Statement of Investment Principles (SIP) – Abbey Group Limited Pension and Life Assurance Scheme

Statement of Investment Principles

Introduction
This is the Statement of Investment Principles (SIP) prepared by the Abbey Group Pension Fund Limited (the Trustee) who acts as the trustee of the Abbey Group Limited Pension and Life Assurance Scheme (the Scheme).
This statement sets down the principles which govern the decisions about investments that enable the Scheme to meet the requirements of:
Section 35 (as amended) of the Pensions Act 1995; the Occupational Pension Schemes (Investment) Regulations 2005;
the Pension Regulator’s guidance for defined benefit pension Scheme (March 2017) and
the Occupational Pension Schemes (Charges and Governance) Regulations 2015.
In preparing this statement the Trustee has consulted Abbey Group Limited, (the Principle Employer), and obtained written advice from Longbon & Co. Ltd., the Trustee’s Investment Adviser (IA). Longbon & Co. Ltd. is authorised and regulated by the Financial Conduct Authority (no. 512084) for a range of investment business activities.
The SIP describes the objectives, policies and principles adopted by the Trustee in undertaking the investment of fund monies. The SIP also reflects the Trustee’s response to the Myners voluntary code of investment principles.The Trustee keeps under review the extent of compliance with these Principles.
The power and responsibility for deciding investment policy lies with the Trustee. However, the Trustee consults with the Principal Employer on changes in investment policy.

The Trustee will review this statement at least every three years or without delay and within six months if there is a significant change in the investment policy or any of the areas covered by the statement.

Trustee’s Investment Responsibilities
The Trustee is to set the overall investment policy and then monitor the appropriateness of the Scheme’s investment strategy on an ongoing basis.
The Trustee has established an Investment Committee, which shall report to the Trustee, and has been given powers to act on behalf of the Trustee in accordance with the Trustees’ duties as stated in this Statement of Investment Principles.The Trustee is to measure the performance of the Scheme investments against a suitable target on an ongoing basis. In doing so, the Trustee considers the advice of their professional advisers, whom they consider to be suitably qualified and experienced for this role.
Decisions affecting the Scheme’s investment policy are taken in consultation with the Principal Employer and with appropriate advice from the Scheme Actuary, Investment Consultant and, where appropriate, the Trustee’s other advisers. The Trustee must consult the employer before amending the investment policy.
The Trustee aims to obtain and consider advice on investments before investing in any manner, and on a regular basis. The trustee shall take into account any restrictions imposed by the Trust Deed and Rules of the Scheme.

Trustee’s Investment Objectives
The Trustee has analysed the Scheme’s liability profile to determine the key investment objectives of the Scheme. The Trustee’s main investment objectives are:
to ensure that the Scheme can meet the members’ entitlements under the Trust Deed and Rules as they fall due;
to provide a surplus to mitigate increased longevity;
to invest in assets of appropriate liquidity which shall generate income and capital growth to meet, together with new contributions from members and the Principle Employer, the cost of current and future benefits which the Scheme provides;
to reduce the risk of the assets failing to meet the liabilities over the long term;
to minimise the long-term costs of the Scheme by maximising the return on the assets whilst having regard to the objectives.
The Investment Adviser shall provide an annual statement to the Trustees of the expected return on assets and the appropriate allocation between asset classes
All investments are made available after the provision to the Trustee of appropriate written advice from the Investment Adviser. In doing this the Trustee has taken into account the suitability of the investments given the investment objective of the Scheme.
The Trustee is aware of the relationship that exists between the particular investment portfolio that is held and the level of funding of the Scheme’s liabilities. The Trustee has obtained exposure to investments that they expect will meet the Scheme’s objectives.
The Trustee monitors the employer-related investment content of the portfolio, which they normally would expect to be 0%, and shall be altered should they discover this to be more than 5% of the portfolio.
The on-going suitability of the investments and the investment objective of the Scheme are reviewed annually by the Trustees in conjunction with its Investment Adviser, taking into account any member feedback and benchmarking material provided by the Investment Adviser.
The Trustee shall actively engage with the Investment Adviser regarding the investment strategy to ensure that the strategy maintained by the investment adviser is aligned with the policies dictated by the Trustee with regard to investment performance and cost.
The performance of the Investment Adviser shall be monitored against a benchmark set by the trustee over rolling three-year periods.
The Trustees shall agree a remuneration basis for the Investment Adviser by reference to the achievement of the investment objectives of the Trustee.
The Trustee shall appoint the Investment Adviser for a tenure of a minimum of three years and shall review that appointment at least every three years. The Investment Adviser, in conjunction with the Trustees, provides a suitable benchmark for the assets held by the Scheme.

Scope of Investments and Investment Return
The Scheme is permitted to invest in a wide range of assets including equities, bonds, cash, property and alternatives.
The Trustee invests in assets that are expected to achieve the Trustee’s objectives for the Scheme.
The Trustees and Investment Adviser determine the investment targets for the Scheme. The long–term performance of the Scheme depends on the asset allocation strategy and the Trustees have appointed the Investment Adviser to oversee the asset allocation of the investments to ensure appropriate risk-adjusted returns. The Scheme holds cash routinely and therefore may deviate from its strategic or tactical asset allocation in order to accommodate any short-term cashflow requirements or any other unexpected items.
The Trustee is aware that the appropriate balance between different kinds of investments will vary over time and therefore the Scheme’s asset allocation will be expected to change as the Scheme’s liability profile matures.
The Scheme’s investment objective, mix of assets, expected return against the benchmarks set is reviewed annually by the Trustees.
The Trustees define and monitor charges incurred by the Scheme and actively engage with the Investment Adviser to minimise such costs. The Investment Adviser is responsible for setting out a framework of costs which is agreed by the Trustees.
The Scheme’s expected return shall be measured by considering each asset class individually. The overall benchmark, therefore, is liable to change and shall be republished when the underlying mix of assets within the Scheme change substantially. The following indices shall be applied to each asset class:
fixed interest: FTSE Actuaries UK Conventional Gilts All Stocks;
UK equities: a composite of FTSE 100/250
Non-UK equities: FTSE World ex UK
The Investment Adviser shall calculate and inform the Trustees of the appropriate benchmark at least annually.
The benchmark, as at December 2020, is:

Fixed Interest: 100% FTSE Actuaries UK Conventional Gilts All Stocks
UK Equity: 70% Composite FTSE 100/250
Non-UK Equity: 30% FTSE World ex UK

Absolute Return of 2.50%, reviewed over a rolling 3 year period

Competition and Markets Authority (CMA) Order

The Trustee Company sets strategic objectives for the investment manager, which are linked to the strategic objectives of the scheme.

Risks
The Trustee has considered the risks to the Scheme, considering both the investment strategy and the Scheme’s liabilities. A statement of risk management and mitigation follows:
Assets versus Liabilities:

The Trustee will monitor and review the investment strategy with respect to the liabilities in conjunction with each actuarial valuation. The investment strategy will be set in consideration of the appropriate level of risk required for the funding strategy, as set out in the Scheme’s Statement of Funding Principles

Covenant Risk:

The creditworthiness of the employer and the size of the pension liability relative to the employer’s earnings are monitored on a regular basis. The appropriate level of investment risk is considered with reference to the strength of the employer covenant.

Solvency and Mismatching

The risk is mitigated by the asset allocation strategy and ongoing triennial actuarial valuations. The Trustee is aware that the asset allocation required to minimise the volatility of the solvency position may be different from that which would minimise the volatility on the Scheme’s funding basis.

Liquidity Risk

The Trustee invests in assets with sufficient allocation to liquid investments to provide for the Scheme’s cashflow requirements. The level of cash required is monitored to limit the impact of cashflow requirements on the investment policy.

Currency Risk

The Scheme’s liabilities are denominated in sterling. The Scheme may gain exposure to overseas currencies by investing in assets that are denominated in a foreign currency or via currency management. No currency hedging is employed but the level of currency risk is monitored

Governance Risk

The trustees invests in assets that have only have a demonstrable record of competent governance.

Fiduciary Risk

The Trustees hold assets in their physical form in the name of the Trustee ,as custodian of the Scheme. The assets are held securely at the Head Office of Abbey Group Limited and are inspected independently by the Auditor, at least annually.

Sale of Investments
The Scheme is closed to new members and is maturing. However, it is not expected that there will be any material need to sell investments to meet benefits in the near future. The Scheme’s assets are readily marketable. Were the Trustees to invest in less liquid investments, such as property and private equity, such illiquidity would be acceptable to the the Trustees in order to capture an improved return because of the illiquidity.

Responsible Investment including Environmental, Social and Governance (ESG) factors and non-financial matters
The Trustee recognises the responsibilities of shareholders as owners of capital. Accordingly, the Trustee’s objective as a shareholder is to achieve a high long-term return on the Scheme’s investments by the preservation and enhancement of shareholder value, which the Trustee believes that good corporate governance promotes. This responsibility includes ensuring, where possible, that the companies in which it invests are run by executive officers and directors in the best long-term interests of shareholders.
The Trustee is committed to being a responsible investor in line with its legal duties under the Investment Regulations. Responsible Investment is an approach which seeks to integrate ESG considerations into investment management and ownership practices.
The Trustee believes that certain ESG factors can have an impact on financial performance and that it is part of its fiduciary and its legal duties to incorporate this information into its investment decisions to reduce investment risk and enhance portfolio returns over the appropriate time horizon.
The Investment Regulations require that trustees disclose their policies in relation to:
financially material considerations over the appropriate time horizon of the investments, including how those considerations are taken into account in the selection, retention and realisation of investments. These considerations include, but are not limited to, climate change;
the exercise of the rights (including voting rights) attaching to the investments;
undertaking engagement activities in respect of investments (including methods by which, and the circumstances under which, Trustees would monitor and engage with relevant persons about relevant matters);
the extent (if at all) to which non-financial matters (the views of members and beneficiaries including their ethical views) are taken into account in the selection, retention and realisation of investments.
The Trustee’s approach to Responsible Investment is reviewed annually by both the IA and the Trustees.
The Trustees consider a range of ESG risks, including corporate governance, human rights, bribery and corruption as well as labour and environmental standards.
The Trustees consider that companies in which it invests have a responsibility to support and uphold the observance of basic human and labour rights.
The Trustees will assess companies in its portfolio of assets for breaches of generally recognised responsibilities and norms and for other behaviours which are deemed unsustainable, considering the risks specific to the relevant sector(s) in which the company operates.
The Trustees aim to vote its shares in all markets where practicable. The Trustee retains the right (where possible) to vote in a particular way which it believes is in the best interest of its members.
The Trustees’ approach to engagement applies to equity and debt holdings and is delegated to the IA. The Trustees believe that the IA is best placed to engage with invested companies on ESG matters, given their knowledge of the company and the level of access they have to company management. This is a pragmatic approach because of the number of stocks owned by the Trustee, and the amount of time corporate entities have available for single investors.
The Trustee expects the IA to engage on ESG matters where it is considered material and relevant. The IA responds to specific requests the Trustees might have.
The Trustees share information on its investment activities via regular member and employer reporting channels.
Non-financial matters are taken into account by the Trustees in the selection, retention and realisation of investments. Non-financial matters for the purposes of the Occupational Pension Schemes (Investment) Regulations 2005 means the views of the members and beneficiaries including (but not limited to) their ethical views and their views in relation to social and environmental impact and present and future quality of life of the members and beneficiaries of the Scheme.
The Trustees recognise that there are limitations to the extent to which it can take into account non-financial matters in its investments. However, the Trustee has adopted a practical and holistic approach to non-financial matters by requiring that the IA reports regularly on ethical considerations in the selection, retention and realisation of investments across all asset classes.
The Investment Regulations require that trustees disclose their policies in relation to:

a) financially material considerations over the appropriate time horizon of the investments, including how those considerations are taken into account in the selection, retention and realisation of investments;

b) the exercise of the rights (including voting rights) attaching to the investments;

c) undertaking engagement activities in respect of investments (including methods by which, and the circumstances under which, trustees would monitor and engage with relevant persons about relevant matters); and

d) the extent (if at all) to which non-financial matters (the views of members and beneficiaries including their ethical views) are taken into account in the selection, retention and realisation of investments.

The Trustee has taken into consideration the Financial Reporting Council’s UK Stewardship Code.

Agreement

This Statement of Investment Principles was agreed by the Trustee, and replaces any previous statements. Copies of this statement and any subsequent amendments will be published on www.abbeygrouppension.co.uk

3 December 2020