TRUSTEES OF THE MIDDLESEX GROUP LIMITED PENSION FUND AND LIFE ASSURANCE SCHEME
STATEMENT OF INVESTMENT PRINCIPLES
Under Section 35 of the Pensions Act 1995, the trustees are required to set down the principles governing their decisions in relation to the investment policy for the Middlesex Group Limited Pension Fund and Life Assurance Scheme (“the Scheme”). Such principles are set down in this Statement of Investment Principles.
In formulating this Statement, the trustees have taken written advice from the Scheme’s actuary and investment adviser.
In addition, the trustees have consulted the Scheme’s principal employer, Middlesex Group Limited.
After considering the advice received, the trustees will be guided by the following principles in making decisions about investment strategy, policy and objectives:
The Scheme’s investment strategy will be balanced and in accordance with the provisions of the Trust Deed and Rules. It will aim to achieve the expected return on investments set out in section 4 below, but subject to an acceptable level of risk.
3. KINDS OF INVESTMENT TO BE HELD AND BALANCE BETWEEN INVESTMENTS
The Scheme’s liabilities fall into two principal categories, namely deferred pensioners and pensions in payment.
The trustees, after taking advice, have decided to invest in a combination of assets including fixed interest funds, property and equities. Generally, the trustees’ aim is hold no more than around 40% in fixed interest funds, with the balance to be invested into mainly equities, but with some exposure to property. However, from time to time, a portion of the Scheme’s assets may be held as cash. This might be a short term tactical position whilst strategy is being reviewed, or in extreme circumstances, i.e. if markets were particularly volatile, a cash holding might be retained in order to preserve capital.
The trustees will also retain some cash as working capital.
In formulating the above, the trustees have taken into account the financial strength of the principal employer (which they will continue to review). The trustees believe that the strategy is both prudent and in the best interests of the beneficiaries.
The trustees’ policy is to have no self investment.
4. EXPECTED RETURN ON INVESTMENTS
The trustees’ investment policy is to maximise the long-term investment performance of the Scheme’s assets, having due regard to the nature of the liabilities of the Scheme. With that said, the trustees reserve the right to adopt a flexible investment strategy designed to take into account prevailing market conditions. In this regard the Scheme’s assets will not always be invested in a way specifically designed to match its liabilities.
The performance of each of the Scheme’s investments is regularly assessed in relation to individual benchmarks and peer groups.
The trustees view the primary risk as the possibility of failing to meet the objectives set out in section 2 above. They will regularly take advice and monitor the performance of the Scheme’s assets (as above) to mitigate this risk.
To spread the risk of adverse investment experience, the Scheme’s assets should be invested in a diversified manner. This will be achieved by:
- Investing in a range of securities within each asset class
- Some investment will be via pooled, e.g. unitised, vehicles
It is acknowledged that the Scheme has diverted from the traditional model of holding long-duration bonds to underpin existing pensioner liabilities. This reflects the trustees’ concern (following professional advice) that long duration bonds are currently valued at a significant premium following the previous banking crisis and subsequent implementation of quantitative easing by the UK government. In turn, this has increased the risk of future volatility and investment losses from holding this particular asset. The trustees acknowledge that, if bond yields were to fall further, the Scheme’s liabilities could increase noticeably, and yet the asset value may not have benefited from a corresponding increase in value (unless the portfolio has in any event exceeded such an increase in bond values).
6. CHOICE OF INVESTMENTS AND REALISATION OF INVESTMENTS
The trustees delegate the day-to-day investment management of the assets to the investment managers.
The investment managers will be chosen by the trustees, having regard to the diversification of investments, and the general principles as to the investment strategy as presented to the trustees from time to time. The trustees will also have regard to the suitability for the Scheme of the individual investments within each asset class.
The trustees understand that there is risk attached to holding assets that cannot easily be sold, should the need arise. There is some potential for financial cost on encashment of such assets, but the trustees are satisfied that the Scheme has sufficient residual assets that can be realised at market value, should the need arise.
7. VOTING RIGHTS AND ENGAGEMENT ACTIVITIES
The trustees leave the extent to which social, environmental (including climate risk/opportunities) and governance are taken into account in investment decisions to the discretion of the underlying investment managers. The trustees will regularly review the extent to which social, environmental or ethical considerations are taken into account in investment decisions with their investment adviser and its impact in relation to financially material considerations including climate change. The trustees’ policy is to encourage the exercising of rights (including voting rights) attaching to investments, but responsibility for exercising such rights is delegated to those managing the investments. The trustees will review annually the effectiveness of their investment adviser’s stewardship in relation to this policy, or more frequently should circumstances require. Mattioli Woods, as part of their due diligence process in selecting investments have established a red, amber and green status with regards to the extent that the underlying manager utilises an environmental, social and governance framework in making their underlying investment decisions. This is formally updated annually and provided to the trustees to review and consider engagement activities with relevant parties on relevant matters.
The trustees accept that the assets invested in pooled funds are subject to the underlying investment managers’ policies on corporate governance. The trustees are satisfied that this corresponds with their responsibility to invest the assets in the best interests of members and beneficiaries and, in the case of a potential conflict of interest, in the sole interest of their members and beneficiaries.
The trustees note that members’ views on non-financial matters including their ethical views in relation to social and environmental impact and present and future quality of life will not be sought; however, they will be considered if raised by the membership.
In summary, the trustees’ policy in relation to their arrangement with any asset manager is explained as follows:
- How the arrangement with the asset manager incentivises the asset manager to align its investment strategy and decisions with the trustees’ policies
The trustees accept that the assets invested in pooled funds are subject to the underlying investment managers’ policies, therefore the asset manager will not be able to directly align their strategy with the trustees’ policy.
- How that arrangement incentivises the asset manager to make decisions based on assessments about medium to long-term financial and non-financial performance of an issuer of debt or equity and to engage with issuers of debt or equity in order to improve their performance in the medium to long-term;
By using pooled funds, the trustees are able to disinvest and realise their funds from a specific asset manager without penalty or delay, should they underperform or act outside the trustees’ investment objectives, stewardship and environmental, social and governance requirements.
- How the method (and time horizon) of the evaluation of the asset manager’s performance and the remuneration for asset management services are in line with the trustees’ policies
- How the trustees monitor portfolio turnover costs incurred by the asset manager and how they define and monitor targeted portfolio turnover or turnover range; and the duration of the arrangement with the asset manager.
The trustees delegate the review of portfolio costs and investment performance monitoring to their investment adviser. Their investment adviser reports regularly (no less than quarterly) and makes recommendations that incorporate analysis of these factors as part of their agreement with the trustees.
8. COMPLIANCE WITH THIS STATEMENT
The Scheme’s investment adviser will prepare reports, normally quarterly, to enable the trustees to review the investment activity. These reports will include:
- A current economic and investment outlook
- A valuation of all investments held for the Scheme
- Performance indicators
- Details regarding the allocation between asset types
The investment managers will notify the trustees promptly of any breach of their investment management responsibilities in accordance with their investment management agreements. The trustees will regularly review the investment strategy, the investments being made and the investment managers. The trustees will review the content of this Statement at least three yearly, or sooner if circumstances so require.
The trustees will provide a copy of this Statement (and any subsequent revisions thereof) to the investment managers and their custodian immediately following completion of the Statement (or any such revision).
9. ADDITIONAL VOLUNTARY CONTRIBUTIONS (‘AVCS’)
The trustees will maintain and review, periodically, investment contracts for the investment of AVCs that have been paid by Scheme members.