trustees will seek to compare turnover costs over time and against other managers where possible.

How the trustees define and monitor the duration of the arrangement with the asset manager.

All the funds are open-ended with no set end date for the arrangement. The Trustees, if decided following review, can terminate the arrangements.

15. Review of this Statement

The Trustees will review this Statement at least once every three years and without delay after any significant change in investment policy. Any change to this Statement will only be made after having obtained and considered the written advice of someone who the Trustees reasonably believe to be qualified by their ability in and practical experience of financial matters and to have the appropriate knowledge and experience of the management of pension plan investments.

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