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Matheson & Co - Tax Strategy Privacy Pension Plan - Statement of Investment Principles Pension Plan – Annual Implementation Statement
Matheson & Co., Limited
Statement of Investment Principles
Matheson Group Pension Plan
 

(June 2024)

Introduction

1. This document is the Statement of Investment Principles (the "SIP") made by the Trustees of the Matheson Group Pension Plan (the "Plan") in accordance with the requirements of Section 35 of the Pensions Act 1995 (as amended by the Pensions Act 2004 and regulations made under it). The Plan is a defined benefit (DB) plan which is closed to future accrual since 2009.

2. The Trustees will review this SIP at least every three years to coincide with the triennial Actuarial Valuation or other actuarial advice relating to the statutory funding requirements. Furthermore, the Trustees will review this SIP without delay after any significant change in investment policy. Before finalising this SIP, the Trustees took advice from a suitably qualified firm and consulted Matheson & Co Ltd (the "Company"). The ultimate power and responsibility for deciding investment policy, however, lies solely with the Trustees.

Investment objectives

3. The Trustees have the following investment objectives:

  • The acquisition of suitable assets of appropriate liquidity which will generate an overall level of return, together with any future contributions from the Company, that is sufficient to meet the liabilities as and when they fall due, and to ensure the security, quality and profitability of the portfolio as a whole;
  • To limit the risk of the assets failing to meet the liabilities, both over the long-term and on a shorter-term basis; and
  • To minimise the long-term costs of the Plan by maximising the return on the assets whilst having regard to the objective shown under the points above.

4. While this is articulated as an agreed objective for the Plan to be fully funded on the Technical Provisions basis, the Trustee's ultimate goal is to be fully funded on a more prudent low-risk liability measure and subsequently on a solvency basis.

Investment strategy

5.The Trustees have agreed a long-term investment strategy that targets an expected return of Gilts +1.5% pa. Based on analysis as at 30 April June 2024, this level of return was expected to achieve full-funding on a low-risk liability measure (i.e., liability cashflows discounted at Gilts +0.5% pa) by 2026.

6. The Trustees have determined their investment strategy after considering the Plan's liability profile and requirements of the current Statutory Funding Objective, their own appetite for risk, the views of the Company on investment strategy, the Company's appetite for risk, and the strength of the Company's covenant as well as reflecting the Trustees' desire to diversify risk exposures and to manage their investments effectively. The Trustees received advice to determine the investment strategy for the Plan.

7. The investment strategy makes use of three key types of investments:

  • a range of low-risk instruments that provide a broad match to changes in liability values and cashflows to pay pensions (including high quality corporate bonds and bulk annuity policies as appropriate);
  • a portfolio of secure income assets; and
  • a diversified portfolio of return-seeking assets (including equities, listed real assets, diversifying strategies, hedge funds, private markets, alternative credit and downside protection).

8. The Trustees have appointed an investment manager to manage the Plan's assets on a discretionary basis and to provide investment advisory services to the Trustees (the "Fiduciary Manager"). The balance within and between these investments will be determined from time­ to-time at the discretion of the Fiduciary Manager, with the objective of maximising the probability of achieving the Plan's investment strategy set by the Trustees, subject to maintaining risk within a limit agreed by the Trustees. The Fiduciary Manager's discretion is subject to guidelines set by the Trustees in the Fiduciary Management Agreement between the parties as amended from time to time (the "FMA"). In exercising investment discretion, the Fiduciary Manager is required to act in accordance with its obligations in the FMA, including the guidelines and any investment restrictions set out therein, and in so doing is expected to give effect so far as reasonably practicable to the principles contained in this SIP. This ensures appropriate incentivisation and alignment of decision-making with the Trustees' overall objectives, strategy and policies.

9. The implied initial Gilts +1.5% pa target portfolio to be managed by the Fiduciary Manager is set out below:

Asset Class

Initial Target
Liability Matching 67%*
Secure Income 11%
Diversified Return Seeking 22%

 

*The liability matching allocation uses leverage to deliver a target liability hedge ratio of 96% (as a percentage of assets). The Fiduciary Manager is required under its guidelines to maintain this ratio between 80% and 100%.

10. The Trustees may also consider opportunities to purchase bulk annuity policies as appropriate within the context of the Plan's investment strategy. Any bulk annuity policies fall outside the remit of the Fiduciary Manager's discretion.

11. The Plan will hold assets in cash and other money market instruments from time to time as may be deemed appropriate.

12. The Trustees will monitor the liability profile of the Plan and will regularly review, in conjunction with the Fiduciary Manager and the Scheme Actuary, the appropriateness of its investment strategy.

13. The expected return of all the Plan's investments will be monitored regularly and will be directly related to the Plan's investment objective.

14. The Trustees' policy is that there will be sufficient investments in liquid or readily realisable assets to meet cash flow requirements in foreseeable circumstances so that the realisation of assets will not disrupt the allocation of the Plan's overall investments, where possible. The Trustees have set explicit liquidity provisions in the Fiduciary Manager's guidelines as follows:

Time Frame

% of total plan assets
% realisable within 2 weeks Minimum 55

% realisable within 1 month

Minimum 55
% realisable within 1 year Minimum 80

Investment managers

15. The Trustees have delegated investment selection, de-selection and the ongoing management of relationships with investment managers to the Fiduciary Manager within guidelines set by the Trustees in the FMA. Investments are made by the Fiduciary Manager on behalf of and in the name of the Trustees.

16. The Trustees consider the Fiduciary Manager's performance in carrying out these responsibilities as part of its ongoing oversight of the Fiduciary Manager. The Trustees expect the Fiduciary Manager to ensure that the Plan's investment portfolio, in aggregate, is consistent with the policies set out in this SIP, in particular those required under regulation 2(3)(b) of the Occupational Pension Schemes (Investment) Regulations (2005). The Trustees expects the Fiduciary Manager to check that the investment objectives and guidelines of any pooled vehicle are consistent with the Trustees' policies contained in the SIP.

17. WTW has been appointed as Fiduciary Manager since 2022. In accordance with the Financial Services and Markets Act 2000, the selection of specific investments will be delegated to investment managers. The investment managers will provide the skill and expertise necessary to manage the investments of the Plan competently. The duration of the arrangements with investment managers will be determined on an individual basis considering the nature of the relevant investment mandate. In most cases, managers are appointed with the expectation of a long-term relationship but with an ability to terminate where considered appropriate. However, there may be occasions when managers are put in place for a short period or a fixed period, depending on the nature of the investment strategy.

18. The Trustees and Fiduciary Manager are not involved in the investment manager's day-to-day method of operation and do not directly seek to influence attainment of their performance targets. However, the Fiduciary Manager may provide investment recommendations to the investment managers of certain pooled funds appointed where it considers it appropriate. The Fiduciary Manager will maintain processes to ensure that performance and risk are assessed on a regular basis against measurable objectives for each investment manager, consistent with the achievement of the Plan's long term objectives.

19. The Trustees expect the Fiduciary Manager to select investment managers with an expectation of a long-term partnership with the Trustees. which encourages active ownership of the Plan's assets. When assessing an investment manager's performance, the Trustees expect the Fiduciary Manager to focus on longer-term outcomes, commensurate with the Trustees' position as a long term investor. Consistent with this view, the Trustees do not expect that the Fiduciary Manager would terminate an investment based purely on short-term performance but recognises that an investment may be terminated within a short timeframe due to other factors such as a significant change in the relevant manager's business structure or investment team. The Trustees adopt the same long term focus as part of its ongoing oversight of the Fiduciary Manager.

20. For most of the Plan's investments, the Trustees expect the Fiduciary Manager to select investment managers with a medium to long time horizon, consistent with that of the Plan. In particular areas such as equity and credit, the Trustees expect the Fiduciary Manager to work with investment managers who will use their engagement activity to drive improved performance over medium to long term periods within the wider context of long-term sustainable investment. The Trustees note that the Fiduciary Manager may invest in certain strategies where such engagement is not deemed appropriate or possible, due to the nature of the strategy and/or the investment time horizon underlying decision making. The Trustees expect that the appropriateness of the Plan's allocation to such mandates is determined in the context of the Plan's overall objectives.

21. The Trustees recognise that an investment's long-term financial success is influenced by a range of financially material factors including environmental, social and governance ("ESG") issues.

22. Consequently, the Trustees (through the selection of the Fiduciary Manager with its approach to ESG issues as set out in the relevant paragraphs below) seek to be an active long-term investor. The Trustees' focus is explicitly on financially material factors. The Trustees· policy at this time is not to take into account non-financial matters in the selection, retention, and realisation of investments.

23. When considering their policy in relation to stewardship including engagement and voting, the Trustees expect investment managers to address broad ESG considerations taking into account the nature of the assets held under the relevant investment mandate, but has Identified climate and human and labour rights as key areas of focus for the Trustees. The Trustees assess that ESG risks, and in particular climate change, pose a financial risk to the Plan and that focussing on these issues is ultimately consistent with the Trustees' fiduciary duties and the financial security of their members. Whilst the Trustees' policy is to delegate several stewardship activities to the Fiduciary Manager and their investment managers, the Trustees recognise that the responsibility for these activities remains with the Trustees. The Trustees incorporate an assessment of how well the Fiduciary Manager and investment managers exercise these responsibilities as part of their overall assessment of their performance.

24. The Fiduciary Manager has a dedicated sustainable investment resource and a network of subject matter experts. The consideration of ESG issues is fully embedded in the investment manager selection and portfollo management process, with oversight undertaken on a periodic basis. The Trustees expect the Fiduciary Manager to assess the alignment of each investment manager's approach to sustainable investment (including engagement) with its own before making an investment on the Plan's behalf. The Trustees expect the Fiduciary Manager to engage with the Plan's investment managers where the Fiduciary Manager considers this appropriate regarding their approach to stewardship with respect to relevant matters including capital structure of investee companies, actual and potential conflicts, other stakeholders and ESG impact of underlying holdings. In addition, the Trustees expect the Fiduciary Manager to review the investment managers' approach to sustainable investment (including engagement) on a periodic basis and engage with the investment managers to encourage further alignment as appropriate.

25. The Fiduciary Manager considers a range of sustainable investment factors, such as, but not limited to, those arising from ESG considerations, including climate change, in the context of a broader risk management framework. The degree to which these factors are relevant to any given strategy is a function of time horizon, investment style, philosophy and particular exposures which the Fiduciary Manager takes into account in the assessment.

26. The Fiduciary Manager encourages and expects the Plan's investment managers to sign up to local or other applicable stewardship codes, in keeping with good practice, subject to the extent of materiality for certain asset classes. The Fiduciary Manager itself is a signatory to the Principles for Responsible Investment and the UK Stewardship Code and is actively involved in external collaborations and initiatives.

27. The Trustees' policy is to delegate responsibility for the exercising of rights (including voting rights) attaching to the Plan's investments to their investment managers. The Fiduciary Manager assesses the voting policies of the investment managers that it appoints on the Trustees' behalf, for consistency with the Trustees' policies and objectives, as appropriate. The Fiduciary Manager has also appointed EOS at Federated Hermes to undertake public policy engagement and company-level engagement on its behalf. EOS at Federated Hermes also assists the Trustees' equity managers with voting recommendations.

28. The Trustees expect the Fiduciary Manager to consider the fee structures of investment managers and the alignment of interests created by these fee structures as part of its investment decision making process, both at the initial selection of an investment manager and on an ongoing basis. Investment managers are generally paid an ad valorem fee, in line with normal market practice, for a given scope of services which includes consideration of long-term factors and engagement. The Trustees expect the Fiduciary Manager to review and report on the costs incurred in managing the Plan's assets regularly, which includes the costs associated with portfolio turnover. In assessing the appropriateness of the portfolio turnover costs at an individual investment manager level, the Trustees expects the Fiduciary Manager to have regard to the actual portfolio turnover and how this compares with the expected turnover range for that mandate.

Other matters

29. The Plan is a Registered Pension Scheme for the purposes of the Finance Act 2004.

30. The Trustees may hold insurance policies or other assets that are earmarked for the benefit of certain members, for instance immediate annuity policies purchased to match all or part of the Plan liabilities, or benefits secured by Additional Voluntary Contributions, Individual Transfers in or Special Payments.

31. The Trustees recognise a number of risks involved in the investment of the Plan's assets, and, where applicable, monitors these risks in conjunction with the Fiduciary Manager.

Deficit risk

  • is measured through a qualitative and quantitative assessment of the expected development of the liabilities relative to the current and alternative investment policies
  • is managed through assessing the progress of the actual growth of the liabilities relative to the selected investment policy.

Solvency risk and mismatch risk:

  • are measured through a qualitative and quantitative assessment of the expected development of the Plan's funding level.
  • are managed through the development of a portfolio consistent with delivering the Plan's investment objective.

Investment Manager risk:

  • is measured by the expected deviation of the return relative to the benchmark set.
  • is managed by considering when to employ active versus passive management given prospective net of fees returns, consideration of the appropriate amount of the Plan's assets to allocate to any active portfolios and by monitoring the actual deviation of returns relative to the benchmark and factors supporting the investment managers' investment process.

Liquidity risk:

  • is measured by the level of cash flow required by the Plan over a specified period.
  • is managed by the Plan's administrators assessing the level of cash held in order to limit the impact of the cash flow requirements on the investment policy and through holding assets of appropriate liquidity.

Credit risk:

  • this is the risk associated with the inability of a borrower to repay, in full or part the monies which it owes to a creditor.
  • the Plan invests in pooled investment vehicles and is therefore directly exposed to credit risk in relation to the instruments it holds in the pooled investment vehicles and is indirectly exposed to credit risks arising on the financial instruments held by the pooled investment vehicles.
  • direct credit risk arising from pooled investment vehicles is mitigated by the underlying assets of the pooled arrangements being ring-fences from the investment manager, the regulatory environments in which the investment managers operate and the diversification of investments amongst a number of pooled arrangements.
  • indirect credit risk arises in relation to underlying bond investments held in the pooled funds. This risk is mitigated by investing in diversified portfolios.

Currency risk:

  • is measured by the level of exposure to non-Sterling denominated assets.
  • is managed by the implementation of a currency hedging programme (carried out within some of the pooled investment vehicles) which reduces the impact of exchange rate movements on the Plan's asset value.

Interest rate and inflation risk:

  • are measured by comparing the likely movement in the Plan's liabilities and assets due to movements in inflation and interest rates.
  • are managed by holding a portfolio of matching assets (physical bonds and/or derivatives via pooled vehicles) that enable the Plan's assets to broadly match movements in the value of the liabilities due to inflation and interest rates. The construction, ongoing monitoring and consideration of risks (such as derivatives risk) of this portfolio is undertaken by the Fiduciary Manager, with oversight by the Trustees.

Political risk:

  • is measured by the level of concentration of any one market leading to the risk of an adverse Influence on Investment values arising from political Intervention.
  • is managed by regular reviews of the actual investments and through the level of country diversification within the portfolio.

Sponsor risk:

  • is measured by the level of ability and degree of willingness of the Company to support the continuation of the Plan and to make good any current or future deficit.
  • is managed by assessing the interaction between the Plan and the Company's business, as measured by a number of factors, including the creditworthiness of the Company and the size of the pension liability relative to the Company. Periodic updates on the covenant are provided to the Trustees by senior staff of the Company.

Legislative risk:

  • this is the risk that legislative changes will require action from the Trustees so as to comply with any such changes in legislation.
  • the Trustees acknowledge that this risk is unavoidable but will seek to address any required changes so as to comply with changes in legislation.

32. The measures do not render the investment policy free of risk. Rather, the measures endeavour to balance the need for risk control and the need to allow the investment managers sufficient flexibility to manage the assets in such a way as to achieve the required performance targets. The risks detailed above will be monitored on a regular basis.

Adopted by the Trustees of the Matheson Group Pension Plan in June 2024, replacing the previous SIP dated July 2023.