Default Investment Strategy

The Trustee has made available a range of investment options for members. Each member is responsible for specifying one or more options for the investment of their account, having regard to their attitude to the risks involved. If a member does not choose an investment option, from the range available in the Scheme, their DC pension pot and any future contributions are automatically invested In the Scheme’s default arrangement applicable to them. This is managed as a ’targeted’ strategy (i.e. it automatically combines assets in proportions that vary according to the time to retirement age). The targeted strategies are 100% invested in equities until twenty years from a member’s target retirement age from which time they switch gradually in to lower risk assets appropriate to the type of retirement income targeted.

The Scheme has different default arrangements for members, depending on the type of benefits they have. The default options have been designed, with support from the Scheme’s advisors, to be in what the Trustee believes to be the best interests of the majority of the members based on the demographics of the Scheme’s membership.

Your default arrangements

The Scheme has two main default lifecycle arrangements: the Flexible Income Strategy and the Lump Sum Strategy. These lifecycle strategies were set as the default investment arrangement for two distinct cohorts of members, those with DC only benefits and those who are “Hybrid” members (former DB active members on 30 June 2015 who became active DC members from 1 July 2015), respectively.

For members with only a DC pension pot - the Flexible Income Strategy is the default arrangements. It is designed for members, at their retirement or beyond, to take 25% of their DC pension pot as a cash lump sum and the balance to provide a flexible income (e.g. income drawdown), spreading the amount and timing of withdrawals. Members can do this by transferring their DC pension pot out of the Scheme. This strategy works by switching the investment mix of members’ DC pension pots from the Global Equities – passive Fund into the Diversified Assets – active Fund and then de-risks into the Global Bonds – active Fund and the Cash – active Fund whilst continuing to hold an allocation to the Diversified Assets – active Fund as the members near retirement. This design is based on the demographic profile of the membership and the generous contribution structure combined with the belief that members are likely to both accrue large pots and choose to take a flexible income. Market trends and Scheme experience since the introduction of Pension Freedoms in 2015 also indicate that members with larger DC pension pots are moving away from purchasing annuities and are choosing flexible income instead.

For members with Hybrid benefits - the Lump Sum Strategy is the default arrangement. It is designed for members to use their DC pension pot for a cash lump sum at their target retirement age or beyond. This strategy works by switching the investment mix of members’ DC pension pots from the Global Equities – passive Fund into the Diversified Assets – active Fund and the Global Bonds – active Fund and then partially (50%) de-risks into the Cash – active Fund as the member nears retirement. The rationale for this design is the belief that many members with Hybrid benefits are expected to use their DC pension pot as part of their overall Scheme tax-free cash lump sum at retirement.

As a material proportion of members continue to leave their DC pension pots invested past retirement, the Trustee has ensured that both the Flexible Income Strategy and the Lump Sum Strategy continue to de-risk after members' target retirement age. This was introduced following the triennial investment strategy and performance review in 2017 and confirmed as remaining appropriate as part of the triennial investment strategy review that took place on 3 March 2023 which concluded that the Trustee continues to support this view.

The Trustee is required to calculate the percentage of the Scheme’s assets within the default arrangements allocated to each of the following asset classes. In line with the DWP’s guidance the Trustee has also shown this asset allocation for different ages as at the Scheme year end.

Flexible Income Strategy (main default for members with only a DC pension pot)

Asset class Allocation 25 y/o % Allocation 45 y/o % Allocation 55 y/o % Allocation at retirement %
Cash 0.0 0.0 1.0 29.5
Corporate bonds (UK and overseas) 0.0 0.0 13.6 30.2
UK government bonds 0.0 0.0 2.8 2.8
Overseas government bonds 0.0 0.0 3.8 14.0
Listed equities 100.0 100.0 69.7 15.7
Private equity 0.0 0.0 0.0 0.0
Infrastructure (direct) 0.0 0.0 0.0 0.0
Property (direct) 0.0 0.0 0.8 0.6
Private debt 0.0 0.0 1.7 1.3
Other1 0.0 0.0 6.9 5.8
Total2 100.0 100.0 100.0 100.0

1Other includes gold, emerging market climate bonds, sustainable convertible bonds, insurance linked securities and derivatives. 2Figures may not sum due to rounding.

Lump Sum Strategy (main default for members with Hybrid benefits)

Asset class Allocation 25 y/o % Allocation 45 y/o % Allocation 55 y/o % Allocation at retirement %
Cash 0.0 0.0 1.0 33.1
Corporate bonds (UK and overseas) 0.0 0.0 13.6 41.4
UK government bonds 0.0 0.0 2.8 1.3
Overseas government bonds 0.0 0.0 3.8 23.5
Listed equities 100.0 100.0 69.7 0.0
Private equity 0.0 0.0 0.0 0.0
Infrastructure (direct) 0.0 0.0 0.0 0.0
Property (direct) 0.0 0.0 0.8 0.0
Private debt 0.0 0.0 1.7 0.0
Other1 0.0 0.0 6.9 0.8
Total2 100.0 100.0 100.0 100.0

1Other includes gold, emerging market climate bonds, sustainable convertible bonds, insurance linked securities and derivatives. 2Figures may not sum due to rounding.

Annuity Purchase Strategy (legacy default and current self-select (“Freechoice” option)

Asset class Allocation 25 y/o % Allocation 45 y/o % Allocation 55 y/o % Allocation at retirement %
Cash 0.0 0.0 1.0 25.0
Corporate bonds (UK and overseas) 0.0 0.0 13.6 27.0
UK government bonds 0.0 0.0 2.8 48.0
Overseas government bonds 0.0 0.0 3.8 0.0
Listed equities 100.0 100.0 69.7 0.0
Private equity 0.0 0.0 0.0 0.0
Infrastructure (direct) 0.0 0.0 0.0 0.0
Property (direct) 0.0 0.0 0.8 0.0
Private debt 0.0 0.0 1.7 0.0
Other1 0.0 0.0 6.9 0.0
Total2 100.0 100.0 100.0 100.0

1Other includes gold, emerging market climate bonds, sustainable convertible bonds, insurance linked securities and derivatives. 2Figures may not sum due to rounding.

Cash Lifecycle (legacy default arrangement)

Asset class Allocation 25 y/o % Allocation 45 y/o % Allocation 55 y/o % Allocation at retirement %
Cash 0.0 0.0 1.0 100.0
Corporate bonds (UK and overseas) 0.0 0.0 13.6 0.0
UK government bonds 0.0 0.0 2.8 0.0
Overseas government bonds 0.0 0.0 3.8 0.0
Listed equities 100.0 100.0 69.7 0.0
Private equity 0.0 0.0 0.0 0.0
Infrastructure (direct) 0.0 0.0 0.0 0.0
Property (direct) 0.0 0.0 0.8 0.0
Private debt 0.0 0.0 1.7 0.0
Other1 0.0 0.0 6.9 0.0
Total2 100.0 100.0 100.0 100.0

1Other includes gold, emerging market climate bonds, sustainable convertible bonds, insurance linked securities and derivatives. 2Figures may not sum due to rounding.

Cash active (default) Fund (additional default arrangement)

Asset class Allocation 25 y/o % Allocation 45 y/o % Allocation 55 y/o % Allocation at retirement %
Cash 100.0 100.0 100.0 100.0
Corporate bonds (UK and overseas) 0.0 0.0 0.0 0.0
UK government bonds 0.0 0.0 0.0 0.0
Overseas government bonds 0.0 0.0 0.0 0.0
Listed equities 0.0 0.0 0.0 0.0
Private equity 0.0 0.0 0.0 0.0
Infrastructure (direct) 0.0 0.0 0.0 0.0
Property (direct) 0.0 0.0 0.0 0.0
Private debt 0.0 0.0 0.0 0.0
Other1 0.0 0.0 0.0 0.0
Total2 100.0 100.0 100.0 100.0

1Other includes gold, emerging market climate bonds, sustainable convertible bonds, insurance linked securities and derivatives. 2Figures may not sum due to rounding.

There are no performance fees attached to the default arrangements and therefore performance fees make up 0% of the of the average value of the assets held by that default arrangement.

There are two additional legacy default arrangements: the Annuity Purchase Strategy and the Cash Lifecycle. These strategies are no longer used as default arrangements for new members. A number of members who were within one year of their target retirement age at the time of the asset transition to the current Flexible Income Strategy and the Lump Sum Strategy were allowed to remain invested in these legacy default targeted strategies.

The Annuity Purchase Strategy is designed for members to take 25% of their DC pension pot as a cash lump sum and the balance to buy an annuity (a regular income for life) at their target retirement age. This strategy works by switching the investment mix of members’ DC pension pots from the Global Equities – passive Fund into the Diversified Assets – active Fund and then de-risks into the Fixed Annuity Tracker – passive Fund and Cash – active Fund as the member nears retirement. The objective of the Annuity Purchase Strategy is to be appropriate for members intending to take their benefits in the form of an annuity at retirement.

The Cash Lifecycle is designed for members to use all of their DC pension pot for a cash lump sum at their target retirement age. This strategy works by switching the investment mix of members’ DC pension pots from the Global Equities – passive Fund into the Diversified Assets – active Fund and then de-risks into the Cash – active Fund as the member nears retirement. The objective of the Cash Lifecycle is to be appropriate for members seeking to take their entire pot as a cash lump sum at retirement. All members invested in the Cash Lifecycle are within 5 years to target retirement age.

Additional default investment arrangement

The Scheme also makes use of an additional default fund called the Cash - active (default) Fund (previously named the Cash – active (ex-Property) Fund). This fund was introduced in March 2020 (and held a small amount of assets from March 2020 to early December 2020) as a result of a decision taken to ensure that there was a fund where members’ contributions could be allocated if their selected fund closed (as was the case for the Property – active Fund in 2020). This fund invests in the same underlying fund as the Cash - active Fund. As members’ contributions can be directed into this fund without them making an active selection, this fund will continue to be, treated as a default for the purpose of fulfilling legislative requirements.

The objective of the Cash – active (default) Fund is to protect the absolute value of the investment by investing in deposits and other short-term money market instruments. The fund aims to perform in line with its benchmark.

Statement of Investment Principles

The Trustee is responsible for the Scheme’s investment governance, which includes setting and monitoring the investment strategy for the Scheme’s default arrangements.

Details of the objectives and the Trustee’s policies regarding the default arrangements can be found in a document called the ‘Statement of Investment Principles - Defined Contribution’ ('SIP'). The Scheme’s most recent DC SIP covering the default arrangements is attached to this Statement.

As stated in the SIP, the Trustee aims to provide default arrangements that the Trustee believes to be in the best interests for those members that do not wish to make their own investment decisions. As at the end of the Scheme Year, the Scheme’s Flexible Income Strategy and the Lump Sum Strategy’s objectives were to generate returns significantly above inflation whilst members are some distance from retirement, but then to switch automatically and gradually into less risky assets as the member nears retirement with the asset allocation at retirement being designed to be appropriate for members who wish to flexibly take their benefits through an income drawdown arrangement or remain invested in the Scheme or in the case of the Lump Sum Strategy, take their retirement pot as cash.

The objectives of the Scheme’s other default arrangements are noted in the applicable sections above.

Review and monitoring of the default arrangements

The Trustee formally reviews the strategy and performance of the default arrangements (and other investments) in detail at least every three years or immediately following any significant change in investment policy or the Scheme’s member profile. The last formal triennial investment strategy and performance review took place on 3 March 2023.

As part of the triennial strategy review, the Trustee has agreed to update the structure of the three targeted strategies: Flexible Income, Lump Sum and Annuity Purchase strategies. The current approach of these targeted strategies is for members to be invested in white-labelled funds, split by asset class. The newly agreed approach is to begin using four new funds; the Early Growth fund, the Late Growth fund, the Approaching Retirement fund and the Through Retirement fund. Over the time to target retirement age, members’ DC pension pots (or AVCs) will automatically switch between the four new funds. Members will be invested in the ‘Early Growth Fund’ before de-risking into the ‘Late Growth Fund’ beginning from 20 years to retirement. Members are further de-risked into the ‘Approaching Retirement Fund’, of which there are three versions dependent on the targeted strategy members are invested in.

When members are close to target retirement age, their investments begin switching into the ‘Through Retirement Fund’, of which there are three versions dependent on the targeted strategy.

As part of an ongoing project to investigate how the Scheme can access private markets, the Trustee agreed in the strategy review to allocate 15% of the Early Growth Fund to private markets. This will be accessed via a bespoke multi-asset private markets fund. This will be implemented over the next Scheme year in conjunction with the changes to the structure of the Flexible Income, Lump Sum and Annuity Purchase strategies with the percentage invested in private markets planned to gradually build up over 2024 and reach 15% in 2025.

The Trustee concluded that taking a flexible income (e.g. income drawdown) remains an appropriate retirement income target. The growth phase of the default arrangement outperformed inflation over the last 5 years to 31 December 2023. As part of this review the Trustee confirmed that the Scheme's targeted strategies were adequately and appropriately diversified between different asset classes and that the self-select options provide a suitably diversified range to choose from. Members also have the choice to invest into any of the 18 DC funds available in the self-select range (known as ’Freechoice’). These options were also included in the latest review.

In the previous Scheme year, the Trustee agreed to restructure the Property – active Fund, which is available as a Freechoice option. This involved replacing the LGIM Managed Property Fund with the Invesco Global Real Estate Fund and adjusting the strategic allocations to the underlying component funds. An allocation to the Invesco Global Real Estate Fund began being built up in April 2022. The LGIM Managed Property Fund was removed from the Property – active Fund in November 2023. The Trustee continues to use cashflows to meet the target strategic allocation for this Fund.

At the Investment Day in April 2023, the Trustee revisited its specific investment belief related to factor investing. As part of this, the Trustee reviewed the underlying funds of the Global Equity – active Fund. The review considered the broad factor exposure of the underlying funds and the resulting exposure of the white-labelled fund in addition to firmwide considerations of the fund managers. The Trustee concluded that the River Global (previously known as ‘River and Mercantile’) Global Alpha Fund should be removed, the allocation of the MFS Global Equity Fund be reduced and both the Royal London Global Equity Diversified Fund and Schroders Global Sustainable Value Equity Fund be introduced to the Fund. This change will be implemented in 2024.

Following significant outflows and staff departures from one of the managers for an underlying fund of the Emerging Market Equity – active Fund, the Trustee conducted a selection exercise for a replacement underlying manager for this Fund. Resulting from this exercise, the Trustee replaced the GW&K Emerging Markets Fund (which formed 50% of the Emerging Market Equities – active Fund and 7.5% of the Global Equity – active Fund) with the Robeco Emerging Stars Equity Fund in Q4 2023, with a significant contributing factor being the better alignment of the Fund with the Trustee’s beliefs on ESG risk management.

On 10 June 2021, the Trustee reviewed all legacy lifecycles and agreed to automatically switch the investments of all members from Lifecyle 2 into either the Flexible Income or Lump-Sum strategies based on whether members held only a DC pension pot or Hybrid benefits, unless they elected to stay where they were. Given market conditions in 2022 and 2023, the Trustee agreed in June 2023 to retain members within 5 years of their target retirement in Lifecycle 2 due to their exposure to Fixed Annuity Tracker - passive Fund. This investment transfer was implemented over two tranches between 15 and 17 November 2023.

The Trustee also reviews the performance of the default arrangements against their aims, objectives and policies on a quarterly basis, through a performance report provided by their investment advisors. This review includes an analysis of DC fund performance and member activity to check that the risk and return levels meet expectations. The Trustee monitors both short- and long-term performance on a quarterly basis. The Trustee reviews that took place during the Scheme year concluded that over the long-term the default arrangements were performing broadly as expected given the market backdrop and the assets held and that the performance of the default arrangements remains broadly consistent with their stated aims and objectives.

View the DC Statement of Investment Principles

If you would like to view the full DC Statement of Investment Principles here.

DC Statement of Investment Principles

More information

Member Charges 

The Trustee is required to set out the charges incurred by members over the period covered by this statement. As the sponsoring employer pays the Annual Management Charge (AMC), platform expenses and administration expenses, member charges are limited to the additional fund expenses incurred by the underlying managers in the day-to-day running of the funds

Value for money for members 

The Trustee carried out a full value for members assessment, looking back over the Scheme year to 31 December 2018, to assess the extent to which the investment options and the benefits offered by the Scheme represent good value for members, compared to other options available in the market.

Illustration of charges and disclosures costs 

The Sponsoring employer currently pays the AMC platform expenses and administration costs. Additional expenses (“AE”) are covered by members and are those costs incurred in the management of the underlying funds which are, by nature, flexible and therefore fall outside of the AMC. The Trustee has provided an illustration of the impact of the charges and costs on members pension pots for the default options ad four funds from the Freechoice range.