Implementation Statement for Mettler-Toledo Ltd - METTLER TOLEDO

Implementation Statement for Mettler-Toledo Ltd

Annual Implementation Statement (the "Statement") – Year Ending 31 December 2020

Mettler-Toledo Pension Scheme (the "Scheme")

Introduction

This Statement sets out how, and the extent to which, the Statement of Investment Principles (‘SIP’) produced by the Trustees has been followed during the year to 31 December 2020.  This Statement has been produced in accordance with The Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2019 and the guidance published by the Pensions Regulator. The table later in the document sets out the how, and the extent to which, the policies in the SIP have been followed. 

We can confirm that all policies in the SIP have been followed in the year to 31 December 2020.

Investment Objectives of the Scheme (DB Section)

The Trustees believe it is important to consider the policies in place in the context of the investment objectives they have set.  The objectives of the Scheme, included in the SIP as are follows:

The Trustees’ primary objective is to act in the best interests of members. The Trustees recognise that a portfolio of bonds is the strategy which will best protect against changes in the value of the liabilities.  However, this is an ongoing pension scheme with the support of the Company, and the Trustees feel that some equity investment is appropriate in an attempt to improve the ongoing funding position to reduce the burden on Company contributions.  The Trustees recognise that holding equity investment will bring increased volatility of Company contribution requirements in favour of higher expected returns in the long term. 

Investment Objectives of the Scheme (DC Section)

The Trustees recognise that many members do not consider themselves competent to take investment decisions. The Trustees have provided two default options. Unless members make a specific request for their contributions to be invested in a different manner, they are invested in one of these options, depending on the type of member they are. The default options above have two phases: the accumulation phase and the consolidation phase.

•       When a member is younger, their account is invested in funds that aim for long-term growth (accumulation phase) in excess of inflation. 

•       As the member approaches retirement, their account is switched automatically into lower-risk, lower-growth funds (consolidation phase) that aim to provide greater stability by targeting drawdown or targeting cash, depending on the membership profile for each of the defaults.

The aims of the default options and the ways in which the Trustees seek to achieve these aims are detailed below:

−     To generate returns in excess of inflation during the accumulation phase of the strategy whilst managing downside risk.

The default options’ accumulation phases invest in equities and other growth-seeking assets through diversified growth funds. These investments are expected to provide long term growth in excess of inflation and some protection against inflation erosion. The diversification provided by the range of assets, which range from commodities to global high yield bonds, is expected to provide some downside protection from equity market falls.

The asset allocation and asset classes that the accumulation phase invests in may change from one period to another and the growth phase uses dynamic asset allocation to tilt the portfolio in different market environments, aiming to improve return as well as increase downside protection.

−     To provide a strategy that reduces investment risk for members as they approach retirement.

The Trustees believe that a strategy that seeks to reduce investment risk as the member approaches retirement is appropriate to protect the level of savings built up as a fall in markets will have a greater impact on member outcomes at this stage. 

Moreover, as members approach retirement, the Trustees believe the primary aim should be to provide protection against a mismatch between asset values and the default target, with a strategy targeting drawdown or targeting cash (for ex DB members) aiming to minimise that mismatch..

Both defaults aim to reduce volatility near retirement via automated switches over an eight-year period to a member’s selected retirement date. Hence, eight years before their target retirement date (or normal retirement date, if no target is specified), members in the default investment options will have their holdings transferred into a target date fund (“Target Drawdown Retirement 20XY Fund” or Target Cash Retirement 20XY Fund, based on the expected date of retirement in year 20XY).

These target date funds aim to gradually move investments from higher-risk growth-seeking assets to assets aiming for income and less volatile growth, along with an allowance for tax-free cash benefits through an allocation to money market investments.

−     To provide exposure at retirement to assets that are broadly appropriate for an individual planning to take their benefits.

By the start of the year of their expected retirement, members’ accumulated savings in the defaults will be moved to:

•       the Target Drawdown Retirement Fund, which aims to broadly match these benefits through investment of 25% of the portfolio in a mix of high quality short-term sterling denominated money market instruments and 75% in a Diversified Retirement Fund, which aims to generate income and maintain the purchasing power of members’ savings until they retire from the Fund.  The assets in this multi-asset fund include equities, bonds and alternative assets.

•       the Target Cash Retirement Fund which aims to broadly match these benefits through investment of 100% of the portfolio in a mix of high quality short-term sterling denominated money market instruments.

Review of the SIP

During the year to 31 December 2020, the Trustees reviewed the Scheme’s SIP, taking formal advice from the investment consultant. A revised SIP was agreed in September 2020 in order to reflect new requirements under The Occupational Pension Scheme (Investment and Disclosure) (Amendment) Regulations 2019 relating to the following:

─     How the arrangement with the asset manager incentivises the asset manager to align its investment strategy and decisions with the Trustees’ policies in SIP.

─     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.

─     How the method (and time horizon) of the evaluation of asset manager’s performance and the remuneration for asset management services are in line with the Trustees’ policies mentioned in the SIP.

─     How the Trustees monitors portfolio turnover costs incurred by the asset manager and how they define and monitor targeted portfolio turnover or turnover range.

─     The duration of the arrangement with the asset manager.

With regards to the DC Section of the Scheme, the impacted funds that are included in the SIP  have been identified as ‘default arrangements’ as members’ contributions have been automatically directed to them without members having instructed the Trustee where their contributions are to be invested

The latest version of the Statement of Investment Principles is available on a publicly available website: https://www.mt.com/gb/en/home/site_content/legal/other/Statement_of_Investment_Principles.html

Investment Strategy Review (DC Section) 

The default investment option is reviewed at least triennially as part of the investment strategy review. The last review was undertaken on November 2019 and changes implemented in August and November 2020.  This review considered the following:

─     The trends seen in the overall market, and specifically within the Scheme, on how members are accessing their pensions at retirement.

─     Current and projected pot sizes of members, using market data to suggest how these members might be likely to access their pension pots in the future.

─     Scenario and factor analysis of the current member demographics including both active and deferred members of the Scheme.

─     The mismatch risk between the retirement destination targeted by an investment strategy and how a member chooses to access their retirement savings.

─     Performance of the investment funds and overall default against the aims and objectives, as covered in the quarterly investment report.

The following recommendations were proposed:

─     To change one of the default options from target annuity to target drawdown. 

─     To maintain a target cash lifestyle option for members with DB benefits.

Assessment of how the policies in the SIP have been followed for the year to 31 December 2020

The information provided in this section highlights the work undertaken by the Trustee during the year, and longer term where relevant, and sets out how this work followed the Trustee policies in the SIP, relating to the Scheme as a whole and the default investment arrangement. The SIP is attached as Appendix B and sets out the policies referenced below. There is also a version of the SIP in respect of the Default Investment Option for the DC Section attached as Appendix C.

 

Requirement

Policy

In the year to 31 December 2020

1

Securing compliance with the legal requirements about choosing investments

DB Section:

Trustees obtain advice from their investment adviser, who can provide expert advice enabling the Trustees to choose investment vehicles that can fulfil the Scheme’s investment objectives. In the Trustees’ opinion this is consistent with the requirements of Section 36 of the Pensions Act 1995.

DC Section:

The SIP sets down the principles governing decisions about investments for the Mettler Toledo Pension Scheme (“the Scheme”) to meet the requirements of the Pensions Act 1995 and subsequent legislation, particularly the Pensions Act 2004 and Occupational Pension Scheme (Investment) Regulations 2005.  Before preparing it the Trustees have consulted Mettler Toledo Limited (“the Company”) and obtained and considered written professional advice from their Investment Consultants.

DB Section:

The Trustees confirm that advice was received from the investment consultant over the year to 31 December 2020 in relation to the DB’s investment strategy, specifically with regards to the equity portfolio restructure (i.e. reduce the UK equity exposure, increase the overseas equity exposure and hedge 50% of the overseas’ currency exposure)

Advice relating to the DB’s equity portfolio was delivered in November 2020 and all changes were implemented by March 2021.

DC Section:

During the year to the 31 December, the Scheme’s investments with Royal London were replaced by a new investment solution with MWS, and Aviva was selected has the new provider. At the same time, the Trustee changed one of the default options from target annuity to target drawdown.

Suitability investment advice in line with the legislative requirements for the new default options and the fund range.

On 1 January 2020, the Scheme’s investments with Equitable Life were transferred to Utmost Life and Pensions. All members invested in unit linked funds remained invested in those funds. Members invested in the Equitable Life With-Profits Fund were transferred to the Utmost Secure Cash Fund. The Utmost Secure Cash Fund was a temporary arrangement and was closed on 30 June 2020. The Trustee reviewed Utmost’s investment options, with assistance from the Investment Adviser, and decided to gradually transfer the proceeds from the Secure Cash Fund to Utmost’s “Investing By Age Journey”.

2

Kinds of investments to be held

DB Section:

The Trustees are prepared to take on some risk by investing a proportion of its assets in equities.

The Trustees believe that diversification by asset class limits the impact of any single risk.  However, the diversification of risk across multiple sources is constrained by the Trustees’ ability to implement and effectively monitor the range of investments being considered.

DC Section:

The default options are implemented using a range of MWS pooled funds. The strategic asset allocation and selection of underlying investment strategies is delegated to MWS. Any investment in derivative instruments (either directly or within the underlying pooled funds) contributes to risk reduction, or efficient portfolio management.

DB Section:

The basis of the Trustees’ strategy is to divide the DB Section’s assets between two sub portfolios:

·         “growth” portfolio, comprising of equities;

·         “matching” portfolio, comprising of assets such as UK index linked gilts and corporate bonds;

DC Section:

The last formal triennial investment strategy review took place in November 2019. Although this review was not undertaken during this Scheme-year, it represented an important exercise for the Trustees to take further actions related with the implementation of a new investment solution with MWS, that affected the available default options and the self-select range, as well as the appointment of new investment managers.

The only additional change made to the strategy as a result of the Trustee’s ongoing review were in relation to the transfer of AVC assets from the Equitable life With Profits Fund to the Utmost “Investing by Age Journey” strategy

The kind of investments held in the Scheme and the balance between those investments is consistent with the SIP. The decisions on the kinds of investments are delegated to the MWS investment team since inception on August 2020.

3

The balance between different kinds of investments

DC Section:

Members can combine the funds in any proportion in order to determine the balance between the different kinds of investments.  This will also determine the expected return on a member’s assets and should be related to the member’s own risk appetite and tolerances

In selecting assets, the Trustees consider the liquidity of the investments in the context of the likely needs of members. All assets are daily dealing and therefore should be realisable based on member demand.

DC Section:

The strategic asset allocation of the default investment options is reviewed on a triennial basis. The last formal triennial default strategy review was undertaken in November 2019.  During the year to 31 December 2020, the Trustees implemented changes to one of the default options, from target annuity to target drawdown.

The Trustees have made a small number of investment funds available across the risk/return spectrum on a self-select basis to support members.

All fund options are daily dealing.

 

4

Risks, including the ways in which risks are to be measured and managed

DB Section:

The Trustees recognises risk (both investment and operational) from a number of perspectives in relation to the DB Section of the Scheme.

Should there be a material change in the Scheme’s circumstances, the Trustees will review whether and to what extent the investment arrangements should be altered, in particular whether the current risk profile remains appropriate

DC Section:

The Trustees recognise that there are a number of risks facing members of the DC Section and have taken these into consideration when determining the range of funds to offer to members. The fund range aims to offer members sufficient choice across the risk/return spectrum to allow them to manage the risks they face.  

The Trustees have considered risks from a number of perspectives. The list available in the SIP (please see appendix B) is not exhaustive but covers the main risks that the Trustees considers and how they are managed.

DB Section:

As detailed in Section 3 of the SIP, the Trustees consider both quantitative and qualitative measeures for these risks when deciding investment policies and strategic asset allocation for the DB Section of the Scheme.

On a regular basis, the Trustees receive an investment performance from Mercer that helps monitors the risk and returns of the funds used within the DB Section of the Scheme.

DC Section:

The Trustees has considered risk for the DC Section of the Scheme from a number of perspectives and these were considered in the investment strategy review process.

The Scheme maintains a risk register of the key risks, including the market risks, investment manager risks, and ESG risks. This rates the impact and likelihood of the risks and summarise existing mitigations and additional actions. 

5

Expected return on investments

DB Section:

The Scheme’s assets are expected to provide an investment return commensurate with the level of risk being taken.

DC Section:

In relation to multi-client pooled funds used by the Scheme, the Trustees accept that they have no ability to specify the risk profile and return targets of the manager, but appropriate mandates can be selected to align with the overall investment strategy.

Investment managers are appointed based on their capabilities and, therefore, their perceived likelihood of achieving the expected return and risk characteristics required for the asset class for which they are selected.

The fund range aims to offer members sufficient choice across the risk/return spectrum to allow them to manage the risks they face. Members can combine the funds in any proportion in order to determine the balance between the different kinds of investments.  This will also determine the expected return on a member’s assets and should be related to the member’s own risk appetite and tolerances.

DB Section:

Investment performance is reviewed by the Trustee on a quarterly basis, and this review includes consideration of how each mandate performs against its benchmark.

DC Section:

During the year, the Trustees considered the risk of misalignment with the retirement benefits and decided to implement a change in one of the default options available, from target annuity to target drawdown.

The implementation of a new investment solution with MWS / Aviva had a direct impact on how the two default options available are managed, as well as in the appointment of new investment managers –which is now delegated to the MWS investment team and based on the manager capabilities to meet the objectives.

The investment performance report is reviewed by the Trustees on a quarterly basis. The reports include information on how each manager performed against their mandate.

6

Realisation of investments

DB Section:

The Trustees’ administrators will realise assets following member requests on retirement or earlier where required.

The Trustees consider the liquidity of the investment in the context of the likely needs of members.

DC Section:

The selection, retention and realisation of assets within the pooled funds are delegated to MWS and their relation with the underlying manager. They also 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.

The investment consultant’s manager research ratings assist with due diligence and (where available) are used in decisions around selection, retention and realisation of manager appointments.

In selecting assets, the Trustees consider the liquidity of the investments in the context of the likely needs of members. All assets are daily dealing and therefore should be realisable based on member demand.

DB Section:

Most DB Section funds are daily dealt pooled investment vehicles. Over the year in question, the Trustees’ administrators realised assets from the Scheme’s discretionary portfolio, in line with the policy.

 

DC Section:

The Trustees access daily dealt and daily priced pooled funds held with a range of Investment Managers. Selection, retention and realisation of assets are delegated to investment managers in line with their appointed mandate.

The Trustees monitor the fund range for any issues including liquidity issues. Following monitoring over the year, no action was required in respect of liquidity issues within the DC Section.

The Trustees are satisfied that all requirements were met throughout the year.

7

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

 

DB Section

The Trustee considers financially material considerations in the selection, retention and realisation of investments. Within the funds consideration of such factors, including environmental, social and governance factors, is delegated to the investment manager.

DC Section:

The items listed in section 4 of the SIP are in relation to what the Trustees consider ‘financially material considerations’. The Trustees believe the appropriate time horizon for which to assess these considerations within should be viewed at a member level. This will be dependent on the member’s age and their Selected Retirement Age.

Should there be a material change in the circumstances of the DC Section or the environment in which it operates, the Trustees will review whether and to what extent the investment arrangements should be altered.

The Trustees believe that good stewardship and environmental, social and corporate governance (“ESG”) issues may have a material impact on investment returns, and that good stewardship can create and preserve value for companies and markets as a whole. The Trustees also recognise that long-term sustainability issues, particularly climate change, present risks and opportunities that increasingly may require explicit consideration.

 

DB Section:

Section 3 of the Scheme’s SIP includes the Trustees’ policy on ‘ESG factors, stewardship and climate change.  This policy sets out the Trustees’ beliefs on ESG and climate change and the processes followed by the Trustees in relation to voting rights and stewardship.  The Trustees keep its policies under regular review, with the SIP subject to review at least triennially.

 

 

DC Section:

The Trustees reviewed the investment performance report on a quarterly basis – this includes ratings (both general and specific ESG) from the investment advisers.  All of the managers under the remit of the Delegated Investment Manager remained highly rated during the year.

The investment performance report includes how investment managers are delivering against their specific mandates – any impact from ESG related activities is embedded into manager performance.

 

As the assets of the Scheme are invested in pooled funds, the Trustees have given MWS (as the Delegated Investment Manager), and subsequently to  the appointed investment managers, full discretion in evaluating ESG factors, including climate change considerations, and exercising voting rights and stewardship obligations attached to the investments. The records in relation to voting have been sourced and included later in this statement.

8

The extent (if at all) to which non-financial matters are taken into account in the selection, retention and realisation of investments

DB Section:

Non-financial matters, such as member views, are not currently explicitly taken into account in the selection, retention and realisation of investments.

DC Section:

Member views (including their ethical views) and Non-Financially Material Considerations are not taken into account in the selection, retention and realisation of investments. .

DB Section:

The Trustees do not currently consult members when making investment decisions.

DC Section:

No direct action has been taken in response but member views are discussed at Trustees’ meetings, taking input from member nominated trustees.

9

The exercise of the rights (including voting rights) attaching to the investments and undertaking engagement activities in respect of the investments (including the methods by which, and the circumstances under which, trustee would monitor and engage with relevant persons about relevant matters)

DB Section:

The investment managers are expected to evaluate ESG factors, including climate change considerations, and exercise voting rights and stewardship obligations attached to the investments, in line with their own corporate governance policies and current best practice.

DC Section:

The Trustees have given the investment managers full discretion when evaluating ESG issues and in exercising rights and stewardship obligations attached to the Scheme’s investments. The investment managers are expected to evaluate ESG factors, including climate change considerations, and exercise voting rights and stewardship obligations attached to the investments, in accordance with their own corporate governance policies and current best practice, including the UK Corporate Governance Code and UK Stewardship Code.

DB Section:

The Trustees have delegated their voting rights to the appointed investment manager.

The Trustees do not use the direct services of a proxy voter.

The investment manager was asked to provide voting summary reporting on a regular basis, at least annually.   The reports are reviewed by the Trustees to ensure that they align with the Trustees’ policy

The voting records of the investment manager over the year to 31 December 2020 are summarised in Appendix A.

The Trustees are comfortable with not closely monitoring voting activity within these mandates as it considers this to be of low materiality.

DC Section:

The Trustees have delegated their voting rights to the appointed investment managers.

Investment managers are expected to provide voting summary reporting on a regular basis, at least annually. 

Once appointed, the Trustees have given appointed investment managers, including the Delegated Investment Manager, full discretion in evaluating ESG factors, including climate change considerations, and exercising voting rights and stewardship obligations attached to the investments, in accordance with their own corporate governance policies and current best practice, including the UK Corporate Governance Code and UK Stewardship Code.

The following funds contain an allocation to equities:

-      Mercer Growth Fund

-      Mercer Diversified Retirement Fund

-      Mercer Passive Global Equity

The voting records of the investment managers are summarised in Appendix A.

10

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

DB Section:

Investment managers are expected to evaluate these factors, including climate change considerations, and exercise voting rights and stewardship obligations attached to the investments in line with their own corporate governance policies and current best practice.

Outside of those exercised by investment managers on behalf of the Trustee, no other engagement activities are undertaken.

DC Section:

The Trustees will also consider the investment consultant’s assessment of how each investment manager embeds ESG into its investment process and how the manager’s responsible investment philosophy aligns with the Trustees’ responsible investment policy.  This includes the investment managers’ policy on voting and engagement. The Trustees will use this assessment in decisions around selection, retention and realisation of manager appointments.

DB Section:

The investment manager has confirmed compliance with the principles of the UK Stewardship Code. 

DC Section:

See Appendix A for further details on the engagement and voting activity of the investment managers over the year to 31 December 2020.

 

11

How the 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.

DB Section:

The Trustees’ policy in relation to investments to be held is set out in section 3 of the SIP. 

In line with section 3 of the SIP, managers are chosen based on their capabilities and, therefore, their perceived likelihood of achieving the expected return and risk characteristics required for the asset class being selected for.

In relation to multi-client pooled funds used by the Scheme, the Trustees accept that they have no ability to specify the risk profile and return targets of the manager, but appropriate mandates can be selected to align with the overall investment strategy.

DC Section:

If the investment objective for a particular manager’s fund changes, the Trustees will review the fund’s appointment to ensure it remains appropriate and consistent with the Trustees’ wider investment objectives.

Some appointments are actively managed and the managers are incentivised through remuneration and performance targets (an appointment will be reviewed following periods of sustained underperformance).  The Trustees will review the appropriateness of using actively managed funds (on an asset class basis) from time to time.

DB Section:

The Trustees expect investment manager to incorporate the consideration of longer-term factors, such as ESG considerations, into their decision making process where appropriate. The extent to which this is so will be considered during the selection, retention and realisation of manager appointments. Voting and engagement activity should be used by investment manager to discuss the performance of an issuer of debt or equity.

 

Over the year to 31 December 2020, no mandates were terminated due to performance concerns or as a result of changes in underlying targets.

DC Section:

The Trustees expect investment managers to incorporate the consideration of longer-term factors, such as ESG considerations, into their decision making process where appropriate. The extent to which this is so will be considered during the selection, retention and realisation of manager appointments. Voting and engagement activity should be used by investment managers to discuss the performance of an issuer of debt or equity.

 

Over the year to 31 December 2020, no mandates were terminated due to performance concerns or as a result of changes in underlying targets. The decision to make the investment changes were backed by strategic reasons and a change in the platform provider.

 

The Trustees monitor the performance of the default strategy, additional defaults arrangements and self-select ranges regularly.  The current range of investment managers are aware that their continued appointment is dependent on them meeting these performance targets, via the delegated arrangement.

12

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 trustee’ policies.

DB Section:

Investment managers are appointed based on their capabilities and, therefore, their perceived likelihood of achieving the expected return and risk characteristics required for the asset class for which they are selected.

The Trustees are long term investors and are not seeking to change investment arrangements on a frequent basis. A manager’s appointment may be terminated if it is no longer considered to be optimal nor have a place in the default strategy or general fund range.

DC Section:

Investment managers are appointed based on their capabilities and, therefore, their perceived likelihood of achieving the expected return and risk characteristics required for the asset class for which they are selected.

The Trustees are long term investors and are not seeking to change investment arrangements on a frequent basis. […]  In respect of the DC Section, the fund range and default strategy are reviewed on at least a triennial basis. A manager’s appointment may be terminated if it is no longer considered to be optimal nor have a place in the default strategy or general fund range.

DB Section:

The remuneration for the investment manager used by the Scheme is based on assets under management.

DC Section:

The remuneration for investment managers used by the Scheme is based on assets under management; the levels of these fees are reviewed annually as part of the annual value for members assessment.

During the year, due to a provider change, the Trustees were able to offer more cost effective investment options. The Trustees do not anticipate the need to similar changes in the near future.

13

How the trustee monitor portfolio turnover costs incurred by the asset manager, and how they define and monitor targeted portfolio turnover or turnover range.

DB Section:

The Trustees do not currently actively monitor portfolio turnover costs across the whole portfolio, but investment manager performance is generally reported on a net of transaction costs basis. Therefore, managers are incentivised in this way to keep portfolio turnover costs to the minimum required to meet and exceed their objectives.

The Trustees will continue to monitor industry improvements concerning the reporting of portfolio turnover costs. In future, the Trustees may ask investment managers to report on portfolio turnover and turnover costs.

DC Section:

The Trustees do not currently actively monitor portfolio turnover costs across the whole portfolio, but investment manager performance is generally reported on a net of transaction costs basis. Therefore, managers are incentivised in this way to keep portfolio turnover costs to the minimum required to meet and exceed their objectives.

The Trustees will continue to monitor industry improvements concerning the reporting of portfolio turnover costs. In future, the Trustees may ask investment managers to report on portfolio turnover and turnover costs.  In respect of the DC Section, the Trustees review the investment manager fees and considers portfolio turnover costs as part of the annual Value for Money (“VfM”) assessment.

DB Section:

In the year to 31 December 2020, the Trustees have not queried portfolio turnover costs. 

DC Section:

Transaction costs are disclosed in the annual Chair’s Statement. Data has been obtained from Aviva.

While the transaction costs provided appear to be reflective of costs expected of the various asset classes and markets that the Scheme invests in, there is not as yet any “industry standard” or universe to compare these to. 

14

The duration of the arrangement with the asset manager

DB Section:

For the open-ended funds the Scheme is invested in, there is no set duration for the manager appointment.  However, the appointment is regularly reviewed as to its continued suitability and could be terminated either because the Trustees are dissatisfied with the managers’ ongoing ability to deliver the mandate promised or because of a change of investment strategy by the Trustees.

DC Section:

The Trustees are long term investors and are not seeking to change investment arrangements on a frequent basis. As the investments are open-ended funds the Scheme, there is no set duration for the appointment of the investment manager. The Trustees will therefore retain an investment manager unless there is a strategic change to the overall strategy that no longer requires exposure to a particular asset class or manager; or the Trustees decide to terminate the mandate following a review of the manager’s appointment.  In respect of the DC Section, the fund range and default strategy are reviewed on at least a triennial basis. A manager’s appointment may be terminated if it is no longer considered to be optimal nor have a place in the default strategy or general fund range.

DB Section:

In the year to 31 December 2020, the Trustees have not terminated any manager appointments. 

DC Section:

There were changes to investment managers during the year, because the Trustees decided to replace the previous provider (Royal London Life) with a new  provider - (“MWS”) proposition with Aviva.  Strategic and proposition changes were the driver for the termination of the appointments of the funds previously available to members on the Royal London Life platform.

 

Appendix A – Voting Activity during the Scheme year

Voting activity information from each of the underlying investment managers (where provided) over the prior 12 months to 31 December 2020 is summarised in the table below. Where fund managers have not been included, this is due to being able to supply voting information at the time of finalising this report.

DB Section:

 

Fund

UK Equity Index Fund

European Equity Index Fund

US Equity Index Fund

Japanese Equity Index Fund

Pacific Rim Equity Index Fund

Emerging Markets Equity Index Fund

Total

How many meetings were you eligible to vote at?

1,168

512

613

516

445

3,478

6,732

How many resolutions were you eligible to vote on?

15,622

8,674

7,588

6,290

3,133

31,032

72,339

What % of resolutions did you vote on for which you were eligible?

97.1%

81.4%

100.0%

100.0%

99.6%

98.2%

96.4%

Of the resolutions on which you voted, what % did you vote with management?

94.4%

87.7%

97.5%

98.0%

90.1%

90.6%

92.5%

Of the resolutions on which you voted, what % did you vote against management?

5.6%

12.3%

2.5%

2.0%

9.9%

9.4%

7.5%

Of the resolutions on which you voted, what % did you abstain from voting?

1.8%

1.0%

0.1%

0.0%

0.1%

2.1%

1.4%

 

Details on some of the key votes undertaken over the year to 31 December 2020 are provided below:

Fund

Company

How you voted

Rationale for the voting decision

UK Equity Index Fund

Chevron Corporation

For

Summary of the resolution: Report on Climate Lobbying Aligned with Paris Agreement Goals

On which criteria have BlackRock assessed this vote to be "most significant"?:

Shareholder Resolution - climate change

US Equity Index Fund

Walmart, Inc.

Against

Summary of the resolution: Shareholder proposal regarding report on impacts of single-use plastic bags

On which criteria have BlackRock assessed this vote to be "most significant"?:

 Shareholder Resolution - climate change

Pacific Rim Equity Index Fund

Santos Limited

Against

Summary of the resolution: Ordinary Resolution on Paris Goals and Targets

On which criteria have BlackRock assessed this vote to be "most significant"?:

Shareholder Resolution - climate change

DC Section:

 

Fund

Mercer Growth Fund

Mercer Diversified Retirement Fund

Mercer Passive Global Equity

How many meetings were you eligible to vote at?

8,223

93,91

301

How many resolutions were you eligible to vote on?

87,558

103,18

3,127

What % of resolutions did you vote on for which you were eligible?

95.7%

96.4%

100%

Of the resolutions on which you voted, what % did you vote with management?

82.1%

83.8%

87.0%

Of the resolutions on which you voted, what % did you vote against management?

17.0%

15.2%

12.0%

Of the resolutions on which you voted, what % did you abstain from voting?

0.9%

1.0%

1.0%

 

Examples of Significant Votes

 

Fund

Company

How you voted

Rationale for the voting decision

Mercer Growth Fund

iA Financial Corp

For

Summary of the resolution: Shareholder Proposal Regarding Climate Risk Report

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Intel Corp.

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Appendix B – Statement of Investment Principles

Mettler Toledo Pension Scheme

September 2020

1.   Introduction

This Statement sets down the principles governing decisions about investments for the Mettler Toledo Pension Scheme (“the Scheme”) to meet the requirements of the Pensions Act 1995 and subsequent legislation, particularly the Pensions Act 2004 and Occupational Pension Scheme (Investment) Regulations 2005.  Before preparing it the Trustees have consulted Mettler Toledo Limited (“the Company”) and obtained and considered written professional advice from their Investment Consultants. 

When making investment decisions, the Trustees consider the principles in this Statement to ensure the decisions taken are, where possible, consistent with the principles set down in this Statement.

The investment responsibilities are governed by the Scheme’s Trust Deed.  A copy of the relevant clause, of which this Statement takes full regard, is available for inspection.

A separate document “Summary of Investment Arrangements” detailing the specifics of the Scheme’s investment arrangements is available on request.

2.      Structure of the Scheme

The Scheme has two sections - the Defined Benefit (“DB”) Section and the Defined Contribution (“DC”) Section.

Defined Benefit Section

The DB Section is closed both to new entrants and future accrual of benefits.  Therefore all members are either deferred pensioners or pensioners.

Defined Contribution Section

The Defined Contribution Section was set up when the Defined Benefit Section was closed.

3.   Defined Benefit Section - Investment Objectives and Risk

3.1  Investment Objectives

The Trustees’ primary objective is to act in the best interests of members. 

     The Trustees recognise that a portfolio of bonds is the strategy which will best protect against changes in the value of the liabilities.  However, this is an ongoing pension scheme with the support of the Company, and the Trustees feel that some equity investment is appropriate in an attempt to improve the ongoing funding position to reduce the burden on Company contributions.  The Trustees recognise that holding equity investment will bring increased volatility of Company contribution requirements in favour of higher expected returns in the long term. 

3.2  Risk Management and Measurement

There are various risks to which any pension scheme is exposed.  The Trustees’ policy on risk management over the DB Section’s anticipated lifetime is as follows:

−     The primary risk upon which the Trustees focus is that arising through a mismatch between the DB Section’s assets and its liabilities and the risks associated with a deterioration in the strength of the Company’s covenant. The Trustees regularly monitor the Company’s covenant.

−     The Trustees recognise that whilst increasing risk increases potential returns over a long period, it also increases the risk of a shortfall in returns relative to that required to cover the DB Section’s liabilities as well as producing more short-term volatility in the DB Section’s funding position.  The Trustees have taken advice on the matter and (in light of the objectives noted previously) considered carefully the implications of adopting different levels of risk. 

−     The Trustees recognise the risks that may arise from the lack of diversification of investments.  Subject to managing the risk from a mismatch of assets and liabilities, the Trustees aim to ensure the asset allocation policy in place results in an adequately diversified portfolio.  Due to the size of the DB Section’s assets and recognising the need to diversify, investment exposure is obtained via pooled vehicles.

−     The Trustees acknowledge that active management can materially add to long term investment returns.  However, active management also carries the risk of underperforming a passively managed alternative (net of the additional investment management fees associated with active management).  Given this, the Trustees currently only employ passive investment management within the DB Section.

−     The DB Section is subject to currency risk.  Currency risk is managed by investing the DB Section’s equity portfolio partially in UK equities and partially in a range of overseas equities.

−     The documents governing the manager appointments include a number of guidelines which, among other things, are designed to ensure that only suitable investments are held by the DB Section.  The managers are prevented from investing in asset classes outside their mandates without the Trustees’ prior consent.

−     Arrangements are in place to monitor the DB Section’s investments to help the Trustees check that nothing has occurred that would bring into question the continuing suitability of the current investments.  To facilitate this, the Trustees receive regular reports from the Investment Managers. 

−     The safe custody of the DB Section’s assets is delegated to professional custodians (either directly or via the use of pooled vehicles).

−     Environmental, social and governance (ESG) risk is considered in Section 8.

−     Liquidity risk refers to the ease with which assets are marketable and realisable.  All of the DB Section’s assets are invested in quoted markets and are readily realisable.  

The items listed above are in relation to what the Trustees consider ‘financially material considerations’.

Should there be a material change in the DB Section’s or the Company’s circumstances, the Trustees will review whether and to what extent the investment arrangements should be altered; in particular whether the current risk profile remains appropriate.

3.3  Investment Strategy

The Trustees have determined a benchmark mix of asset types and ranges within which the Investment Managers may operate; these guidelines are set out in the Summary of Investment Arrangements.  The Trustees believe that the investment strategy (the mix of asset types) inherent in the Investment Managers’ actions is currently appropriate for controlling the risks identified in 3.2.  The Trustees target a total return on the assets consistent with the assumptions supporting the DB Section’s Technical Provisions and Recovery Plan.

4.  Defined Contribution Section - Investment Objectives and Risk

          Investment Objectives

For the DC Section, the Trustees’ primary objective is to make available a range of investment funds which serve to meet the varying investment needs and risk tolerances of the members of the DC Section.

          Risk

The Trustees recognise that there are a number of risks facing members of the DC Section and have taken these into consideration when determining the range of funds to offer to members. The fund range aims to offer members sufficient choice across the risk/return spectrum to allow them to manage the risks they face. Members can combine the funds in any proportion in order to determine the balance between the different kinds of investments.  This will also determine the expected return on a member’s assets and should be related to the member’s own risk appetite and tolerances.

The Trustees have considered risks from a number of perspectives. The list below is not exhaustive but covers the main risks that the Trustees considers and how they are managed.

Risk

How it is managed

How it is measured

Inflation Risk The real value (i.e. post inflation) value of members’ accounts decreases.

The Trustees provide members with a range of funds, across various asset classes, with the majority expected to keep pace with or exceed inflation

Members are able to set their own investment allocations, in line with their risk tolerances.

Considering the real returns (i.e. return above inflation) of the funds, with positive values indicating returns that have kept pace with inflation.

Pension Conversion Risk

Member’s investments do not match how they would like to use their pots in retirement.

The Trustees make available two lifestyling strategies for DC members, each targeting either cash or cash and a pension at retirement.

Lifestyle strategies automatically switch member assets as they approach retirement into investments that are expected to be less volatile relative to how they wish to access their pension savings. These lifestyling strategies increase the proportion of assets that more closely match the chosen retirement destination as members approach retirement. This aims to reduce the risk of a substantial fall in the purchasing power of their accumulated savings near retirement.

Considering the returns of the funds used within the switching phase of the lifestyle strategy both in absolute terms as well as relative to inflation, cash or annuity prices (depending on their selected retirement destination).

Market Risk
The value of securities, including equities and interest bearing assets, can go down as well as up.

The Trustees provide members with a range of funds, across various asset classes. Members are able to set their own investment strategy in line with their risk tolerances.

 

Monitors the performance of external investment funds on a quarterly basis.

Counterparty Risk

A counterparty, either an underlying holding or pooled arrangement, cannot meet its obligation.

Delegated to external investment manager.

Members are able to set their own investment allocations, in line with their risk tolerances.

Monitors the performance of external investment funds on a quarterly basis.

Currency Risk

The value of an investment in the member’s base currency may change as a result of fluctuating foreign exchange rates.

The Trustees provide an equity investment option that invests in Sterling denominated UK equities as well as overseas equity markets and currencies.

Delegated to investment managers.

Members are able to set their own investment allocations, in line with their risk tolerances.

Monitors the performance of external investment funds on a quarterly basis.

Considers the movements in foreign currencies relative to pound sterling.

Operational Risk

A lack of robust internal proceses, people and systems.

Members are able to set their own investment allocations, in line with their risk tolerances.

Consider the ratings of investment strategies from their Investment Consultant and monitoring these on a quarterly basis.

Liquidity Risk

Assets may not be readily marketable when required.

The Trustees access daily dealt and daily priced pooled funds through a unit-linked insurance contract from Royal London.

The pricing and dealing terms of the funds underlying the unit-linked insurance contract

Valuation Risk

The value of an illiquid asset is based on a valuer’s opinion, realised value upon sale may differ from this valuation.

 

The majority of investment managers invest solely in liquid quoted assets.

The Trustees monitor performance of funds on a quarterly basis, and where relevant delegates the monitoring of valuation risk to the Investment Consultant.

Environmental, Social and Governance Risk

ESG factors can have a significant effect on the performance of the investments held by the Scheme e.g. extreme weather events, poor governance.

Delegated to external investment managers.

The Trustees’ policy on ESG risks is set out in Section 8 of this Statement.

 

Manager Skill / Alpha Risk

Returns from active investment management may not meet expectations, leading to lower than expected returns to members.

The Trustees makes available a number of actively managed funds to DC members where they deem appropriate; for example a property fund.

 

Trustees monitor performance and rating of funds on an ongoing basis relative to the  fund’s benchmark and stated targets/objective

 

In selecting assets, the Trustees consider the liquidity of the investments in the context of the likely needs of members. All assets are daily dealing and therefore should be realisable based on member demand.

The items listed above are in relation to what the Trustees consider ‘financially material considerations’. The Trustees believe the appropriate time horizon for which to assess these considerations within should be viewed at a member level. This will be dependent on the member’s age and their Selected Retirement Age.

Arrangements are in place to monitor the DC investments to help the Trustees check that nothing has occurred that would bring into question the continuing suitability of the current investments. 

The Trustees will monitor the appropriateness of the DC lifestyle options. 

Should there be a material change in the circumstances of the DC Section or the environment in which it operates, the Trustees will review whether and to what extent the investment arrangements should be altered.    

5.  Day-to-Day Management of the Assets

The Trustees delegate the day to day management of the assets to a number of Investment Managers.  The Trustees have taken steps to satisfy themselves that the managers have the appropriate knowledge and experience for managing the Scheme’s investments and that they are carrying out their work competently.

For the DB and DC Sections the Trustees have determined, based on expert advice, a benchmark mix of asset types and ranges within which each appointed investment manager must operate.  This included consideration of the type of management to be deployed for each asset class.

The range of funds available to members of the DC Section is set out in the Summary of Investment Arrangements.

The Trustees regularly review the continuing suitability of the Scheme’s investments, including the appointed managers and the balance between active and passive management, which may be adjusted from time to time. 

6.  Additional Assets

Under the terms of the Trust Deed the Trustees are responsible for the investment of AVCs paid by members.  The Trustees review the investment performance of the chosen providers on a regular basis and take advice as to the providers’ continued suitability.

7.  Realisation of Investments

The Investment Managers have discretion in the timing of realisation of investments     and in considerations relating to the liquidity of those investments within parameters stipulated in the relevant appointment documentation and pooled fund prospectuses.

For the DB Section, the Trustees may choose to delegate the monitoring of the allocation between asset classes and rebalancing of the portfolio as set out in theSummary of Investment Arrangements.

8.  Socially Responsible Investment and Corporate Governance

The Trustees believe that good stewardship and environmental, social and corporate governance (“ESG”) issues may have a material impact on investment returns, and that good stewardship can create and preserve value for companies and markets as a whole. The Trustees also recognise that long-term sustainability issues, particularly climate change, present risks and opportunities that increasingly may require explicit consideration.

The Trustees have given the investment managers full discretion when evaluating ESG issues and in exercising rights and stewardship obligations attached to the Scheme’s investments. The investment managers are expected to evaluate ESG factors, including climate change considerations, and exercise voting rights and stewardship obligations attached to the investments, in accordance with their own corporate governance policies and current best practice, including the UK Corporate Governance Code and UK Stewardship Code.

The Trustees consider how ESG, climate change and stewardship is integrated within their investment manager’s processes and the investment managers are expected to provide reporting on a regular basis, at least annually, on ESG integration process, stewardship monitoring results, and climate-related metrics such as carbon footprinting for equities.

The Trustees have delegated their voting rights to the investment managers. 

The Trustees are looking to enhance their reporting on voting activity by reviewing an annual voting and engagement report which will be produced by the Trustees’ investment consultant.

9.   Member views and Non-Financially Material Considerations

Member views (including their ethical views) and Non-Financially Material Considerations are not taken into account in the selection, retention and realisation of investments.

10.  Investment Restrictions

The Trustees have not set any investment restrictions on the appointed investment managers in relation to particular products or activities, but may consider this in future.

11.  Investment Manager Appointments, Engagement and Monitoring

Investment managers are appointed based on their capabilities and, therefore, their perceived likelihood of achieving the expected return and risk characteristics required for the asset class for which they are selected.

The Trustees look to their investment consultant for their forward-looking assessment of the manager’s ability to deliver upon its stated objectives over a full market cycle. This view will be based on the consultant’s assessment of the manager’s idea generation, portfolio construction, implementation and business management (amongst other things), in relation to the particular strategies that the Scheme invests in.  The investment consultant’s manager research ratings assist with due diligence and (where available) are used in decisions around selection, retention and realisation of manager appointments.

If the investment objective for a particular manager’s fund changes, the Trustees will review the fund’s appointment to ensure it remains appropriate and consistent with the Trustees’ wider investment objectives.

Some appointments are actively managed and the managers are incentivised through remuneration and performance targets (an appointment will be reviewed following periods of sustained underperformance).  The Trustees will review the appropriateness of using actively managed funds (on an asset class basis) from time to time.

In relation to multi-client pooled funds used by the Scheme, the Trustees accept that they have no ability to specify the risk profile and return targets of the manager, but appropriate mandates can be selected to align with the overall investment strategy.

The Trustees will also consider the investment consultant’s assessment of how each investment manager embeds ESG into its investment process and how the manager’s responsible investment philosophy aligns with the Trustees’ responsible investment policy.  This includes the investment managers’ policy on voting and engagement. The Trustees will use this assessment in decisions around selection, retention and realisation of manager appointments.

The investment managers are remunerated by way of a fee calculated as a percentage of assets under management.

The investment managers are aware that their continued appointment is based on their success in delivering the mandate for which they have been appointed.  If the Trustees are dissatisfied, then they will look to review the appointment.

The Trustees receive investment manager performance reports on a quarterly basis, which present performance information over various time periods.  The Trustees review the absolute performance of the relevant funds, as well as their relative performance versus a suitable benchmark index (where appropriate) and against the manager’s stated performance targets (over the relevant time period). The Trustees focus is on long term performance but short term performance is also reviewed. As noted above, they may review a manager’s appointment if:

·         There are sustained periods of underperformance 

·         There is a change in the portfolio manager;

·         There is a change in the underlying objectives of the investment manager;

·         There is a significant change to the investment consultant’s rating of the manager.

The Trustees meet the Scheme’s investment managers from time to time to review their actions together with the reasons for and background behind the investment performance.  The Investment Consultant supports the Trustees in fulfilling their responsibility for monitoring the investment managers.

The Trustees do not currently actively monitor portfolio turnover costs across the whole portfolio, but investment manager performance is generally reported on a net of transaction costs basis. Therefore, managers are incentivised in this way to keep portfolio turnover costs to the minimum required to meet and exceed their objectives.

The Trustees will continue to monitor industry improvements concerning the reporting of portfolio turnover costs. In future, the Trustees may ask investment managers to report on portfolio turnover and turnover costs.   In respect of the DC Section, the Trustees review the investment manager fees and considers portfolio turnover costs as part of the annual Value for Money (“VfM”) assessment.

The Trustees are long term investors and are not seeking to change investment arrangements on a frequent basis. As the investments are open-ended funds the Scheme, there is no set duration for the appointment of the investment manager. The Trustees will therefore retain an investment manager unless there is a strategic change to the overall strategy that no longer requires exposure to a particular asset class or manager; or the Trustees decide to terminate the mandate following a review of the manager’s appointment.  In respect of the DC Section, the fund range and default strategy are reviewed on at least a triennial basis. A manager’s appointment may be terminated if it is no longer considered to be optimal nor have a place in the default strategy or general fund range.

12.  Review of this Statement

The Trustees will review this Statement at least once every three years and without delay after any significant change in investment policy.  Any change to this Statement will only be made after having obtained and considered the written advice of someone who the Trustees reasonably believe to be qualified by their ability in and practical experience of financial matters and to have the appropriate knowledge and experience of the management of pension scheme investments.

13.  Compliance with this Statement

     The Trustees have the duty to ensure compliance with this Statement.  The Investment Managers and Mercer (all of whom have been appointed by, or are contracted to, the Trustees) each have duties to perform to assist the Trustees with their compliance with this Statement.  These are:

The Trustees, will review this Statement regularly on the advice of Mercer and will record compliance with it at a Trustees’ meeting, if necessary.

The Trustees will also monitor the Investment Managers to ensure they are complying with the terms of the Agreement.

Mercer, the Trustees’ consultants and the Scheme Actuary, will provide the advice needed to allow the Trustees to review and update this statement regularly. In addition the sponsoring Company will be consulted on the content of this statement.

Appendix C – Statement of Investment Principles in Respect of the Default Investment Option for the DC Section

Mettler Toledo Pension Scheme

1.            Introduction

1.1          The Trustees of the Scheme have drawn up this Statement of Investment Principles (“the Statement”) to comply with the requirements of the Occupational Pension Schemes (Investment) Regulations 2005 and subsequent legislation, relating to provision of information specific to default investments, referred to as “default options”.  This should be read in conjunction with the main Statement.

1.2          The default options covered by this Statement is:

  •    the Mercer Workplace Savings (“MWS”) Target Drawdown Strategy
  •    the Mercer Workplace Savings (“MWS”) Target Cash Strategy

2.            Principles

2.1          The Trustees recognise that many members do not consider themselves competent to take investment decisions. The Trustees have provided two default option. Unless members make a specific request for their contributions to be invested in a different manner, they are invested in one of these options, depending on the type of member they are.

The default options above have two phases: the accumulation phase and the consolidation phase.

·         When a member is younger, their account is invested in funds that aim for long-term growth (accumulation phase) in excess of inflation. 

·         As the member approaches retirement, their account is switched automatically into lower-risk, lower-growth funds (consolidation phase) that aim to provide greater stability by targeting drawdown or targeting cash, depending on the membership profile for each of the defaults.

3.            Default Options

Objectives

3.1          The aims of the default options and the ways in which the Trustees seek to achieve these aims are detailed below:

-          To generate returns in excess of inflation during the accumulation phase of the strategy whilst managing downside risk.

The default options’ accumulation phases invest in equities and other growth-seeking assets through diversified growth funds.  These investments are expected to provide long term growth in excess of inflation and some protection against inflation erosion.The diversification provided by the range of assets, which range from commodities to global high yield bonds, is expected to provide some downside protection from equity market falls.

The asset allocation and asset classes that the accumulation phase invests in may change from one period to another subject to MWS’s views. In addition, the fund used in the growth phase uses dynamic asset allocation to tilt the portfolio in different market environments, aiming to improve return as well as increase downside protection.

-          To provide a strategy that reduces investment risk for members as they approach retirement.

The Trustees believe that a strategy that seeks to reduce investment risk as the member approaches retirement is appropriate to protect the level of savings built up as a fall in markets will have a greater impact on member outcomes at this stage. 

Moreover, as members approach retirement, the Trustees believe the primary aim should be to provide protection against a mismatch between asset values and the default target, with a strategy targeting drawdown or targeting cash aiming to minimiser that mismatch..

Both defaults aim to reduce volatility near retirement via automated switches over a 8 year period to a member’s selected retirement date. Hence, eight years before their target retirement date (or normal retirement date, if no target is specified), members in the default investment options will have their holdings transferred into a target date fund (“Target Drawdown Retirement 20XY Fund” or Target Cash Retirement 20XY Fund, based on the expected date of retirement in year 20XY).

These target date funds aim to gradually move investments from higher-risk growth-seeking assets to assets aiming for income and less volatile growth, along with an allowance for tax-free cash benefits through an allocation to money market investments.

-          To provide exposure at retirement to assets that are broadly appropriate for an individual planning to take their benefits.

By the start of the year of their expected retirement, members’ accumulated savings in the defaults will be moved to:

·         the Target Drawdown Retirement Fund, which aims to broadly match these benefits through investment of 25% of the portfolio in a mix of high quality short-term sterling denominated money market instruments and 75% in a Diversified Retirement Fund, which aims to generate income and maintain the purchasing power of members’ savings until they retire from the Fund.  The assets in this multi-asset fund include equities, bonds and alternative assets.

·         the Target Cash Retirement Fund which aims to broadly match these benefits through investment of 100% of the portfolio in a mix of high quality short-term sterling denominated money market instruments.

Policies in relation to the default options

3.2                 The Trustees’ policies in relation to the default options are:

-          The default options manage investment risks in the accumulation phase through a diversified allocation within equity markets, spread geographically across the main developed markets. Section 4 provides further information on the Trustees’ risk policies.

-          In designing the default options, the Trustees have considered the trade-off between expected risk and return. This policy is reviewed regularly to ensure that the design remains appropriate for members and reflects developments in the market.

-          The Trustees have also taken into account the needs of members with regards to the security, quality, liquidity and profitability of a member’s portfolio as a whole.

-          If members wish to, they can opt to choose their own investment options at any time from a limited range that has been agreed by the Trustees.

-          The Trustees monitor performance of the components of the defaults, relative to objectives, albeit the Trustees will not provide advice to members on their individual choice of investment options.

-          Assets are invested in daily traded pooled funds which hold highly liquid assets. The pooled funds are managed by MWS.

-          The selection, retention and realisation of assets within the pooled funds are delegated to MWS and their relation with the underlying manager. They also 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.

The structure of the default options is shown in the table below:

Mercer Target Retirement Drawdown Funds

Years to Retirement

Mercer Growth (%)

Mercer Diversified Retirement Fund (%)

BlackRock Institutional Sterling Liquidity Fund (%)

>8

100.0

0.0

0.0

7

87.5

12.5

0.0

6

75.0

25.0

0.0

5

62.5

37.5

0.0

4

50.0

50.0

0.0

3

37.5

62.5

0.0

2

25.0

67.0

8.0

1

12.5

71.5

16.0

0

0.0

75.0

25.0

 

 

Mercer Target Retirement Drawdown Funds

Years to Retirement

Mercer Growth (%)

Mercer Corporate Bond Fund (%)

BlackRock Institutional Sterling Liquidity Fund (%)

>8

100.0

0.0

0.0

7

87.5

12.5

0.0

6

75.0

25.0

0.0

5

62.5

37.5

0.0

4

50.0

50.0

0.0

3

37.5

37.5

25.0

2

25.0

25.0

50.0

1

12.5

37.5

75.0

0

0.0

0.0

100.0

 

4.            Risk

4.1          The Trustees have considered risks from a number of perspectives. The list below is not exhaustive but covers the main risks that the Trustees considers and how they are managed.

Risk

How it is managed

How it is measured

Inflation Risk The real value (i.e. post inflation) value of members’ accounts decreases.

During the accumulation phase of the default investment options, the Trustees invest in a diversified range of assets which are expected to grow in real terms. During the growth phase of the default investment option the Trustees invest in a diversified range of assets which are expected to grow in real terms.

MWS consider inflation when building and modelling their portfolios.

Considering the real returns (i.e. return above inflation) of the funds, with positive values indicating returns that have kept pace with inflation.

MWS provide performance information for the Trustees to monitor this risk.

Pension Conversion Risk

Member’s investments do not match how they would like to use their pots in retirement.

The MWS Target Drawdown Strategy targets flexible access income drawdown as a retirement destination.

 

The MWS Target Cash Strategy targets cash as a retirement destination.

 

The Trustees believe that a strategy targeting drawdown minimises the overall pension conversion risk for the relevant members accessing pots in a different manner (annuity or drawdown).

Considering the returns of the funds used within the switching phase of the MWS Target Drawdown and Taregt Cash Strategies both in absolute terms as well as relative to inflation (the retirement destination).

As part of the triennial default strategy review, the Trustees ensures the default destination remains appropriate.

The Trustees has delegated to MWS the monitoring and selection of the underlying components funds and allocations within the two strategies

Market Risk
The value of securities, including equities and interest bearing assets, can go down as well as up.

The default investment strategy is set with the intention of diversifying this risk to reach a level of risk deemed appropriate for the relevant members by the Trustees.

For the diversified growth funds which are targetting non-market benchmarks this is delegated to investment managers..

 

Monitors the performance of external investment funds on a quarterly basis.

MWS provide performance information for the Trustees to monitor this risk.

Counterparty Risk

A counterparty, either an underlying holding or pooled arrangement, cannot meet its obligation.

Delegated to MWS.

 

Delegated to MWS.

Currency Risk

The value of an investment in the member’s base currency may change as a result of fluctuating foreign exchange rates.

The  equity allocation of the defaults are invested in a fund with a currency hedging overlay. Within the diversified growth funds the currency risk management is delegated to investment managers.

Investment strategy is set with the intention of diversifying this risk to reach a level of risk deemed appropriate for the relevant members by the Trustees.

Monitors the performance of external investment funds on a quarterly basis.

Considers the movements in foreign currencies relative to pound sterling.

This risk is monitored by MWS as part of the portfolio management process.

Operational Risk

A lack of robust internal proceses, people and systems.

In line with the main SIP.

 

 

 

In line with the main SIP.

Liquidity Risk

Assets may not be readily marketable when required.

 

In line with the main SIP.

 

In line with the main SIP.

Valuation Risk

The value of an illiquid asset is based on a valuer’s opinion, realised value upon sale may differ from this valuation.

 

In line with the main  SIP.

 

In line with the main SIP.

Environmental, Social and Governance Risk

ESG factors can have a significant effect on the performance of the investments held by the Plan e.g. extreme weather events, poor governance.

Delegated to MWS and underlying managers.

The Trustees’ policy on ESG risks is set out in Section 8 of the main SIP.

In line with the main SIP.

Manager Skill / Alpha Risk

Returns from active investment management may not meet expectations, leading to lower than expected returns to members.

These are set with the intention of diversifying this risk to reach a level of risk deemed appropriate for the relevant members by the Trustees to achieve the overall objective. Active management is deployed to some extent.

In line with the main SIP.

 

In selecting assets, the Trustees consider the liquidity of the investments in the context of the likely needs of members. All assets are daily dealing and therefore should be realisable based on member demand.

The items listed above are in relation to what the Trustees consider ‘financially material considerations’. The Trustees believe the appropriate time horizon for which to assess these considerations within should be viewed at a member level. This will be dependent on the member’s age and their Selected Retirement Age.

When expressed, member views are taken into consideration relating to all financial and non-financial matters.

5.            Suitability of the Default Options

5.1          Members’ Best Interests

Taking into account the demographics of the Plan’s membership and the Trustees’ views of how the membership will behave at retirement, the Trustees believe that the default strategies outlined in this document is appropriate.

In order to ensure this remains appropriate the Trustees will undertake a review of the default investment options, at least triennially, or after significant changes to the Plan’s demographic, if sooner.

5.2          Investment Strategy

The default options are implemented using a range of MWS pooled funds. The strategic asset allocation and selection of underlying investment strategies is delegated to MWS. Any investment in derivative instruments (either directly or within the underlying pooled funds) contributes to risk reduction, or efficient portfolio management.

They both adopt a target retirement fund approach to manage risk throughout a member’s lifetime in the Scheme. As a member’s pot grows, investment risk will have a greater impact on member outcomes.  Therefore, the Trustees believe that it is appropriate to utilise a lifestyle approach to reduce investment risk relative to a member accessing their pension pot through drawdown or cash at retirement as the member approaches retirement.  The reduction of investment risk in the run up to retirement is expected to reduce the chance of market shocks producing unfavourable outcomes for members at retirement (on the assumption that members are taking their benefits through drawdown). 

5.3          Voting and engagement policy

The Trustees’ policy in relation to voting and engagement is in line with Section 8 of the main SIP.

5.4          Arrangements with investment managers

The Trustees’ policies in relation to arrangements with investment managers for the default options, including how managers are incentivised to align with the Trustees’ policies, the method of evaluation of manager’s performance, how turnover costs are monitored and the duration of arrangements, are in line with Section 11 of the main SIP.

6.            Review of this Statement

6.1          The Trustees will review this Statement at least once every three years and without delay after any significant change in investment policy.  Any change to this Statement will only be made after having obtained and considered the written advice of someone who the Trustees reasonably believe to be qualified by their ability in and practical experience of financial matters and to have the appropriate knowledge and experience of the management of pension scheme investments.