DC Governance Chairman s Statement - For the year ended 30 April 2018

Transcription

1 Davis Langdon LLP Pension Scheme DC Governance Chairman s Statement - For the year ended 30 April 2018 Introduction This statement has been prepared by the Trustees to demonstrate how the Davis Langdon LLP Pension Scheme (the Scheme ) has complied with the governance standards introduced under The Occupational Pension Schemes (Charges and Governance) Regulations Investment Strategy The Trustees have in place a Statement of Investment Principles (SIP) which governs decisions about investments and sets out the aims and objectives of the Scheme s investment strategy, including full information about the Scheme s investment options. In particular it covers: 1. The Trustees investment policy, including policies on risk, return and ethical investing; and 2. How the default investment strategy is intended to ensure that assets are invested in the best interests of members and beneficiaries. The performance of the funds is reviewed each quarter by the Trustees. The DC Section of the Scheme is closed to future accrual and therefore is not a qualifying scheme for auto-enrolment purposes. The default fund in the DC Section is the UBS Life Passive 80% Equity Fund and is a fixed allocation of passively managed index funds which track a range of UK and international markets. The fund will typically be invested 80% in equities both (UK and international equities), with the remaining invested in fixed income. No investment review has taken place this Scheme year. The Trustees last undertook a review of the Scheme s investment strategy during 2017, including the default fund to ensure it was fit for purpose. The aims and objectives of the default arrangement are to provide a strong long-term return. The Trustees concluded not to change the default fund. The Trustees added two new funds to the self-select fund range, UBS Life World Ex-UK Equity Tracker Fund and UBS Multi-Asset Income Fund (OEIC) and added two further lifestyle options in light of the pension freedoms and flexibilities that were introduced by legislation in The current investment options are as follows: Self Select Funds UBS Life Passive 80% Equity Fund (previously known as UBS Life Managed Fund) UBS Life World Ex-UK Equity Tracker Fund *NEW* from 14 July 2017 UBS Life UK Equity Tracker Fund UBS Multi-Asset Income Fund (OEIC fund) *NEW* from 2 September 2017

2 UBS Targeted Return Fund (OEIC fund) UBS Life UK Over 15 Year Gilt Tracker Fund UBS Life Cash Fund A units Lifestyling investment options Target Flexible *NEW* from 2 September 2017 Target Annuity Target Cash *NEW* from 2 September 2017 The default fund along with the other investment options will be reviewed at least once every three years by the Trustees with their investment adviser. A copy of the latest SIP is appended to this statement. Financial Transactions The Trustees regularly monitor the core financial transactions of the Scheme. This is achieved through the review of quarterly reporting prepared by the Scheme s administrator, Mercer Limited. The Trustees have an agreement with Mercer Limited committing them to defined service level agreements and service against these agreements is monitored for timeliness. As the DC Section of the Scheme is closed there are no contributions being paid; so the core financial transactions include: Transfers out Investment switches Payment of benefits on retirement or death The Scheme s accounts are audited annually by Grant Thornton UK LLP. The Trustees are confident that all of the required processes and controls are in place to ensure that the DC Section is compliant with the Regulator s Code of Practice 13 on DC governance (paragraphs 206 to 225). Based on this regular monitoring, the Trustees are satisfied that the requirement to process core financial transactions promptly and accurately has been met during the Scheme year in relation to the DC benefits provided by the Scheme. Charges and Transaction charges The Trustees are required to report on the charges and transaction costs for the investments used in the default arrangement and their assessment of the extent to which these charges and costs represent good value for members. The investment manager of the DC section of the Scheme is UBS Global Asset Management and as mentioned above the Scheme currently offers seven different fund choices. The default fund is the UBS Life Passive 80% Equity Fund and most members are invested in that fund. Each fund has its own annual investment charge and other charges apply from time to time. There is no administration charge if members decide to transfer their funds to another provider. However, there may be an implicit transaction cost as a result of selling and buying

3 new units. The transaction cost is reflected in the unit price received and forms part of the daily investment return. It is not possible to know in advance whether transaction costs will be incurred. Transaction costs are incurred by any party buying and selling underlying assets, however different providers pass on such costs in different ways. UBS pass on these costs to those members investing or disinvesting on each day via its swinging price mechanism. This means the fund price swings between a cheaper bid price and a more expensive offer price, based on the net cashflow of all investors on a given day. If there is a large net outflow from a fund, it will swing to the cheaper bid price, meaning members receive a lower price for the units they sell. If there is a large net inflow, then the fund will swing to a higher offer price, meaning members pay more for the units they buy. This means that there may be a transaction cost each time a member moves savings between funds or if funds are transferred to another provider. In the case where a member buys on a day that there is a large sale of units or vice versa (selling on a day where there is a series of purchases) members will also be able to take advantage of the lower price. Of course these scenarios cannot be guaranteed. While transaction costs may be incurred when benefits are transferred out from funds held with UBS to another arrangement, they may also be incurred whenever members choose to move into or out of any funds (for example, when members access their pension pot at retirement, or move their money from one fund to another). The current charges and transaction costs are shown below: Fund Charge (% per annum of fund) BID OFFER Other charges (custody, admin) per annum UBS Life Passive 80% Equity Fund (default) UBS Life World Ex- UK Equity Tracker Fund UBS Life UK Equity Tracker Fund UBS Multi-Asset Income Fund (OEIC fund) UBS Targeted Return Fund (OEIC fund) UBS Life Over 15 Year Gilt Tracker Fund 0.30% 0.12% 0.32% 0.01% 0.25% 0.07% 0.07% 0.00% 0.25% 0.04% 0.53% 0.00% 0.45% 0.15% 0.17% 0.40% 0.40% 0.09% 0.09% 0.05% 0.25% 0.10% 0.10% 0.00% UBS Life UK Cash Fund No charge 0.02% 0.02% 0.00%

4 The default fund The default fund, UBS Life Passive 80% Equity Fund, is a blend of different funds including UK and Global equities, with small allocations to Property, UK Index linked Gilts, UK Fixed Interest Gilts and Cash. Historically, the UBS Life Passive 80% Equity Fund was actively managed and assessed against an active peer group based benchmark but that has now become outdated. As large holders in the UBS Life Passive 80% Equity Fund the Trustees decided that a fully passive approach is a more cost effective solution for the members. Therefore the fund adopted a new benchmark as follows which was established from 31 August Breakdown of UBS Life Passive 80% Equity Fund with effect from 31 August 2015:- Weighting Asset Class Fund Name Benchmark Index 40% UK Equity UBS Life UK Equity Tracker Fund FTSE All Share Index 35% 5% 5% Overseas Equity Emerging Market Equity Index Linked Gilts UBS Life World ex UK Tracker Fund UBS Life Global Emerging Market Equity Tracker Fund UBS Life Over 5 Year Index Linked Gilts Tracker 5% Gilts UBS Life UK Fixed Tracker Fund 10% Corporate Bonds UBS Sterling Corporate Bond Indexed Fund FTSE All World Developed ex UK Index FTSE Emerging Index British Government Index-Linked Over 5 Years Index British Government All Stocks Index i-boxx Non Gilts Index Additional Voluntary Contributions (AVCs) for members with defined benefits in the Scheme The Scheme has 14 members who hold AVCs with Equitable Life as a result of paying additional contributions whilst accruing defined benefits in the Scheme. The unit-linked investments are held in a Managed Fund with Equitable Life which is managed by Aberdeen Standard Investments. The Annual Management Charge (AMC) in respect of this fund is 0.75% per annum. There is an offer/bid spread of 4.5% which applies when units are sold from the Managed Fund and switches are applied on a bid-to-bid basis. Equitable Life has advised the Trustees that there are no other underlying additional charges. Members also hold investments in the Equitable Life With-Profits fund, which has an AMC of 1.5% per annum and in the Clerical Medical With-Profits fund, which has an AMC of 0.5% per annum. As the With-Profits funds are not unitised there are no offer/bid spreads. Value for money In accordance with regulation 25(1)(b) of the Administration Regulations, the Trustees have considered aspects of the Scheme where members bear the cost of pension services to meet The Pensions Regulator s value for money definition. The Trustees are satisfied that the charges paid by members were reasonable and competitive for the DC Section and AVCs paid by members with defined benefits in the Scheme.

5 Illustrative examples The following two illustrative examples show the cumulative effect over time of the relevant costs and charges on the value of a pot size of 35,000 and 10,000. Both illustrations use the assumption of being invested in the default fund. Example 1: Default fund (UBS Life Passive 80% Equity Fund) current pot value of 35,000 Year Value excluding charges Value including all charges 1 35,525 35, ,599 36, ,705 37, ,619 39, ,758 41, ,140 44, ,783 46, ,708 49,751 Example 2: Default fund (UBS Life Passive 80% Equity Fund) current pot value of 10,000 Year Value excluding charges Value including all charges 1 10,150 10, ,457 10, ,773 10, ,605 11, ,502 11, ,469 12, ,509 13, ,631 14,215 Both of the examples above assume an investment growth rate of 4.0% p.a. and are shown in today s terms after allowing for inflation at the rate of 2.5% p.a. The rate of actual investment growth is not guaranteed. No allowance is made for lifestyling, so investments are assumed continuously over the term within the default fund.

6 Trustee knowledge and understanding (TKU) The Trustees are required to disclose how these duties have been fulfilled and how their combined knowledge and understanding, together with the advice which is available to them, enables them to properly exercise their duties and responsibilities. The table below indicates how these requirements have been met during the year. Requirement The Trustees must have appropriate knowledge and understanding of the law relating to pensions and trusts and the investment of assets How met It is mandatory for the Trustees to complete The Pensions Regulator s online trustee training modules when they are appointed to demonstrate their understanding of pension trust law and funding/investment principles. The Chairman of Trustees is a professional trustee with specific knowledge of this Scheme having been appointed for 7 years. Ongoing training is then provided by our professional advisers collectively, as part of routine Trustees meetings (the subjects having been agreed in advance, based on periodic self-assessment or gap analysis). If required, training is also undertaken on an individual basis. No specific DC training was delivered during the last Scheme year. The Trustees are members of the PMI Trustee Group and regularly attend the twice yearly PMI Trustee Group seminars (which cover both DB and DC topics). The Trustees must be conversant with the Scheme s own documentation This training, together with professional advice enables the Trustees to act properly. All key Scheme documentation has been circulated to the Trustees upon their appointment and is also available upon request from the Pensions Manager. All Scheme documentation is held securely by the Pensions Manager on AECOM network drive, to which the Pensions Project Manager has access. Periodic training focuses on Scheme documentation, such as the Trust Deed & Rules and SIP. The Trustees are referred to the Scheme s documentation in the context of their routine work (for example, to underline their powers when determining beneficiaries in death casework).

7 Knowledge and resources generally The Trustees require that any new Trustee completes The Pensions Regulator s online training modules (relevant to defined contribution benefits) within 6 months of their appointment. All new Trustees are provided with a suitable induction which includes an introduction to the Scheme s key documentation. The Scheme s Trustee board comprises individuals with diverse professional skills and experiences reflecting the varied nature of the challenges that its governance must address. The Principal Employer pays all reasonable expenses of the Trustees attending conferences or externally-run training courses relevant to their role. The Trustees also meet with their professional advisers at least twice yearly to transact core business, and each meeting includes an overview of topical news and developments. This concludes the statement confirming how the Trustees have met the new governance requirements for the period ended 30 April Signed Date 18 September 2018 Paul Weaver Trustee Chairman Davis Langdon LLP Pension Scheme

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