Statement of Investment Principles – May 2024

Introduction

The Trustees of the Bradfords Pension Scheme (the “Scheme”) has drawn up this Statement of Investment Principles (the “Statement”) to comply with the requirements of the Pensions Act 1995, the Pensions Act 2004 and the Occupational Pension Schemes (Investment) Regulations 2005 (as amended by subsequent regulations). The Statement is intended to affirm the investment principles that govern decisions about the Scheme’s investments. In preparing this Statement the Trustees have consulted Bradford & Sons Ltd (the “Employer”) on the Trustees’ investment principles.  

Governance

The Trustees make all major strategic decisions including, but not limited to, the Scheme’s asset allocation and the appointment and termination of investment managers. The process for making investment decisions is as follows:

· Identify appropriate investment objectives

· Define the level of risk consistent with meeting the objectives

· Implement an investment strategy and investment manager structure in line with the level of risk and objectives agreed

When making such decisions, and when appropriate, the Trustees take proper advice.  The Trustees’ investment consultants, Capita Pension Solutions (“Capita”) (or whoever is the current investment consultant), are qualified by their ability in, and practical experience of, financial matters, and have the appropriate knowledge and experience to provide such advice.

Investment Objectives

The Trustees are required to invest the Scheme’s assets in the best interest of members, and the main objectives with regard to investment policy are:

· To secure members’ benefits in full, in the least-risk way, using bulk annuity policies; and

· To ensure that sufficiently liquid assets are available to meet benefit payments as they fall due.

Risk Management and Measurement

The Trustees are aware of and pay close attention to a range of risks inherent in investing the assets of the Scheme. The Trustees believe that the current investment strategy provides for the lowest level of risk for members. The Trustees’ policy on risk management is as follows:

· The primary investment risk faced by the Scheme arises as a result of a mismatch between the Scheme’s assets and its liabilities. This is therefore the Trustees’ principal focus in setting investment strategy, taking into account the nature and duration of the Scheme’s liabilities.

· 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 Scheme’s liabilities as well as producing more short-term volatility in the Scheme’s funding position. The Trustees’ primary duty is to secure the benefits that members are entitled to under the Scheme’s Rules. The Scheme was able to secure these benefits in full using bulk annuity policies.

Investment Strategy

Given their investment objectives, in April 2024 the Trustees purchased a bulk annuity policy from Just Retirement Limited (“Just”) in respect of broadly 100% of the liabilities. This purchase was partly funded by selling all of the Scheme’s legacy assets and partly funded by a one-off contribution from the Employer. The bulk annuity policy remains an asset of the Scheme under the control of the Trustees and is not yet individually allocated to members i.e. it is a “buy-in” policy.

The Scheme’s bulk annuity investments are illiquid and cannot be changed or surrendered. The Scheme is now going to start the process of wind-up, and the buy-in policy will shortly be converted into a “buy-out”.

Financially material considerations over the Scheme’s time horizon

The Trustees believe that their main duty, reflected in their investment objectives, is to protect the financial interests of the Scheme’s members. The Trustees believe that Environmental, Social and Governance (ESG) considerations (including but not limited to climate change) and stewardship in the selection, retention and realisation of their investments is an integral part of this duty. However, given the circumstances of the Scheme (i.e. being invested in illiquid bulk annuity policies as part of a journey to buy-out/wind-up), the Trustees no longer expect to make any decisions regarding the retention and realisation of investments, other than those directly related to the buy-out/wind-up of the Scheme.

ESG matters are no longer expected to be financially material to the Scheme as the assets are held in bulk annuities which pay cashflows which are unrelated to ESG matters.

The Trustees do not take into account members’ views in the selection, retention and realisation of investments. One key reason for this is that the investment strategy has been ‘locked down’ in bulk annuities, so there is no real ability to amend the investment strategy to take into account members’ views.

As the Scheme does not hold any corporate debt or equity, the Trustees do not undertake any engagement activities in relation to corporate debt or equity holdings.

The Trustees do not employ any investment managers and so does not have a formal policy for how they arrange matters with asset managers. The Trustees engage with Just on matters that are directly relevant to the buy-out and wind-up of the Scheme.

Non-financial matters

Non-financial matters, including members’ views are not currently taken into account.

Compliance with Myners’ Principles

The Trustees believe that they comply with the spirit of the Myners’ Principles.  There may be some instances of deviation from the published ‘Best Practice Guidance’ on the Principles where the Trustees believe this to be justified.  

Employer-Related Investments

The Trustees’ policy is not to hold any direct employer-related investments as defined in the Pensions Act 1995, the Pensions Act 2004 and the Occupational Pension Schemes (Investment) Regulations 2005.

Fee Structures

For significant work, the investment consultant is paid on a fixed fee or project fee basis, as negotiated between the Trustees and Capita. Some more trivial tasks are charged on a time-cost basis.

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.

 

……………………………………

Trustee
 

……………………………………….

On behalf of the Employer
 

For and on behalf of the Trustees of the Bradfords Pension Scheme

Previous Version

Introduction

The Trustees of the Bradfords Pension Scheme (the “Scheme”) has drawn up this Statement of Investment Principles (the “Statement”) to comply with the requirements of the Pensions Act 1995, the Pensions Act 2004 and the Occupational Pension Schemes (Investment) Regulations 2005 (as amended by subsequent regulations). The Statement is intended to affirm the investment principles that govern decisions about the Scheme’s investments. In preparing this Statement the Trustees have consulted Bradford & Sons Ltd (the “Employer”) on the Trustees’ investment principles.  

Governance

The Trustees make all major strategic decisions including, but not limited to, the Scheme’s asset allocation and the appointment and termination of investment managers. The process for making investment decisions is as follows:

·        Identify appropriate investment objectives

·        Define the level of risk consistent with meeting the objectives

·        Implement an investment strategy and investment manager structure in line with the level of risk and objectives agreed

 

When making such decisions, and when appropriate, the Trustees take proper advice.  The Trustees’ investment consultants, Capita Pension Solutions (“Capita”) (or whoever is the current investment consultant), are qualified by their ability in, and practical experience of, financial matters, and have the appropriate knowledge and experience to provide such advice.

Investment Objectives

The Trustees are required to invest the Scheme’s assets in the best interest of members. The Scheme is understood to have a funding level deficit, however the Employer has set out its intention to provide additional funding over the coming months for the Trustees to be able to secure all liabilities through a Bulk Purchase Annuity. A Bulk Purchase Annuity covering all Scheme liabilities would deliver the most secure position for members, thus the Trustees’ priority is to secure such a Bulk Purchase Annuity as soon as reasonably practicable.

Should the Scheme’s funding position deteriorate over the coming months, the Employer may not be able to afford to fund the Bulk Purchase Annuity transaction. The priority of the Trustees is therefore to invest their existing assets with an emphasis on providing protection against possible increases in the cost of Bulk Purchase Annuities (also referred to as hedging the Buy-out deficit). 

Risk Management and Measurement

The Trustees are aware of and pay close attention to a range of risks inherent in investing the assets of the Scheme. The Trustees intend that the investment strategy provides for adequate diversification both within and across different asset classes and risks.  The Trustees further believe that the current investment strategy is appropriate given the Scheme’s liability profile. The Trustees’ policy on risk management is as follows:

·        The primary investment risk faced by the Scheme arises as a result of a mismatch between the Scheme’s assets and its liabilities (with its liabilities reflecting Bulk Purchase Annuity prices).  This is therefore the Trustees’ principal focus in setting investment strategy, taking into account the nature and duration of the Scheme’s liabilities.

·        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 Scheme’s liabilities.  The Trustees have taken advice on the matter and (in light of the objectives noted previously) decided to adopt a low risk investment strategy relative to the cost of purchasing a Bulk Purchase Annuity.

·        The Trustees recognise the risks that may arise from the lack of diversification of investments when investing over the medium term on an ongoing basis. However, this is largely irrelevant based on the investment objectives noted previously, as the Scheme’s time horizon is potentially very short with the investment strategy driven by the inclusion of asset classes which mirror the pricing of Bulk Purchase Annuities. Due to the size of the Scheme’s assets and recognising the need to diversify their investments across many individual securities, investment exposure is obtained via pooled vehicles.

·        The documents governing the managers’ appointment include a number of guidelines which, among other things, are designed to ensure that only suitable investments are held by the Scheme.

·        The Trustees recognise that using active management (where appropriate) involves a risk that the assets do not achieve the expected return. However, they believe this risk is outweighed by the potential gains from successful active management, in particular in regions or asset classes where this potential is greater than others. Therefore, the Scheme’s assets are managed through a mixture of active and passive management which may be adjusted from time to time.

·        The safe custody of the Scheme’s assets is delegated to professional custodians via the use of pooled vehicles.

 

Should there be a material change in the Scheme’s circumstances, for example if the Employer is no longer able to afford to fund a Bulk Purchase Annuity, the Trustees will review whether the current risk profile remains appropriate.

 

Investment Strategy

Given its investment objectives the Trustees (and Employer) have agreed to the approximate asset allocation detailed in the table below.

 

The investment strategy aims to hedge 100% of total liabilities against interest and inflation rate risk, when measured on a Buy-out basis, which will help protect against possible deteriorations in the Buy-out deficit (i.e. it will help minimise the risk of the Bulk Purchase Annuity price increasing by more than the assets).

The Liability Driven Investment (LDI) funds employ leverage (i.e. the level of protection provided against changes in longer-term interest rates and inflation expectations is greater than the amount invested). Should the leverage within the LDI fund deviate substantially from the target leverage level, LGIM will rebalance the LDI fund back to the target leverage level. These LDI leverage ‘rebalancing events’ could result in capital (collateral) being requested or released from the LDI mandate (see below).

In the event of LDI leverage rebalancing, 

·        the LDI manager will look to source any additional collateral required from the Cash (Sterling Liquidity Fund) allocation; and

·        any collateral distributions will be held in Cash (in the Sterling Liquidity Fund).

The Trustees may decide to change this collateral management policy from time-to-time, subject to receiving the necessary advice from the investment consultant. 

 

The Trustees will monitor the Scheme’s actual asset allocation and liability hedge level from time to time (typically six monthly). The Trustees will take into account advice from the investment consultant prior to making any investment decisions.

Expected Return

The Trustees expects the Scheme’s assets to generate over the long term a return of circa 0.3% per annum above a portfolio of long-dated UK Government bonds – which are considered to change in value in a similar way to the Scheme’s liability value.  The Trustees recognises that performance may deviate from this long-term expectation. The Trustee’s objective is not to generate returns, but to provide protection against possible deteriorations in the Buy-out deficit. 

 

Platform Provider

The Trustees have appointed Legal & General Investment Management Ltd (“LGIM”) (“the Platform Provider”) to manage all the assets of the Scheme, except the M&G Long Dated Corporate Bond Fund which is held “off Platform”. The Platform Provider is regulated under the Financial Services and Markets Act 2000. All decisions about the day-to-day management of the assets have been delegated to the Platform Provider via a written agreement, including the realisation of investments.

 

Investment Mandates

The Trustees have selected LGIM and M&G Investment Management (“M&G”) as the appointed Investment Managers (“Investment Managers‟) to manage assets of the Scheme. M&G manage assets of the Scheme independently from the Platform Provider. The Investment Managers are themselves regulated under the Financial Services and Markets Act 2000.

The Trustees have rolling contracts with their investment managers.

The Trustees monitor the performance of their investment managers on a half yearly basis. This monitoring is facilitated by a report provided by their advisors.

The Trustees aim to transfer all of the assets of the Scheme to an insurer as part of the planned Buy-out.

Investment Manager Remuneration

From time-to-time, the Trustees monitors the remuneration, including incentives, that is paid to its investment managers and how they reward their key staff who manage client funds, along with how the pay and incentives motivate employees who manage client funds.

As part of the monitoring that the Trustees carry out from time-to-time, they look to ensure that this policy is in line with their investment strategy.

Investment Manager Philosophy and Engagement

From time-to-time, the Trustees monitor the investment managers’ process for assessing the businesses they invest in, and whether business performance over the medium to long-term involves a holistic look beyond purely accountancy measures. The Trustees consider if the fund manager is incentivised to make decisions on a short-term basis or on a medium to long-term basis and whether this coincides with the business assessments. The Trustees are conscious of whether the investment manager is incentivised by the agreement with the Trustees to engage with the investee business and to what extent any engagement focuses on improving medium to long-term performance.

 Investment Manager Portfolio Costs

The Trustees monitor costs of buying, selling, lending and borrowing investments as long as the investment managers provide these costs using the Cost Transparency Initiative template. They will also ensure that, where appropriate, their investment managers monitor the frequency of transactions and portfolio turnover. If there are any targets then they will monitor compliance with these targets.

Financially material considerations over the Scheme’s time horizon

The Trustees believe that their main duty, reflected in their investment objectives, is to protect the financial interests of the Scheme’s members.  The Trustees believe that Environmental, Social and Governance (ESG) considerations (including but not limited to climate change) and stewardship in the selection, retention and realisation of their investments is an integral part of this duty. Legislation requires that the Trustees form a view of the length of time that they consider is needed for the funding of future benefits by the investments of the Scheme. 

The Trustees are in the process of securing a Bulk Purchase Annuity so the time horizon from an investment perspective is very short, which gives minimal scope for ESG considerations to be financially material.

The Trustees will consider ESG matters in the selection of the bulk annuity insurer. 

The Scheme no longer holds any equities and therefore does not have any voting rights. The Trustees have elected to invest in pooled funds and cannot, therefore, directly influence the ESG policies of the funds in which they invest.

The Trustees are keen that its Investment Managers are signatories of the UN Principles of Responsible Investment, which is currently the case.

 

Non-financial matters

Non-financial matters, including members’ views are not currently taken into account.

 

Compliance with Myners’ Principles

The Trustees believe that they comply with the spirit of the Myners’ Principles.  There may be some instances of deviation from the published ‘Best Practice Guidance’ on the Principles where the Trustees believe this to be justified.  

Employer-Related Investments

The Trustees’ policy is not to hold any direct employer-related investments as defined in the Pensions Act 1995, the Pensions Act 2004 and the Occupational Pension Schemes (Investment) Regulations 2005.

 Fee Structures

The Platform Provider and investment managers are paid a management fee on the basis of assets under management.  The investment consultant is paid on a fixed fee basis for providing ‘core services’. The Trustees can request that Capita undertake ‘out-of-scope’ projects, which may be undertaken on a fixed fee or time-cost basis - as negotiated between the Trustees and Capita.

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.

……………………………………

Trustee
 

……………………………………….

On behalf of the Employer
 

For and on behalf of the Trustees of the Bradfords Pension Scheme

Appendix – Investment Mandates

The Trustees have selected the Investment Managers to manage the assets of the Scheme (via use of the Platform Provider where appropriate).  The Investment Managers and the Platform Provider are regulated under the Financial Services and Markets Act 2000.  Their mandates are set out below: