Volex Executive Pension Scheme ("the Scheme") Governance statement for the Scheme's defined contribution arrangements. 1 August 2017 to 31 July 2018

Transcription

1 Volex Executive Pension Scheme ("the Scheme") Governance statement for the Scheme's defined contribution arrangements 1 August 2017 to 31 July Introduction 1.1. This statement has been prepared by the Scheme's trustee ("the Trustee") to report on compliance with governance standards introduced under The Occupational Pension Schemes (Charges and Governance) Regulations These governance standards relate to defined contribution (DC) benefits, also commonly referred to as money purchase benefits. 2. The Scheme's Design 2.1. The Scheme's DC arrangements comprise: The DC Section: The DC Section was set up to receive transferred in benefits only on a defined contribution basis. The DC Section has never accepted ongoing contributions. The DC Section investments are invested through Aegon UK plc which also provides some communication services. Administration is provided by Barnett Waddingham LLP All assets sit in the Aegon Money Purchase Plan Fund which attracts with-profits bonuses. No other investment options are available As at 31 July 2018 there was 260,838 held by 49 members within the DC Section. The Trustee is working to discharge all benefits within the DC Section as soon as possible. By 31 December 2018 the number of members with preserved benefits had reduced to 26 with 155,000 remaining in the DC Section. Of those 26 members, 19 are now past normal retirement age and the Trustee is working to settle these retirement benefits in the next Scheme year. The Trustee will also be engaging with the remaining 7 members who have all reached an age where they could put retierment benefits into payment in order to discharge the remaining benefits through a combination of retirement benefits and individual transfers out Additional Voluntary Contributions relating to the Defined Benefit Section ("DB AVCs") which are provided through bundled providers (i.e. administration and investment management services are provided through a single policy) with: Aviva Clerical Medical Investment Group ("Clerical Medical") Equitable Life Assurance Society ("Equitable Life") Scottish Widows, and Standard Life Assurance Group ("Standard Life") 2.2. To put the governance arrangements around the DB AVCs into context, as at 31 July 2018: Three members held 6,995 of DB AVCs with Aviva, Volex Executive Pension Scheme DC Governance Statement 1 August 2017 to 31 July 2018 Page 1 of 11

2 Three members held 113,920 of DB AVCs with Clerical Medical, Two members held 6,175 of DB AVCs with Equitable Life, One member held 5,281 of DB AVCs with Scottish Widows, and Two members held 17,053 of DB AVCs with Standard Life The Scheme is closed to new members and has also been closed to contributions since 1 April The Scheme is not being used as a qualifying scheme for auto-enrolment by any organisation. 3. Default arrangement 3.1. The Scheme has no default (investment) arrangements for the purposes of the Regulations The Scheme is not being used as a qualifying scheme for auto-enrolment purposes and no new contributions are being paid into the Scheme Members do not have the option to move assets attributable to their own DC fund into alternative investment options. 4. Core financial transactions 4.1. The governance standards require the Trustee to ensure that 'core financial transactions' are processed promptly and accurately For this purpose, the Scheme's core financial transactions comprise: transfers out of the Scheme payments out of the Scheme investment switches within the Scheme (for DB AVCs only) No contributions or transfers into the DC Section, or in respect of the DB AVCs, are accepted. Controls in place 4.3. These transactions are processed by the Scheme administrator, Barnett Waddingham LLP, and the Scheme's investment managers on behalf of the Trustee. These transactions involve liaison between Aegon/the DB AVC providers and the Scheme's administrator to ensure payments are made in a timely manner If any issues arose with Aegon or any of the DB AVC providers Barnett Waddingham would report these to the Trustee through the administration reports Barnett Waddingham work to Service Level Agreements (SLAB) in place with Barnett Waddingham. Barnett Waddingham undertakes to ensure that the core financial transactions are processed within the SLAB set out below: Core financial transaction Retirement payments Other cash handling Service Level Agreement 5 working days 5 working days 4.6. Aegon and the DB AVC providers work to internal service targets The controls in place in relation to the accuracy of core financial transactions are: Volex Executive Pension Scheme DC Governance Statement 1 August 2017 to 31 July 2018 Page 2of11

3 Due to the work the Trustee is undertaking to discharge all benefits from the DC Section, all transactions from the DC Section, and also DB AVCs, are reported to the Trustee and reviewed at the next Trustee's meeting following payment Barnett Waddingham operates the Trustee's bank account with RBS. Barnett Waddingham receives monthly statements which are reconciled against Barnett Waddingham's cash handling administration system. Payments from the Trustee's bank account are processed via Barnett Waddingham's cash handling system and are checked and authorised by two individuals The Scheme is subject to an annual audit of financial statements The administrator's processes are subject to internal controls procedures Barnett Waddingham also publishes an annual Assurance Report on Internal Controls which is externally audited. There were no significant concerns reported During the scheme year, Barnett Waddingham provided the Trustee with one administration report that includes cash flow monitoring, individual listing of member transactions and identifies any issues arising regarding administration accuracy The Trustee believes that these measures enabled them to monitor the promptness and accuracy of core financial transactions. Issues occurring during the scheme year The Trustee believes that core financial transactions were processed promptly and accurately during the scheme year and no significant issues occurred. 5. Charges and transaction costs 5.1. Members bear charges deducted from the funds in which their DC benefits are invested. The charges differ between the investment funds available across the Scheme. Charges in relation to the DC Section 5.2. Aegon states that the annual management charge applicable to the Aegon Money Purchase Plan Fund is 1.0% p.a In addition to the charges above, transaction costs may be incurred in the day-to-day operation of the investment funds, e.g. in relation to an investment fund's trades and switching between investment funds. Transaction costs in particular will vary significantly depending on a fund's investment remit and on the market environment The Trustee requested details of any transaction costs within the Aegon Money Purchase Plan Fund from Aegon. Aegon stated it could "confirm that transactions costs do not apply to the investment under this contract" The Aegon Money Purchase Plan Fund is a with-profits fund which attracts an annual bonus. The Trustee believes that any costs are reflected in the level of annual bonus applied by Aegon. Volex Executive Pension Scheme DC Governance Statement 1 August 2017 to 31 July 2018 Page 3 of 11

4 Charges in relation to the DB AVCs 5.6. The costs of the investment, administration and communication services provided by Aviva, Clerical Meidcal, Equitable Life, Scottish Widows and Old Mutual, through the AVCs, are met by the members through the charges levied by the providers. Investment Fund Total Expense Ratio (TER) Aviva Aviva Life & Pensions UK Limited Secure Growth Fund (ex L&M) Aviva has stated that it is unable to disclose any cost information regarding the fund, although this is a with-profits fund and the Trustee believes that any costs are reflected in the level of annual bonus applied the Trustee will contine to press Aviva for full disclosure of the charges and transaction cost information Clerical Medical International Growth Gilt & Fixed UK Growth (L) Balanced (L) Retirement (L) Non-Equity (L) Halifax (L) Cautious (L) All funds 1.0% p.a. Transaction cost disclosures are set out below (L) = part of a Lifestyle strategy Equitable Life International Pelican With-Profits 0.75% p.a. 0.75% p.a. 1.50% p.a. (including cost of guarantees) Transaction cost disclosures are set out below Scottish Widows Pension Fund Deposit Account Scottish Widows has stated that it is unable to disclose any cost information regarding the fund, although this is a deposit account which attracts an interest rate of 0.01% AER and any charges are reflected in the interest rate applied - the Trustee will continue to press Scottish Widows for full disclosure of the charges and transaction cost information Standard Life Standard Life Managed Fund Pension Millennium With Profits Fund Pension With Profits Fund 1.02% p.a. For with-profits funds Standard Life states that there is no explicit fund management charge or additional expenses costs are reflected in calculation of policy values and bonuses applied Transaction cost disclosures are set out below Additional transaction costs 5.7. In addition to the charges above, transaction costs are incurred in the day-to-day operation of the investment funds, e.g. in relation to an investment fund's trades and switching between investment funds. Transaction costs in particular will vary significantly depending on a fund's investment remit and on the market environment. The Trustee asked for information on transaction costs for the Scheme. Volex Executive Pension Scheme DC Governance Statement 1 August 2017 to 31 July 2018 Page 4 of 11

5 5.8. The Trustee approached Aviva for details of any transaction costs incurred by members in the Scheme year. Aviva was unable to provide any information. The Trustee will continue to press Aviva to provide this information The Trustee approached Clerical Medical for details of any transaction costs incurred by members in the Scheme year. Clerical Medical could only provide details of transaction costs for the period 1 October 2017 to 30 September 2018, which are detailed in the following table. Reporting Period Fund Identifier Fund Name Transaction Start End Notes Costs (in bps) GB Clerical Medical Gilt Obps 01/10/ /09/2018 Transaction costs calculated using & Fixed Interest slippage methodology. Pension GB Clerical Medical 27bps 01/10/ /09/2018 Transaction costs calculated using International slippage methodology. Growth Pension GB Clerical Medical 16bps 01/10/ /09/2018 Transaction costs calculated using Balanced Pension slippage methodology. GB Clerical Medical 16bps 01/10/ /09/2018 Transaction costs calculated using Cautious Pension slippage methodology. GB Clerical Medical 8bps 01/10/ /09/2018 Transaction costs calculated using Non-Equity Pension slippage methodology. GB Clerical Medical Obps 01/10/ /09/2018 There are no transaction costs as this Halifax Pension fund holds cash only. GB Clerical Medical -2bps 01/10/ /09/2018 Transaction costs calculated using the Managed slippage methodology. For this fund the Retirement application of slippage methodology is Protection Pension giving rise to a negative transaction cost figure. Definitions: Fund Identifier Where possible the identifier used will be the ISIN. Fund Name Transaction costs (in bps) Reporting Period Start/End The fund name held by SW. This is the total transaction cost figure for the fund (i.e. for Buy & Sell transactions and Lending & Borrowing transactions). For lower level detail we can provide the industry standard Defined Contributions Pensions Template (DCPT) on request. Date of the first and last day to which the data refers. Data for the most recent calculated reporting period is provided. This period will vary by fund. Volex Executive Pension Scheme DC Governance Statement-1 August 2017 to 31 July 2018 Page 5 of 11

6 Notes Any relevant supporting information such as calculation methodology used or additional information on holdings The Trustee approached Equitable Life for details of any transaction costs incurred by members in the Scheme year. Equitable Life has provided details of the transaction costs incurred within the Scheme funds available to members for the period 1 July 2017 to 30 June 2018 which are detailed in the following table: Disclosure of Fund Costs (including transaction costs in compliance with FCA PS 17/20) Equitable Life Fund Annual Underlying Annualised OEIC Net Stocklending Equitable Life Equitable Life Fund (Citi Management Open Ended Reporting Transaction %pa [2] Fund Fund Total Code) Charge %pa Investment Period Cost %pa [1] Transaction Charges Company Cost %pa [3] Impact %pa "OEIC" Held [4] (ISIN Number) With-Profits 1.00 N/A 30/06/2018 N/A Fund [5] Unit-Linked Pension Pelican 0.75 Aberdeen UK 30/06/ (EU26) Equity Enhanced Index Fund(GBOOBR J L8531) International 0.75 Aberdeen 30/06/ (EU31) World Equity Enhanced Index Fund(GBOOBR JL7Z68) Notes: [11 The costs to date are not calculated on the full arrival price slippage methodology, instead using industry supplied expected spreads for each asset category. The With-Profit Fund does not invest in OEICs but in direct assets. [2] The costs suffered by the fund are disclosed but not the income received. [3] This is the cost incurred on the Fund when it purchases or sells the underlying asset (OEIC) as the price may include a dilution adjustment. The purpose of dilution is to ensure the OEIC is not impacted by large investments or disinvestments. [4] The total charges impact to policyholders on each Equitable Life Fund (With-Profit and Unit-Linked) of costs at both Fund and underlying OEIC level and includes the annual management charge. [5] This excludes the 0.5% for cost of guarantees Within the Equitable Life With-Profits Fund, whilst these transactions costs are reflected before returns are applied to members' Policy Values, at normal retirement age or earlier death members' benefits are subject to an underpin of the Guaranteed Value which increases each year by a guaranteed amount each year and is applied regardless of any underlying transaction costs incurred The Trustee approached Scottish Widows for details of any transaction costs incurred by members in the Scheme year. Scottish Widows was unable to provide any information. The Trustee will continue to press Scottish Widows to provide this information. Volex Executive Pension Scheme DC Governance Statement 1 August 2017 to 31 July 2018 Page 6 of 11

7 5.13. The Trustee approached Standard Life for details of any transaction costs incurred by members in the Scheme year. Standard Life could only provide details of transaction costs for the period 1 July 2017 to 30 June 2018, which are detailed in the following table. Transaction Transaction Costs for Explicit Aggregation Costs for Lending and Fees Standard of Buy and Sell Borrowing Explicit and Indirect Life Fund Transaction Transactions Transactions Transaction Charges Implicit Transaction Name Period Costs (%) (%) (%) Taxes (%) (%) Costs (%) Costs (%) Standard Life Managed 01/07/2017 Pension to Fund 30/06/ Standard Life Pension Millennium With 01/07/2017 Profits to Fund 30/06/ Standard Life Pension With 01/07/2017 Profits to Fund 30/06/ Transaction costs are represented using the new PRIIPS methodology from Annex VI 21 from the PRIIPs Regulatory Technical Standards Annexes which is based upon spread-based calculations for each asset class. Transaction costs for 2018 data onwards calculated in accordance with the slippage methodology required per COBS 19.84R will be available later in External DCPTs not available. Volex Executive Pension Scheme DC Governance Statement 1 August 2017 to 31 July 2018 Page 7 of 11

8 6. Cost & Charge Illustrative Example 6.1 The Trustee has produced an illustration in line with February 2018 guidance from the Department for Work & Pensions entitled "Cost and charge reporting: guidance for trustees and managers of occupational schemes". The illustration is set out below, and is designed to cater for a representative cross-section of the membership of the Scheme. Within the illustration, a savings pot has been projected twice; firstly to allow for the assumed investment return gross of the costs and charges of the fund the member is invested in and then again, but adjusted for the cumulative effect of the costs and charges of the fund. 6.2 To determine the parameters used in these illustrations, the Trustee has analysed the DC Section membership data relevant to the reporting period of this statement and ensured that the illustration takes into account the following: That as all members are solely invested in the Aegon Money Purchase Plan Fund, this fund represents the estimated real investment returns members may receive and the costs and charges they will incur. Representative pot sizes given the size of the Scheme, the median pot size for all members invested in the Aegon Money Purchase Plan Fund who have not yet reached normal retirement age is deemed appropriate. The approximate duration that the youngest member using the Aegon Money Purchase Plan Fund would take to reach Normal Retirement Age (65). 6.3 The Scheme is closed to contributions, therefore, the illustrations do not take account of future contributions. 6.4 The Trustee has determined not to include any illustrations for DB AVCs as it would be disproportionately burdensome given the very small amounts of money held in the DB AVC arrangements. 6.5 The Aegon Money Purchase Plan Fund. This is the investment fund used by all members of the DC Section. Years of Age: 59 membership Starting pot size: 1,295 Before charges After charges 1 1,287 1, ,271 1, ,256 1, Returns within the Aegon Money Purchase Plan Fund are actually acheived by annual bonuses applied by Aegon. These annual bonuses reflect charges incurred witin the Fund. Notes to costs and charge illustrative examples 1. Projected pension pot values are shown in today's terms, and do not need to be reduced further for the effect of future inflation. It is for this reason some funds show negative real growth. 2. Inflation is assumed to be 2.5% each year 3. No further contributions are assumed to be paid 4. Values shown are estimates and are not guaranteed 5. The projected growth rates used is 1.87% p.a. which is the projected growth rate stated by Aegon for this fund. Volex Executive Pension Scheme DC Governance Statement 1 August 2017 to 31 July 2018 Page 8 of 11

9 7. Value for members 7.1. Regulations require the Trustee to assess the extent to which the charges and transaction costs borne by members represent good value In relation to the Scheme's DC arrangements, the member-borne charges relate to: investment services for the DC Section some communication services for the DC Section Aviva, Clerical Medical, Equitable Life, Scottish Widows and Standard Life's administration, investment and communication services for the DB AVCs 7.3. All other charges in relation to the Scheme are met by the Sponsoring Employer An annual value for members' assessment was undertaken as at 31 July The assessment considered in relation to investment services: the range of investment options available and the design of the default the arrangements for monitoring the performance of the investment funds the governance arrangements The assessment considered in relation to communication services: the pre-retirement communications provided to members the at/post-retirement communications provided to members In relation to DB AVCs with Aviva, Clerical Medical, Equitable Life, Scottish Widows and Standard Life the Trustee also considered: the administration services Whether other options might be available in the market The Trustee concluded that the Scheme offers reasonable value in relation to the charges and transaction costs borne by members That being said, the Trustee is already working to discharge all the benefits within the DC Section as set out in section of this Statement In reaching this conclusion, the Trustee recognised: low cost does not necessarily mean better value FCA regulated advisers and investment managers have been appointed to the Scheme the investments of the DC Section are set up on a with-profits basis with no alternative investment options from the 2016 Pension Charges Survey published by The Pension Regulator and Government Social Research, in October 2017 the comparative mean charge for a non-qualifying scheme sits broadly in line with the charge applicable within the DC Section The following areas could be considered to detract value for members and the Trustee will be taking steps to address these areas in the coming year, where appropriate: the security and liquidity of assets, and any protections available have not been formally recorded the bonus rates applied within the with-profits funds have not been regularly monitored Volex Executive Pension Scheme DC Governance Statement 1 August 2017 to 31 July 2018 Page 9 of 11

10 communications provided by Aegon to support members are limited, in particular a Statutory Money Purchase Illustrations have not been provided to members of the DC Section the frequency of the monitoring of the AVCs - the Trustee will consider a proportionate and pragmatic approach for the size of AVCs 7.9. The assessment considered just those services for which members bear or share the costs. Factors that were not considered but that add value include: The services fully paid for by the Sponsoring Employer, e.g. the administration and communication services of the DC Section, and the services of legal advisers, consultants and auditors 8. Trustee knowledge and understanding 8.1. Volex Executive Pension Scheme Trustee Limited is the Corporate Trustee of the Scheme and comprises three directors The Trustee consults externally with its professional advisers, Barnett Waddingham LLP and Addleshaw Goddard LLP, as and when required, for example on consultancy, governance and legal matters. These professional advisers alert the Trustee on relevant changes to pension legislation and trust law The Trustee is required to be conversant with the Scheme's main documents, and have appropriate knowledge and understanding of the law relating to pensions and trusts, the funding of occupational schemes and investment of scheme assets to enable them to properly exercise their functions The Trustee addresses the requirements through a combination of training at Trustee's meetings and taking professional advice. Trust documentation and policies 8.5. The Trustee has reviewed the following Trust documents and policies, and in doing so ensured they were conversant with the documents: The Trust Deed & Rules in order to identify what Deed of Amendments are required to ensure DC benefits can be administered properly within the Scheme. Trustee training 8.6. The Directors of the Corporate Trustee maintain a log of the training they have undertaken as Trustees The Trustee Directors have received training on: The legal structure of the DC Section benefits The governance requirements in respect of DC benefits, including training on the requirements to meet the statutory minimum governance standards - identifying costs and charges incurred by members and assessing the extent to which these provide value and producing illustrations on the costs of those charges Disclosure requirements around DC benefits General Data Protection Regulations requirements Investment considerations 8.8. If any knowledge gaps are identified, these are covered by the Trustee consulting externally with its professional advisers. Volex Executive Pension Scheme DC Governance Statement 1 August 2017 to 31 July 2018 Page 10 of 11

11 Access to professional advice 8.9. The Trustee consults with professional advisers as and when required, for example on consultancy, governance and legal matters. Its professional advisers alert the Trustee, and where appropriate provide training, on relevant changes to pension and trust law During the period covered by this statement, the Trustee took professional advice on: The legal structure of the DC Section The type of the investment funds held with Aegon The extent to which the DC Section can be adequately administered under the existing provisions of the Trust Deed and Rules The options and processes to discharge members benefits within the DC Section Tracing the addresses of members within the DC Section Liaision with the Pensions Regualtor regarding the fact that the Trustee had not complied with the statutory minimum governance standards around DC benefits in respect of previous reporting periods (i.e. reporting periods prior to the 2017/18 Scheme year covered by this governance statement) Complying with all the statutory minimum governance standards and reporting requirements applicable to the Scheme Collation of the charges and transactions costs and completion of an assessment of the extent to which those charges provided value to members Assessment The Trustee consider that its combined knowledge, skills and understanding together with the advice which is available to it from its advisers enables it to properly exercise its trustee functions in relation to the Scheme. Mike Anderson, Chair of the Trustee Date Volex Executive Pension Scheme DC Governance Statement 1 August 2017 to 31 July 2018 Page 11 of 11

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