Jones Lang LaSalle Retirement Benefits Scheme. Statement of Investment Principles August Background

Transcription

1 Jones Lang LaSalle Retirement Benefits Scheme Statement of Investment Principles August Background This Statement of Investment Principles (the Statement ) has been prepared by Jones Lang LaSalle Pension Trustees (the Trustee ) in its capacity as Trustee of the Jones Lang LaSalle Retirement Benefits Scheme ( the Scheme ). The Statement sets out the principles governing the Trustee s decisions about the investment of the Scheme s assets. The Trustee refers to this Statement when making investment decisions, to ensure that they are consistent with the principles set out in it. The Statement is designed to meet the requirements of Section 35 of the Pensions Act 1995 and the Occupational Pension Schemes (Investment) Regulations The Scheme s investment arrangements, based on the principles set out in this Statement, are detailed in the attached Investment Policy Document ( IPD ) which is available to Scheme members on request. The Trustee has obtained written professional advice from the Scheme s Investment Consultant in preparing this Statement. The Trustee believes that the Investment Consultant meets the requirements of Section 35 (3) of the Pensions Act In matters where the investment policy may affect the Scheme s funding policy, input has also been obtained from the Scheme Actuary. The Trustee will obtain similar advice whenever it reviews this Statement. The Trustee s investment powers are set out within the Scheme s Trust Deed & Rules, subject to applicable legislation. If necessary, the Trustee will take appropriate legal advice regarding the interpretation of these. The Trustee notes that, according to the law, the Trustee has ultimate power and responsibility for the Scheme s investment arrangements. The Trustee seeks to maintain a good working relationship with Jones Lang LaSalle Limited (the Principal Employer ), and will discuss any proposed changes to the Statement with them. Formal meetings between the Trustee and Jones Lang LaSalle Limited are held annually. However, the Trustee s fiduciary obligations to Scheme members will take precedence over the Principal Employer s wishes, should these ever conflict. The Trustee believes that its investment policies and their implementation are in keeping with best practice, including the principles underlying the Myners Code of best practice for pension fund investment published in 2001.

2 Page 2 The Trustee does not expect to revise this Statement frequently because the Statement covers broad principles. The Trustee will review this Statement in response to any material changes to any aspects of the Scheme, its liabilities, finances and the attitude to risk of the Trustee and the Principal Employer that it judges to have a bearing on the Statement. This review will occur no less frequently than triennially to coincide with actuarial valuations. Reviews will be based on written expert advice and will be in consultation with the Principal Employer. 2. Scheme Governance The Trustee is responsible for the investment of the Scheme s assets but is permitted to delegate execution of these responsibilities. When determining which decisions to delegate, the Trustee has taken into account whether it has the appropriate training and is able to secure the necessary expert advice in order to take an informed decision. The Trustee s ability to execute the decision effectively is also taken into account. The Trustee has appointed a firm of investment consultants and an independent investment advisor to provide advice in respect of all issues relating to the investment of the Scheme s assets. The Trustee has chosen to delegate day-to-day management of the Scheme s investments to the Investment Managers. This complies with Section 34 of the Pensions Act The terms of each Investment Manager s appointment are contained in the Investment Management Agreement issued by the Investment Manager to the Trustee and approved by the Trustee. The investment strategy for the Defined Benefit ( DB ) Section and the Hybrid Section of the Scheme s strategic framework,, is specified in the IPD. A listing of the Scheme s current Investment Managers (including a description of their mandates, benchmarks, and the basis of their remuneration) is also set out in the IPD. The Scheme is closed to new entrants. The DB and Hybrid Sections of the Scheme were both closed to future accrual with effect from 1 January 2003, and the link to salary increases was removed from that date except for spouse s pensions and ill-health pensions. All active members were transferred into the Defined Contribution ( DC ) Section of the Scheme from 1 January Details of the Funds in which the members of the DC Section of the Scheme invest are specified in the IPD. Each Fund is managed by an Investment Manager within a defined mandate. The particulars of the mandate, benchmarks and the basis of remuneration related to each Fund is included in the IPD. The Scheme Actuary performs a valuation of the Scheme at least every three years, in accordance with regulatory requirements. The main purpose of the actuarial valuation is to assess the extent to which the Scheme s assets cover the accrued liabilities and agree the contribution rates. 3. Defined Benefit Section 3.1 Investment Objectives The Trustee considers that its objective is to invest the Scheme's assets in such a manner that members' benefit entitlements can be paid when they fall due. To effect this, the Trustee s investment policy is guided by an overall objective of achieving, over the long term, a return on

3 Page 3 the investments which is consistent with, but not limited by, the assumptions made by the Actuary in determining the funding of the Scheme. The Trustee wishes to pursue an investment strategy which, together with the funding strategy, offers a good probability that funding will be at or above its desired level to meet the Scheme s strategic benchmark is set out in the IPD. Although the value of the Scheme s liabilities will be predominantly affected by long-term interest rates, the Trustee recognises the value of excess return over UK Government bonds in terms of the potential for reducing costs and/or the potential for benefit improvements. The Trustee is therefore prepared currently to take on risk in pursuit of this excess return in a controlled manner by investing in equities, non-government bonds and other return enhancing asset classes, and by using active fund management. 3.2 Investment Risk The Trustee recognises that it is not necessarily possible, or even desirable, to select investments that exactly match the Scheme s estimated liabilities. Given the ongoing commitment of the Principal Employer to the Scheme, a degree of investment risk can be taken on, in the expectation of generating excess returns relative to the lowest risk strategy, since it is also acceptable to the Principal Employer. In deciding to take investment risk relative to the liabilities, the Trustee has carefully considered the following possible consequences: The assets might not achieve the excess return relative to the liabilities anticipated over the longer term. This would result in the deterioration of the Scheme s financial position and consequently higher contributions than currently expected from the Principal Employer. The relative value of the assets and liabilities will be more volatile over the short term than if investment risk had not been taken. This will increase the likelihood of there being a shortfall of assets relative to the liabilities in the event of discontinuance of the Scheme. This consequence is particularly serious if it coincides with the Principal Employer being unable to make good the shortfall. This volatility in the relative value of assets and liabilities may also increase the short-term volatility of the Principal Employer s contribution rate set at successive actuarial valuations, depending on the approach to funding adopted. The Trustee has taken advice on these issues from the Investment Consultant, independent investment advisor and the Scheme Actuary. It also holds related discussions with the Principal Employer as and when required on investment strategy. The Trustee s willingness to take investment risk is dependent on the continuing financial strength of the Principal Employer and its willingness to contribute appropriately to the Scheme. The financial strength and perceived commitment of the Principal Employer to the Scheme is monitored and the Trustee will reduce investment risk relative to the liabilities should either of these deteriorate.

4 Page 4 The degree of investment risk the Trustee is willing to take also depends on the financial position of the Scheme. The Trustee will monitor the financial level of the Scheme and its liability profile, with a view to altering the investment objective, risk tolerance and/or return target should there be a significant change in either. There are many different combinations of assets and investment management approaches that could be adopted in targeting a particular level of investment risk and/or expected return. The Trustee s objective is to identify those combinations that it believes are likely to maximise the return (net of all costs) for the level of risk taken. The Trustee believes that diversification limits the impact of any single risk. However, the diversification of risk across multiple sources is constrained by the Trustee s ability to implement and effectively monitor the range of investments being considered. 3.3 Strategic Management The Scheme-specific benchmark, a high level asset distribution for the Scheme s investments, has been determined to capture the strategic risk that the Trustee has decided to take. The detail of the Benchmark and the associated investment management structure is set out in the IPD. Tolerance ranges, which are set out in the IPD, have been set to seek to keep the asset distribution broadly in line with the Benchmark and consequently manage the risk of unintended asset exposures. The combination of assets underlying the Benchmark has been selected based on assumptions as to the future behaviour of the individual asset categories relative to the Scheme s liabilities. Observed behaviour and future behaviour from the point of observation will likely differ from the assumptions used in the decision making process. 3.4 Cashflow Management and Rebalancing A working cash balance is held for imminent payment of benefits and expenses. Under normal circumstances it is not the Trustee s intention to hold a significant cash balance. In general, the Scheme s Investment Manager has discretion in the timing of realisations of investments and in considerations relating to the liquidity of those investments. The Trustee will notify the Investment Manager of any amounts that need to be realised from their portfolios for the payment of benefits or expenses, and the timing of such realisations. 4. Defined Contribution Element of Hybrid Section 4.1 Investment Policy and Objective The Hybrid Section took the form of a Defined Contribution (DC) arrangement for members until they reached age 40, and a Defined Benefit (DB) arrangement thereafter. The Trustee recognises that members have different investment needs and that these may change during the course of members working lives. The Trustee also recognises that members have different attitudes to risk. The Trustee regards its duty as making available a range of investment options sufficient to enable members to tailor, to their own needs, the investment strategy. The following encapsulates the Trustee s investment objectives:

5 Page Risk To achieve an appropriate balance between maximising the value of members assets at retirement and risk (4.2 below). To provide protection for members accumulated assets in the years approaching retirement against: a. sudden (downward) volatility in the capital value; b. fluctuations in the cost of annuities. To allow members to tailor their investment choices to meet their own needs. The Trustee has considered risk from a number of perspectives. These are: (1) The risk that the investment return over members working lives will not keep pace with inflation and does not, therefore, secure an adequate pension (long term growth risk). (2) The risk that investment market movements in the period prior to retirement lead to a substantial reduction in the anticipated level of pension (pension conversion risk). (3) The risk that relative market movements in the period prior to retirement lead to a substantial reduction in the anticipated cash lump sum benefit. (4) The risk that the investment vehicles in which monies are invested underperform the expectation of the Trustee. The Trustee believes that these risks may differ for different members and are best managed through the provision of a range of passively managed investment vehicles, thereby allowing members to tailor their investment choices to their specific needs. 4.3 Investment Strategy The Trustee has selected a range of Funds for members to use in structuring their assets according to their individual objectives. The details of the Funds are set out in the IPD. 5. Defined Contribution Section 5.1 Investment Policy and Objective The Trustee recognises that members of the DC Section have differing investment needs, that these may change during the course of their working lives and that they may have differing attitudes to risk. The Trustee believes that members should generally make their own investment decisions based on their individual circumstances. It regards its duty as making available a range of investment options which enables members to tailor their investment strategies to their own needs. However, the Trustee also seeks to provide an alternative for members who wish to choose an option which

6 Page Risk automatically reduces investment risk as the members approach the Scheme s normal retirement date. The Trustee s investment objectives are similar to the Hybrid Section (4.1 above) namely :- To achieve an appropriate balance between maximising the value of members assets at retirement and risk (5.2 below). To provide protection for members accumulated assets in the years approaching retirement against: a. sudden (downward) volatility in the capital value; b. fluctuations in the cost of annuities. To allow members to tailor their investment choices to meet their own needs. The Trustee has considered risk from a number of perspectives similar to the Hybrid Section (4.2 above) namely :- (1) The risk that the investment return over members working lives will not keep pace with inflation and does not, therefore, secure an adequate pension (long term growth risk). (2) The risk that investment market movements in the period prior to retirement lead to a substantial reduction in the anticipated level of pension (pension conversion risk). (3) The risk that relative market movements in the period prior to retirement lead to a substantial reduction in the anticipated cash lump sum benefit. (4) The risk that the investment vehicles in which monies are invested underperform the expectation of the Trustee. The Trustee believes that these risks may differ for different members and are best managed through the provision of a range of actively and passively managed investment vehicles, thereby allowing members to tailor their investment choices to their specific needs. 5.3 Investment Strategy The Trustee has selected a range of Funds for members to use in structuring their assets according to their individual objectives. The details of the Funds are set out in the IPD. 6. Defined Benefit and Defined Contribution Sections 6.1 Managing the Investment Managers Day-to-day management of the assets is delegated to the Investment Managers, in accordance with the relevant Investment Management Agreements and attaching guidelines.

7 Page 7 The Trustee has taken advice from the Investment Consultant and independent investment advisor in selecting the Investment Managers. Each Investment Manager has been chosen for its perceived expertise in managing the specified brief according to the guidelines agreed by the Trustee with the Investment Managers. Each brief has an explicit outperformance target relative to its stated benchmark. The timescale of performance measurement and assessment is specified. Risk parameters are included in the brief. The Trustee accepts that it is not possible to specify investment restrictions where assets are managed via pooled funds. Nevertheless, notwithstanding how the assets are managed, the Trustee takes appropriate legal and investment advice regarding the suitability of the relevant investment vehicles. The Trustee retains the Investment Consultant and independent investment advisor to provide help in monitoring the Investment Managers. The Investment Consultant provides quantitative analysis of the Investment Managers portfolios as well as qualitative advice related to the factors likely to affect the Investment Managers performance in future. 6.2 Socially Responsible Investment As all of the Defined Benefit assets of the Scheme are managed in pooled arrangements, the Trustee accepts that the assets are subject to the Investment Managers policies on socially responsible investment. 6.3 Corporate Governance As all of the Defined Benefit assets of the Scheme are managed in pooled arrangements, the Trustee accepts that the assets are subject to the Investment Managers policies on corporate governance. 7. Additional Voluntary Contribution Assets ( AVCs ) Assets in respect of members AVCs are invested in a range of investment options. With the assistance of the Scheme s consultants, the AVC arrangements will be reviewed periodically to ensure that the investment profile of the funds available remains consistent with the objectives of the Trustee and the needs of the members. More information on the AVC providers is detailed in the IPD. Signed on behalf of Jones Lang LaSalle Pension Trustees (the Trustee of the Jones Lang LaSalle Retirement Benefits Scheme) Signed: Date: Name: