Prudential Corporate Pensions Trustee Limited. Chair s Governance Statement

Transcription

1 Prudential Corporate Pensions Trustee Limited Chair s Governance Statement For the Plan Year ending 5 April 2017

2 PCPTL Chairman s introduction Dear Member You may be aware there has been an increase in regulatory oversight required for workplace pensions and, as such, we are now required to produce an annual statement. This is to let you know how we ve been looking after your plan and if we believe you are getting value from membership. We, the trustee directors, are pleased to report that the actions we agreed with Prudential last year are largely completed, and those that have not yet been fully completed will be very shortly. The returns on your retirement savings have been good over 2016 and into 2017, and do not cause PCPTL trustee directors any concern. Some default funds being used were constructed a number of years ago. To ensure that they are closely aligned with the options you now have under Pensions Freedoms (introduced by former Chancellor George Osborne), we are engaging with employers to ensure they continue to be appropriate for your retirement needs to be met. We are pleased to say that a wide-ranging programme to reduce the charges you are paying is constantly being reviewed, and PCPTL are satisfied that the charges represent value for money. PCPTL are pleased to report that the administration of your pension plan is constantly under review and satisfactory. Over the coming year, we will continue to review the communications you receive. This will allow you to engage with your pension plan better. We hope you will read the full statement and welcome your engagement and feedback. Best wishes John Nestor Chairman, Prudential Corporate Pensions Trustee Limited (PCPTL) Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 2

3 Contents 1. Why we publish a Governance Statement 4 2. How we keep an eye on your investment funds 5 3. How we keep an eye on your charges and transaction costs 6 4. How we make sure you re getting value for money 7 5. How we check on processes and systems 8 6. We really like feedback 9 7. Membership of the trustee board 9 8. List of Special Terms 10 Appendix A The directors of Prudential Corporate Pensions Trustee Limited 12 Appendix B How internal controls (audits) are assessed 13 Appendix C What the trustee directors know and understand 14 Appendix D Our Statement of Investment Principles (SIP) 15 Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 3

4 1. Why we publish a Governance Statement We re the trustee directors of your Plan and we make sure it s looked after properly. We want to protect your interests, making sure you re getting good value from your Plan membership. You can find out more about the current directors at Appendix A. We look after these three Plans: The Prudential Money Purchase Masterplan The Prudential Contracted-out Money Purchase Masterplan The Prudential Group Pension Savings Plan All three use the same systems and processes so we ve grouped them together for our Governance Statement. We ve made sure that the statement is in line with regulation 23 of The Occupational Pension Schemes (Scheme Administration) Regulations legislation.gov.uk/uksi/1996/1715/ regulation/23 How we check on the Plans we look after We look into: the systems these Plans are held on the rules and guidelines around how they re administered We take into account the size and structure of each Plan and assess matters in a way that is reasonable and proportionate. We also work with Prudential s Independent Governance Committee (IGC) The IGC helps us assess whether you re getting good value from your Plan. We work together under the terms of a Memorandum of Understanding (MoU). And we review this every six months (the last review was undertaken in September 2017). We publish a Governance Statement once a year This will let you know how we ve been looking after your Plan and whether we think our members are getting value from membership of the Plans. This statement covers the Plan year 6 April 2016 to 5 April Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 4

5 2. How we keep an eye on your investment funds We produce a Statement of Investment Principles (SIP), which sets out how Prudential makes decisions about investments. Apart from a difference in the way in which the with-profits fund operates for The Prudential Group Pension Savings Plan, the investment funds and options available are the same for all three Plans we look after, therefore a single SIP is produced. A copy of our SIP is attached at Appendix D. This was last reviewed in September 2017 and complies with UK Law. How we analyse your investment returns We work out the return after any transaction costs and fees have been taken off. And we work with Prudential s Independent Governance Committee (IGC) to check samples of default investment funds on a regular basis. We use the Consumer Price Index (CPI) plus 3% growth (after charges) as a reference point for assessing long-term fund performance. After examining the default investment funds, we think they are capable of meeting this investment outcome. We make sure that Prudential has good controls around your investment funds We call this fund governance and it s to make sure that any investment funds are operated fairly for our members. We keep a close eye on both default and non-default (self-selected) investment funds by checking how Prudential manages them. We also check on the processes followed when Prudential changes or decides to close a fund or funds. Prudential s reports to us, and our combined expertise mean we are able to effectively assess the fund governance and monitoring processes. We think that Prudential s processes and controls are good. How we ve helped Prudential develop new funds and options With new pension freedoms you have more choice around how you take your pension. Because of this, Prudential created a new range of default investment funds and glidepath options. If you want to find out more about investment funds and options You can log onto Prudential s website at pru.co.uk/funds/ to find out more information about the investment funds and options available, or you can check your Plan Member literature you received when you joined the Plan. We found that Prudential offers a good range of investment funds We agree with Prudential a suitable range of investment funds that are made available for the Plans. Prudential supports employers and their advisers in making decisions around the investment strategy and the range of funds on offer for each individual arrangement. That includes the default investment fund to be used, but you, as a member, can always make your own fund choices from the range available. Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 5

6 3. How we keep an eye on your charges and transaction costs The Independent Project Board (IPB) carried out an audit in 2014 on workplace pensions This audit raised concerns that members were not getting value from their pension plans. So we had a look at the administration charges and Annual Management Charges (AMC) Prudential applies to funds. We did this alongside the IGC. Last year, we reported that Prudential were charging members less than the amount the IPB recommended. Further actions taken since then mean we can now confirm that none of our members have an equivalent AMC of more than 1%. We analysed transaction costs We work together with Prudential and the IGC to make sure charges are clear and easy to understand. Our initial analysis of transaction costs shows that these costs do not represent a significant loss of value for members. We expect to do further work on this following anticipated DWP guidance on how to assess transaction costs. What we have discovered about charges and costs We are satisfied that we have an improved position for Plan members who will benefit from reduced charges. Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 6

7 4. How we make sure you re getting value for money We regularly look at investment performance and, as already mentioned, charges. We also look at the quality of Prudential s service and communications to ensure you are getting value from membership of the Plan. We start by looking at investment performance and charges Good financial outcomes mean a higher retirement income. So we think that the money you make from investments and the charges Prudential takes out are most important factors when looking into value for money. We track the actual performance of your investment returns We believe that tracking actual performance is important. We gave priority to actual outcomes, as well as looking at predicted returns, for a suitable risk exposure when designing default investment funds. Along with the IGC we agreed that long-term fund performance should be 3% more than the Consumer Price Index (CPI) (after charges). If the fund performs at this level and above then we think members are getting good value for money. We make sure Prudential s charges are good value for money You should be charged no more than: 0.75% a year for qualifying Plan charges (that includes automatic-enrolment plans) 1.00% a year for unit-linked investments for Plans that aren t qualifying Plans yet 1.25% a year for with-profits investments, where smoothing benefits and guarantees add extra value for members (we checked with the withprofits Actuary that the extra value over unitlinked investments is worth paying more for) Then we look at processing, complaints and communications How quickly and accurately Prudential process your payments is important. We also monitor how many complaints members make and how well Prudential deals with them. Communications are important too. They should be clear and easy to understand. We ve seen that Prudential s communications are changing. They re planning more improvements in the years ahead. Most members are getting good value from their Plan If we find that some members aren t getting good value, we ll work with Prudential to make improvements. But we think that the significant majority of members are getting good value. Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 7

8 5. How we check on processes and systems Prudential has told us they have the right systems and processes in place for members. We regularly check on: how members data and transactions are being handled the information Prudential gives our members how Prudential communicates with our members how long it takes to make a transaction the targets for processing these transactions feedback from members of the Plans Prudential use a third party service provider The third party service provider manages the administration of the Plans. And we monitor the Assurance Reports that tell us about the quality of this third party s internal controls and procedures. No member will lose out from processing delays Prudential has told us they make sure all transactions are processed within the timescales they should be. If there s a delay, transactions are backdated to honour the members original request date. Financial transactions are dealt with quickly and processed accurately The regular reports we get from Prudential tell us what we need to know to assess how well transactions are being dealt with. Some of the most common transactions we look at are: the investment of members payments the transfer of payments made to Plans and taken out of Plans how they transfer members money between investment funds how payments are taken from the Plans and paid to members Quality of member data held We have identified an issue with the quality of data held in relation to member addresses. We are working with Prudential to quickly sort this and will be keeping a close eye on progress. Prudential s administration service level agreements are broadly being met Other than the issue mentioned about address data quality, we don t think there s anything to be concerned about. The processes, standards and controls they have in place reduces the risk of any mistakes or delays. Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 8

9 6. We really like feedback If you want to tell us what you think of this statement or how you feel about your plan then please get in touch. You can us at pru.co.uk/contact_us/prumail/ We also get exception feedback from Prudential That s any feedback they get outside of their normal communications with members. Prudential gives Plan members good opportunities to give feedback We re happy with the measures Prudential takes to give members (and their representatives) the opportunity to feedback to us. 7. Membership of the trustee board The majority of the trustee directors must be independent of Prudential. This is to make sure that all of our assessments are fair and impartial. We have met with this requirement during the period covered by this Statement. As noted earlier, the current directors are listed at Appendix A. Signed Chair of Prudential Corporate Pensions Trustee Limited 26 October 2017 Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 9

10 8. List of Special Terms Some of the terms used in this statement have special meanings. Some are technical terms, so to help you understand we ve explained them in more detail here. Annual Management Charge (AMC) automaticenrolment Plans (also known as automaticenrolment schemes) communications Consumer Price Index (CPI) default investment fund non-default investment fund equivalent Annual Management Charge glidepath Independent Governance Committee (IGC) Annual Management Charges cover investment and administration costs. Prudential explain in more detail in the Annual Benefit Statement and in other communications they send to our members. Automatic-enrolment plans are qualifying plans with some extra features. They can be used by employers to automatically enrol their employees into a pension plan. Any letters or information that Prudential sends members (or their beneficiaries) about their Plan. It also relates to the information provided on pru.co.uk. The Consumer Price Index (CPI) is how inflation is measured by the UK government. It gives us an idea of by how much plans should grow to keep up with inflation. If Plan members don t choose the funds they want to invest in, employers can decide where to invest their money for them. Employers can use a default investment fund to invest their employees money. This is usually a lifestyle strategy that the employer has agreed with us. With lifestyling, funds are switched to reduce the risk to their retirement savings when the Plan member gets closer to retirement. Any fund that Plan members can pick for themselves. This is worked out by looking at the value of each fund in a Plan to get a weighted average of the AMC charges we take. This is the time before a member s expected retirement date. After this time investments are automatically switched into other funds as the Plan member moves closer to retirement. It s part of a lifestyle strategy. The Prudential Independent Governance Committee (IGC) was set up to keep an eye on Prudential s workplace pension arrangements. They look after pension plans set up under group personal pension and group stakeholder schemes. Independent Project Board (IPB) The Independent Project Board (IPB) was set up by the Association of British Insurers to audit and check up on workplace pensions. Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 10

11 Plan year Prudential qualifying plans Transaction Costs The Pensions Regulator (TPR) We, us, our with-profits This runs from 6 April to 5 April each year. This statement covers the Plan year from 6 April 2016 to 5 April Prudential is a trading name of The Prudential Assurance Company Limited and the Plans provider. Plans that meet certain minimum requirements with some additional conditions (the qualifying criteria ). This is covered in legislation. All automatic-enrolment plans also need to meet the qualifying criteria. The costs from buying, selling, lending or borrowing investments. TPR regulates all UK pension schemes, like the Plans we ve spoken about here. It s a UK public body, set up in accordance with UK law. We re the Directors of Prudential Corporate Pensions Trustee Limited (PCPTL). A with-profits fund is a pooled investment where payments from all investors are added together and invested across a wide range of investments types. These are mostly referred to as assets. Plan members get their share of any profits by getting bonuses added to their pension savings. Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 11

12 Appendix A The directors of Prudential Corporate Pensions Trustee Limited John Nestor, Chairman Trustee Director Independent John is an expert in asset management and investment strategy. He s a Client Director of Capital Cranfield Pensions Trustees Limited. He was managing director of both UBS Global Asset Management and Citigroup Asset Management. John is chair of trustees for Marylebone Cricket Club (MCC) Pension Scheme and a trustee of the RAC Staff Pension Scheme. John is an expert on how well, and how reliably, your pension pot should grow. Lesley Alexander, Trustee Director Independent Lesley is the managing director of the employee communications company, Ferrier Pearce. And she s a fellow and council member of the Pensions Management Institute. Lesley is also chair of the UK Sustainable Investment and Finance Association and is the former CEO of the HSBC Bank Pension Trust (UK) Ltd. She has special experience and insight into the practical application of behavioural economics to employee retirement savings. Lesley is passionate about how clearly we tell you what s going on and how things are explained to you. Lawrence Churchill CBE, Trustee Director Independent Lawrence has devoted his life to making financial services work for everyone. As well as being CEO of three insurance groups, Lawrence chaired the Raising Standards Quality Mark Scheme for the Associate of British Insurers, and was a board member of the Personal Investment Authority and of the Financial Ombudsman Service. Totally independent, the ombudsman deals with complaints against financial firms. To protect pensioners where their employer goes bust, Lawrence set up the Pension Protection Fund for the UK Government. He s also a former board member of the Board for Actuarial Standards setting technical and communications standards for actuaries. More recently, Lawrence set up NEST for the UK government. This gives people on modest incomes a pension provider designed specifically for them. He currently chairs the Financial Services Compensation Scheme. This organisation gives us protection if financial firms go bust. In 2016, Lawrence was appointed Chair of the Pensions Policy Institute. He s also the current Chairman of the Prudential IGC, formed in April 2015, to represent the interests of members and make sure they receive value for money from their workplace pension Plan with Prudential. Michael Payne, Prudential Trustee Director Employee A qualified actuary, Michael is the Regulatory and Legacy Portfolio Actuarial and Operations Director. Over his 12 years at Prudential, Michael has held a number of senior actuarial and finance roles. Before joining the company, Michael worked at Scottish Widows (now part of Lloyds Banking Group), Scottish Friendly, and Scottish Amicable. Ed Bridge, Prudential Trustee Director Employee Ed is a solicitor for Prudential UK & Europe s business. He leads a team of lawyers who oversee litigation and legal regulatory issues. Ed also gives wider commercial legal advice. Before joining Prudential in 2011, Ed was a solicitor with Shearman & Sterling and Covington & Burling. Ed has resigned from Prudential and the PCPTL board, but was an active member during the period this statement covers. We are recruiting a replacement now. Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 12

13 Appendix B How internal controls (audits) are assessed We need to make sure that Prudential apply members contributions to their Plans at the correct level and at the right time. This would ve been agreed between Prudential and each employer when they set up the pension scheme. Our job is to make sure Prudential is following the payment schedule they agreed on. What Prudential does to keep an eye on internal controls Prudential regularly check on everyone involved in administering the Plans. And they do regular audits to check that everything is working the way it should be. Prudential gives monthly reports to the Plan Manager on how any payments are made. The Plan Manager then tells The Pensions Regulator (TPR) about any late or missing payments as well as any that are lower than expected. Because of all this we think Prudential is doing a good job of maintaining its risk-based processes and that they monitor payments the way they should. Everything they do is in line with TPR s requirements. What we do to keep an eye on Prudential s standards We ask for regular reports on how they monitor and audit the administration of Plans. We can then decide if they re meeting the right standards for Plan members. We make sure they re looking after your investment funds properly and that their processes and systems are working the way they should be. They also let us know about the main service providers that administer the Plans. We ve looked over the formal agreements they ve made with any third party administrators. We also ask for independent, external audits This is sometimes required by law. Audits in the past have told us that Prudential s processes are able to pick up any late payments as well as any underpayments. So we re happy they re following TPR s guidelines. We re also happy that these audits are doing their job in making sure Prudential has a handle on their internal controls. There s nothing that concerns us from these audits and we think they re both adequate and proportionate. What if an audit finds some issues with Prudential? Prudential would get in touch with any employers and members that were affected to tell them about the issue and how they re going to put it right. Sometimes the Plan Manager then tells TPR. And we d report all of this in our next Governance Statement. Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 13

14 Appendix C What the trustee directors know and understand We need to know what we re talking about in order to be the trustee directors. So we can make sure Prudential is looking after your Plan the way they should be. We know about any laws around pensions, investments and trusts We learn everything we can about: the information The Pensions Regulator (TPR) publishes any new Prudential training seminars and conferences about pensions We keep a formal record of any training we do or any learning we undertake. We ve all got lots of experience in UK pensions And each of us is an expert in our field. Together, we have an in-depth knowledge of how pensions should be managed and looked after by providers. We have help from Prudential We re able to use both the technical and legal support of Prudential as and when we need to. They keep us up to date with both current legislation and any changes proposed for the future. They also have a good knowledge of the Plan rules and their terms and conditions. We get support from other areas too To make sure we re doing our best for you, we ve appointed: A Plan manager, Steve Young. He deals with dayto-day administration. We keep an eye on this with regular audits and reports. Legal advisers to the Plans. These are Prudential UK Group Legal and Hogan Lovells. And an auditor: KPMG. We re able to do a good job as your trustee directors This is down to our knowledge, understanding and the support and advice from other experts and organisations. Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 14

15 Appendix D Our Statement of Investment Principles (SIP) The trustees of most schemes must draw up a SIP to set out how decisions about investments should be made. It makes sure that the investment funds for Plan members are working in their best interests. This SIP covers the three Plans we mentioned at the start: The Prudential Money Purchase Masterplan The Prudential Contracted-out Money Purchase Masterplan The Prudential Group Pension Savings Plan We last reviewed them in September And the next full review is planned for Our Statement of Investment Principles The Prudential Group Pension Savings Plan The Prudential Money Purchase Masterplan The Prudential Contracted-out Money Purchase Masterplan ( the Plans ) Introduction A Statement of Investment Principles (SIP) is a regulatory requirement. However, more importantly it is a clear statement of how we will manage our members investments detailing the key roles and responsibilities we take on to ensure good member outcomes and value for money. It must set out the basis on which the Plans assets are invested. Legally, the SIP should be reviewed every three years. The Trustee prefers, however, to conduct an annual review to ensure changes are reflected in a timely manner. This Statement of Investment Principles (SIP) is made by Prudential Corporate Pensions Trustee Limited ( the Trustee ) as a consequence of Section 35 of the Pensions Act 1995 and The Occupational Pension Schemes (Investment) Regulations 2005 (SI 2005/3378) ( the Regulations ). It replaces the previous SIP signed and dated 6th October The Plans were established by The Prudential Assurance Company Limited as centralised Plans for non-associated employers. Each Plan falls within the definition of whollyinsured scheme contained in the Regulations. Each Plan is a wholly insured scheme because of the restrictions in its Rules which govern investment of the Plan s assets. Under the Rules of each Plan, investment of the Plan s assets is limited to insurance policies or annuity contracts taken out with The Prudential Assurance Company Limited or other companies within the Prudential group of companies ( the Insurer ). In practice, the insurance policies or annuity contracts are limited to those which the Insurer is prepared to make available for the Plans. Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 15

16 Investment Objective We believe the current default lifestyle provides a well-governed, risk-appropriate default strategy for members who do not wish to choose their own investment funds. Additional investment choice provides diversification potential, offering a choice of risk-based options which vary in investment styles (active and passive), geographical diversification across the globe, a range of investment philosophies (ethical, recovery, small companies, with-profits) and a range of assets for members to select. At the heart of this should be ensuring that the various options available to members produce appropriate outcomes relevant to the member whilst ensuring good value for money. Investment strategies are provided by the Insurer. Therefore the Trustee has no influence on the investment aims, or on how the investment managers choose and manage the investments underlying the lifestyle profiles, with-profits fund and unit-linked funds. Each investment option has its own unique objective appropriate to the type of investor, assets it invests in and how it is managed. Reference to the Plans documentation showing the various options available will allow members to understand what options are appropriate to them. Investment Choice The investment choice available to members under these Plans include A risk-managed, defined and appropriate default lifestyle investment profile. A range of additional lifestyle investment profiles. A with-profits fund. A range of unit-linked funds. We believe these options provide sufficient choice for members and include an appropriate default for members who do not wish to make an active choice on their investment strategy. The Plans allow for the selection of an appropriate lifestyle profile or one or more investment funds, and allow for the switching of a member s pension savings between investment funds. For those members seeking guidance on which option may be appropriate to them the following table lists general suitability information on the various investment options available. Investment option Default Lifestyle Profile (currently PDG Lifestyle targeting Retirement Options) Other Lifestyle Profiles With-profits and other unit-linked funds What does it do and who may it be appropriate for? This is a lifestyle profile which invests a member s pension savings in assets targeting higher growth in the early years of investment, whilst reducing risk as the member approaches retirement age. The end outcome allows the member flexibility to choose how to use their pension savings to provide retirement benefits. These lifestyle profiles invest a member s pension savings in assets targeting higher growth in the early years of investment, whilst reducing risk as the member approaches retirement age. They are designed to provide appropriate risk levels & outcomes for the member at retirement, depending on how they intend to take their retirement benefits. These are for a member wishing to pick specific funds to achieve their retirement goals. The member would be consciously taking on the risks these funds operate within. Plan documentation will show the funds available and the objectives & risk ratings of these funds. Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 16

17 Managing Investments Risk management Lifestyling is made up of two phases. The first phase (or growth phase) is where money is invested for long-term growth. Then, as a member gets close to retirement the consolidation phase begins where their savings are moved automatically into lower risk funds. The design or profile of a lifestyle strategy is chosen to reflect what the member intends to do with their pension savings when they retire. Due to pension reform in 2015, Plan members now have greater freedom and choice around what they can do with their pension savings. This freedom means that for many members the traditional lifestyle end points that were designed on the basis that the member would be buying a pension for life, may not be appropriate. Furthermore, traditionally there has been low member engagement with their retirement investment choices with many members not knowing what retirement options they will take and of course varying levels of investment knowledge. The Insurer offers a range of lifestyle strategies The Prudential Dynamic Growth Lifestyle Options designed to effectively complement the intended form of a member s benefits at retirement. This range includes the default strategy, Prudential Dynamic Growth Lifestyle Targeting Retirement Options which allows a member to de-risk whilst maintaining flexibility on how they can choose to take their benefits. Risk ratings The Insurer sets risk ratings for all funds to help members choose the most appropriate funds for their needs and circumstances. The risk ratings are based upon how much the Insurer might expect the fund s value to go up and down over the short term. The ratings may change from time to time as economic conditions change and Plan documentation will show the current risk ratings of the funds. Building blocks The Prudential Dynamic Growth (PDG) funds are the main constituents of the Insurer s flagship lifestyle profiles and recognise that investment returns are highly dependent on long-term asset allocation. The asset allocation of these funds is managed by Prudential Portfolio Management Group s (PPMG) Long Term Investment Strategy team using a robust strategic framework looking at risk and return for various assets over multiple timescales. Adapting this asset allocation to optimise the funds ability to perform in their chosen markets, aims to deliver appropriate returns within a risk-managed environment. There are 5 funds in the range with varying risk levels. From lower risk, holding less exposure to riskier growth assets up to higher risk, where the objective is to use riskier growth assets to deliver stronger long-term returns. The funds access a blend of passively managed Blackrock equity funds and actively managed M&G fixed income funds. PPMG undertake the asset allocation, both between fixed interest and equity, and between the underlying components. This provides members with strongly-governed risk managed funds capable of adapting to the changing behaviour of markets. The manager will aim to add incremental value by adapting the short-term allocation of the funds to take advantage of market conditions whilst working within the robust framework of the strategic long-term view. In addition to the Prudential Dynamic Growth funds the Insurer provides a strong core fund offering, providing a high quality range of innovative and modern strategies should a more bespoke and diversified investment mix be required. This range provides diversification in terms of asset classes, geographies, sectors and management styles. Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 17

18 What are the risks? There are various risks the Trustee has considered in making investment choices available to members. Although not a definitive list the main risk factors members should be aware of are as follows: Inflation the risk that the value of investments doesn t grow enough to keep up with inflation, and so the buying power of a member s pension savings is eroded. Market volatility the chance of short-term fluctuations up and down in the value of funds, as events in financial markets cause the value of investments to rise and fall. While this can happen at any time, we believe it is likely to be most important when members are planning changes to their funds or close to taking benefits. This is a risk lifestyle profiles aim to offset by reducing risk exposure as the member approaches retirement. Members should be aware that the value of investments can go down as well as up and they could get back less than the total contributions paid in. Conversion Risk one of the options with pension savings is to buy an income for life. If a member chooses this option, the income they eventually receive will depend on both the value of their pension savings and the cost of turning those into an income. This creates the risk that the value of their pension savings does not move in line with the cost of providing an income. Operational & Counterparty factors Strong robust governance should mean that members are not exposed to risks experienced in the management of the assets or where the manager is systematically failing to deliver on the objective. This includes where the Insurer invests with external fund managers. Ensuring the assets are invested appropriately will minimise the risk if a company is in financial difficulty. Liquidity It is important that investment is made in liquid assets to allow members access to their pension savings as quickly as possible. Investing in assets such as Property has benefits in the wider sense, but does bring an additional liquidity risk that has to be managed appropriately. Exchange Rate Risk changes in exchange rates may cause the sterling values of overseas investments to rise or fall. How do we govern the investment? We take the governance of investment seriously and ensure that robust challenge goes into the Insurer on a bimonthly basis. In addition to the wider Trustee s role, we challenge the Insurer to take a strong role in governing our members investments. There are several elements to this governance. 1. Long Term Investment Strategy PPMG are responsible for the long term strategic asset allocation of the PDG funds, With-Profits and the various global and multi-asset funds the Insurer offers. PPMG conduct regular reviews of the strategic allocations looking at long-term assumptions for the various asset classes and understanding what may impact these on a medium and long-term basis. This means the investment options can be forward-looking and shaped to benefit from the long term nature of asset class returns. Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 18

19 2. Ongoing fund management Ensuring fund managers are operating within an agreed framework and delivering on their objective is of key importance. Every fund we offer is subject to a comprehensive investment governance process managed by the Insurer s Unit-Linked Business Investment Committee (ULBIC). They operate an investment watchlist, whereby funds which are perceived to be of concern are monitored more closely and may be recommended for closure. This may be due to performance or for wider issues, for example, around poor governance or controls. 3. Member focus We need to ensure that the member is at the heart of the process. Therefore, in conjunction with the Insurer, we regularly review the funds to check that they deliver real value for money. This analysis looks at the cost to members versus the performance the funds have delivered whilst also analysing the costs involved in operating the funds. It is important that the various investment strategies offered deliver appropriate returns that meet our members needs and if they fail to do this there is a mechanism to remove them from the investment range. Funds failing to deliver in areas such as value for money, performance or operations could be closed and removed. Communication As Trustee, our primary aim is to ensure that the Plans are managed correctly, that members interests are protected as far as possible and that they receive value for from membership of the Plans. We publish an annual Governance Statement to tell Plan members what we have done to achieve our aim and to say if we believe members are receiving value. Agreement This statement was agreed by the Trustee and replaces any previous statements. Copies of this statement and any subsequent amendments will be made available upon request to members and participating employers. The Trustee will review this statement at least as frequently as required by the Regulations. Signed Chair of Prudential Corporate Pensions Trustee Limited 26 October 2017 Prudential Corporate Pensions Trustee Limited Chair s Governance Statement 19

20 pru.co.uk Prudential is a trading name of The Prudential Assurance Company Limited, which is registered in England and Wales. This name is also used by other companies within the Prudential Group. Registered office at Laurence Pountney Hill, London EC4R 0HH. Registered number Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. GENM /2017