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Welcome Break Pension Plan – Transaction Costs

Welcome Break Pension Plan (“the Plan”)

Chair’s Statement

Annual statement regarding governance of the Defined Contribution (“DC”) Section for the year ended 30 September 2019

I am pleased to present the Trustees’ annual statement of governance, covering the period 1 October 2018 to 30 September 2019. This statement describes how the Trustees seek to ensure that the Plan is well-managed and delivers excellent services to members. In doing so, we provide the various statutory disclosures required by the Occupational Pension Schemes (Charges and Governance) Regulation 2015 (the ‘Regulations’). This statement covers five key areas:

– The investment strategy relating to the Plan’s default DC arrangement;
– The processing of the DC Section’s financial transactions;
– Charges and transaction costs within the DC Section, including the disclosures for the impact of costs and charges;
– Value for Members’ assessment; and
– The Trustees’ compliance with the statutory knowledge and understanding requirements.

The Trustees oversee the governance of the Plan with support from their advisers and investment consultants (Mercer), administrators (Mercer), and Legal & General (“LGIM”), who provide the platform on which the Plan’s investments are held. The Plan holds DC and AVC assets in LGIM funds, as well as some AVC assets in a Standard Life with-profits fund. Until recently several members of the Plan held AVC assets with Equitable Life; during the Plan year (in anticipation of the upcoming sale of Equitable Life to Utmost Life) all AVC assets with Equitable Life were transferred to existing arrangements with LGIM (for unit-linked investments) and Standard Life (for with-profits investments).

The Plan is operated by the Trustees in accordance with the rules of the Plan, and the legal & regulatory regime applicable to pension plans. This statement and the Plan’s most recent Statement of Investment Principles (“SIP”) will be published on a publicly available website.

The default investment arrangement

The Trustees are responsible for establishing a default investment arrangement for members who do not select their own investment options from the fund range that is available.

The Trustees, with advice from the Plan’s investment consultants, undertook a review of the investment strategy on 4 September 2018; this review took into account the characteristics and profile of the Plan membership to establish an appropriate strategy. The recommendation arising from the review was that, based on the quality and the appropriateness of the investment options for the Plan’s membership, the existing investment strategy should mostly be maintained.

The only exception was a recommendation to consider replacing the Over 5 Year Index Linked Gilts Index Fund in the de-risking phase with a fund more focused towards protecting against changes in inflation linked annuity prices (specifically the LGIM Inflation Linked Pre-Retirement Fund, a fund provided by LGIM which is highly rated by Mercer, the Trustees’ investment consultant). However, due to recent, relative underperformance of the proposed Fund and the significant implementation costs compared with the value of invested assets, no changes were made following the review. The next review of the investment strategy is due to take place in September 2021, or sooner if it is determined that there has been a significant change in the membership or investment policy.

The current default investment arrangement for the DC Section of the Plan is the Lifestyle Investment option, which is managed by LGIM. Under this arrangement, a member’s contributions are invested into the Multi Asset (formerly Consensus) Fund until 16 years before the member’s target retirement date, otherwise known as the growth phase. The aim of this fund is to provide long term investment growth for the member. The default strategy then gradually moves assets to lower-risk funds – the Blended Fund, Over 5 Year Index-Linked Gilt Index Fund and the Sterling Liquidity Fund – in the de-risking phase. The Blended Fund consists of 12 different passively managed funds which are invested in equities and bonds – in effect, this is a multi-asset fund too.

At the member’s target retirement date, 75% of the member’s retirement savings are invested in the Over 5 Year Index-Linked Gilt Index Fund and 25% in the Sterling Liquidity Fund. This is intended to suit members withdrawing 25% of their retirement savings as a lump sum and purchasing an annuity with the remainder or receiving a pension directly from the Plan. This has been chosen because approximately two-thirds of members are required to have a pension set up within the Plans since their DC funds are less than the value of the Plan’s DB underpin. The underpin arises because DC members were contracted-out of the State Second Pension using the Reference Scheme Test.

In accordance with the Regulations, the Trustees of the Plan have appended the latest copy of the Statement of Investment Principles (the “SIP”) prepared for the Plan in compliance with Section 35 of the Pensions Act 1995 and Regulation 2/Regulation 2A of the Occupational Pension Schemes (Investment) Regulations 2005.

The Trustees and their professional advisers (Mercer) reviewed how the funds within the Plan’s default investment arrangement (and the wider self-select fund options) performed against the investment managers’ objectives and benchmarks every six months. Within this review process, the Trustees also assessed the extent to which performance is consistent with the aims and objectives of the default arrangement and whether the strategy and returns are consistent with these aims and objectives. The review process took place within the Trustee meetings using performance information from the investment managers and with advice from Mercer.

Requirements for processing financial transactions

As required by the Regulations, the Trustees must ensure that core financial transactions are processed promptly and accurately. This includes:

– Investment of contributions paid to the DC Section (noting that this Plan only has deferred members);
– Transfer of members’ assets into and out of the DC Section;
– Transfers of members’ assets between different investment options available in the DC Section; and
– Payments from the DC Section to, or in respect of, members.

The Trustees monitor the extent to which the DC Section’s core financial transactions are processed promptly and accurately through information which is detailed within the administration reports produced by the Plan’s administrator (Mercer) which are reviewed by the Trustees at each of their quarterly meetings. The Trustees require that administration reports include a specific confirmation that core transactions have been processed promptly and accurately. The administrator would also alert the Trustees between meetings if this failed to happen.

As part of their checking process, Mercer carry out monthly checks, in addition to daily reconciliation of the Trustee bank account. All investments and banking transactions are also checked and verified before being processed. All work processes are documented and subject to a peer review process, with work being calculated and independently checked by another member of the team.

The Trustees have service level agreements in place with the Plan’s administrators. These cover the accuracy and timeliness of a wider range of administration services including interaction with members. For this period, 71% of these tasks were completed in line with service level agreements. This is not deemed to be satisfactory to the Trustees and actions are being taken to improve service levels. However, the Trustees confirm that no material issues arose over the year in relation to accuracy and timeliness of the Plan’s core financial transactions.

Administration services were monitored at Trustees’ meetings throughout the year.

Charges and transaction costs

The Trustees are required to report on the charges and transaction costs for the investments used in the default arrangement as well as the wider fund choice available and their assessment on the extent to which the charges and costs represent good value for members.

The table that follows shows the Total Expense Ratios (the “TER”) applicable for each of the funds underlying the Plan’s default investment arrangement and those available through self-select options. The TER is a measure of the total charges deducted within a fund for investment management, platform services and administration. The costs for the general administration of the Plan are met by the Plan and not the member. The overall charge being deducted from a member’s fund will reflect the member’s allocation in each of the underlying funds, each of which is below the charge cap of 0.75% per annum. The TER figures do not include transaction costs; these are the expenses associated with a member trading in and out of a fund as well as the investment manager trading a fund’s underlying securities, including commissions and stamp duty. These transaction costs are listed separately in the table.

Fund Name
TER (% p.a.)
Transaction costs (% p.a.)
Multi Asset Fund*
Blended Fund*
Over 5 Year Index-Linked Gilt Index Fund*
Sterling Liquidity Fund*
Global Equity Fixed Weights (50:50) Index Fund
Pre-Retirement Fund

Figures as at 30 September 2019, provided by LGIM. The transaction costs are calculated using the slippage methodology; consequently, some funds are listed as having negative transaction costs.

*Used in the Plan’s default investment option

The charge cap is a limit as to the annual amount that can be charged to savers in a pension plan. It is currently set at 0.75% p.a. of the fund held in the saver’s pension account. This cap applies solely to the default investment option. As demonstrated above, whilst this Plan is not used for automatic enrolment purposes, all funds within the Plan, including the default investment strategy, have charges that fall well below the charge cap.

On 20 September 2017 the FCA published ‘PS17/20 – Transaction cost disclosure in workplace pensions’, having sought feedback and comments on CP16/30 earlier in the year. The policy statement sets out the rules that came into force on 3 January 2018 to standardise the calculation of the transaction costs incurred by plan members when investing in a pension fund. LGIM have provided the transaction costs for the relevant funds for this Plan year, as shown in the above table.

There are several members of the Scheme who hold AVC assets in With-Profits funds with Standard Life. With respect to these policies, payouts on surrender and maturity will reflect all charges incurred, though they are not separately identified. Moreover, the actual performance received by members, net of charges, is only known upon maturity/surrender, after any augmentation for guaranteed terms and after the effect of any ‘smoothing’. This places limitations on what can be shown in the member illustrations and any value that might be derived from these illustrations.

Reporting Costs and Charges

In accordance with regulation 23(1)(ca) of the Regulations, as inserted by the 2018 Regulations, the Trustees have prepared an illustration detailing the impact of the costs and charges typically paid by a member of the Plan on their retirement savings pot. The statutory guidance provided has been considered when providing these examples.

In order to represent the range of unit-linked funds available to members we are required show the effect on a member’s pot of investment in the following:

– The fund or strategy with the most members invested (in this case the Default strategy)
– The most expensive fund (the Multi Asset Fund)
– The least expensive fund (the Sterling Liquidity Fund)
– The fund with the highest expected return (the Global Equity Fixed Weights (50:50) Index Fund)
– The fund with the lowest expected return (the Pre-Retirement Fund)

The below illustration has taken into account the following elements:

  • Savings pot size;
  • Real terms investment return gross of costs and charges;
  • Adjustment for the effect of costs and charges; and
  • Time

The Plan only has deferred members; consequently, the illustration below represents a member making no further contributions to the Plan.

Default Strategy
Multi Asset Fund
Sterling Liquidity Fund
Global Equity Fixed Weights (50:50) Index Fund
Pre-Retirement Fund
Pot Size with no Charges Incurred
Pot Size with Charges Incurred
Pot Size with no Charges Incurred
Pot Size with Charges Incurred
Pot Size with no Charges Incurred
Pot Size with Charges Incurred
Pot Size with no Charges Incurred
Pot Size with Charges Incurred
Pot Size with no Charges Incurred
Pot Size with Charges Incurred



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1. Values shown are estimates at end of each year and are not guaranteed.
2. Projected pension pot values are shown in today’s terms.
3. Age and pot size assumptions are based on full membership data as at September 2019.
4. The starting pot size is assumed to be £6,000, and this person joined as a deferred member at age 34.
5. Charges and transaction costs assumed for each individual fund are as provided by LGIM as at 30 September 2019, shown earlier in this document.
6. From LGIM’s figures, the default strategy has an assumed TER of 0.25% p.a. further than 16 years from retirement, moving to 0.18% p.a. between 11 and 7 years from retirement, moving to 0.11% p.a. at retirement
7. From LGIM’s figures, the default strategy has an assumed transaction cost of 0.03% p.a. further than 16 years from retirement, moving to 0.02% p.a. between 11 and 7 years from retirement, moving to 0.05% p.a. at retirement.
8. Inflation is assumed to be 2.5% per annum.
9. The projected gross growth rates for each fund are based on the 2019 SMPI assumptions, as provided by Mercer, as follows:

Default Strategy
4.0% p.a. after inflation for members further than 16 years from retirement
3.0% p.a. after inflation for members between 11 and 7 years from retirement
0.5% p.a. after inflation for members at or beyond retirement
Multi Asset Fund
4.0% p.a. after inflation
Sterling Liquidity
0.5% p.a. after inflation
Global Equity Fixed Weights (50:50) Index Fund
4.5% p.a. after inflation
Pre-Retirement Fund
0.5% p.a. after inflation

When preparing these illustrations, the Trustees have taken into account specific guidance from the Department for Work & Pensions and have followed the approach set out in that guidance.

In addition to the unit-linked funds made available to members through LGIM, several members are invested in Standard Life With-Profits funds. By the nature of With-Profits funds, the charging structure of these policies are not transparent; because of this, and the smaller, distinct membership for these funds, these must be illustrated separately. We have requested detailed information about the With-Profits funds’ charges and growth rates from Standard Life but have not yet received sufficient information to illustrate the funds over time. We will continue to request this information from Standard Life on a regular basis until it is provided.

Value for Members

There is no legal definition of “good value” and so the process of determining good value for members is a subjective one. The Trustees have received advice on how to assess good value from its advisers and considered regulatory guidance. A report from Mercer was received in February 2020.

In undertaking the assessment, the Trustees considered:

  • The benefits of membership (administration / member support, governance and member communications);
  • Investment arrangements (including the performance of the default investment arrangement);
  • Charges applied to members (with the exception of transaction costs, which have been reported on but not assessed; this is because there is currently no “industry standard” or universe of consistently reported transaction costs to compare these against); and
  • How the charges compare to other pension arrangements.

The assessment determined that performance has been in line with expectations, and the charges met by Plan members are competitive and have provided value for money, based on an assessment comparing fees within the context of a wider market fee survey. Mercer’s rating of LGIM’s passively managed funds remains high, having not changed over the year. Transaction costs for each fund have also been acknowledged, although there is currently no ‘industry standard’ or universe to compare these to, and it is far from clear whether all fund managers have taken a consistent approach when preparing cost reporting.

Based on the assessment the Trustees concluded that the Plan represents good value for money for members. The Trustees’ focus, therefore, is on maintaining this position and identifying if further developments can be made.

Trustee Knowledge and Understanding

In accordance with sections 247 and 248 of the Pensions Act 2004, the Trustees are required to maintain an appropriate level of knowledge and understanding which, together with the professional advice which is available to them, enables them to properly exercise their functions and duties in relation to the Plan. The Trustees maintain a working knowledge of the trust deed and rules, the SIP and all documents setting out trustee policies. This is demonstrated by inclusion of governance document reviews in meeting agendas, referral to rules and other documents in meeting minutes and in regular correspondence with actuarial, investment and legal advisers throughout the year.

Through their own experience and training, alongside the support of advisers, the Trustees have sufficient knowledge and understanding of the law relating to pensions and trusts and of the relevant principles relating to the funding and investment of occupational schemes. The Trustees’ combined knowledge and understanding, together with available advice, enables them to properly exercise their functions.

During the course of the year, there have been changes to the Trustees. Previously there were five Trustees. However, going forward this structure will consist of three Trustees, two of which are professional trustees, independent from the Employer and one is a member-nominated trustee.

The following have stepped down from their roles;

Chris Bjorck – Company-Nominated Trustee
Nicola Marshall – Company-Nominated Trustee
Rachel Williams – Member-Nominated Trustee

The names of the current Trustees are listed below:

Independent: Chris Maggs (Chair) representing CM Pensions Limited
Independent: Ian Fellows representing Fellows Pension and Training Services
Member-Nominated: Richard King

Following the change in Trustee structure, a review of the operation of the Trustees was undertaken. Effectiveness of Trustee meetings is also reviewed at the end of each meeting.

The Trustees have undertaken the following training during the year:

– The Trustees undertake ongoing training within their regular meetings to keep abreast of relevant developments, including the following this year;

  • GMP Equalisation (9/11/18)
  • DB long-term objectives (19/2/19)

with additional training including Integrated Risk Management and a further session on GMP Equalisation Options scheduled during the Scheme year for the remaining months of 2019.

– The Trustees regularly review their training needs and respond to any knowledge gaps identified (an example being GMP Equalisation options);

– The Trustees also receive advice from professional advisors and the relevant skills and experience of those advisors is a key criterion when evaluating advisor performance or selecting new advisors;

– The Trustees will also, on an ongoing basis, review and assess whether the systems, processes and control across key governance functions are consistent with those set out in The Pensions Regulator’s Code of Practice No.13;

– The Trustees have completed The Pensions Regulator’s Trustee Toolkit and will maintain their knowledge of the Toolkit as it is updated from time to time;

– In addition, the two independent trustees are members of professional bodies (the Institute of Actuaries and the Pensions Management Institute respectively) and continue to meet their own professional bodies’ continuing professional development requirements.

– The professional trustees use their skills and experience to lead the Trustees’ discussion as required on DC matters, building on the work done in previous years.

I confirm that the above Statement has been produced by the Trustees to the best of their knowledge.


Name: Chris Maggs

Position: Chairman of the Trustees

Date: 24 April 2020

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