Embed Size (px)
Citation preview
C2 General
Vodafone UK Defined Contribution Pension Plan
Statement of Investment Principles – September 2019
1. Introduction
This Investment Statement sets out the principles governing decisions about investments for the
Vodafone UK Defined Contribution Pension Plan (“the Plan”) to meet the requirements of the
Pensions Act 1995 and as amended by the Pensions Act 2004 and the Occupational Pension
Schemes (Investment) Regulations 2005. In doing so, the Vodafone DC Pension Trustee
Company Limited (the “Trustee” of the Plan) has taken advice from its investment advisers,
Mercer Limited (“Mercer”). Vodafone Group Plc (the “Principal Employer”) has also been
consulted on the items in this Statement of Investment Principles. The Plan is a Defined
Contribution plan.
The Trustee’s policy is to offer a range of pooled investment vehicles providing different
investment risk and reward profiles to meet a range of different objectives for the different
members of the Plan with regard to:
- Differing ages,
- Members’ attitudes to risk,
- Differing expectations as to time of retirement, and
- The options available to members as to the way in which their benefits from their
investments are to be taken.
The Trustee’s investment responsibilities are governed by the Plan’s Trust Deed and this
Statement takes full regard of its provisions. A copy of the Plan’s Trust Deed is available for
inspection upon request.
2. Governance Structure
The Trustee has ultimate responsibility for the investment of the Plan's assets. The Trustee
takes some decisions itself and delegates others. When deciding which decisions to take and
which to delegate, the Trustee has taken into account whether it has the appropriate training and
expertise in order to take an informed decision. The Trustee has established the following
decision making structure:
Trustee
• Sets structures and processes for carrying out their role;
• Sets investment structures and their implementation, including the structure of the blended
funds;
• Selects and monitors investment advisers and fund managers;
• Sets structures for implementing investment strategy;
• Selects and monitors direct investments (see below); and
• Makes on-going decisions relevant to the principles of the Plan's investment strategy.
Page 2
Mercer Limited, the investment adviser
• Advises on all aspects of the investment of the Plan’s assets, including implementation;
• Advises on this Statement;
• Provides relevant required training; and
• Advises the Trustee on the suitability of each fund's structure, composition and benchmark.
Scottish Widows Limited, the investment platform provider
• Operates within the terms of this Statement and the written contract.
• Provides access to an investment platform through which third party funds can be accessed
by the Trustee, for the Plan’s members.
Underlying fund managers
• Select individual investments with regard to their suitability and diversification.
Mercer Workplace Savings
• Provides advice in selecting the investment platform provider;
• Provides on-going governance monitoring services (i.e. on the investment platform provider);
• Provides investment governance of the investment platform provider’s fund range.
The Statement is divided into sections which the Trustee believes contain, in aggregate, the
prescribed contents under the Act and subsequent legislation.
The Trustee is committed to maintaining the accuracy of this Statement on an on-going basis.
However, their fiduciary obligations to Plan members will take precedence over their wishes,
should these ever conflict.
3. Investment Objectives
The Trustee recognises that members have differing investment needs and that these may
change during the course of members’ working lives. The Trustee also recognises that
members have different attitudes to risk. The Trustee believes that members should make their
own investment decisions based on their individual circumstances. The Trustee regards their
duty as making available a range of lifestyle strategies and self-select investment options
sufficient to enable members to tailor their investment strategy to their own needs, with the aim
to ensure the security, quality, liquidity and profitability of a member’s portfolio as a whole.
The Trustee also recognises that members may not believe themselves qualified to take
investment decisions. As such, the Trustee makes available a default investment option. The
default investment option is one of the lifestyle options available and places the emphasis on
aiming to deliver a good level of real return over members’ working lifetimes and also
encompasses a switch into asset classes designed to provide some protection against equity
market falls in the years approaching the member’s selected target retirement age. Further
information on the default and self-select investment options are provided in Section 6 and 7
respectively.
Page 3
The Trustee’s objectives translate to the following principles:
a. Offering lifestyle options that allow members to prepare for how they wish to take their
savings at retirement, with assets to be switched into investments which seek to more
closely match how the member wishes to access their pension savings as they approach
retirement:
i. The “Cash Lifestyle Strategy”, a combination of the Melody, Harmony and Cash
funds, which is also the default investment option. It is designed for members
who wish to withdraw their retirement savings in the Plan as a cash lump sum on
retirement.
ii. The “Annuity Lifestyle Strategy”, a combination of the Melody, Harmony and Pre-
retirement Fund and a smaller allocation to a cash fund is designed for members
who wish to use their retirement savings in the Plan to take a tax-free cash lump
sum of 25% and purchase a fixed annuity on retirement (with the remaining 75%).
iii. The “Income Drawdown Lifestyle Strategy”, a combination of the Melody and
Harmony Funds with a small allocation to a cash fund in later years is designed
for members who wish to withdraw their retirement savings in the Plan gradually,
throughout retirement, via transferring to an income drawdown arrangement.
b. Making available a range of pooled investment funds which serve to meet the varying
investment needs, risk tolerances, return objectives and time horizons of Plan members.
This includes offering both passively and actively managed investment funds. From this
available range of funds, the Trustee provides the freedom to members to invest outside
the lifestyle options, according to the members’ risk appetite and tolerance.
c. It is members’ decision to determine their balance between the different kinds of
investments they hold. This balance will determine the expected return on members’
assets and should be related to the members’ own risk appetites and tolerances.
d. The Trustee undertakes to review the DC Section’s fund choices offered to members and
the investment manager arrangements on a regular basis. In considering appropriate
investments and suitability for the Plan, the Trustee has obtained and considered the
written advice of a suitability qualified investment advisor. The advice received and
arrangements implemented is based on investing in members’ best interests. The
selection of investments, the management of investments, delegation and seeking advice
are in the Trustee’s opinion consistent with the requirements of Section 36 of the
Pensions Act 1995 (Choosing investments) (as amended).
e. Blended funds are used and implemented with a mix of active and passive investments to
create options with different saving objectives and risk tolerances. These funds are
incorporated into the lifestyle options as well as provided as self-select investment options
for members. The Trustee is responsible for making decisions on asset allocation,
selection, appointment, removal and monitoring of underlying external investment
managers in these blended funds.
f. The investment choices for the Plan comprises of developed market equities, emerging
market equities, real estate, money market investments, gilts, index-linked gilts, corporate
bonds, diversified growth funds and pre-retirement funds. Both active and passive
management options are offered to members, depending on the asset class.
Page 4
g. Actively managed funds will only be included to the extent that the Trustee has a high level
of confidence in the respective investment managers achieving their performance
objectives, net of active investment management fees.
h. The Trustee has a desire to offer members a range of pooled investment funds and
lifestyle options (including the default) with strategies that are highly rated by the
Trustee’s investment adviser. Specifically, the Trustee will only choose new pooled
investment funds that have strategies with the highest rating from their investment
adviser. However, the Trustee recognises that in some cases there may be acceptable
reasons to have pooled investment funds with strategies that do not have the adviser’s
highest rating. For example, if the Trustee’s investment adviser downgrades the rating of
an investment strategy used within a pooled investment fund by one level, the Trustee will
consider replacing it with another strategy with the highest rating; however, in some
instances, the Trustee will not necessarily do so if their investment adviser recommends
that there is a sound reason to retain a downgraded strategy. However, in the event of a
further downgrade (i.e. two levels below the investment adviser’s highest rating), a
change to a new pooled investment fund that has a strategy with the adviser’s highest
rating will be undertaken.
i. Adopting a framework which provides flexibility to change investment managers proactively
and which allows efficient fund switching (e.g. without out-of-market risk) as required.
j. Providing general guidance as to the purpose of each investment option.
k. Encouraging members to seek independent financial advice from an appropriate party in
determining the most suitable option for their individual circumstances.
l. In determining an appropriate balance between providing flexibility and choice, as well as
simplicity and cost control, the Trustee aims to make available a range of options which
satisfy the needs of the majority of members.
m. All funds are daily-dealt pooled investment arrangements, with assets mainly invested in
regulated markets, and therefore should be realisable at short notice, based on member
demand.
n. Member views are not explicitly taken into account in the selection, retention and
realisation of investments. However, the Trustee does make available an Ethical Fund
and a Shariah Fund which consider the views of members and their non-financial
concerns.
o. The Trustee considers ratings assigned by Mercer to each of the strategies used within
the Plan during investment selection and monitoring. Mercer has ESG ratings that
represent their view on the extent to which ESG considerations are integrated into the
manager’s investment process and decision-making.
p. The Trustee believes that environmental, social, and corporate governance (ESG) factors
do have a financially material impact on investment risk and return outcomes. Further
details of the Trustee’s view could be found in section 11 of this Statement.
Page 5
q. The Trustee undertakes engagement activities, under the advice of the Plan’s investment
advisor, with relevant persons (including investment managers and providers) about
relevant matters in respect of the investments in the Plan. There are various areas
detailed in this SIP where the Trustees will need to engage – for example under the policy
in section 3.h the Trustee will engage with investment managers if their adviser
implements a downgrade to their rating of an investment manager. Under section 11, the
Trustee will engage with managers regarding ESG considerations periodically.
r. Pursuant to section 2(3)(d) of the Occupational Pension Schemes (Investment)
Regulations, the requisite formalities require the Trustee to set out a written policy in
relation to the Trustee’s arrangements with investment managers by October 2020. The
Trustee and its investment adviser undertakes engagement activities with the managers
to ensure the investments selections continue to be in the best interests of members.
However, the Trustee has yet to develop an explicit policy with respect to this section of
the Regulations in light of the proposal of the transfer the Plan’s investments to a
Mastertrust arrangement later in 2019 or 2020.
4. The Trustee’s Investment Beliefs
The Trustee expects:
• the long-term return on the investment options that invest predominantly in equities and
other growth-seeking asset classes (e.g. Diversified Growth Funds) to exceed price inflation
and general salary growth;
• the long-term returns on the bond and cash options to be lower than the predominantly
equity options;
• bond funds to broadly match the price of annuities, and so investing in a bond fund is
expected to provide some protection for the amount of projected pension that a member
could expect to purchase at retirement; and,
• cash funds to provide protection against changes in short-term capital values, and may be
appropriate for members taking (all or part of) their retirement benefits in the form of a cash
lump sum (although it is not guaranteed that these funds will not fall in value).
In choosing the Plan's investment options, it is the policy of the Trustee to consider:
• A full range of asset classes, including alternative asset classes;
• The suitability of different styles of investment management and the need for investment
manager diversification;
• The suitability of each asset class within a defined contribution scheme; and,
• The need for appropriate diversification.
Page 6
5. The Trustee’s Policy with Regard to Risk
The Trustee has considered investment risk from a number of perspectives. The below list is not
exhaustive but covers the main risks that the Trustee considers and how they are managed and
measured in the Plan as a whole.
Type
of
Risk
Risk Description How is the risk monitored
and managed?
Ma
rket risks
Inflation risk
The risk that the investment
return over members’ working
lives will not keep pace with
inflation and does not, therefore
secure an adequate pension.
The Trustee makes
available a range of funds,
across various asset
classes, with the majority
expected to keep pace with
inflation.
Currency risk
The risk that fluctuations in
foreign exchange rates will
cause the value of overseas
investments to fluctuate.
Use of currency hedging in
some assets to reduce the
influence of currency
fluctuation in foreign
investments
Credit risk
The risk that the issuer of a
financial asset, such as a bond,
fails to make the contractual
payments due.
Members are able to set
their own investment
allocations, in line with their
risk tolerances.
Within active funds
management of many of
these market risks is
delegated to the investment
manager.
Interest rate risk
The risk that unfavourable
interest rate movements,
particularly in the years just
prior to retirement may lead to a
reduction in the amount of
income that the member’s
retirement account can secure.
Concentration
risk
The risk that an adverse
influence on investment values
from the poor performance of a
small number of individual
investments
Equity, property
and other price
risk
The risk that investment market
movements lead to a
substantial reduction in the
anticipated level of the benefit.
Page 7
Environmental, Social
and Corporate
Governance risk
The risk that environmental,
social or corporate governance
concerns, including climate
change, have a financially
material impact on the return of
the Plan’s assets.
See Section 11, below, for
the Trustee’s responsible
investment and corporate
governance statement.
Investment Manager risk
The risk that the investment
manager underperforms its
objectives, fails to carry out
operational tasks, does not
ensure safe-keeping of assets
or breaches agreed guidelines.
The Trustee regularly
reviews performance of
investment funds.
Liquidity risk
The risk that the Scheme’s
assets cannot be realised at
short notice in line with member
demand.
The Plan is invested in daily
dealt and daily priced pooled
funds. Units in the pooled
funds in which the Plan
invests are believed to be
readily redeemable.
Pension Conversion risk
The risks that the member is
invested in a strategy that does
not reflect the way in which they
intend to take their benefits at
retirement.
The Trustee makes
available three lifestyle
strategies for DC members.
Lifestyle strategies
automatically switch
member assets into
investments whose value is
expected to be less volatile
relative to how the member
wishes to access their
pension savings as they
approach retirement age.
The Trustee believes that the investment objectives, beliefs and risks outlined in sections 3, 4
and 5 of this Statement are in relation to what the Trustee considers financially material
considerations. The Trustee believes the appropriate time horizon for which to assess these
considerations within should be viewed at a member level. This will be dependent on the
members’ age and when they expect to retire.
Page 8
6. Default Investment Option
Typically, a proportion of members will actively choose the default investment option
because they feel it is most appropriate for them. However, the vast majority of DC scheme
members do not make an active investment decision and are automatically invested in the
default investment option. Hence, the Trustee has made available a default investment
option, the “Cash Lifestyle Strategy”. The Trustee has designed the default investment
option to be appropriate for a member intending to take 100% of their retirement savings as
a cash lump sum on retirement. The Trustee recognises that this will not be appropriate for
all members and therefore encourages members to make their own investment decisions.
The items in this section (Section 6) are in relation to what the Trustee considers financially
material considerations in the default investment option. The Trustee believes the
appropriate time horizons for which to assess these considerations within should be viewed
at a member level. This will be dependent on the members’ age and when they expect to
retire. It is partly for this reason that the default arrangement investment option is a lifestyle
strategy.
Each members’ time to retirement will determine the balance between the different kinds of
investments members hold within the lifestyle strategy. This balance will determine the
expected return on members’ assets and is intended to be related to the members’ own risk
appetites and tolerances.
6.1 The Aims of the Default Investment Option
As required by the Occupational Pension Schemes (Investment) Regulations 2A(1)(a), the
Trustee sets out the following aims and objectives for the Plan’s default investment option:
- The Cash Lifestyle Strategy manages investment and other 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 retirement
outcomes for members. Any investment in derivative instruments contributes to risk
reduction, or efficient portfolio management.
- In designing the Cash Lifestyle Strategy, the Trustee has explicitly considered the trade-off
between risk and expected returns.
- Assets in the Cash Lifestyle Strategy are invested in the best interests of members and
beneficiaries, taking into account the profile of members.
- Assets in the Cash Lifestyle Strategy are invested in a manner which aims to ensure the
security, quality, liquidity and profitability of a member’s portfolio as a whole.
- Assets are invested mainly on regulated markets (those that are not must be kept to prudent
levels).
If members wish to, they can opt to choose their own investment strategy or an alternative
lifestyle strategy when they join the Plan and also at any other future date.
Page 9
6.2 The Trustee’s Policy in Relation to the Default Investment Option
- In addition to the Trustee’s Investment Objectives (covered in Section 3) and Investment
Beliefs (covered in Section 4), the Trustee has the following policy for the default investment
option with the aim that assets are invested in the best interests of members :
- The Cash Lifestyle Strategy’s growth phase structure, which invests in equities and other
growth-seeking assets, will provide growth with some downside protection and some
protection against inflation erosion.
- As a member’s pot grows, investment risk will have a greater impact on member outcomes.
Therefore, the Trustee believes that the default strategy that seeks to reduce investment risk
as the member approaches retirement is appropriate. The Trustee decided the investment
strategy with the written advice from Mercer. The asset allocation is consistent with the
expected amount of risk that is appropriate given the age of the member and when they
expect to retire.
- All funds are daily-dealt pooled investment arrangements, with assets mainly invested in
regulated markets, therefore should be realisable at short notice, based on members’
demand.
- A range of asset classes are included within the default arrangement, including: developed
market equities, emerging market equities, gilts, corporate bonds, diversified growth funds
and money market investments. Both active and passive management funds are utilised,
depending on asset class.
- Based on their understanding of the Plan’s membership, an investment strategy that targets
full cash withdrawal at retirement is likely to meet many members’ requirements for income
in retirement. Whilst this is likely to meet many members’ requirements (in respect of
retirements) over the next few years, the Trustee believes that drawdown will continue to
become increasingly popular for many Plan members. As such, the Trustee is considering
making a change to the current default investment option in the near future so that it moves
from targeting cash to targeting drawdown. A default targeting cash withdrawal does not
mean that members have to take their benefits in this format at retirement – it merely
determines the investment strategy that will be in place pre-retirement. Members who intend
to take their retirement benefits through other formats, such as drawdown, have the option of
switching to an alternative lifestyle strategy prior to retirement or even choosing their own
investment strategy. This is the prime example of how the Trustee aims that assets are
invested in the best interests of members.
As a general policy, the Trustee takes into account the current demographics of the Plan’s
membership and the Trustee’s views of how the membership will behave at retirement when
deciding on the appropriateness of the default investment option. However, member views
are not explicitly taken into account in the selection, retention and realisation of investments
within the default investment option.
The Trustee will continue to review the default strategy (a) at least every 3 years; and (b)
without delay after any significant change in investment policy or the demographic profile of
relevant members. Furthermore, the performance of the default arrangement is reviewed
every quarter.
Page 10
The Trustee will, in particular, review the extent to which the return on investments relating to
the default arrangement (after deduction of any charges relating to those investments) is
consistent with the aims and objectives of the Trustee or managers in respect of the default
arrangement. The Trustee undertakes engagement activities, under the advice of the Plan’s
investment advisor, with relevant persons (including investment managers and providers)
about relevant matters in respect of the default investments in the Plan. There are various
areas detailed in this SIP where the Trustees will need to engage – for example under the
policy in section 3 the Trustee will engage with investment managers if their adviser
implements a downgrade to their rating of an investment manager. Under section 11, the
Trustee will engage with managers regarding ESG considerations periodically.
6.3 The Trustee’s Policy with Regard to Risk in relation to the Default Investment Option
In addition to the Trustee’s Policy to risk monitoring and management set out in Section 5,
the Trustee has considered the following items to monitor and manage the risk in relation to
the default investment option. Risk is not considered in isolation, but in conjunction with
expected investment returns and retirement outcomes for members. In particular, when
reviewing the investment strategy of the default investment option, the Trustee considers risk
quantitatively in terms of the variability of investment returns and potential retirement
outcomes for members. From a qualitative perspective, the Trustee also considers risk in
terms of the (mis)alignment of investments with the retirement benefits targeted by the
default investment option. The Trustee has considered how to monitor risks from a number
of perspectives in the default investment option. The list below is not exhaustive but covers
the additional risks that the Trustee considers specifically with regards to the default and
how they are managed.
Market Risks – The Trustee regularly monitors the performance of the growth phase against
inflation. The strategy for the default option is set with the intention of diversifying the market
risks to reach a level of risk deemed appropriate. Within active funds, management of many
of the market risks is delegated to the investment managers.
Pension Conversion Risk – The default option is a lifestyle strategy which automatically
switches member assets into investments whose value is expected to be less volatile
relative to the growth phase approaching retirement age and is appropriate for member
taking cash lump sum at retirement. The Trustee regularly reviews the default investment
strategy to ensure the destination remains appropriate.
7. Self-Select Investment Options
In addition to the default investment option, the Trustee also makes available alternative lifestyle
options and a range of fund options of different risk and return profiles for members who would
like to flexibly invest their savings and tailor their investment strategy at their own discretion.
The items in this section (Section 7) are in relation to what the Trustee considers financially
material considerations with regards to the self-select investment options. The Trustee
believes the appropriate time horizon for which to assess these considerations within should be
viewed at a member level. This will be dependent on the members’ age and when they expect to
retire. Members have full discretion on their investment choices in these self-select options and
can make changes as they see fit.
Page 11
7.1 The Aims of the Self-Select Investment Options
In addition to the Trustee’s Investment Objectives (covered in Section 3) and Investment
Beliefs (covered in Section 4), the Trustee has the following aims for the self-select
investment options so that the assets are invested in the best interests of members :
- The Trustee aims to make available a self-select investment range which serve to meet the
varying investment needs, risk tolerances, return objectives and time horizons for Plan
members to choose as they see fit based on their individual risk appetite and tolerance. The
risks of these options are not considered in isolation, but in conjunction with expected
investment returns and anticipated retirement outcomes for members.
- The self-select investment options consists of two lifestyle options (in addition to the default
lifestyle), a mix of blended funds compiled by the Trustee as well as standalone funds that
the Trustee believes would be suitable for the members. These options have varying
risk/return profiles and risks are managed the members. In designing the available fund
range, they Trustee has explicitly considered the trade-off between risk and expected
returns.
- Options made available for any particular risk/return profile in the self-select investment
option range are chosen in the best interests of members and beneficiaries, taking into
account the profile of members.
- Assets in the self-select investment options are invested in a manner which aims to ensure
the security, quality, liquidity and profitability of a member’s saving
- Assets are invested mainly on regulated markets (those that are not must be kept to prudent
levels)
- Any investment in derivative instruments contributes to risk reduction, or assists in efficient
portfolio management for the members.
If the members wish to, they can choose their investment options when they join the Plan
and also change them at any other future date.
7.2 The Trustee’s Policy in Relation to the Self-Select Investment Options
In addition to the Trustee’s Investment Objectives (covered in Section 3) and Investment
Beliefs (covered in Section 4), the Trustee believes that for the self-select investment
options:
- Members have full discretion in balancing their investments between any risk/return profiles
when choosing to invest in the self-select fund range. This includes a range of lifestyle
strategies and funds from growth-seeking assets to downside protection assets. This
balance will determine the expected return on members’ assets and should be related to the
members’ own risk appetites and tolerances.
Page 12
- As a member’s pot grows, investment risk will have a greater impact on member outcomes.
However, the member has the discretion to manage the investment risk according to their
individual preferences entirely when investing in the self-select fund range. The Trustee
made available the self-select fund range with written advice from Mercer.
- The Trustee has made available a selection of lifestyle strategies and blended fund targeting
specific investment objectives and decided the underlying strategies with the written advice
from Mercer. These lifestyle strategies and blended funds are implemented with a mix of
active and passive investments, and the Trustee is responsible for ensuring the underlying
asset allocation of these strategies and funds are consistent with the expected amount of
risk that is appropriate for meeting the specific investment objectives, as well as selection,
appointment, removal and monitoring of underlying external investment managers in these
blended funds and lifestyle strategies.
- All funds are daily-dealt pooled investment arrangements, with assets mainly invested in
regulated markets, therefore should be realisable at short notice, based on members’
demand.
- A range of asset classes are included within the self-select investment options, including:
developed market equities, emerging market equities, real estate, money market
investments, gilts, index-linked gilts, corporate bonds, diversified growth funds and pre-
retirement funds. Both active and passive management options are offered to members in
some asset classes.
As a general policy, the Trustee takes into account the current demographics of the Plan’s
membership and the Trustee’s views of how the membership will behave at retirement when
deciding on the appropriateness of the self-select investment options available. The Trustee
has also made available an Ethical Fund and a Shariah Fund which consider the views of
members and addresses members’ non-financial concerns. However, member views are not
explicitly taken into account in the selection, retention and realisation of investments within
the self-select investment options.
The Trustee will continue to review the self-select investment options (a) at least every 3
years and (b) without delay after any significant change in investment policy or the
demographic profile of relevant members. Furthermore, the performance of the self-select
investment options are reviewed every quarter.
The Trustee will, in particular, review the extent to which the returns on investments relating
to the self-select investment options (after deduction of any charges relating to those
investments) are consistent with the aims and objectives of the Trustee or managers in
respect of the self-select investment options.
Page 13
7.3 The Trustee’s Policy with Regard to Risk in relation to the Self-Select Investment
Options
As members are acting in their own discretions when investing in the self-select investment
options, there are certain discrepancies in how the Trustee monitor and manage the risks set
out in Section 5. The Trustee has considered the following items to monitor and manage the
risk in relation to the self-select investment options. Risk is not considered in isolation, but in
conjunction with expected investment returns and retirement outcomes for members. In
particular, when reviewing the self-select investment option range, the Trustee considers risk
quantitatively in terms of the variability of investment returns and potential retirement
outcomes for members. From a qualitative perspective, the Trustee also considers risk in
terms of the (mis)alignment of investments with the retirement benefits targeted by each self-
select investment option.
The Trustee has considered how to monitor risks from a number of perspectives in the self-
select investment option. The list below is not exhaustive but covers the additional risks that
the Trustee considers specifically with regards to the self-select funds and how they are
managed.
Market Risks – The Trustee regularly monitors the performance of the self-select
investment options made available to the members and ensure the options continue to align
with the intended aims and objectives of each option. However, the members are
responsible for balancing their investments between any risk/return profiles in a manner that
aligns with their own risk appetites and tolerances.
Pension Conversion Risk – As the self-select investment options are made at the
member’s individual discretion, members are responsible for ensuring the investment
options will translate to their desired retirement outcomes, especially as they approach
retirement.
8. Additional Voluntary Contributions
Members can invest additional voluntary contributions into the same funds that are available for
the investment of regular contributions paid into the Plan. The Trustee regularly reviews the
continuing suitability of the Plan’s investment arrangements. The Trustee utilises Mercer as an
investment consultant to advise on investment strategy and provider appointments, and to assist
in monitoring the funds available, both in the form of written reports and attendance at meetings.
The Plan also holds legacy money purchase additional voluntary contribution investment options
relating to members within the Vodafone Group Pension Scheme. These legacy money
purchase additional voluntary contributions, are closed to new contributions.
9. Day-to-Day Investment Management
The fund range offered to members is accessed through Mercer Workplace Savings (“MWS”) on
the investment platform provided by Scottish Widows Limited (“Scottish Widows”). The Trustee
accesses the investment platform via a long-term insurance contract with Scottish Widows.
The Pensions Act 1995 (and subsequent legislation) distinguishes between investments where
the management is delegated to a fund manager with a written contract and those where a
product is purchased directly, e.g. the purchase of an insurance policy or units in a pooled
vehicle. The latter are known as direct investments.
Page 14
The policy of the Trustee is to review their direct investments and to obtain written advice about
them at regular intervals. When deciding whether or not to make any new direct investments the
Trustee will obtain written advice and consider whether future decisions about those investments
should be delegated to the fund managers.
The written advice will consider the issues set out in the Occupational Pension Scheme
(Investment) Regulations 2005 and the principles contained in this Statement. The advisor will
have knowledge and experience required under section 36(6) of the Pensions Act 1995.
Day-to-day management of the assets is delegated to professional Investment Managers who
are all authorised or regulated. The Trustee expects the Investment Managers to manage the
assets delegated to them under the terms of their contracts. The range of funds offered to
members incorporates funds from a number of Investment Managers.
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 different specialisations.
The Trustee recognises that it is not possible to specify investment restrictions where assets are
managed via pooled funds and furthermore, given that it is Scottish Widows that has the direct
relationship with the third parties offering the funds (and not the Trustee).
The Investment Managers have appointed custodians for the safe custody of assets held within
their pooled funds in which the Plan is invested. The custodians are responsible for the
safekeeping of the assets held and for performing various administrative duties, such as the
collection of interest and dividends and dealing with corporate actions.
The Trustee assesses the continuing suitability of the Plan’s Investment Managers on a periodic
basis. The Trustee’s investment adviser is available to provide help in monitoring the
Investment Managers, both in the form of written reports or attendance at meetings as required
by the Trustee.
The Trustee will review the appointment of any Investment Manager for any reason it considers
appropriate. These will include, but will not be limited to:
• Breach of investment guidelines;
• Changes to the investment management process, personnel or business management of the
Investment Manager that could lead to a loss of confidence in the Investment Manager’s
ability to outperform its benchmark over a full market cycle;
• Changes to the investment management process that results in the Investment Manager no
longer being suitable for the mandate for which it was appointed.
Page 15
10. Investment Options
10.1 Lifestyle investment options
Cash Lifestyle Strategy (also the default investment option)
If members do not make an active choice in selecting investment options, they will be defaulted
into the Cash Lifestyle Strategy. Details of the default investment option are shown below. This
option is also available for members to self-select:
Investment Option Investment Brief
Cash Lifestyle Strategy
(default investment option)
The “Cash Lifestyle Strategy”, which is the default investment option, offers a changing investment programme designed to meet a typical member’s perceived changing financial needs as they move through their working life and approach retirement. This arrangement is designed for members who wish to withdraw their retirement savings in the Plan as a lump sum on retirement. It is designed to provide some level of protection, close to retirement, against adverse changes in market conditions.
The table below sets out the allocations up to retirement for the Cash Lifestyle Strategy:
Years to
Retirement Melody Fund
Harmony Fund
Cash Fund
>20 100 0 0
20 100 0 0
19 90 10 0
18 80 20 0
17 70 30 0
16 60 40 0
15 50 50 0
14 40 60 0
13 30 70 0
12 20 80 0
11 10 90 0
10 0 100 0
9 0 100 0
8 0 100 0
7 0 100 0
6 0 100 0
5 0 100 0
4 0 100 0
3 0 75 25
2 0 50 50
1 0 25 75
0 0 0 100
Page 16
Annuity Lifestyle Strategy This investment option is available for members to self-select. Details of this investment option are shown below:
Investment Option Investment Brief
Annuity Lifestyle Strategy
The “Annuity Lifestyle Strategy” offers a changing investment programme designed to meet a typical member’s perceived changing financial needs as they move through their working life and approach retirement. This arrangement is designed for members who wish to use their retirement savings in the Plan to take a tax-free cash lump sum of 25% and purchase a fixed annuity on retirement (with the remainder 75%). It is designed to provide some level of protection close to retirement against adverse changes in the market conditions which may impact annuity prices.
The table below sets out the allocations up to retirement for the Annuity Lifestyle Strategy:
Years to retirement
Melody Fund
Harmony Fund
Pre-Retirement Fund
Cash Fund
>20 100 0 0 0
20 100 0 0 0
19 90 10 0 0
18 80 20 0 0
17 70 30 0 0
16 60 40 0 0
15 50 50 0 0
14 40 60 0 0
13 30 70 0 0
12 20 80 0 0
11 10 90 0 0
10 0 100 0 0
9 0 100 0 0
8 0 100 0 0
7 0 100 0 0
6 0 100 0 0
5 0 100 0 0
4 0 100 0 0
3 0 75 19 6
2 0 50 37 13
1 0 25 57 18
0 0 0 75 25
Page 17
Income Drawdown Lifestyle Strategy This investment option is available for members to self-select. Details of this investment option are shown below:
Investment Options Investment Brief
Income Drawdown Lifestyle Strategy
The “Income Drawdown Lifestyle Strategy” offers a changing investment programme designed to meet a typical member’s perceived changing financial needs as they move through their working life and approach retirement. This arrangement is designed for members who wish to withdraw their retirement savings in the Plan gradually, throughout retirement, via transferring to an income drawdown arrangement.
The table below sets out the allocations up to retirement for the Income Drawdown Lifestyle Strategy:
Years to Retirement
Melody Fund
Harmony Fund
Cash Fund
>20 100 0 0
20 100 0 0
19 90 10 0
18 80 20 0
17 70 30 0
16 60 40 0
15 50 50 0
14 40 60 0
13 30 70 0
12 20 80 0
11 10 90 0
10 0 100 0
9 0 100 0
8 0 100 0
7 0 100 0
6 0 100 0
5 0 100 0
4 0 100 0
3 0 94 6
2 0 87 13
1 0 82 18
0 0 70 30
Page 18
10.2 Self-select investment options
Fund (Asset Class) Investment Objective Underlying Funds
Melody Fund (Global and Emerging Market Equities)
The aim of the Fund is to provide members with a high risk tolerance the potential to achieve growth over the longer term by investing in global and emerging market equities only. This fund is likely to be subject to a high level of volatility in the short term.
15% Active Emerging Market Equity Fund Allocation (There is also an allocation to Wells Capital Berkeley Street Emerging Markets Equity) 85% Passive Global Equity Fund Allocation
Symphony Fund (Multi-asset)
The aim of the Fund is to provide members with a moderate to high risk tolerance the potential to achieve growth over the longer term by investing mostly in equities and bonds. This fund is likely to be subject to a moderate to high level of volatility in the short term.
15% Bond Fund Allocation 42.5% Melody Fund Allocation 42.5% Target Return Fund Allocation
Harmony Fund (Multi-asset)
The aim of the Fund is to provide members with a moderate risk tolerance the potential to achieve growth over the longer term by investing mostly in equities and bonds. This fund is likely to be subject to a moderate level of volatility in the short term.
35% Target Return Fund Allocation 30% Bond Fund Allocation 35% Melody Fund Allocation
Active Global Equity Fund (Global Equities)
The aim of the Fund is to provide members with a high risk tolerance the potential to achieve growth over the longer term by investing in global equities only. This fund is likely to be subject to a high level of volatility in the short term.
40% MFS Meridian Global Equity 40% Schroder QEP Global Active Value 20% Baillie Gifford Long Term Global Growth
Active UK Equity Fund (UK Equities)
The aim of the Fund is to provide members with a high risk tolerance the potential to achieve growth over the longer term by investing in UK equities only. This fund is likely to be subject to a high level of volatility in the short term.
40% Baillie Gifford UK Equity Alpha 40% Artemis Equity Income 20% Lindsell Train Unconstrained UK Equity
Active Emerging Market Equity Fund (Emerging Market Equities)
The aim of the Fund is to provide members with a higher risk tolerance the potential to achieve growth over the longer term by investing in emerging market equities only. This fund is likely to be subject to a higher level of volatility in the short term.
50% Dimensional Emerging Markets Value 50% First State Global Emerging Markets Leaders
Page 19
Target Return Fund (Multi-asset)
The fund seeks to achieve medium to high levels of capital growth, above inflation, over the long-term with medium to high risk by investing predominately in shares and other asset types
33.4% Nordea Stable Return Diversified Growth Strategy 33.3% Schroder Diversified Growth 33.3% Insight Broad Opportunities
Bond Fund (UK Fixed Interest Bonds)
The fund seeks to achieve moderate levels of capital growth over the long-term, with medium risk by investing predominately in bonds issued by sovereigns and corporations.
50% Legal & General All Stocks Gilts Index
50% Legal & General AAA-AA-A Corporate Bonds All Stocks Index
Passive UK Equity Fund (UK Equities)
The fund aims to track the performance of the FTSE All-Share Index to within +/-0.25% a year for two years out of three.
Legal & General UK Equity Index
Passive Global Equity Fund (Global Equities)
The fund aims to provide diversified exposure to global equity markets, with c.75% of the overseas developed market currency exposure hedged back to Sterling.
9% Legal & General Passive UK Equity Index 21% Legal & General World (ex UK) Developed Equity Index 70% Legal & General World (ex UK) Developed Equity Index - GBP Currency Hedged
Passive Global Equity Ethical (Global Equities)
The fund aims to track the performance of the FTSE4Good Global benchmark to within +/-0.25% p.a. for two years out of three.
Legal & General Ethical Global Equity Index
Index-linked Gilt Fund (UK Index-linked Bonds)
The fund aims to track the sterling total return of the FTSE A Index-Linked (Over 5 Year) Index to within +/- 0.25% p.a. for two years in three.
Legal & General Over 5 Year Index Linked Gilts Index
Pre-Retirement Fund (UK Fixed-Interest Bonds)
The fund aims to invest in assets that reflect the investments underlying a typical non-inflation linked pension annuity product.
Legal & General Pre-Retirement
Property Fund (UK Property)*
The fund invests primarily in UK commercial and industrial property and its objective is to outperform similar funds in the marketplace.
Legal & General Managed Property
Cash Fund (Money Market Instruments)
The fund aims to achieve an investment that is in line with wholesale money market short-term interest rates. Specifically, the fund will aim to better the return of Seven Day LIBID before fees.
Legal & General Sterling Liquidity
Page 20
As an alternative to the three Lifestyle Strategies available, members can choose to invest in any of the following funds:
* This fund is currently closed to future contributions.
The Plan also holds legacy money purchase additional voluntary contribution investment options. These additional voluntary contribution assets are managed in an Equitable Life With Profits policy which is closed to new contributions. This policy aims to provide some level of guarantee in their return. The Trustee receives annual updates on the Equitable Life policies from their adviser and then considers whether any action should be taken on behalf of members.
10.3 Fees
The table below details the Total Expense Ratio (TER) applicable for each investment option
within the Plan (including the four options which make up the Lifestyle Strategy). The TER
includes the annual management charge (AMC), the platform charge from Scottish Widows and
the fees for MWS services. It also includes other fund manager costs not included in the AMC,
which can fluctuate from time to time. The TERs shown below are correct as at 31 March 2019
unless otherwise stated, and may vary from this over time.
Fund Benchmark TER
(% p.a.)
Melody Fund 15% MSCI Emerging Markets Index
7.5% FTSE All-Share
17.5% FTSE Developed (ex UK) Index
60.0% FTSE Developed (ex UK) Index – GBP Hedged
0.222
Symphony Fund 6.36% MSCI Emerging Markets Index
3.18% FTSE All-Share
7.5% FTSE Developed (ex UK) Index
25.45% FTSE Developed (ex UK) Index – GBP Hedged
14.17% CPI + 5% p.a.
14.17% 3 month Sterling LIBID + 5% p.a.
14.17% 1 month Sterling LIBOR + 4% p.a.
7.5% FTSE A UK Conventional Gilts All Stocks Index
7.5% iBoxx £ Non-Gilts (ex BBB) Index
0.413
Harmony Fund 5.24% MSCI Emerging Markets Index
2.62% FTSE All-Share
6.13% FTSE Developed (ex UK) Index
21% FTSE Developed (ex UK) Index – GBP Hedged
11.67% CPI + 5% p.a.
0.359
Shariah Fund (Global and Emerging Market Equities)
The fund aims to offer investors the opportunity to grow their money in line with the performance of the Dow Jones Islamic Titans 100 Index. The fund invests in company shares from around the world and is compliant with Islamic Shariah principles. The fund invests solely in the HSBC Islamic Global Equity Index Fund.
HSBC Islamic Global Equity Index Fund
Page 21
Fund Benchmark TER
(% p.a.)
11.67% 3 month Sterling LIBID + 5% p.a.
11.67% 1 month Sterling LIBOR + 4% p.a.
15% FTSE A UK Conventional Gilts All Stocks Index
15% iBoxx £ Non-Gilts (ex BBB) Index
Active Global Equity Fund
80% MSCI World Index
20% MSCI AC Index
0.691
Active UK Equity Fund
FTSE All-Share Index 0.711
Active Emerging Market Equity Fund
MSCI Emerging Markets Index 0.788
Target Return Fund
33.33% CPI + 5% p.a.
33.33% 3 month Sterling LIBID + 5% p.a.
33.34% 1 month Sterling LIBOR + 4% p.a.
0.721
Bond Fund 50% FTSE A UK Conventional Gilts All Stocks Index
50% iBoxx £ Non-Gilts (ex- BBB) Index
0.094
Passive UK Equity Fund
FTSE All-Share Index 0.093
Passive Global Equity Fund
9% FTSE All-Share
21% FTSE Developed (ex UK) Index
70% FTSE Developed (ex UK) Index – GBP Hedged
0.111
Passive Global Equity Ethical
FTSE4Good Global Index 0.263
Index-linked Gilt Fund
FTSE A Index-Linked (Over 5 Year) Index 0.088
Pre-Retirement Fund
Not applicable 0.121
Active Property Fund (UK Property)*
AREF/IPD UK Quarterly All Balanced Property Funds Index 0.730
Cash Fund Seven Day Sterling LIBID 0.149
Shariah Fund Dow Jones Islamic Titans 100 Index 0.363
*Closed to new contributions
Page 22
11. Stewardship and Environmental, Social and Corporate Governance Factors
This policy on Stewardship and environmental, social, and corporate governance (ESG)
factors relates to both the default and self-select options.
11.1 The Trustee believes that environmental, social, and corporate governance (ESG) factors
do have a financially material impact on investment risk and return outcomes, and that good
stewardship helps create and preserve value for companies and markets as a whole.
11.2 The Trustee also recognises that both short and long-term sustainability issues, particularly
climate change, present risks and opportunities that increasingly may require explicit
consideration. The Trustee recognises that this Plan is a long term saving vehicle and
therefore sustainability issues are therefore important for the funding of future benefits.
11.3 Due to the arrangement with Scottish Widows to access pooled funds, the underlying
investment managers evaluate ESG factors, including climate change considerations, and
exercise voting rights and stewardship obligations attached to the Plan’s DC investments, in
accordance with their own corporate governance policies and current best practice, including
the UK Corporate Governance Code and UK Stewardship Code
11.4 However, the Trustee considers how ESG, climate change, stewardship and exercising of
voting rights are integrated within investment processes when selecting new investment
managers and monitoring existing investment managers. Monitoring is undertaken on a
regular basis and is documented at least annually. In particular, where appropriate the
Trustee will review:
− The ESG ratings assigned by Mercer to each of the strategies used within the Plan.
Mercer’s ratings represent their view on the extent to which ESG and active ownership
practices (voting and engagement) are integrated into the manager’s investment process
and decision-making across asset classes.
− Mercer’s assessment of the underlying equity managers against the seven underlying
principles of the UK Stewardship Code, including the extent to which they are engaging
with the underlying companies in which they invest.
− Carbon foot printing and/or climate scenario analysis on a more ad-hoc basis, if and
when the Trustee considers this may be beneficial in appointing or reviewing any of the
Fund’s investments.
11.5 Member views have not explicitly been taken into account with regards to non-financial
matters in the selection, retention and realisation of investments, although feedback received
from members is welcomed and considered by the Trustee. Specialist investment funds
have been added to the fund range for member who wish to invest their assets accordingly.
11.6 In light of the proposal to transfer the Plan to a Mastertrust arrangement, the Trustee is
keeping certain policies it is required to have under review, in particular the impact of climate
change.
Page 23
12. Ethical and Religious Investment
12.1 The Trustee has made a Shariah compliant investment strategy available to allow members
to participate in the Fund who may otherwise have been unable to do so on religious
grounds. The Trustee has also made available an ethical investment strategy for members
who wish to invest in a manner that aligns with their ethical beliefs.
12.2 The Trustee accesses pooled funds through an investment arrangement with Scottish
Widows and has not set any investment restrictions on the appointed investment managers
in relation to particular products or activities.
13. Buying and Selling Investments
The Investment Managers have responsibility for buying and selling the underlying assets.
As already mentioned, the day-to-day activities which the investment manager carries out for
the Trustee are governed by the arrangements between the Investment Managers and
Scottish Widows.
14. Compliance with this Statement
The Trustee, Scottish Widows, and Mercer each have duties to perform to ensure
compliance with this Statement. These are:
• The Trustee will review this Statement regularly, at least every three years or without delay
following any significant changes in membership or investment policy since the last review.
In addition, the Trustee will review this Statement immediately following a review of the
default strategy. The Statement is reviewed on the advice of Mercer and will record
compliance with it at the relevant Trustee’s meeting. The Trustee will monitor the
arrangement with Scottish Widows and MWS to ensure that the service continues to meet
the Plan’s needs and objectives. The Trustee will also consult with the Principal Employer
over any changes to the Statement.
• Scottish Widows will provide full information in respect of transactions in units in the
underlying funds and valuations of the units held by the Plan from time to time as required by
the Trustee:
• Mercer will provide the advice needed to allow the Trustee to review and update this
Statement annually (or more frequently if required).
