The Trustee is required to set out the charges incurred by members during the Scheme Year in this Statement.
As the sponsoring employer pays the DC investment fund annual management charges, platform expenses and all other administration expenses,
the member borne charges are limited to the additional fund expenses incurred by the underlying managers in the day-to-day running of the funds
(for example, custodian fees etc), with the exception of some legacy AVCs funds (see below).
The Trustee endeavours to ensure that the additional fund expenses are below 0.20% per annum on each fund. As at 31 December 2021,
the highest additional expenses of all funds that were available to members was for the Global Equities – active Fund, at 0.07%.
The Trustee is also required to disclose transaction cost figures. In the context of this Statement,
the transaction costs shown are those incurred when the Scheme’s fund managers buy and sell assets within investment funds but are exclusive of
any costs incurred when members invest in and switch between funds.
The transaction costs are borne by members. The charges and transaction costs have been supplied by Fidelity
(the Scheme’s platform provider) and the legacy AVC providers. The charges and the transaction cost information has been provided for
the Scheme Year for the default arrangements and self-select options (but not all of the legacy AVC funds – further details below).
When preparing this section of the Statement, including the illustrations, the Trustee has taken account of statutory guidance. All additional fund expenses and transaction cost figures shown in this section are over the Scheme Year. Under the prescribed way in which transaction costs have been calculated it is possible for figures to be negative, where market movements are favourable between the time a trade is placed and it is executed. We have shown any negative figures in the tables for the year as provided, but for the costs and charges illustrations we have used zero where a transaction cost is negative to give a more realistic projection (ie we would not expect transaction costs to be negative over the long term).
The Trustee’s approach in detail
The default arrangement for most DC-only members is the Flexible Income Strategy, for most Hybrid members the default arrangement is the Lump Sum Strategy. The default arrangements have been set up as a Lifecycle approach, which means that members’ assets are automatically moved between different investment funds as they approach their retirement date. This means that the level of charges and transaction costs will vary depending on how close members are to retirement and in which funds they are invested.
For the period covered by this Statement, annualised charges and transaction costs are set out in the following tables.
Flexible Income Strategy (main DC-only member default) charges and transaction costs
Years to
retirement
Additional
fund expenses
Transaction
costs
20 or more years to retirement
0.00%
0.15%
15 years to retirement
0.02%
0.20%
10 years to retirement
0.03%
0.24%
5 years to retirement
0.04%
0.22%
At retirement
0.03%
0.17%
Lump Sum Strategy (main hybrid member default) charges and transaction costs
Years to
retirement
Additional
fund expenses
Transaction
costs
20 or more years to retirement
0.00%
0.15%
15 years to retirement
0.02%
0.20%
10 years to retirement
0.03%
0.24%
5 years to retirement
0.04%
0.22%
At retirement
0.02%
0.07%
For the Scheme Year, annualised charges and transaction costs for the legacy default arrangements are set out in the following tables. Charges are only shown at retirement for the Cash Lifecycle as the strategy is closed to new members and all members in this strategy are at least at their Target Retirement Age.
Annuity Purchase Strategy (legacy default arrangement: prior to 2018 named ‘Income Lifecycle’ and current Freechoice option) charges and transaction costs
Years to
retirement
Additional
fund expenses
Transaction
costs
20 or more years to retirement
0.00%
0.15%
15 years to retirement
0.02%
0.20%
10 years to retirement
0.03%
0.24%
5 years to retirement
0.02%
0.15%
At retirement
0.00%
-0.01%
Cash Lifecycle (legacy default arrangement) charges and transaction costs
Years to retirement
Additional fund expenses
Transaction costs
At retirement
0.00%
0.02%
Cash - active (default) fund (additional default arrangement)
Fund name
Additional fund expenses
Transaction costs
Cash - active (default)
0.00%
0.02%
With the exception of the legacy Cash Lifecycle Strategy, the default arrangements are also available as self-select options for those not defaulted into them. Members also have the choice to invest into any of the 18 funds available in the self-select range (known as “Freechoice”).
The level of charges for each self-select fund and the transaction costs over the Scheme Year are set out in the following table. The underlying funds used within the current main default arrangements are shown in bold.
Self-select fund charges and transaction costs
Fund name
Additional fund expenses
Transaction costs
UK Equities - active
0.01%
0.31%
Diversified Assets - active
0.06%
0.33%
Shariah Law Equities - passive
0.00%
0.11%*
Sustainable and Responsible Equities - active
0.00%
0.10%
Global Bonds - active
0.03%
0.08%
UK Equities - passive
0.00%
0.02%
Global Equities - passive
0.00%
0.15%
Property - active
0.03%
0.07%
Fixed Annuity Tracker - passive
0.00%
-0.02%*
Inflation Linked Annuity Tracker - passive
0.00%
-0.01%*
Cash - active
0.00%
0.02%
European (ex UK) Equities - passive
0.00%
0.00%
North American Equities - passive
0.00%
0.00%
Japanese Equities - passive
0.00%
0.00%
Asia Pacific (ex Japan) Equities - passive
0.00%
0.00%
Global Equities - active
0.07%
0.20%
Sterling Corporate Bonds - active
0.01%
0.00%
Emerging Markets Equities - active
0.03%
0.60%
The Scheme also has three further legacy lifecycle strategies which were previously available for members to select namely the Capital Lifecycle, Lifecycle 2 and Flexicycle. These strategies are closed to new members, but existing members have been permitted to remain invested. For the Scheme Year, annualised charges and transaction costs are set out below.
Capital Lifecycle (legacy Freechoice lifecyle) charges and transaction costs
Years to retirement
Additional fund expenses
Transaction costs
At retirement
0.05%
0.25%
All members invested in this strategy are past their Target Retirement Age and therefore invested in an allocation of 75% Diversified Assets – active and 25% Cash - active.
Lifecycle 2 (legacy Freechoice lifecyle) charges and transaction costs
Years to retirement
Additional fund expenses
Transaction costs
20 or more years to retirement
0.07%
0.20%
15 years to retirement
0.07%
0.20%
10 years to retirement
0.07%
0.20%
5 years to retirement
0.07%
0.20%
At retirement
0.00%
-0.01%
Members in Lifecycle 2 who are 20 or more years from retirement are invested in 60% Global Equities – active, 20% Property – active and 20% Diversified Assets – active. Members who are five years from retirement are then de-risked gradually so that at target retirement age, members are invested in 75% Fixed Annuity Tracker – passive and 25% Cash – active. As part of the annual Lifecyle review over the Scheme Year, the Trustee agreed that members in Lifecycle 2 were to be automatically moved to a more appropriate default strategy, unless they actively choose to opt out of a switch and stay in Lifecycle 2. This is due to take place over the 2022 Scheme Year.
As well as the DC funds noted above, which contain the majority of the Scheme’s AVC investments, some members were also invested in a number of legacy AVC funds during the Scheme Year.
The majority of the Scheme's legacy AVC assets are invested in "with-profits" funds. With-profits returns are delivered through guaranteed annual and non-guaranteed terminal bonuses (guarantees only apply at contractual events, e.g. retirement) and these can be influenced by the asset allocation within the fund which is itself reflective of the strength of the provider, and therefore affects investment returns and bonus rates.
The Trustee, with their investment advisors, has sought to obtain details of the charges and transaction costs from the Scheme’s legacy AVC providers for the Scheme Year. At the time of producing this Statement, that process is still ongoing. Some data is currently outstanding from Aviva (Ex Friends Life) and Prudential. The Trustee will continue to ask its legacy AVC providers on a regular basis to disclose details of the charges and transaction cost data with the intention of adding this into the next annual DC governance statement.In last year’s statement the transaction costs for the Aviva (Ex Friends Life) AVC funds and the TERs for the Aviva (ex Friends Life) With-profits Fund and Scottish Widows With-Profit Fund, were outstanding. The Trustee, with their investment advisors continued to follow up with Aviva but were unable to obtain the transaction costs in a suitable format. Neither Aviva or Scottish Widows were able to provide the TER for the With-profits funds. The Trustee continues to work with its advisors to collect outstanding data.
Aviva (ex Friends Life) AVC funds
TER1
Transaction costs
GM UK Equity Fund
0.37%
0.00%
GM Overseas Equity Fund
0.52%
n/a 2
GM European Equity Fund
0.41%
n/a 2
GM Asia Pacific ex Japan Equity Fund
0.48%
n/a 2
GM Property Fund
0.60%
0.14%
With-profits Fund
n/a 2
n/a 2
Standard Life AVC funds5
TER1
Transaction costs
Pension Millennium With Profits Fund
1.15% 4
0.17%
Pension Millennium With Profits 2006 Fund
1.20% 4
0.17%
Pension With Profits Fund
1.75 4
0.12%
Standard Life Property Pension Fund
1.03%
0.20%
Standard Life Managed Pension Fund
1.02%
0.12%
Other AVC providers
TER1
Transaction costs
Schroders Life Managed Balanced Fund
0.54%
0.16%
Aegon Cash Fund
1.01%6
0.00%
Phoenix Life With-Profits Fund
0.64%
0.06%
Prudential With-Profits Cash Accumulation Fund
n/a 7
0.00%8
Scottish Widows With-Profit Fund
n/a 3
0.22%
1TER = Total Expense Ratio. The TER encompasses charges made to / by funds, typically including the Annual Management Charge, custody fees and other expenses 2Transaction costs/TER were not provided to the Trustee from the fund provider. The Scheme’s investment advisors are working with the provider to confirm this cost over the period with the aim of including in next year’s statement. 3Scottish Widows have confirmed expenses do apply to the With Profits fund, howeverthe costs is implicit and therefore TERs do not apply. 4The Fund has no explicit fund management charge. The charge shown includes an allowance for the cost of guarantees and is the deduction Standard Life currently use, for illustrative purposes, in quotations. 5A Scheme-specific discount of 0.40% is applied annually. 6A rebate of 0.40% is applied yearly to paid up member’s policy when the policy fund value is more than £50,000 Resulting in net charge of 0.60%. Rebate is applied annually in arrears on policy anniversary. 7Charges on the Prudential With Profits Fund are not explicit, they are accounted for in the bonus declared on the Fund. 8As at 30 September 2021.The Scheme’s investment advisors are working with the provider to confirm this cost over the Scheme year with the aim of including in next year’s statement>
View the Governance Statement
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In 2018 the Trustee made changes to the Lifecycle arrangements, such that the Scheme now offers two 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 previously accrued DB benefits, respectively. Both lifecycles are 100% invested in equities until twenty years from a member’s target retirement age from which point they transition gradually into less risky assets.
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.
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.
