Transparency data

Council of Reserve Forces and Cadets Association Pension Scheme: Statement of Investment principles

Updated 11 April 2023

Section 35 of the Pensions Act 1995 (as amended), and Regulation 2 of the Occupational Pension Schemes (Investment) Regulations 2005 require the Trustees to prepare a statement of the principles governing investment decisions for the purposes of the Scheme. This document fulfils that requirement.

In preparing this Statement, the Trustees have consulted the Council and will do so whenever the Trustees intend to revise the Statement. Notwithstanding this consultation, responsibility for maintaining the Statement and deciding investment policy rests solely with the Trustees.

In preparing this Statement, the Trustees have obtained advice from the Scheme’s Actuary (Robert Sweet) and the consultants (Cartwright Group Ltd, Asset Risk Consultants Limited and Jagger & Associates Ltd). The Trustees will similarly obtain such advice as appropriate whenever the Statement is reviewed or revised.

The Trustees will review this Statement at least every 3 years, and on such other occasions as may appear to them to be appropriate.

Investment Objectives

The long term investment objectives of the Scheme are:

• the acquisition of suitable assets of appropriate security and liquidity, which will meet the cost of current and future benefits, which the Scheme provides as set out in the Trust Deed and Rules. The Trustees may also hold assets in a suitable short term environment as to allow suitable long term investments to be identified
• to limit the risk of the assets failing to meet the liabilities over the long term, measured in terms of the variability of the Employers’ contribution rate and the ongoing funding level
• to minimise the long term costs of the Scheme by maximising the return on the assets whilst having regard to the objectives shown above.

Delegation of Investment Discretion

The Trustees have delegated day-to-day investment management to the following fund managers:

Manager	Fund	Date of Management Agreement	Investment Objective
Standard Life Assurance Company	Trustee Investment Plan invested in with profits fund	23 April 1992	Guaranteed return of 4% per annum plus bonuses
AXA Framlington Unit Management	AXA Framlington Managed Balanced Fund	25 June 2007	Upper quartile returns using the IA Mixed Investment 40-85% Shares Survey as the benchmark over rolling 3-year periods
M&G	Episode Allocation Fund	27 June 2007, as amended 5 August 2016	To outperform the IA Mixed Investment 20-60% Shares Survey.
Schroder Pension Management Limited	Schroder Life Managed Balanced Fund	17 October 2006 (Special Fund) and 28 February 2017 (Main Scheme)	Upper quartile returns using the IA Mixed Investment 40-85% Shares Survey as the benchmark over rolling 3-year periods
Ruffer LLP	CF Ruffer Absolute Return Fund	24 November 2010	Not to lose money in any 12 month rolling period, and to achieve a consistent return net of fees significantly greater than the Bank of England Base Rate
Troy Asset Management Limited	Trojan Fund	2 December 2010	Protect capital and to increase its value year on year.
Newton Investment Management Limited	Newton Real Return Fund	16 September 2011	1 month Sterling LIBOR 4+% per annum over rolling 3 to 5 year periods.

Each investment management agreement includes such matters as investment objectives, investment restrictions, custody of assets, fees and charges and the procedure for instructions.

In delegating their investment responsibilities in this way, the Trustees consider that they have the best prospects of achieving their objectives. Delegation of discretion carries with it the imperative for managers to deliver a satisfactory administrative service level, a key element of performance assessment alongside the measurement of return.

Performance Measurement

For portfolio review purposes, the Scheme has a “Balanced Asset” risk profile, with a long term target rate of return of UK CPI plus 3% per annum and a long term target volatility level of 40% to 60% of world equities. The individual fund managers are assessed relative to the benchmarks listed in the table below:

Fund	Benchmark
Standard Life Trustee Investment plan	A return of 4% per annum
AXA Framlington Managed Balanced Fund	IA Mixed Investment 40 to 85% shares index
M&G Episode Allocation Fund	3 month GBP LIBOR 5% + per annum
Schroder Life Managed Balanced Fund	IA Mixed investment 40 to 85% shares index
CF Ruffer Absolute Return fund	IA Flexible Investment Index
Troy Trojan Fund	IA Flexible Investment Index
Newton Real Return Fund	1 month GBP LIBOR 4%+ per annum

The Trustees recognise that portfolio turnover ratios vary amongst active and passive investment styles. Portfolio turnover within the fund holdings is monitored on an annual basis. The Institute of Business and Finance categorises lower turnover rates at less than 30%, average turnover rates at 40-100% and high turnover rates at greater than 120%. The Trustees consider an aggregated portfolio turnover in the range of 40-100% as acceptable.

The Trustees recognise the ongoing charge figure (OCF) as an important measure of the total expenses of running a fund. Annual management charges and OCFs of each of the fund holdings are monitored on an annual basis. The Trustees are then in a position to challenge its managers if costs are deemed excessive.

Investment Beliefs

When considering any investment, the Trustees obtain advice on whether it is satisfactory as regards its suitability for their investment policy.

The portfolios managed by AXA Framlington, M&G, Schroder, Ruffer, Troy and Newton provide opportunities for increased returns through exposure to different asset classes on a diversified basis, allowing the managers the opportunity to add value by tactical asset allocation and stock selection. The investments have been spread over a number of managers to reduce the manager specific risk of investment.

The Trustees believe their duty is to act in the best financial interests of the Scheme’s beneficiaries. In discharging this responsibility, the Trustees have appointed investment managers who have complete discretion over the investments made. The Scheme’s assets and contributions are invested collectively with those of other similar pension schemes in the funds listed above.

The Trustees’ policy is to ensure that the assets invested are sufficiently realisable to enable the Trustees to meet their obligation to provide benefits as they fall due. The Trustees are satisfied that the arrangements in place conform to this policy.

The Trustees will keep the asset allocation under review, and risk measurement forms part of the performance monitoring process. The investment performance of the Scheme will be monitored independently on a quarterly basis.

The Trustees require the Scheme Actuary to review the funding level of the Scheme regularly. The Trustees will have regard to the way in which the Scheme’s assets and liabilities would be valued when establishing the balance between different kinds of investments and considering investment strategy generally.

The Scheme has available facilities with Standard Life, for members who wish to contribute to enhance their retirement benefits. The Trustees believe these to be appropriate facilities for this purpose, but note that the decisions on the level of contributions paid and the funds used rest entirely with the members.

Because the Trustees invest in pooled funds in which the Scheme’s investments are pooled with those of other investors, the Trustees have given the investment managers full discretion in evaluating inter alia ESG factors, including climate change considerations, exercising voting rights, investee capital structure, management of conflicts of interest and other stewardship obligations attributed to the investments, in accordance with their own corporate governance policies and current best practice.

The Scheme’s investment managers are encouraged to align their strategies with the Trustees’ investment policy, make decisions based on assessments about the medium to long term performance of an individual issuer of debt or equity and engage with those issuers to improve performance as follows:

• the Trustees monitor investment performance against the objectives set out in Clause 5. Assessments of performance take account of the achieved level of return against the agreed yardsticks and peer group, alignment with investment policy and quality of service
• the Trustees call poorly performing managers to account and in the absence of improvement, their mandates may be withdrawn
• the Trustees ensure that investment manager remuneration remains consistent with the level of achieved return. Inadequate performance may result in termination of mandate.

Environmental, Social and Governance (ESG) factors

The Trustees are ESG aware and believe that Environmental, Social and Governance (ESG) factors may have a material impact on investment returns and risk, particularly given the long-term nature of the Scheme’s liabilities. The extent to which these factors are taken into account by the investment managers in the selection, retention and realisation of investments is considered by the Trustees as part of the process of selecting investment managers with which to invest. As part of their regular review of investment managers, the Trustees consider how ESG factors are integrated into their investment process.

When considering potential investments, it is expected that considerations of responsible investment (RI) will form an integral part of manager’s process and that firms are sufficiently resourced to have achieved this. The Trustees have the requirement that managers are signatories of the UN Principles of Responsible Investment and comply with the UK Stewardship Code. Managers are expected to report at least annually on ESG considerations and engagement activities.

The Trustees do not take into account the views of the members of the Scheme (including their ethical views, their views in relation to social and environmental impact matters, and on future quality of life considerations) in the selection, retention and realisation of investments.

Signed: Trustee, on behalf of the Trustees of the Council of Reserve Forces and Cadets Associations Pension Scheme.

Date: 1 October 2020