The McCurrach Group Pension Scheme

Statement of Investment Principles

Background

This Investment Statement sets out the principles governing decisions about investments for the McCurrach Group Pension Scheme (“the Scheme”) to meet the requirements of The Pensions Act 1995, as amended by the Pensions Act 2004, and The Occupational Pension Schemes (Investment) Regulations 2005.  It is subject to periodic review by the Trustee at least every three years and more frequently as appropriate.

In preparing this Statement, the Trustee has consulted with the principal employer (McCurrach UK Limited) and has taken professional advice from their Investment Consultant (Isio Group Limited).

Investment objective

The Scheme is closed to new entrants and closed to future benefit accrual on 31 December 2011.

The primary objective of the Scheme is to provide pension and lump sum benefits for the current members on their retirement, and/or benefits on death, before or after retirement for their dependents, on a defined benefit basis.

The Scheme’s present investment objective is to achieve a return of around 2.9% p.a. above the return on UK Government bonds (which are considered to move in a similar fashion to the calculated value of the Scheme’s liabilities).

The Trustee’s medium term objective is to reach and maintain a funding position of 100% of technical provisions – such a target being consistent with the strength of the employer covenant and the Trustee’s investment risk tolerance.

The long term funding objective is to reach a funding position such that all Members’ benefits can be secured within an insurance contract (i.e. reach full funding on an insurance buy-out basis).  The Trustee also considers the Scheme’s funding position on other relevant bases for valuation and accounting. Funding positions are monitored regularly by the Trustee and formally reviewed at each triennial valuation, or more frequently as required by the Pensions Act 2004.

Investment strategy

The Trustee takes a holistic approach to considering and managing risks when formulating the Scheme’s investment strategy.

The Scheme’s investment strategy was derived following careful consideration of the factors set out in Appendix B. The considerations include the nature and duration of the Scheme’s liabilities, the risks of investing in the various asset classes, the implications of the strategy (under various scenarios) for the level of employer contributions required to fund the Scheme, and also the strength of the sponsoring company’s covenant. The Trustee considered the merits of a range of asset classes.

The Trustee recognises that the investment strategy is subject to risks, in particular the risk of a mismatch between the performance of the assets and the calculated value of the liabilities. This risk is monitored by regularly assessing the funding position and the characteristics of the assets and liabilities. This risk is managed by investing in assets which are expected to perform in excess of the liabilities over the long term, and also by investing in a suitably diversified portfolio of assets with the aim of minimising (as far as possible) volatility relative to the liabilities.

The assets of the Scheme consist predominantly of investments which are traded on regulated markets.

Investment Management Arrangements

The Trustee has appointed several investment managers to manage the assets of the Scheme as listed in the SIP. The investment managers are 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 investment managers via a written agreement. The delegation includes decisions about:

• Selection, retention and realisation of investments including taking into account all financially material considerations in making these decisions;
• The exercise of rights (including voting rights) attaching to the investments;
• Undertaking engagement activities with investee companies and other stakeholders, where appropriate.

The Trustee takes investment managers’ policies into account when selecting and monitoring managers. The Trustee also takes into account the performance targets the investment managers are evaluated on. The investment managers are expected to exercise powers of investment delegated to them, with a view to following the principles contained within this statement, so far as is reasonably practicable.

As the Scheme’s assets are invested in pooled vehicles, the custody of the holdings is arranged by the investment managers.

Investment Manager Monitoring and Engagement

The Trustee monitors and engage with the Scheme’s investment managers and other stakeholders on a variety of issues. Below is a summary of the areas covered and how the Trustees seek to engage on these matters with investment managers.

Areas for engagement	Method for monitoring and engagement	Circumstances for additional monitoring and engagement
Performance, Strategy and Risk	The Trustee receives a biannual performance report which details information on the underlying investments’ performance, strategy and overall risks, which are considered at the relevant Trustee meeting. The Trustee also receives emails in intervening quarters, which summarise the performance of the Scheme’s managers relative to expectations over the period.	There are significant changes made to the investment strategy. The risk levels within the assets managed by the investment managers have increased to a level above and beyond the Trustee’s expectations. Underperformance vs the performance objective over the period that this objective applies.
Environmental, Social, Corporate Governance factors and the exercising of rights	The Trustee’s investment managers provide annual reports on how they have engaged with issuers regarding social, environmental and corporate governance issues. The Trustee receives information from their investment advisers on the investment managers’ approaches to engagement.	The manager has not acted in accordance with their policies and frameworks. The manager’s policies are not in line with the Trustee’s policies in this area.

Through the engagement described above, the Trustee will work with the investment managers to improve their alignment with the above policies. Where sufficient improvement is not observed, the Trustee will review the relevant investment manager’s appointment and will consider terminating the arrangement.

Realisation of investments

The Trustee operates a bank account for daily cash flow needs. 

The significant majority of the Scheme’s investments may be realised quickly if required.  The M&G Diversified Credit allocation and Apollo Semi Liquid Credit allocation, both of which have a target weight of 15% within the strategic benchmark, are relatively illiquid, with M&G having monthly dealing dates and Apollo having quarterly dealing dates (subject to 60 days’ notice), following a 2 year hard lock-up period. All other asset allocations can be realised either daily or weekly.

Signed for and on behalf of BESTrustees as the Trustee of the McCurrach Group Pension Scheme

Zahir Fazal
Trustee

Date 26 July 2022

Revised September 2021

Appendix A

Strategic asset allocation split by fund manager 

Fund Manager	Strategic Benchmark (%)	Mandate	Asset Class	Expected Return (%)
LGIM	20.0	Passive	Liability Driven Investments	-
Aberdeen Standard	50.0	Active	Diversified Growth	3.5
Baillie Gifford		Active	Diversified Growth
M&G	15.0	Active	Diversified Credit	2.6
Apollo	15.0	Active	Semi Liquid Credit	3.5
Total	100.0			2.9

¹Expected return assumptions quoted relative to Gilts and based on Isio’s central assumptions as at 30 June 2021. Please note the Scheme expected return incorporates the benefits of diversification within the portfolio.

Appendix B – Risks, Financially Material Considerations and Non-Financial matters

A non-exhaustive list of risks and financially material considerations that the Trustee has considered and sought to manage is shown below.

The Trustee adopts an integrated risk management approach. The three key risks associated within this framework and how they are managed are stated below:

Risks	Definition	Policy
Investment	The risk that the Scheme’s position deteriorates due to the assets underperforming.	Selecting an investment objective that is achievable and is consistent with the Scheme’s funding basis and the sponsoring company’s covenant strength. Investing in a diversified portfolio of assets.
Funding	The extent to which there are insufficient Scheme assets available to cover ongoing and future liability cash flows.	Funding risk is considered as part of the investment strategy review and the actuarial valuation. The Trustee will agree an appropriate basis in conjunction with the investment strategy to ensure an appropriate journey plan is agreed to manage funding risk over time.
Covenant	The risk that the sponsoring company becomes unable to continue providing the required financial support to the Scheme.	When developing the Scheme’s investment and funding objectives, the Trustee takes account of the strength of the covenant ensuring the level of risk the Scheme is exposed to is at an appropriate level for the covenant to support.

The Scheme is exposed to a number of underlying risks relating to the Scheme’s investment strategy, these are summarised below:

Risk	Definition	Policy
Interest rates and inflation	The risk of mismatch between the value of the Scheme assets and present value of liabilities from changes in interest rates and inflation expectations.	To hedge 65% of the impact of interest rates and inflation on the value of the Scheme’s liabilities (measured on a gilts basis).
Liquidity	Difficulties in raising sufficient cash when required without adversely impacting the fair market value of the investment.	To maintain a sufficient allocation to liquid assets so that there is a prudent buffer to pay members benefits as they fall due (including transfer values), and to provide collateral to the LDI manager.
Market	Experiencing losses due to factors that affect the overall performance of the financial markets.	To remain appropriately diversified and hedge away any unrewarded risks, where practicable.
Credit	Default on payments due as part of a financial security contract.	To diversify this risk by investing in a range of credit markets across different geographies and sectors.
Environmental, Social and Governance	Exposure to Environmental, Social and Governance factors, including but not limited to climate change, which can impact the performance of the Scheme’s investments.	To appoint managers who satisfy the following criteria, unless there is a good reason why the manager does not satisfy each criteria: i)      Responsible Investment (‘RI’) Policy / Framework ii)     Implemented via Investment Process iii)    A track record of using engagement and any voting rights to manage ESG factors iv)    ESG specific reporting v)     UN PRI Signatory (or equivalent) The Trustee monitors the mangers on an ongoing basis.
Currency	The potential for adverse currency movements to have an impact on the Scheme’s investments.	The Scheme’s diversified growth and credit mandates hedge all currency risk back to Sterling.
Non-financial	Any factor that is not expected to have a financial impact on the Scheme’s investments.	Non-financial matters are not taken into account in the selection, retention or realisation of investments.