BOC Retirement Savings Plan

Transcription

1 BOC Retirement Savings Plan Annual Report and Financial Statements For the year ended 30 June 2017 Scheme Registration No

2 Contents Trustee and advisers... 2 Trustee Report... 3 Statement of Trustee Responsibilities Statement regarding DC governance Independent Auditor s Report To The Trustees of BOC Retirement Savings Plan Fund Account for the year ended 30 June Statement of Net Assets as at 30 June Notes to the financial statements Summary of contributions Independent Auditor s Statement about Contributions Payment Schedule for the BOC Retirement Savings Plan Appendix: Statement of Investment Principles Page

3 Trustee and advisers Trustee Directors Employer nominated Capital Cranfield Pension Trustees Limited represented by S Anyan (Chair) M Bailey + D Mant J Sparks Member nominated P O Hara M Poole # # Audit Committee, + Medical Committee Secretary Scheme administrator Principal employer Participating employers Actuarial adviser Auditor Legal adviser Annuity purchase advisers Investment advisers Investment services Investment managers Bankers Group life assurance Medical adviser Enquiries S K Kelly BOC Pension Services The BOC Group Limited BOC Limited, BOC Healthcare Limited BOC Helex, Gist Limited Romeo Healthcare Limited, Linde UK Holdings Limited Linde CryoPlants Limited Hymans Robertson LLP Ernst & Young LLP Mayer Brown International LLP Origen Financial Services Ltd Mercer Limited BOC Pensions Investment department BlackRock Life Limited Aviva Life Services UK Limited The Prudential Assurance Company Limited HSBC Bank Plc Legal & General Assurance Society Health Assured Limited Head of UK Pensions BOC Pension Services The Priestley Centre, 10 Priestley Road The Surrey Research Park, Guildford GU2 7XY pensions.uk@boc.com 2 Page

4 Trustee Report The Trustee of the BOC Retirement Savings Plan (the Plan ) present its annual report for the year ended 30 June Introduction The Trustee has delegated the day-to-day administration of the Plan to BOC Pension Services and has delegated the day-to-day management and monitoring of the Plan s investment managers to the BOC Pensions Investment Department. These delegations are set out in documents formally adopted by the Trustee on 25 March The BOC Retirement Savings Plan ( the Plan ) is made up of two sections: the RS ( Retirement Savings ) Section and the AVC ( AVC ) Section. Both sections operate on a defined contribution basis. Each section has its own separate investment options. The Plan is used by the participating employers to meet their automatic enrolment duties. RS Section The RS Section of the Plan provides (i) a lump sum in the event of death-in-service for employees who are eligible for Plan membership and (ii) a designated investment account for each eligible employee who elects to become a contributory member, in order to provide (a) benefits for the member on retirement or (b) benefits for the member s dependants in the event of the member s death before retirement. AVC Section The AVC Section of the Plan provides facilities for the investment of additional voluntary contributions made by, and transfer payments received prior to April 1997 in respect of members of BOC Pension Scheme, BOC Senior Executive Pension Scheme and Gist Limited Pension Scheme. It is also used for the investment of any additional contributions made by the Company in respect of a member of those schemes. Content and Objective of the Report This Annual Report contains the information that the Trustee is required to provide under Regulation 6 of the Occupational Pension Schemes (Disclosure of Information) Regulations In the Report, Company means The BOC Group Limited. The objective of this Report is to provide a formal and historical record. Less formal publications are used to keep members informed about the Plan. Information can also be obtained by members, and prospective members, on the BOC Pension Services internet website Enquiries and complaints The address for enquiries about the Plan, matters regarding entitlement of an individual to benefits, complaints regarding Plan administration and requests for further information is shown on page 2. Management of the Plan The Company has the formal power under the Trust Deed to appoint Plan Trustee Directors and remove them from office. The Trustee of the Plan is BOC RSP Trustees Limited. The Trustee held six meetings during the year. Four of the Trustee Directors are appointed by the Company and two are drawn from nominations made by Plan members. The Professional trustee is a trustee company (Capital Cranfield Pension Trustees Limited) who acts as a Trustee Director to the trust. That company has no interest in the assets of the trust; they are not a beneficiary of the trust and are not entitled to share in the assets of the trust. 3 Page

5 Trustee Report (continued) The term of office of a Member-Nominated Trustee Director is normally five years. They may be re-nominated and re-appointed for subsequent terms of office. The Company can remove Company-appointed Trustee Directors. Member-nominated Trustee Directors can only be removed by the unanimous agreement of the remaining Trustee Directors. Data protection The Plan is registered under the Data Protection Act 1998 to process on computer and otherwise, personal information which the Trustee or its delegates may need for Plan management. Plan tax and social security status The Plan is a registered scheme with HM Revenue & Customs under Chapter 2 of Part 4 of Finance Act The Plan is not used for the purpose of contracting-out members from State earnings-related pension scheme under Pensions Act Committees Committees are set up for practical reasons where a number of additional meetings are required and to facilitate additional, targeted, technical training. The members of each Committee who represent the Trustee are shown on page 2. Audit Committee The Audit Committee met on three occasions during the year. The Audit Committee is a joint committee consisting of a representative of the Trustee of each of the Plan, BOC Pension Scheme, BOC Senior Executive Pension Scheme, Gist Limited Pension Scheme and from the Administrator of BOC Pensions Investment Fund (BOC Pensions Limited). The main objectives of the Committee are to review the plan for the annual audit, review the audit results and discuss them with the Plan Auditor, consider the letter of representation to the Auditor, review and challenge the Report and Accounts and report to the Trustee Boards on these matters. The Audit Committee formally recommends the approval of the annual report and financial statements to the Trustee. Medical Committee The Medical Committee met on three occasions during the year. A Medical Committee exists to consider applications from members and the company for the award of medical pensions. Pensions Act 1995 and Pensions Act 2004 The Trustee has a range of procedures to ensure ongoing compliance with the requirements of Pensions Act 1995 and Pensions Act The Pensions Regulator (TPR) is the regulatory body for work-based pension schemes in the UK. TPR has a defined set of statutory objectives and wide powers to investigate schemes and take any action it thinks necessary. As an aid to achieving its objectives, TPR requires the completion and submission of an annual scheme return by the Plan Administrator. It also requires reports of significant breaches of pension scheme legislation. Breaches of pension scheme legislation have to be reported to TPR when they are considered to be breaches likely to be of material significance (known as red breaches). Those with a duty to report include the Trustee, the Company and the Plan s advisers. 4 Page

6 Trustee Report (continued) Red breaches are caused by: dishonesty, poor governance, inadequate controls resulting in deficient administration or slow or inappropriate decision-making practices, incomplete or inaccurate advice, acting (or failing to act) in deliberate contravention of the law. An example of a red breach would be persistent failure to pay scheme contributions on time. Contribution issues disclosed in the prior year Financial Statements have continued through the current year. These issues are explained in more detail on page 6. In addition, the contribution issues have caused a delay in the production of leaver statements, annual benefit statements and the annual Report and Accounts. As a result of the contribution issues the Trustee has been in contact with the Regulator. The first letter to the Regulator was submitted in August Updates have been given regularly and will continue until the effects of the contribution issues are resolved. During the year there were no red breaches. There were no preventable breaches of the statutory timescales for providing information to members leaving the Plan. The Trustee is taking steps to ensure that in all other respects the Plan administration has been in compliance with the requirements of both Acts throughout the year. Record keeping As part of its Guidance on Internal Controls, TPR has issued Guidance on record-keeping, which sets up a framework for measuring the presence of data used in the administration of pension schemes. The aim of the Guidance is to educate and enable those responsible for member record-keeping and those who administer pension arrangements to improve the standard of record-keeping across the industry. TPR s Guidance identifies three types of data that should be measured: Common data, Conditional data and Numerical data. Common data is the data that TPR considers to be applicable to all schemes and is used to identify a member, e.g. surname, forename(s)/initials, date of birth, Sex, National Insurance Number, address, postcode. Conditional data is the additional data required for administration and will vary and depend on the type of scheme, scheme design, member status, system design etc. Examples of Conditional data are date of leaving, benefit crystallisation event details, salary history, contributions, AVC details, active/deferred/pensioner record, date of retirement. Numerical data is the additional information that will enable the trustee to put the results of the data measurement into context, e.g. status, benefit category, pensioner type. The clean percentage for Common data and Conditional data is 99.92%. The Numerical data requirement is largely satisfied by the membership statistics/movements reported periodically. These percentage rates are not impacted by the contribution issues disclosed on page 6, as these are related to payroll errors rather than data which is held directly by BOC Pensions. Taking account of the Plan design, the data held is in a robust position to allow the Plan to be administered efficiently and effectively. The Trustee has adopted an improvement programme which includes taking the Plan design into account. Financial development of the Plan The financial statements set out on pages 33 to 47 have been prepared and audited in accordance with the regulations made under sections 41(1) and (6) of the Pensions Act During the year net additions from dealing with members were 10,506k (2016: 13,759k). Net returns on investments increased to 18,903k (2016: 3,758k). As a result of all the above the net assets of the Plan rose to 192,775k at 30 June 2017, an increase of 29,409k over the position at 30 June Page

7 Trustee Report (continued) Pension purchase RS Section Pensions are not payable from the Plan. At the point in time when a member s benefit becomes payable in the RS Section, the member is required to purchase a pension outside the Plan using their accumulated fund less any elected tax free cash lump sum. Members are also able to take their benefit in lump sum form, up to 25% of which may be tax-free. Members reaching the age of 55 are able to flexibly access their benefits, which allows them to exercise any of the aforementioned options a maximum of two times during their membership of Plan. AVC Section When a member of the AVC Section retires or dies, the funds accumulated in respect of the member are transferred to the Trustee of the related pension scheme for the provision of additional benefits for, or in respect of, the member. Members are also able to take their benefit in lump sum form, part of which may be tax-free. Having transferred their accumulated AVC funds from the AVC Section to the underlying defined benefit scheme, a member can purchase a pension either from the underlying defined benefit scheme or from an external provider (an open market option ). A pension bought by a member from a related scheme can be on either a single life or a joint life basis. With the latter, half of the pension would be paid to the member s recognised dependant in the event of the member s death. Contributions The prior year Financial Statements referred to the Payment Schedule which was signed by the Trustee and agreed by the Company on 14 December This was replaced by the Payment Schedule included on pages 50 to 55 which was signed by the Trustee and agreed by the Company on 27 September For the period from April 2016 to June 2017, three payroll contribution calculation issues were identified by the Administrator during the payroll reconciliation process as follows: Item Issue Category Period Impact Value 1 Statutory sick pay Employer April 2016 to Employer contribution 25,023 elements January 2017 overpayment 2 Retrospective pay Employee February 2017 Employee contribution 32,887 elements to April 2017 underpayment 3 Retrospective pay elements Employer February 2017 to June 2017 Employer contribution underpayment 147,669 The above issues resulted in some contributions being paid late to the Plan, and subsequently amounts being invested late on behalf of members. Amounts that were not invested by 30 June 2017 are shown in note 9 on page 39 within investment liabilities, being amounts due to BlackRock. These issues resulted from the implementation of a new payroll platform and have been rectified at the time of signing these financial statements. The units held on the pension records of affected members have subsequently been restored to put them in at least the position that they would have been in, if the amounts had been invested on the relevant date of receipt from the Employer, and consequently no member has lost out as a result. Separate exercises are also being undertaken to retrospectively run the annual lifestyling switches and also to deal with any former members, e.g. leavers, retirements, deaths or transfers out, that have been affected during the period of the contribution issues. As a result of the above, in March 2018 the Trustee requested an external audit of the current configuration of the payroll system, including a review of the Employer processes to ensure they are correctly set up to calculate pension contributions. 6 Page

8 Trustee Report (continued) This audit is being carried out across three pension schemes, namely BOC Retirement Savings Plan, BOC Pension Scheme and Gist Limited Pension Scheme. The results of this audit have yet to be finalised and quantified, however any potential financial impact arising from issues identified will be reflected in the Report and Accounts for the following accounting period. Whilst the issues remain unquantified at the time of approving these financial statements, the Employer has advised the Trustee that it does not believe, that at this stage in the audit, any of the findings identified to date are likely to be material to the contributions or net assets of the Plan. Membership RS Section Contributory Life Cover Active 1% 3% 4% 5% Total Only At 1 July , ,706 4, Late notifications (1) - (1) (3) (5) 3 Joiners 1, ,478 1,472 Transfers from Life Cover Only (364) Interlevel movements - in Interlevel movements - out (66) (30) (23) (7) (126) - Rejoined RS Plan (1,257) Retirements (7) - - (8) (15) - Deaths (2) (1) - - (3) - Leavers with retained benefits (633) (45) (20) (170) (868) - Leavers without retained benefits (40) (40) - At 30 June , ,727 5, Deferred At 1 July ,507 New deferreds 868 Retirements (68) Deaths (3) Rejoined RS Plan (133) Leavers without retained benefits (55) At 30 June ,116 Active members may have more than one period of service during the year as a consequence of Auto Enrolment. Each member s period of service is shown in the movements during the year, but the member is only included once in the total. 7 Page

9 Trustee Report (continued) Membership (continued) The above table denotes number of records per member, therefore total records will exceed the number of members Plan rules The Plan is governed by Rules introduced by a Deed dated 3 April 2014 amended by a Deed dated 23 July There were no changes to the rules during the year in review. Any Plan member can obtain a copy of the Plan Rules by contacting BOC Pension Services using the contact details shown on page 2. Investment management Investment Principles The Trustee has adopted a Statement of Investment Principles, as required by Section 35 of Pensions Act This is attached as an appendix on pages 56 to 65. The Pensions Regulator s DC Code of Practice No.13 The Trustee complies with the DC Code of Practice for investment-decision making in defined contribution schemes as published in July These principles apply individually to the RS Section and AVC Section. The Trustee keeps this document under review. It will be updated as and when required, but will also be subject to formal annual review. The latest version was adopted on 27 June 2017 by the Trustee. Concentration of Investments Concentration of investments is disclosed in note 9 of the accounts. Custody of Assets Prudential Aviva BlackRock Aviva Prudential Total AVC Section With profits With profits Unitised Unitised Unitised Members At 1 July Joiners Leavers (16) (2) (81) - (6) (105) At 30 June Status in underlying pension schemes Prudential Aviva BlackRock Friends Life Prudential With profits With profits Unitised Unitised Unitised Total Active members Deferred members At 30 June There are no segregated investment holdings in the Plan so custody of documents of title does not arise. The Trustee holds confirmation of participation in the pooled investment, or an insurance policy as relevant to the facility. 8 Page

10 Trustee Report (continued) Investment management (continued) Employer-related Investment Legislation prohibits the trustees of most occupational pension schemes from making employer-related investments in excess of 5% of scheme assets. The Rules of the Plan impose a stricter limitation by not allowing any direct investment in, or loans to, the employer, its ultimate parent company, or any Group company. The Trustee does permit Investment Managers to invest in pooled equity funds designed to track the performance of the relevant index. Since the pooled funds may invest in Group companies, investment in such funds may result in an indirect exposure to Group companies. Having taken legal advice, the Trustee has satisfied itself that such indirect investment is permitted by their Rules, and that the exposure to Group companies which could result would not be material to Plan members. Investment Choices RS Section Investment funds are held with BlackRock Life Limited and are unitised. Access to these funds is available to members through two investment choices, BOC FreeChoice and BOC Lifestyle. Members can invest in any combination of available funds and change their investment choice any time they wish. The BOC FreeChoice allows members to select their own investment strategy using available index-tracker funds and actively managed funds. Investment Choices (continued) The BOC Lifestyle offers a pre-selected investment strategy using the same types of funds available through BOC FreeChoice. BOC FreeChoice funds BlackRock DC Aquila UK Equity Index BlackRock DC Aquila World (Ex-UK) Equity Index BlackRock DC Aquila Over 15 Year Gilt Index BlackRock DC Aquila Over 5 Year Index-linked Gilt Index BlackRock DC Cash This fund invests in the shares of UK companies and aims to achieve a return in line with the FTSE All-Share Index. This fund invests in the shares of overseas companies (European ex-uk, Japanese, Far Eastern, US, Canadian and Emerging markets) according to market capitalisation weightings. Its investment objective is to achieve a return in line with the FTSE All-World Developed ex-uk Index. This fund invests in UK government fixed income securities (gilts) that each has a maturity period of 15 years or longer. The fund aims to achieve a return in line with the FTSE UK Gilts Over 15 Years Index. This fund invests in UK government index-linked securities that each has a maturity period of 5 years or longer. The fund aims to achieve a return in line with the FTSE UK Gilts Index-Linked Over 5 Years Index. This fund invests in deposits and short term debt securities that pay floating rates of interest. The fund aims to produce a return in line with the 7 Day LIBID Rate, principally from a portfolio of Sterling-denominated cash, deposits and money-market instruments. 9 Page

11 Trustee Report (continued) Also offered are bespoke funds, e.g. BOC Corporate Bond, BOC Diversified Growth, BOC Equity, BOC Growth Fund and BOC Pre-Retirement. BOC Lifestyle This investment provides a pre-selected investment strategy, using the same types of funds available through BOC FreeChoice. Under this option, investment is made principally in the equity-based Growth and Diversified Growth funds when a member is younger. Accumulated funds and contributions are switched progressively to a default Annuity fund, as the member nears pre-selected expected retirement age (the default age is 65). In addition, there are transition funds designed to provide investments for those members who may wish to take their benefits in the form of Cash or Income Drawdown. The funds are switched between the constituent funds in accordance with a pre-selected strategy. Growth Fund The Growth Fund is divided approximately 50% to the BOC Equity Fund and 50% to the BOC Diversified Growth Fund. The BOC Equity Fund is made up of a number of different equity funds, investing in different regions. Some of the world equity investments are currency hedged (this aims to reduce volatility), others invest in emerging markets, aiming to maximise growth. The BOC Diversified Growth Fund aims to provide a positive rate of return, while being less volatile than equities. Transition Funds Invested in the BOC Equity, BOC Diversified Growth, BOC Pre-retirement and Cash funds. The Trustee has the responsibility for ensuring that the investment manager s strategy in allocating investments for the BOC Lifestyle fund(s) is appropriate for the majority of RS section members. AVC Section The Trustee invests contributions paid by members or by the company under Salary Exchange arrangements, in one or more of the facilities according to each member s choice. Any pensions-related additional contribution made by the Company in respect of a member is invested in the Cash facility. The providers of the investment facilities are appointed by the Trustee on the advice of the investment adviser. Set out below are details of the investment facilities and their providers: Provider Type of facility Status The Prudential Assurance Company Limited The Prudential Assurance Company Limited ( M&G series ) The Prudential Assurance Company Limited Aviva Life Services UK Limited Aviva Life Services UK Limited (formerly Friends Life and Pensions Ltd) BlackRock Life Limited With-profits pension fund (cash accumulation) Investment-linked funds (unitised) With-profits pension fund (unitised) With-profits pension fund (unitised) Investment-linked funds (unitised) Investment-linked indextracker funds (unitised) Closed to new members since 30 September 2010 Closed to new contributions since 31 May 2001 Closed to new contributions since 5 April 1997 Closed to new members since 5 April 1992 Closed to new members since 30 June 2004 Open 10 Page

12 Trustee Report (continued) Information about Investment Performance RS Section Provider BlackRock Life Limited Website AVC Section Provider BlackRock Life Limited Aviva Life Services UK Limited The Prudential Assurance Company Limited Website As above Performance RS Section The return of the funds in the table below should be close to the return of the applicable index, or combination of indices, which the fund is designed to track. Fund returns are provided gross of fees (which range from 0.11% p.a. to 0.46% p.a.) for the year ended 30 June 2017 were as follows: BlackRock Life Limited Source: BlackRock 1 year 3 years 5 years Fund Benchmark Fund Benchmark Fund Benchmark BOC FreeChoice p.a. p.a. p.a. p.a. UK equity fund 18.5% 18.1% 7.6% 7.4% 10.7% 10.6% Global equity (ex-uk) fund 23.1% 22.9% 16.7% 16.5% 16.7% 16.6% Over 15 years UK gilts fund -1.8% -1.8% 12.4% 12.3% 7.4% 7.3% Over 5 years index-linked gilts fund 7.1% 7.1% 13.3% 13.2% 9.3% 9.2% Corporate bond 6.6% 5.4% 7.5% 6.9% 7.8% 6.8% The benchmark indices are FTSE Indices except for the Cash fund which is benchmarked against 7 day sterling LIBID. Fund returns are provided gross of fees (which range from 0.11% p.a. to 0.46% p.a.) for the year ended 30 June 2017 were as follows: 1 year 3 years 5 years Fund Benchmark Fund Benchmark Fund Benchmark BOC Lifestyle p.a. p.a. p.a. p.a. Equity 21.7% 21.7% 10.5% 10.4% 12.8% 12.7% Diversified growth fund 5.9% 4.3% 3.3% 3.7% 5.0% 3.5% Pre-retirement fund 1.9% 0.9% 8.5% 8.0% 6.3% 5.8% Cash fund 0.4% 0.1% 0.5% 0.3% 0.5% 0.3% Source: BlackRock 11 Page

13 Trustee Report (continued) AVC Section The Prudential Assurance Company Limited with profits pension fund (cash accumulation and unitised) The performance for the year ended 30 June 2017 has not been published by Prudential. As such, please find the performance to 6 April 2017 in the table below. Please note, the underlying funds receive the same investment return as each other but differ in the type of contracts, benefits offered and penalties applied. Aviva Life Services UK Ltd with profits pension fund (unitised) A bonus rate (referred to as growth rate ) is declared in advance. The growth rate can be varied by Aviva at any time but is usually reviewed at each 1 January. Unit prices increase daily to reflect the declared growth rate. The growth rates were: contributions made to 31 December % contributions made after 31 December % 1 year 3 years 5 years p.a. p.a. With Profits (unitised) 2.5% 5.7% 6.2% With Profits (cash accumulation) 2.5% 5.7% 6.2% Source: Prudential Aviva may add an additional bonus on units secured by Plan contributions made in earlier years when the accumulated fund is transferred to another Plan facility or is used to provide benefits. The rate of additional bonus varies according to the year in which units were secured and is not guaranteed. The performance for the year ended 30 June 2017 has not been published by Aviva. As such, please find the performance to 14 June 2017 in the table below. 1 year 3 years 5 years With Profits 2.5% 2.4% 2.6% Source: Aviva p.a. p.a. 12 Page

14 Trustee Report (continued) Aviva (formerly Friends Life & Pensions Ltd) - investment-linked funds (unitised) 1 year 3 years 5 years Fund Benchmark Fund Benchmark Fund Benchmark p.a. p.a. p.a. p.a. BlackRock UK Equity Index * 21.1% 19.0% 7.1% 7.7% 10.5% 10.7% Cash -0.3% 0.1% -0.2% 0.3% -0.2% 0.3% European equity 34.5% 29.0% 13.3% 11.6% 18.8% 15.8% Global equity 25.9% 22.3% 15.8% 16.0% 16.3% 16.3% Index linked 5.8% 6.7% 10.8% 11.8% 7.3% 8.3% Managed * 13.7% 15.7% 7.4% 8.3% 9.0% 9.4% North American 27.9% 21.3% 20.1% 19.0% 20.0% 18.2% Pacific basin 31.5% 26.6% 16.2% 14.8% 12.6% 12.8% Pre-retirement fixed interest 2.9% 2.1% 10.7% 9.1% 6.0% 6.8% Property * 3.2% 4.2% 7.8% 6.4% 8.5% 6.7% Stewardship 23.8% 18.1% 7.1% 7.4% 11.9% 10.6% Stewardship Managed * 20.4% 15.7% 12.3% 8.3% 12.7% 9.4% UK Equity 24.5% 18.1% 6.9% 7.4% 9.4% 10.6% Source: Aviva * Performance of the Aviva fund may not necessarily match the performance of the underlying fund due to fund charges and difference in the date with which Aviva and the underlying manager (BlackRock) may use to price the fund. There was a change in benchmark from FTSE All- Share Index to FTSE Custom All-Share Midday Net Tax index on 15/05/2017. However, the tracking error for the one year and 3 years is higher than normal and we are investigating reasons why. The Prudential Assurance Company Limited - investment-linked funds (unitised) 1 year 3 years 5 years Fund Benchmark Fund Benchmark Fund Benchmark p.a. p.a. p.a. p.a. International Pension Fund * 28.2% 19.9% n/a n/a n/a n/a Global Leaders Pension Fund 28.1% 24.0% 13.5% 12.7% 14.8% 13.8% Global Select 30.4% 27.8% 15.2% 12.7% 13.4% 12.2% Equity Pension Fund 24.7% 21.3% 9.2% 7.3% 11.9% 11.2% UK Income Pension Fund 15.6% 15.7% 8.2% 8.3% 10.9% 9.4% Japan Pension Fund 39.2% 24.9% 20.0% 16.4% 18.0% 14.4% SE Asia Pension Fund 36.2% 29.8% 12.6% 13.5% 13.0% 11.2% M&G European Select Fund 29.1% 29.5% 12.8% 11.9% 15.9% 16.1% North American Pension Fund * 26.6% 17.9% n/a n/a n/a n/a M&G UK Select Fund 25.2% 21.3% 7.6% 7.3% 11.5% 11.2% Managed Pension Fund 19.1% 15.7% 11.0% 8.3% 11.7% 9.4% Property Pension Fund 3.3% 4.2% 10.0% 6.4% 8.3% 6.7% Recovery Pension Fund 29.2% 21.3% 4.6% 7.3% 7.0% 11.2% M&G Fixed Interest Income Fund 0.3% -1.0% 7.1% 5.7% 4.4% 3.0% PPP Fund 24.1% 24.0% 11.3% 12.7% 13.0% 13.8% Cash Fund 0.2% -0.3% 0.4% -0.2% 0.4% -0.1% Source: Prudential * Longer term performance is unavailable. Performance assessment is against the Association of British Insurers ( ABI ) sector performance. Benchmark performance for the fund range is not available. Performance is on a gross of fees basis and the following colour coding assesses the extent to which a fund has underperformed or outperformed the sector performance 13 Page

15 Trustee Report (continued) Subsequent events As noted on page 6 of the Trustee Report, the issues on contributions continue post year end and are therefore being reported to the Regulator on a monthly basis as disclosed on page 5. The Department for Work and Pensions advised that the minimum contribution rate for auto enrolment should increase from 6 April 2018 in line with the second transitional period. The Payment Schedule referred to on page 50 to 55 takes into account these increased contribution rates. Signed on behalf of the Trustee on 16 March 2018 S Anyan Trustee Director J Sparks Trustee Director 14 Page

16 Statement of Trustee Responsibilities The financial statements, which are prepared in accordance with UK Generally Accepted Accounting Practice, including the Financial Reporting Standard applicable in the UK (FRS 102) are the responsibility of the Trustee. Pension scheme regulations require, and the Trustee is responsible for ensuring, that those financial statements: show a true and fair view of the financial transactions of the Plan during the Plan year and of the amount and disposition at the end of the Plan year of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the Plan year; and contain the information specified in Regulation 3A of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, including making a statement whether the financial statements have been prepared in accordance with the relevant financial reporting framework applicable to occupational pension schemes. In discharging the above responsibilities, the Trustee is responsible for selecting suitable accounting policies, to be applied consistently, making any estimates and judgments on a prudent and reasonable basis, and for the preparation of the financial statements on a going concern basis unless it is inappropriate to presume that the Plan will not be wound up. The Trustee is also responsible for making available certain other information about the Plan in the form of an annual report. The Trustee also has a general responsibility for ensuring that adequate accounting records are kept and for taking such steps as are reasonably open to it to safeguard the assets of the Plan and to prevent and detect fraud and other irregularities, including the maintenance of an appropriate system of internal control. The Trustee is responsible under pensions legislation for securing that a payment schedule is prepared, maintained and from time to time revised showing the rates of contributions payable towards the Plan by or on behalf of the employer and the active members of the Plan and the dates on or before which such contributions are to be paid. The Trustee is also responsible for keeping records in respect of contributions received in respect of any active member of the Plan and for adopting risk-based processes to monitor whether contributions are made to the Plan by the employer in accordance with the payment schedule. Where breaches of the schedule occur, the Trustee is required by the Pensions Acts 1995 and 2004 to consider making reports to The Pensions Regulator and the members. Date 16 March 2018 S Anyan J Sparks Trustee Director Trustee Director 15 Page

17 Statement regarding DC governance Introduction This Statement has been prepared in accordance with Regulation 23 of the Occupational Pension Schemes (Scheme Administration) Regulations 1996 (SI 1996 No. 1715) as amended by the Occupational Pension Schemes (Charges and Governance) Regulations 2015 (SI 2015 No. 879). This Statement has been prepared on behalf of the Trustee of the Plan and confirms the Plan s compliance with the governance requirements in the 2015 Regulations for the period from 1 July 2016 to 30 June This Statement is incorporated into the Trustee s annual report and accounts, which is available on request to members and beneficiaries of the Plan and members appointed representatives. The appointed Chair of the Trustee Board will confirm the completion of this annual statement in the annual return to the Pensions Regulator. (a) Default arrangement From 1 July 2016 to 30 June 2017, members of the Plan who did not make an explicit choice regarding the investment of their funds were defaulted into a lifestyle strategy. The Secured Income Lifestyle Strategy is the default investment option for the Plan. Typically a proportion of members will actively choose the default option because they feel it is most appropriate for them. However, the vast majority invested in the default option have not made an active investment decision. The Trustee is satisfied that the default arrangement remains appropriate for the majority of the Plan s members. The investment principles underlying the default option are set out below in the form of the Trustee s aims for the default option and the ways in which the Trustee seeks to achieve these aims: - To generate returns in excess of inflation during the growth phase of the strategy whilst managing downside risk. The default option s growth phase invests in equities and other growth-seeking assets (through a diversified growth fund). These investments are expected to provide equity-like growth over the long term with some downside protection and some protection against inflation erosion. - To provide a strategy that reduces investment risk for members as they approach retirement. As a member s pot grows, investment risk will have a greater impact on member outcomes. Therefore, the Trustee believes that a strategy that seeks to reduce investment risk as the member approaches retirement is appropriate. Moreover, as members approach retirement, the Trustee believes the primary aim should be to provide protection against a mismatch between asset values and the expected costs of retirement benefits. In view of the above, the Trustee considers the level of risk within the default option in the context of the variability of returns relative to annuity prices and cash rates. The Secured Income Lifestyle Strategy therefore aims to reduce volatility near retirement via automated lifestyle switches over an eight year period to a member s selected retirement date. Investments are switched firstly into a pre-retirement fund (to broadly match short-term changes in the price of fixed annuities). Three years prior to retirement, an allocation to a cash fund is introduced for capital preservation purposes. - To provide exposure, at retirement, to assets that are broadly appropriate for an individual planning to use their savings in the Plan to buy a fixed annuity and take a 25% tax-free cash lump sum at retirement. At the member s selected retirement date, 75% of the member s assets will be invested in a pre-retirement fund and 25% in a cash fund. 16 Page

18 Statement regarding DC governance (continued) - To comply with regulatory requirements around charges The Trustee reviews the charges arising from investment in the Default Investment Option which will change over time, according to the investment strategy s fund allocation, to make sure that the charges comply with regulatory requirements. The Trustee s policies in relation to the default option are: - The default option manages investment risks through a diversified strategic asset allocation consisting of traditional and alternative assets. Risk is not considered in isolation, but in conjunction with expected investment returns and outcomes for members. In designing the default option, the Trustee has explicitly considered the trade-off between expected risk and returns. - Assets in the default option are invested in the best interests of members and beneficiaries, taking into account the profile of members. In particular, the Trustee considered high level profiling analysis of the Plan s membership in order to inform decisions regarding the default option. Based on this understanding of the membership, a default option that targets the purchase of a fixed annuity at retirement is considered appropriate. - Members are supported by clear communications regarding the aims of the default investment option and the access to alternative investment approaches. If members wish to, they can opt to choose their own investment strategy or an alternative lifestyle strategy on joining but also at any other future date. Moreover, members do not have to take their retirement benefits in line with those targeted by the default option; the target benefits are merely used to determine the investment strategy held pre-retirement. - Assets in the default option are invested in daily traded pooled funds which hold highly liquid assets. The pooled funds are commingled investment vehicles which are managed by various investment managers. The selection, retention and realisation of assets within the pooled funds are delegated to the respective investment managers in line with the mandates of the funds. Likewise, the investment managers have full discretion (within the constraints of their mandates) on the extent to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments. 17 Page

19 Statement regarding DC governance (continued) - Within the default option, units across the underlying pooled funds are bought and sold according to the Table 1 below. Table 1: Default Lifestyle Strategy glide-path Years to Retirement Equity (%) Diversified Growth (%) Pre-retirement (%) Cash (%) > The last review of the default arrangement was undertaken before 1 July 2016 and therefore the previous default arrangement does not fall into the period covered by this Statement. (b) Processing financial transactions The Trustee monitors core financial transactions at a high level to ensure the Plan administration regulations are adhered to, and the Trustee receives regular reports from the administrator on the receipt and investment of contributions. The Auditor independently tests sample transactions for accuracy and timeliness. At the end of the scheme year, some issues were identified with the processing of financial transactions during the period to 30 June 2016 in relation to automated deductions of contributions from members pay. This was as a result of a change in payroll process. The actions that were agreed to address these are currently being undertaken to implement corrections and ensure that members are put in a position so they are no worse off that they would have been had correct deductions been made. A process is in place to ensure the issue does not reoccur. The Trustee continues to monitor this issue to ensure members are not adversely affected. During the scheme year end 30 June 2017 some additional issues were identified relating to the historical reconciliation of invested units with those held on the administrator s member records for some members. As a result, the Trustee continued to escalate this with the companies to ensure that this matter is dealt with at the highest level. An investigation was carried out and resolutions to the issues are ongoing. An action plan is in place to ensure members are put in a position so they are no worse off as a result. Following identification of this issue, an updated reconciliation process has been put in place with immediate effect to ensure this does not reoccur. 18 Page

20 Statement regarding DC governance (continued) While the Trustee is not aware of any further issues with the processing of core financial transactions, as a result of the above issue it has stated an intention to commission a full independent review of their processes and will report on the conclusions of this review in the next Chair s Statement. (c) Charges and transaction costs The Plan is divided into two sections: the Retirement Savings ( RS ) Section and the Additional Voluntary Contribution ( AVC ) Section. Information on the investment options for members in these two sections is set out in the Charges and Transaction Costs sections below. Charges Default arrangement During the period covered by this Statement, the current level of member-borne charges applying to the default arrangement ranged from 0.17% to 0.41% of the amount invested (expressed as a Total Expense Ratio ) for the period covered by this Statement. These Total Expense Ratios and those provided in Table 2 and Table 3 below reflect the lower charges that the Trustee negotiated since 30 June The member borne charges for the default arrangement complied with the charges cap during the period covered by this Statement. The Trustees monitor the default arrangement s compliance with the charge cap basis described in the 2015 Regulations. The charges paid by members on the default strategy depend on where they are in the lifestyle strategy and the number of years they have until their selected retirement date (Table 1 shows the funds which members invest in at each stage of the lifestyle strategy). The charges relating to the four funds used in the default arrangement are as follows: Table 2: Default Lifestyle Strategy fund charges Fund Total Expense Ratio % BOC Equity Fund 0.20 BOC Diversified Growth Fund 0.61 BOC Pre Retirement Fund 0.18 BlackRock DC Cash 0.13 Other funds available to RS Section members In addition to this default arrangement, there are two alternative lifestyle strategies that are available to members to self-select. One of these lifestyle strategies, the Cash strategy, is based on switching from the BOC Equity Fund and BOC Diversified Growth Fund to the BlackRock Cash Fund as the member nears retirement, with holdings in the BOC Corporate Bond Fund during the switching phase. The other lifestyle strategy, the Income Drawdown strategy is based on switching from the BOC Equity Fund and BOC Diversified Growth Fund to the BOC Diversified Growth Fund, BOC Corporate Bond Fund, and BlackRock Cash Fund as the member nears retirement. These two alternative lifestyle strategies are designed to be suitable for members who intend to take all of their pension assets as cash on retirement ( Cash strategy) or take their assets to a drawdown provider at their selected retirement date ( Income Drawdown strategy). 19 Page

21 Statement regarding DC governance (continued) Alternatively, members are also able to self-select their own combination of funds from the list set out in Table 3 below and Table 2 above. During the period covered by this statement, the level of member borne charges (expressed as a Total Expense Ratio ) borne by members applying to funds outside the default arrangement (and in which members contributions were invested) were: [Note 1] Table 3: RS Section self-select fund charges Fund BlackRock DC Aquila UK Equity Index 0.11 BlackRock DC Aquila World (ex UK) Equity Index 0.14 BlackRock DC Aquila Global Equity (70/30) Index [Note 2] 0.14 BlackRock DC Aquila European Equity Index [Note 2] 0.15 BlackRock DC Aquila Japanese Equity Index [Note 2] 0.15 BlackRock DC Aquila Pacific Rim Equity Index [Note 2] 0.15 BOC Growth Fund 0.42 BlackRock DC Aquila Over 15 Year Gilt Index 0.12 BlackRock DC Aquila Over 5 Year Index-Linked Gilt Index 0.11 BOC Corporate Bond 0.46 BOC Global Bond Fund [Note 2] 0.42 Total Expense Ratio % Note 1: These funds are available to self-selecting members in addition to those listed in Table 2. Note 2: These funds are available only to members of the AVC Only Section (see next section for more information). Other funds available to AVC Only Section members The Plan also offers a range of funds to AVC Only section members, which are set out below in Tables 4-7. In addition to the funds set out in these tables, AVC Only section members are able to invest in a selection of BlackRock funds, which have been identified with a note in Table 3 (Note 1). 20 Page

22 Statement regarding DC governance (continued) During the period covered by this statement, the level of member borne charges (expressed as a Total Expense Ratio ) borne by members applying to funds outside the default arrangement (and in which members contributions were invested) were as follows: Table 4: Friends Life (closed to new members but open to new money from existing members) Fund Total Expense Ratio % UK Equity 0.80 UK Index Tracker 0.80 European Equity 0.80 North American Equity 0.80 Pacific Basin 0.80 Global Equity 0.80 Property 0.80 Managed 0.80 Stewardship 0.80 Stewardship Managed 0.80 Index-Linked Gilts 0.80 Pre-Retirement Fixed Interest 0.80 Cash Page

23 Statement regarding DC governance (continued) Table 5: Prudential (closed to new members and closed to new money) Fund Total Expense Ratio % International Pension 1.00 Global Leaders Pension 1.00 Global Leaders Select Pension 1.03 European Select Pension 1.00 Equity Pension 1.00 Japan Pension 1.00 North American Pension 1.00 Asia Pension 1.00 Recovery Pension 1.00 UK Income Distribution 1.00 UK Select Pension 1.00 Managed Pension 1.00 PPP 1.00 Property 1.61 Gilts & Fixed Interest 1.00 Cash Pension 1.00 Table 6: Prudential (closed to new members but open to new money from existing members) Fund Total Expense Ratio % [Note 3] With-Profits n/a Table 7: Aviva (closed to new members but open to new money from existing members) Fund Total Expense Ratio % [Note 3] With-Profits n/a Note 3: The charges and transaction costs for the Prudential and Aviva With-Profits funds are deducted from the overall fund before bonus rates are set for all policyholders. As a result, it is not possible to determine the exact charges and costs borne by members. 22 Page

24 Statement regarding DC governance (continued) Transaction costs To date, the Trustee has no information to enable it to assess transaction costs for the period. Direction has been awaited on the basis of disclosure of transaction costs in the annual governance statement by the Chair of Trustees. On September 2017, the FCA issued Policy Statement PS17/20 directing fund managers and platform providers on a disclosure framework for supplying transaction and administration cos information required by trustees for Chairs Statements and Value for Members assessments. From 3 January 2018, upon request from trustees, fund managers and platform providers now have to provide this information; however, it is not clear whether this information will be available retrospectively. The Trustee will continue to liaise with the fund managers and incorporate information on transaction costs for the default arrangement and other funds as soon as is practicable in a future Statement. Once available, the Trustee will compare these costs against transaction costs for typical funds invested in the same asset classes. The Trustee intends to carry out an annual assessment of the extent to which the transaction costs represent good value for members. Security of assets The Trustee has sought and considered information from its investment consultants to: - Increase their understanding of the compensation available and the criteria for claiming compensation, for example, in the event of a fund manager default; - Establish the adequacy of protection arrangements in the event of a business failure of an investment services provider; and - Understand the extent to which compensation is available for each of the investments currently held by the Plan. The Plan invests scheme assets predominantly in instruments admitted to trading on regulated markets, and the Plan s fund managers operate in a strong regulatory environment. Fund managers are required to meet regulatory capital requirements in respect of the policyholders funds, and this regulatory capital position is published in their annual returns. Additionally, fund managers administrative and risk management processes are required to comply with the requirements of the Financial Conduct Authority ( FCA ) and the Prudential Regulation Authority ( PRA ). In the unlikely event that a fund manager did sustain a loss which meant they were unable to meet their obligation to individual policyholders, policyholders may be entitled to compensation under the UK Financial Services Compensation Scheme ( FSCS ), depending on the type of business and the circumstances of the claim. (d) Value for Members The Trustee is required to carry out an annual assessment of the value delivered to the Plan to members in respect of the charges and fees that members pays for. When assessing Value for Members (VfM) of the Plan, the Trustee only takes into account fund management charges and the optional fee paid by members who opt to receive at-retirement financial advice provided by Origen. The Trustee has completed its VfM assessment for the current period and rated the VfM offered by the Plan as Good. More detail on the current VfM assessment is included in the Appendix to this Statement. 23 Page

25 Statement regarding DC governance (continued) (e) Trustee knowledge and understanding Newly appointed Trustee Directors are asked to complete the Pension Regulator s Trustee Toolkit within 6 months of becoming a Trustee/Trustee Director. The Trustee has an ongoing program of training to ensure it has appropriate knowledge and understanding to perform its duties. Over the year the Trustee noted its policy on training in a policy document. The Trustee is satisfied that during the period covered by this Statement it has taken effective steps to maintain and develop its knowledge and understanding to exercise properly its functions as Trustee of the Plan. The Trustee has appointed recognised and suitably qualified legal advisers, investment consultants and benefit consultants to provide advice on the operation of the Plan in accordance with the Plan s Trust Deed and Rules and in compliance with legislation. The Trustee s advisors also provide regular training for the Trustee at Trustee meetings. The appointment of the Trustee s advisers is reviewed on a periodic basis. The Trustee is satisfied that during the period covered by this Statement it had access to suitable advice, which enabled it to exercise properly its functions as Trustee of the Plan. Signed on behalf of the Trustee by: Susan Anyan Chair of the Trustee of the BOC Retirement Savings Plan 11 January Page

26 Statement regarding DC governance (continued) Appendix: Value for Members Value for Members ( VFM ) Assessment To fulfil their requirements, and as part of good scheme governance, the Trustee has carried out an assessment of whether the Plan represents good VFM. The Trustee assessment for the 2016/17 Plan year was: Value for Members rating Approach and preparation Good In keeping with the guidance from the Pensions Regulator, the Trustee has: Considered the Plan s features in two areas where costs are borne by members: investment charges and at retirement; Considered the Plan s membership characteristics and assessed the relative importance of each of the areas according to its likely impact on member outcome; Gathered information and evaluated how the services perform against the agreed metrics, taking into account cost, quality and scope of provision against any available external benchmarking assessments; and Agreed an action plan with clear timescales where the Trustee believes the Plan is not providing VFM, is missing information, or areas which should be improved. What do our members pay for? The Trustee has completed this assessment of the Plan on the basis that members pay investment charges (i.e. fund management charges as a % of their fund size) and at retirement may pay for access to financial advice provided by Origen ( 350 for access to desk based guidance and between 1% and 2.75% of their total fund value for access to desk based advice or face to face holistic advice ). All other Plan costs are paid for by the Companies (see Overall Value for Money section below for more information on these costs). Assessment basis The Trustee worked with their advisers to establish the services within the Plan that members paid for and the Trustee then rated the value of these services to members. Ratings basis For the assessment the Trustee has agreed that each value category is given a rating according to the following table: Definition The Trustee considers the Plan offers above average VFM. It provides better quality services at similar cost, or similar services at lower cost, compared with typical options or schemes. Focus should be on maintaining the above average rating. The Trustee considers the Plan offers good VFM. It provides similar quality services at similar cost, compared with typical options or schemes. A moderate priority for action to improve value (or high priority for categories with high weightings). The Trustee considers the Plan offers poor VFM. It provides similar services at higher cost, or lower quality services for similar cost, compared with typical options or schemes. A high priority for action to improve value. Rating Excellent Good Requires improvement 25 Page

27 Statement regarding DC governance (continued) Key actions to enhance Value for Members Over the past three years, the Trustee has undertaken a range of actions to improve VFM within the Plan. Below, we highlight some of the main actions undertaken and the benefits they have given for members: 1. Review of platform provider - The Trustee provides members with a range of investment funds that are offered via an investment platform. The current provider, BlackRock was appointed via full competitive tender and based on their competitive fees and service offering. In conjunction with its advisers, the Trustee carried out a high level annual review of BlackRock to ensure that they continue to offer good value for members. 2. Competitive market review of annual management charges The Trustee negotiated more competitive annual management charges for the default and self-select BlackRock funds which are paid by members via a deduction to their funds, and these reduced annual management charges will be reflected in the 2016/17 Chair s Statement. This competitive market review also covered the BlackRock funds available only to members of the AVC Only Section (see Table 3 for a list of these funds). The Trustee has also confirmed that the default lifestyling arrangement is compliant with regulatory charge cap requirements. 3. Ongoing monitoring The Trustee regularly receives updates from the Plan s investment adviser and the BOC Pensions Investment Team reflecting ongoing monitoring of markets and managers. 4. Consideration of fund manager performance - The Trustee reviews regular updates on fund manager performance net of fees against the benchmark returns for the fund, with a more in depth annual review in addition to this. Annual reviews include advice from the Trustee s advisers on whether the fees charged on funds offered to members are competitive when assessed against consistent funds in the market. 5. Conducted a review of at retirement services - The Trustee received information about the service provided by Origen in April 2016 to ensure it remains appropriate and offers good value for members. The next review is scheduled for April Member protection - The Trustee were advised on the protection available to members in the unlikely event of an investment fund or manager failing. 7. Review of the Standard Life Global Absolute Return Strategy Fund This fund formed part of the default fund and the review sought to ensure it delivered good value. This review was completed in July 2016, and changes to the default arrangement were implemented in September 2016, when this fund was replaced by the BlackRock DC ALMA diversified fund. The Trustee has subsequently reviewed its decision to make this change and remain satisfied that it was a sound decision. 8. Review of annual management charges for the whole AVC Only investment fund range Work was carried out to assess whether the fund range provide Vfm (see Tables 4-7 for a list of these funds). This included receiving additional regular reporting from the Plan s investment advisors on the continuing suitability of the AVC Only fund range. The Trustee s review was completed in December Following their review, the Trustee has concluded that some AVC Only members could get better value by investing in alternative funds, and have agreed in principle to undertake further due diligence to inform their decision on what actions to take in relation to the AVC funds they consider to provide poor VfM. The Trustee has also identified a number of potential actions for 2017/18 and beyond that would, in its view, contribute to improving value for members. These are summarised below: 1. Default fund: Review the structure of the default fund in growth stage. 2. Member behaviour: Continue to monitor patterns of member behaviour at retirement, as well as any other changes to the membership, to ensure that the default lifestyle strategy (which targets annuity purchase at the point of retirement) remains appropriate. 3. Self-select fund: Review the range of self-select funds offered and to consider whether they remain suitable (for example, considering whether to offer Shariah and Ethical funds). 26 Page

28 Statement regarding DC governance (continued) 4. Transaction costs: Work with investment managers regarding the transparency of the underlying transaction costs charged to members. The Trustee is awaiting further guidance on transaction costs and anticipate reporting on this item in future Chair s Statements. 5. Fund performance: Continue monitoring fund performance and fund managers. 6. At retirement: Undertake a market review of the services at retirement provided by Origen and alternatives in the market. 7. Management fees: From 23 January 2018, Schroders have confirmed that the Plan will be eligible for a discount to the current investment management fee of 0.05% as the Plan will have reached its fifth year of investment in the Fund. This means that members will see a reduction in charges for the BOC Diversified Growth Fund and the BOC Growth Fund. A progress update for these potential actions will be reported to members in each year s Chair s Statement. Overall Value for Money The Trustee has also reviewed the broader Overall Value for Money which includes services paid for by the Companies. The Companies pay the costs of Plan administration and also for the governance and management of the Plan including; Services provided by the in-house pensions team (whose roles include provision of secretariat services and the administration of the Plan); Investment advice provided by the BOC Pensions Investment team and by the Trustee s independent investment consultants; Independent trusteeship services; Actuarial and governance advice provided by the Trustee s benefit consultants; Legal advice provided by the Trustee s legal advisors; and Communications advice provided by the Trustee s communications consultants. Based on feedback from our consultants, the Trustee believes that all of these aspects add value for our members and believe that the Plan benefits from very high quality governance overall which helps to ensure our members receive Value for Money over time. The Trustee would like to develop its framework for assessing Overall Value for Money and expects this to commence in early Missing information and limitations The Trustee notes that at this point, limited data is available on industry wide comparisons and have relied on the market knowledge of their advisers in making value assessments. The Trustee will continue to work with their investment managers to understand the transparency of the underlying transaction costs charged to members. The Trustee and their managers are awaiting further guidance on transaction costs and anticipate reporting on this item in future Chair s Statements. New requirements for investment managers will come into effect in January Evidential Summary Further details on the assessment can be found in the remainder of this document, including the basis on which the Trustee has agreed the following: 27 Page

29 Statement regarding DC governance (continued) Assessment of the Plan VFM Categories Importance Rating Investment High Good At retirement High Good Underlying each category are various features which the Trustee considers contribute to VFM. The table below sets out the Trustee s agreed features for use in the assessment of the Plan, together with the metrics, comments on the current position, actions and timescale/priority, if any, to maintain value in future years. Value category/ feature Investment Charges for default Other investment charges; including charges for nondefault strategies, transaction and any transition costs Rating Metric Rationale Action to address value or missing information (if required) Compared to Hymans client universe. Compared with wider market Compared to Hymans Robertson s client universe. Compared with wider market. Charges on the default lifestyle strategy are under the 0.75% p.a. DWP s charge cap requirement. Member fees on funds underlying the strategy range from 0.17% to a maximum of 0.41% depending on how far from retirement the member is. The Trustee notes that the average charge per the DWP pensions charge survey is 0.41% for a trust based qualifying scheme with more than 1,000 members. The Trustee believes that the higher charges paid in the latter stages of the default strategy are justified in reducing volatility for members when their pot sizes are largest. Given the external benchmark, the Trustee considers the default offers good VFM. The Plan's default fund costs are reviewed at a high level on an annual basis. The majority of the member population are currently invested in the default arrangement as at June Fund charges are considered by the Trustee and their advisers to be competitive for a pension scheme of this size. The Trustee negotiated a reduction in the default BlackRock annual management charges, reducing the range of member fees from 0.17% to a maximum of 0.41% (depending on time to retirement) as summarised by Mercer in its VfM report dated October This change, in the Trustee s view, has improved the VfM offered by the default arrangement. During the period the Trustee negotiated a reduction in annual management charges for a number of the BlackRock self-select options as summarised by Mercer in its VfM report dated October 2017 and undertook a VfM review of the whole AVC Only fund range. 28 Page

30 Statement regarding DC governance (continued) Suitability of default and other investment options Investment performance of the default lifestyle strategy Trustee s assessment given membership profile. Usage of investment options. Comparison against benchmarks over 5 years. In determining the default arrangement for members, the Trustee takes into account a number of factors, including the projected size of members savings at retirement, and total contribution levels (employee + employer), to make up the default option. The new default strategy was implemented in When members are far from retirement, their assets are invested in order to achieve returns that are in excess of inflation. When members are eight years from retirement, they are defaulted into a strategy targeting annuity purchase at the point of retirement. By arranging for the funds in the default arrangement to be white-labelled, the Trustee is able to pick and choose the composite funds they perceive, based on advice from their investment advisors, to be most suitable for members. The Trustee also offers a cash lifestyle option and a drawdown lifestyle option along with the funds for members to self-select from. The Trustee considers that this is a suitable range of self-select funds given membership characteristics. The Trustee monitors the performance of the funds offered to members on a quarterly basis and takes action if appropriate. Over the past 5 years (or from the inception of the strategy) most funds performed broadly in line with, or ahead of, their benchmarks. The Trustee is monitoring patterns of member behaviour at retirement, as well as any other changes to the membership to ensure that this strategy remains appropriate. A formal review of strategy takes place every three years. During the period, the Trustee replaced the Standard Life GARS fund with the BlackRock DC ALMA diversified fund. Investment performance of the self-select funds Comparison against benchmarks over 5 years. The Trustee monitors the performance of the funds offered to members on a quarterly basis and take action if appropriate. Over the past 5 years (or since the inception of the strategy) most funds performed broadly in line with, or ahead of, their benchmarks. During the period the Trustee replaced the Standard Life GARS fund with the BlackRock DC ALMA diversified fund. 29 Page

31 Statement regarding DC governance (continued) At retirement Charges Costs compared with wider market. Origen provides at-retirement services to members on an opt-in basis. Members can select from desk based guidance, desk based focussed advice or face to face holistic advice. The desk based guidance costs a flat fee of 350. A member who takes an advice service will pay between 1% and 2.75% of their total fund value depending on the level and complexity of the advice required. Over 2016/17, about 29% of the members reaching retirement (accounting for c27% of the value of benefits paid) related to members who had used Origen s services. Range of services Wider market. The Trustee consider Origen to have a suitable range of options for the member to select a service appropriate to their needs. Undertake a market review of the services at retirement provided by Origen and alternatives in the market. 30 Page

32 Independent Auditor s Report Opinion We have audited the financial statements of BOC Retirement Savings Plan for the year ended 30 June 2017 which comprise the Fund Account, the Statement of Net Assets and the related notes 1 to 16, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. In our opinion, the financial statements: show a true and fair view of the financial transactions of the Plan during the year ended 30 June 2017, and of the amount and disposition at that date of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the year; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland ; and contain the information specified in Regulation 3A of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, made under the Pensions Act Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor s responsibilities for the audit of the financial statements section of our report below. We are independent of the Plan in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Use of our report This report is made solely to the Plan s Trustee, as a body, in accordance with the Pensions Act 1995 and Regulations made thereunder. Our audit work has been undertaken so that we might state to the Plan s Trustee those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Plan s Trustee as a body, for our audit work, for this report, or for the opinions we have formed. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: the Trustee use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the Trustee has not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Plan s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. 31 Page

33 Independent Auditor s Report (continued) Other information The other information comprises the information included in the Annual Report and Financial Statements set out on pages 2 to 65, including the Trustee Report, Investment Report, DC Chair Statement, Payment Schedule and Statement of Investment Principles, other than the financial statements and our auditor s report thereon. The Trustee is responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Trustee As explained more fully in the Trustee responsibilities statement set out on page 15, the Trustee is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Trustee determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements the Trustee is responsible for assessing the Plan s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Trustee either intend to wind up the Plan or to cease operations, or have no realistic alternative but to do so. Auditor s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council s website at This description forms part of our auditor s report. Ernst & Young LLP Statutory Auditor Reading Date 16 March The maintenance and integrity of the BOC RSP web site is the responsibility of the trustee; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site. 2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 32 Page

34 Fund Account for the year ended 30 June 2017 Contributions and benefits RS Section AVC Section 2017 Total RS Section AVC Section 2016 Total Notes '000 '000 '000 '000 '000 '000 Employer contributions 2 18,168 3,928 22,096 17,431 4,246 21,677 Employee contributions Transfers in Other income 4 1,845-1,845 1,014-1,014 20,823 3,985 24,808 19,850 4,541 24,391 Benefits paid or payable 5 (4,421) (4,580) (9,001) (3,294) (4,189) (7,483) Payments to and on account of leavers 6 (2,901) (528) (3,429) (1,950) (1) (1,951) Other payments 7 (976) - (976) (591) - (591) Administrative expenses 8 (896) - (896) (607) - (607) (9,194) (5,108) (14,302) (6,442) (4,190) (10,632) Net additions/(withdrawals) from dealing with members 11,629 (1,123) 10,506 13, ,759 Returns on investments Interest on cash deposits Change in market value of investments 9 16,475 2,533 19,008 2,784 1,069 3,853 Investment management expenses 11 (111) - (111) (95) - (95) Net returns on investments 16,368 2,535 18,903 2,689 1,069 3,758 Net increase in fund during the year 27,997 1,412 29,409 16,097 1,420 17,517 Net assets of the fund At 1 July 139,622 23, , ,525 22, ,849 At 30 June 167,619 25, , ,622 23, ,366 The notes on pages 35 to 47 form part of these financial statements. 33 Page

35 Statement of Net Assets as at 30 June 2017 Investment assets 9 RS AVC 2017 RS AVC 2016 Section Section Total Section Section Total Notes '000 '000 '000 '000 '000 '000 Pooled investment vehicles 167,712 25, , ,395 23, ,194 Other investment balances Investment liabilities 167,717 25, , ,521 23, ,426 Other investment balances (3,349) (1,019) (4,368) (2,710) (525) (3,235) Total net investments 164,368 24, , ,811 23, ,191 Current assets 12 5,222 3,347 8,569 3,446 1,871 5,317 Current liabilities 13 (1,971) (2,539) (4,510) (635) (1,507) (2,142) Net assets of the Fund at 30 June 167,619 25, , ,622 23, ,366 The financial statements summarise the transactions and the net assets of the Plan and deal with the net assets at the disposal of the Trustee. They do not take account of obligations to pay pensions and other benefits that fall due after the end of the Plan year. The notes on pages 35 to 47 form part of these financial statements. These financial statements were approved by the Trustee on 16 March 2018 Signed on behalf of the Trustee: S Anyan J Sparks Trustee Director Trustee Director 34 Page

36 Notes to the financial statements 1. Accounting policies Basis of preparation The financial statements have been prepared in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, Financial Reporting Standard 102 (FRS 102) The Financial Reporting Standard applicable in the UK and Republic of Ireland, issued by the Financial Reporting Council, and with the guidelines set out in the Statement of Recommended Practice (SORP) 2014 Financial Reports of Pension Schemes. The amendments to FRS 102 in relation to fair value hierarchy disclosure have been early adopted. (a) Currency The Plan s functional and presentational currency is pounds sterling. (b) Contributions RS Section (i) RS section members Core and Extra Contributions are accounted for when deducted from earnings. Employers contributions are accounted for in the period to which the corresponding members Core Contributions or exchanged contributions relate. (ii) Employers non designated and supplementary contributions are accounted for in the period they fall due as payable to the Plan. AVC Section (i) AVC section members contributions are accounted for when deducted from earnings. (ii) Employers contributions under Salary Exchange are accounted for in the period that exchanged employee contributions would have been deducted from earnings. (iii) Employers additional and augmentation contributions are accounted for in accordance with the agreement under which they are paid (c) Transfers from and to other plans Individual transfers to and from the Plan are included in the financial statements in accordance with the terms of the transfer agreement. (d) Benefits Where the member has a choice about the form of benefit, benefits are accounted for on the date that the member notifies the Trustee of how the benefit is to be taken. Where the member has no choice, the benefit is accounted for on the date the benefit becomes payable. (e) Expenses All administration expenses and investment management costs are accounted for on an accruals basis. (f) Change in market value The change in market value of investments during the year comprises all increases and decreases in the market value of investments held at any time during the year, including profits and losses realised on sales of investments during the year. (g) Investments Investments in pooled investment vehicles are valued at the latest available net asset value (NAV), determined in accordance with fair value principles, provided by the pooled investment manager. 35 Page

37 Notes to the financial statements (continued) 2. Contributions Employer contributions RS Section AVC Section 2017 Total RS Section AVC Section 2016 Total '000 '000 '000 '000 '000 '000 Normal 14,643 2,026 16,669 14,300 2,442 16,742 Non-designated 3,255-3,255 3,069-3,069 Augmentations 270 1,902 2, ,804 1,866 Total employer contributions 18,168 3,928 22,096 17,431 4,246 21,677 Employee contributions Normal Additional voluntary contributions Total employee contributions Total contributions 18,560 3,985 22,545 17,913 4,541 22,454 Employer normal contributions include contributions in respect of salary sacrifice arrangements. From 1 June 2010, members of both sections could choose to participate in a salary sacrifice arrangement. Under this arrangement (Salary Exchange), Core and Extra Contributions and Additional Voluntary Contributions from the member cease, and instead the Company makes increased contributions on the member s behalf. There is no 15% limit on contributions made under Salary Exchange. AVC section members who do not participate in a salary sacrifice arrangement may contribute up to 15% of their annual pay less their contributions to their underlying BOC or Gist pension scheme. Augmentations to either section are amounts paid to provide additional benefits for individual members as part of their redundancy arrangements. Further information on contributions is disclosed in the Payment Schedule which is included on page Transfers In RS AVC 2017 RS AVC 2016 Section Section Total Section Section Total '000 '000 '000 '000 '000 '000 Individual transfers in from other schemes Other income RS AVC 2017 RS AVC 2016 Section Section Total Section Section Total '000 '000 '000 '000 '000 '000 Claims on term insurance policies 1,845-1,845 1,014-1, Page

38 Notes to the financial statements (continued) 5. Benefits RS AVC 2017 RS AVC 2016 Section Section Total Section Section Total '000 '000 '000 '000 '000 '000 Commutations and lump sum retirement benefits 1,623 4,146 5,769 1,680 3,535 5,215 Self annuitisation External purchase of annuities Lump sum death benefits 1, ,012 1, ,293 4,421 4,580 9,001 3,294 4,189 7,483 When a member of the AVC Plan retires or dies, the AVC section funds accumulated in respect of that member are transferred to the Trustee of the underlying defined benefit scheme for the provision of additional benefits for, or in respect of, that member as categorised above. Self annuitisation comprises members who have chosen to take all or part of their AVCs as pension, payable by the underlying defined benefit scheme. 6. Payments to and on account of leavers RS AVC 2017 RS AVC 2016 Section Section Total Section Section Total '000 '000 '000 '000 '000 '000 Pension sharing orders Individual transfers to other schemes 2, ,376 1,900-1,900 2, ,429 1, , Other payments RS AVC 2017 RS AVC 2016 Section Section Total Section Section Total '000 '000 '000 '000 '000 '000 Premiums on term insurance policies Page

39 Notes to the financial statements (continued) 8. Administrative expenses Expenses charged to the Plan relate solely to the administration of the RS Section. Expenses for the AVC Section are borne by the underlying defined benefit scheme. Legal and other professional fees comprise 344k for consultancy services provided by Hymans Robertson LLP and 41k for legal services provided by Mayer Brown International LLP. The Employer pays additional contributions to the Plan to cover the administration expenses. This is explained in more detail in the Payment Schedule on page Investments Investments purchased by the Plan are allocated to the designated investment accounts of the individuals on whose behalf the corresponding contributions were paid. Accordingly, the assets identified as allocated to members in the Net Assets Statement do not form a common pool of assets available for members generally. Members each receive at least annual statements confirming the contributions paid on their behalf and the value of their designated investment account. RS Section Investment reconciliation table RS AVC 2017 RS AVC 2016 Section Section Total Section Section Total '000 '000 '000 '000 '000 '000 Administration and processing Audit fees Levies Legal and other professional fees Value at Sales Change in market Value at 1 July 2016 Purchases at cost proceeds value 30 June 2017 '000 '000 '000 '000 '000 Pooled investment vehicles Designated 127,206 36,451 (26,273) 15, ,290 Pooled investment vehicles Non-designated 12,189 10,755 (9,091) , ,395 47,206 (35,364) 16, ,712 Amounts due from / (to) Designated (2,294) (2,797) Non-designated (290) (547) Total investments 136, ,368 Transaction costs which include fees, commissions, stamp duty and other duties are incurred on investments within pooled investment vehicles. Indirect transaction costs are incurred through the bid-offer spread on investments. The amounts of indirect transaction costs are not separately provided to the Plan. 38 Page

40 Notes to the financial statements (continued) 9. Investments (continued) Non Designated designated Total Total Pooled investment vehicles '000 '000 '000 '000 Aquila Over 15 Year Gilt Index Aquila Over 5 Year Index Linked Gilt Index 1,446-1,446 1,386 Aquila UK Equity Index 5,279-5,279 4,305 Aquila World (Ex-UK) Equity Index 6,593-6,593 5,273 Cash Fund 2,566 6,022 8,588 14,208 Corporate Bond Fund Diversified Growth Fund 7,223 7,853 15,076 6,763 Equity Fund 4,172-4,172 3,373 Growth Fund 112, ,373 90,087 Pre-Retirement Fund 9,744-9,744 10,307 Total pooled investment vehicles 150,493 13, , , Amounts due from BlackRock Designated - 93 Non-designated 5 33 Total amounts due from BlackRock Amounts due from BlackRock comprise administration expenses that were paid by the Plan but not disinvested at the year end Amounts due to BlackRock Designated 2,797 2,387 Non-designated Total amounts due to BlackRock 3,349 2,710 Amounts due to BlackRock comprise contributions that had been received by the Plan but not invested at the year end. 39 Page

41 Notes to the financial statements (continued) 9. Investments (continued) AVC Section Value at 1 July 2016 Purchases at cost Sales proceeds Change in market value Value at 30 June 2017 Pooled investment vehicles '000 '000 '000 '000 '000 Prudential 3, (669) 464 3,472 Aviva 70 - (19) 8 59 BlackRock 19,913 12,559 (13,109) 2,006 21,369 Aviva (Friends Life) ,799 12,658 (13,797) 2,533 25,193 Cash in transit - 26 Amounts due from / (to) (419) (871) Total investments 23,380 24, Amounts due from BlackRock 81 2 Aviva 19 - Prudential Total amounts due from AVC providers Amounts due from providers comprise disinvestments for retirements where the benefit has been paid out but the funds have not been disinvested at the year end Amounts due to BlackRock Prudential Total amounts due to AVC providers 1, Amounts due to providers comprise contributions that had been received by the Plan but not invested at the year end Cash in transit BlackRock 20 - Prudential Cash in transit comprises amounts that have been paid by providers to the Plan but not received at year end. 40 Page

42 Notes to the financial statements (continued) 9. Investments (continued) Investment Fair Value Hierarchy The fair value of financial statements has been determined using the following fair value hierarchy: Level 1 the unadjusted quoted price in an active market for an identical asset or liability that the entity can access at the measurement date; Level 2 inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly; Level 3 inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability The Plan s investment assets and liabilities have been fair valued using the above hierarchy categories as follows: Level 2 Level 3 Total 2017 '000 '000 Pooled investment vehicles RS Section 164, ,368 AVC Section 22,427 1,921 24, ,795 1, , '000 '000 Pooled investment vehicles RS Section 136, ,811 Valuation techniques Pooled investment vehicles The Plan invests in pooled investment vehicles which are not quoted in an active market and which may be subject to restrictions on redemptions such as (monthly) periodic dealing. The Trustee considers the valuation techniques and inputs used in valuing these funds as part of its due diligence prior to investing, to ensure they are reasonable and appropriate and therefore the net asset value (NAV) of these funds may be used as an input into measuring their fair value. In measuring this fair value, the NAV of the funds is adjusted, as necessary, to reflect restrictions on redemptions, future commitments, and other specific factors of the fund and fund manager. In measuring fair value consideration is also paid to any transactions in the shares of the fund. Depending on the nature and level of adjustments needed to the NAV and the level of trading in the fund, the Plan classifies these as Level 2 and Level 3. Concentration of investments AVC Section 21,260 2,120 23, ,071 2, ,191 The following investments represent more than 5% of the Plan s net assets at 30 June 2017: CONCENTRATION OF INVESTMENTS BOC Growth Fund 60% 57% Cash Fund 7% 11% Diversified Growth Fund 9% 5% Pre-Retirement Fund 6% 8% 41 Page

43 Notes to the financial statements (continued) 10. Investment objectives, strategy and risk Investment Strategy The main priority of the Trustee when considering the investment policy for the Plan is to make available investment funds which serve to meet the varying investment needs and risk tolerances of the members. The Statement of Investment Principles outlines the investment objectives and strategy in detail and is available on request. The Trustee recognises that members may not believe themselves qualified to take investment decisions. As such, the Trustee makes available a default investment strategy, which they believe to be broadly appropriate, having taken expert advice, for any member not wishing to make their own investment choices. The default lifestyle strategy, which is the secured income lifestyle strategy, automatically de-risks members assets from growth assets to assets intended to protect annuity purchasing power and take the maximum allowable tax-free cash as they approach retirement. Further information on the Trustee s approach to risk management, credit and market risk is set out below. The investment funds offered to members are as follows: BlackRock Aquila Life UK Equity Index Fund BlackRock Aquila World (ex UK) Equity Index Fund BOC Equity Fund BOC Growth Fund BOC Diversified Growth Fund BOC Corporate Bond Fund BOC Pre-Retirement Fund BlackRock Aquila Life Over 15 Years Gilt Index Fund BlackRock Aquila Life Over 5 Years Index-Linked Gilt Fund BlackRock Cash Fund Within the Additional Voluntary Contributions (AVC), the Trustee makes available range of assets similar to the main assets of the Plan. The Trustee also makes available a number of with profit funds that are closed either to further contributions or which are only open to existing members. Investment Policy Overall investment policy falls into two parts: Strategic management of the Plan s assets is fundamentally the responsibility of the Trustee (acting on professional advice, as they deem appropriate, from their investment consultants, Mercer Limited) and is driven by their investment objectives. The day-to-day management of the assets, all of which are held in pooled investment vehicles accessed via a long-term insurance policy issued by BlackRock Life Limited (the Platform Provider ), is delegated to a number of third party investment managers. The Trustee recognises that the third party investment managers have full responsibility for monitoring and managing the risks described above. The investment managers have full discretion to buy and sell investments on behalf of the Plan, subject to agreed constraints and applicable legislation. They have been selected for their expertise in managing the different types of investments offered to Plan members. 42 Page

44 Notes to the financial statements (continued) 10. Investment objectives, strategy and risk (continued) The following table summarises the extent to which the various classes of investments are affected by financial risks: Risk FRS 102 requires the disclosure of information in relation to certain investment risks to which BOC Retirement Savings Plan ( the Plan ) is exposed to at the end of the reporting period. These risks are set out by FRS 102 as follows: 1. Credit risk: the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. 2. Market risk: the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk. Currency risk: the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Interest rate risk: the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Other price risk: the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The Plan has exposure to the above risks because of the investments it makes to implement its investment strategy. The Trustee manages investment risks through the careful selection of pooled investment funds, selected to meet the Plan s strategic investment objectives. 43 Page

45 Notes to the financial statements (continued) 10. Investment objectives, strategy and risk (continued) The following table summarises the extent to which the various classes of investments are affected by financial risks: RS Section Currency Interest rate Other price '000 '000 BlackRock Aquila Life UK Equity Index 5,279 4,305 BlackRock Aquila World (ex UK) Equity Index 6,593 5,273 BOC Equity Fund 4,172 3,373 BOC Growth Fund 112,373 90,087 BOC Diversified Growth Fund 15,076 6,763 BOC Corporate Bond Fund BOC Pre-Retirement Fund 9,744 10,307 Blackrock Aquila Over 15 Years Gilt Fund BlackRock Aquila Over 5 Years Index-Linked Gilt 1,446 1,386 BlackRock Cash Fund 8,588 14,208 RS Section 164, ,811 Source: Investment Managers. Credit risk (indirect) Market risk AVC Section Currency Interest rate Other price '000 '000 BlackRock 20,473 19,409 Prudential 3,504 3,666 Aviva Aviva (Friends Life) AVC Section 24,348 23,380 Source: Investment Managers. Credit risk (indirect) Market risk 44 Page

46 Notes to the financial statements (continued) 10. Investment objectives, strategy and risk (continued) Direct Credit Risk The Plan is subject to direct credit risk in relation to its long term insurance contract with the Platform Provider (BlackRock Pensions Limited). The Platform Provider is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The underlying investment managers are also appropriately authorised and regulated. As well as the level of oversight of member savings provided by the regulatory framework, the Platform Provider, as a life insurance company, is also required to hold capital reserves to reduce the risks of insolvency. However, in the event of the Platform Provider becoming insolvent, the Plan may be eligible for protection under the Financial Services Compensation Scheme ( FSCS ). Hence, the Trustee of the Plan may make a claim for 100% of the policy value with the Platform Provider in relation to losses from the failure of the Platform Provider, although it should be noted that compensation is not guaranteed. Indirect Credit and Market Risk The Plan is also subject to indirect credit and market risk arising from the underlying investments held in the funds: Indirect credit risk arises in relation to the solvency of the life insurance companies with which the Platform Provider contracts to provide access to some of the underlying investment funds. FSCS compensation would not be available in these circumstances, but the risks to members are mitigated through the way the relationship between the Platform Provider and the underlying investment managers is structured; Indirect credit risk arises in relation to underlying bond investments held in the bond and cash pooled investment vehicles; Indirect currency risk arises from the sterling priced pooled investment vehicles which hold unhedged underlying investments denominated in foreign currency; Indirect market risk arises where the underlying investments of a pooled investment vehicle is exposed to interest rate or other price risks. The Trustee has considered these indirect risks in the context of the investment strategy. The risks disclosed here relate to the Plan s investments as a whole. As members are able to choose their own investments from the range of funds offered by the Trustee, member level of risk exposures will be dependent on the funds invested. 11. Investment management expenses RS AVC 2017 RS AVC 2016 Section Section Total Section Section Total '000 '000 '000 '000 '000 '000 Other advisory fees Other advisory fees comprise amounts for in house investment services and advice supplied by Mercer Limited. 45 Page

47 Notes to the financial statements (continued) 12. Current assets RS AVC 2017 RS AVC 2016 Section Section Total Section Section Total '000 '000 '000 '000 '000 '000 Employer contributions receivable Claims on term insurance Prepayments Amounts due from other BOC pension arrangements Cash balances 4,119 3,347 7,466 2,642 1,838 4,480 Other debtors ,222 3,347 8,569 3,446 1,871 5,317 Detail regarding amounts due from other BOC pension arrangements is disclosed in note 15 on page 47. Prepayments comprise the annual life assurance premium for 2017/18 paid to Legal and General Assurance Society in advance. 13. Current liabilities RS AVC 2017 RS AVC 2016 Section Section Total Section Section Total '000 '000 '000 '000 '000 '000 Benefits payable Accrued expenses 1,017-1, Other creditors Amounts due to other BOC pension arrangements - 2,455 2, ,443 1,489 1,971 2,539 4, ,507 2,142 Detail regarding amounts due to other BOC pension arrangements is disclosed in note 15 on page Employer related investments Direct employer-related investment is not permitted under the Plan Rules. Contributions totalling 179,599 are due to the Plan representing 0.1% of the total contributions due in the year. These amounts have since been paid by the Employer. Further information regarding this is disclosed in the Trustee report on page Related party transactions The following related party transactions occurred during the year. The Plan has received member contributions in respect of Trustee Directors and certain BOC Pension Services employees, who are also Plan members. These transactions are in accordance with the Plan Rules. The costs incurred by BOC Group Limited in providing Scheme administration services are rechargeable to the Plan (RS Section). Amounts paid during the year were 289,084. The remaining amounts due to BOC Group Ltd for the period up to and including June 2017 are included within accrued expenses as shown in note Page

48 Notes to the financial statements (continued) 15. Related party transactions (continued) Key management personnel includes the professional Trustee Director who received total remuneration of 30,061 during the year. The fees of the professional Trustee Director are met by the Company. The professional Trustee Director is also a trustee of 3 other BOC Schemes. RS Section: Amounts due from other BOC pension arrangements comprise 18,703 due from BOC Pension Scheme for amounts due from the pensions payroll bank account for benefit payments. All amounts have subsequently been paid to the Plan. AVC Section: Amounts due to other BOC pension arrangements comprise 2,424,478 due to BOC Pension Scheme; 7,555 due to Gist Limited Pension Scheme and 22,137 due to BOC Senior Executive Scheme for disinvestments for benefits which have been paid by the Schemes. 16. Contingent liabilities The Plan had no contingent liabilities or commitments at 30 June 2017 (2016: nil) 47 Page

49 Summary of contributions During the year ended 30 June 2017 the contributions payable to the Plan under the Payment Schedule were as follows: '000 Employer normal contributions 16,669 Employers non-designated 3,255 Employee normal contributions 267 Additional voluntary contributions 182 Total contributions under the Payment Schedule 20,373 Augmentations 2,172 Total contributions per note 2 of the financial statements 22,545 Further detail regarding contribution issues is disclosed on page 6 of the Trustee Report. Aside from those discrepancies all other contributions were received by their due date on the Payment Schedule. The Payment Schedule included on page 50 to 55 explains the contribution rates and amounts payable in more detail. Signed on behalf of the Trustee on 16 March 2018 S Anyan Trustee Director J Sparks Trustee Director 48 Page

50 Independent Auditor s Statement about Contributions to the Trustee of BOC Retirement Savings Plan We have examined the summary of contributions to the BOC Retirement Savings Plan for the Plan year ended 30 June 2017 to which this statement is attached. In our opinion contributions for the plan year ended 30 June 2017 as reported in the summary of contributions and payable under the Payment schedule have in all material respects been paid at least in accordance with the Payment Schedule dated 14 December Use of our statement This statement is made solely to the Trustee, as a body, in accordance with regulation 4 of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, made under the Pensions Act Our audit work has been undertaken so that we might state to the Trustee those matters we are required to state to it in an auditor s statement and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trustee as a body, for our work, for this statement, or the opinions we have formed. Scope of work on Statement about Contributions Our examination involves obtaining evidence sufficient to give reasonable assurance that contributions reported in the summary of contributions on page 48 have in all material respects been paid at least in accordance with the Payment Schedule. This includes an examination, on a test basis, of evidence relevant to the amounts of contributions payable to the Plan and the timing of those payments under the Payment Schedule. Respective responsibilities of Trustee and auditor As explained more fully in the Statement of Trustee Responsibilities, the Plan s Trustee is responsible for securing that a payment schedule is prepared, maintained and from time to time revised and for monitoring whether contributions are made to the plan by the employer in accordance with the Payment schedule. It is our responsibility to provide a Statement about Contributions paid under the Payment schedule and to report our opinion to you. Ernst & Young LLP Statutory Auditor Reading Date 16 March Page

51 Payment Schedule for the BOC Retirement Savings Plan 50 Page

52 Payment Schedule for the BOC Retirement Savings Plan (continued) 51 Page

53 BOC Retirement Savings Plan 30 June 2017 Payment Schedule for the BOC Retirement Savings Plan (continued) 52 P a g e

54 Payment Schedule for the BOC Retirement Savings Plan (continued) 53 Page

55 BOC Retirement Savings Plan 30 June 2017 Payment Schedule for the BOC Retirement Savings Plan (continued) 54 P a g e

56 Payment Schedule for the BOC Retirement Savings Plan (continued) Signed by S Anyan For BOC RSP Trustees Limited, as trustee for the time being of the Plan Signed by A Brackfield For The BOC Group Limited and for the other Employers 55 Page

57 Appendix: Statement of Investment Principles 56 Page

58 Statement of Investment Principles (continued) 57 Page

59 Statement of Investment Principles (continued) 58 Page

60 Statement of Investment Principles (continued) 59 Page

61 Statement of Investment Principles (continued) 60 Page

62 Statement of Investment Principles (continued) 61 Page

63 Statement of Investment Principles (continued) 62 Page

64 Statement of Investment Principles (continued) 63 Page

65 Statement of Investment Principles (continued) 64 Page