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Scotts Company (UK) Pension Scheme

Chair’s Annual Governance Statement 2018/19

(1 July 2018 – 30 June 2019)

This statement has been prepared by the Trustee of The Scotts Company (UK) Pension Scheme (‘the Scheme’) to demonstrate how the Trustee has complied with the governance standards introduced under The Occupational Pension Schemes (Charges and Governance) Regulations 2015.

The Occupational Pension Schemes (Charges and Governance) Regulations 2015 and the Occupational Pension Schemes (Scheme Administration) Regulations 1996 (as amended) set out the minimum governance standards expected of defined contribution (DC) pension schemes. The Pensions Regulator (tPR) has also published its expectations of DC pension schemes in Code of Practice 13 (Governance and administration of occupational trust-based schemes providing money purchase benefits).

During the Scheme Year being reported (1 July 2018 – 30 June 2019), the Scheme did not have a default arrangement for the purposes of the Occupational Pension Schemes (Investment) Regulations 2005 (the “Investment Regulations”). This is because, with effect on and from 31 August 2017, the Scheme ceased to have any members who are “workers” and, therefore, the requirements of section 2A of the Investment Regulations do not apply. The Scheme is not being used as a qualifying scheme for automatic-enrolment purposes. Therefore, there is no default Statement of Investment Principles to attach or review.

This statement covers the period 1 July 2018 to 30 June 2019 (‘the Scheme Year’) and covers the following key areas:

  1. The Scheme’s investment strategy;

  2. The processing of core financial transactions;

  3. Charges and transaction costs;

  4. An assessment of the value the Scheme provides to members;

  5. Maintaining the Trustee’s knowledge and understanding.

Investment strategy

General investment principles

Acknowledging that there are no default arrangements, the Trustee nevertheless has a Statement of Investment Principles (“SIP”), put in place in September 2019, and has sought to adopt the Regulator’s best practice principles in formulating and monitoring its investment strategy. The SIP governs the Trustee’s decisions about investments and sets out the aims and objectives of the Scheme’s investment strategy. The Trustee’s general investment objectives are as follows:

  • To offer a range of investment options which broadly satisfy the risk profiles of all members

  • Provide members with information concerning each of the funds from which they may choose in order to enable them to design and review their own investment strategies.

In addition, it is the Trustee’s intention that all funds should have clear, distinct investment objectives. This is intended to facilitate members’ design of their own investment strategies.

The last formal strategic review of the Scheme’s investment strategy was undertaken on 12 September 2019. The Trustee concluded that the existing lifestyle options and self-select fund range remained suitable for members’ needs.

The next formal strategic investment review is scheduled for September 2022.

Financial transactions

The Trustee regularly monitors the core financial transactions of the Scheme which are carried out by the Scheme’s administrator, Trafalgar House. These include transfers into and out of the Scheme, fund switches and payments out of the Scheme to and in respect of members. No further contributions are paid into the DC Section, which is now closed.

The Trustee has a Service Level Agreement (SLA) with the administrator which covers the accuracy and timeliness of all core transactions and requires them to be made within statutory timescales. The quarterly Administration reports contain detailed reporting on activity and performance against SLAs. The processes adopted by the administrator to help meet the SLAs including daily monitoring of bank accounts and two individuals checking all investment and banking transactions, although the absence of contributions means that such transactions only take place when benefits are realised.

The quarterly reports also contain a section on member feedback, where details of any compliments or complaints are captured, along with details of any errors which occurred. This provides full transparency of any issues arising and the remedial actions that are taken.

The Trustee reviews the quarterly report at each Trustee meeting and a representative from Trafalgar House attends each meeting to answer any questions the Trustee has.

Over the reporting period, the Trustee can confirm that the performance against service level targets has been between 98.39% - 100%.

Based on the above the Trustee is satisfied that core financial transactions were processed promptly and accurately during the reporting period.

Charges and transaction costs

For the purpose of this section “charges” are defined as the ongoing annual investment charges, which consists of the Annual Management Charges plus additional fund expenses (e.g. for custody, but excluding transaction costs – see below) that make up the Total Expense Ratio (“TER”). The TER is paid by the members and is reflected in the unit price (and hence the performance) of the funds. The Trustee monitors the fund charges to ensure they remain reasonable and represent good value for members (considered in more detail in the next section).

Transaction costs are those incurred by fund managers as a result of buying, selling, lending or borrowing investments. These costs are taken into account via the unit price for each of the funds when the transaction takes place and hence are borne by the members. The Trustee is satisfied that it has obtained all the relevant transaction cost information that is available.

The current Total Expense Ratios and aggregate transaction costs for the period from 1 July 2018 to 30 June 2019 for the funds available for selection by members during the Scheme year are set out in the table overleaf.

Fund name Total Expense Ratio (% p.a. of account value) Aggregate transaction costs (% of fund p.a. as at Q1 2019)
Aegon BlackRock (50:50) Global Equity Index 0.260.01
Aegon BlackRock (30:70) Global Equity Currency Hedged Index0.29-0.02
Aegon BlackRock UK Equity Index0.260.07
Aegon BlackRock World (ex-UK) Equity Index0.260
Aegon BlackRock Emerging Markets Equity Index 0.46-0.14
Aegon BlackRock Market Advantage0.400.15
Aegon BlackRock Over 5 Year index-Linked Gilt Index0.260.02
Aegon BlackRock Pre-Retirement Fund0.510.01
Aegon Blackrock Property1.030.12
Aegon BlackRock Cash0.230.02
Life Path Funds0.31 – 0.34-0.04

Source: Aegon

Negative costs are a feature of price movements in a fund as members trade in and out of the fund and are not a reflection of explicit costs paid by members. Because of this, it is not expected that transaction costs for the affected fund(s) will always be negative.

The Scheme offers a lifestyle strategy targeting pension and cash at retirement. The lifestyle strategy is constructed using the above funds (highlighted in purple), and, as such, the charges members pay depends on the period of time until their selected retirement date.

In addition, the Trustee has a small legacy AVC arrangement with Prudential. Details of the charges and transaction costs for these funds are in appendix A.

The Occupational Pension Schemes (Administration and Disclosure) (Amendment) Regulations 2018 requires the Trustee to produce an illustration showing the compounding effect of costs and charges. This is included in Appendix B.

Value for Members (“VFM”)

The Trustee is committed to ensuring that members receive VFM from the Scheme (i.e. that the costs and charges deducted from members’ pots provide good value in relation to the benefits and services provided by or on behalf of the Trustee).

The Trustee undertook an assessment of the VFM during the 16 May 2019 Trustee’s meeting, where it considered the charges paid by members and the services which they received from the Scheme. The Trustee concluded that due to the points listed below the costs and charges incurred by members continue to provide value in relation to the benefits and services provided by the Scheme:

  • Members only pay for the investment costs, which remain competitive. Any charges for administration, communications or trustee governance is paid for by the Company. If the DC assets were moved outside of the Scheme, members may see an increase to the AMC as this would need to include an allowance for the charges the Company currently meets.

  • BlackRock is rated highly as a passive Investment Manager by the Scheme advisers.

  • A range of communications is available to meet member needs, and the ability to transfer out has always been communicated at appropriate points such as retirement, should the member wish to take their DC benefits flexibly.

  • The Trustee had not received any negative comments from members in relation to the Scheme

Trustees’ knowledge and understanding (“TKU”)

The Trustee has a strong TKU process in place which enables it to have a sufficient knowledge and understanding of the law relating to pensions and trusts and the principles relating to funding and investment of the assets of pension schemes. The Trustee’s knowledge and experience, together with the advice available to them, enables them to properly exercise their functions as Trustee.

The Trustee has met the TKU requirements during the reporting period and this has included the following activities:

  • Regular training incorporated into Trustee meetings. In relation to the Trustee’s knowledge of DC related topics, during the reporting period the Trustee undertook training to ensure it had sufficient knowledge to understand and evaluate the new disclosure requirements and updates required for the Statement of Investment Principles (in particular, the necessary updates in relation to Environment, Social and Governance investing). Topical updates are also covered by the Trustee’s advisers at each Trustee meeting.

  • Periodic assessment of Trustee Director’s training needs. Any knowledge gaps were identified and proposals for forthcoming training are discussed and agreed.

  • All training and attendance at appropriate seminars is centrally recorded by the Secretary to the Trustee.

  • All Scheme documents are easily accessible via One Place and referenced in advance of decisions being taken, demonstrating conversance with the Scheme’s trust deed and rules, Statement of Investment Principles and other governing documentation.

  • The Trustee receives general updates from their advisers about matters relevant to the Scheme. These updates also form the basis for training slots at each meeting to keep the Trustee abreast of market/legislative developments.

  • The Trustee maintains a year planner which sets out the key activities and objectives for the Scheme year and in advance considers the training needs to enable the objectives to be met.

  • The Chair is a Fellow of the Pensions Management Institute, and as such completes the required amount of CPD each year.

No new Trustee Directors were appointed during the reporting period.

Signed by the Chair on behalf of the Trustees of the Scheme:

  

  

Appendix A to Chair’s Annual Governance Statement

Charges and transaction costs in relation to Prudential

Fund name Total Expense Ratio (% p.a. of account value) Aggregate transaction costs (% of fund p.a. as at Q1 2019)
Prudential With-profits FundA deduction to the returns of the With-profits Fund. This charge is currently 1% and is implicit in the annual bonus rate applying to members.
A further reduction is applied to cover the costs of the With-profit’s Fund’s guarantees, but this is not declared and these are built into the annual bonus that is applied to member’s funds.		N/A
Discretionary Fund0.800.02

  

  

Appendix B to Chair’s Annual Governance Statement

Illustrative example of effect of charges and transaction costs

The impact of the TER and transaction costs on a member’s pension pot over time can be shown by the following examples, which are based on a starting pension pot of £10,000 and on assumed returns for illustrative purposes only. These illustrations take account of, and are relevant to, the Scheme’s demographics, and the Trustee has taken account of the Statutory Guidance when preparing these illustrations.

Firstly, for an investment in the Aegon BlackRock (30:70) Global Equity Currency Hedged Index which is assumed to achieve gross returns of 6.25% p.a.:

10 Years20 Years30 Years
Before charges£18335£33618£61640
After deduction of TER£17841£31830£56788

For an investment in the Aegon BlackRock Market Advantage fund which is assumed to achieve gross returns of 4.25% p.a.:

10 Years20 Years30 Years
Before charges£15162£22989£34856
After deduction of TER and transaction costs£14380£20681£29741

And for an investment in the Aegon BlackRock Over 5 Year Index-Linked Gilt Index fund which is assumed to achieve gross returns of 1.9% p.a.:

10 Years20 Years30 Years
Before charges£12070£14570£17588
After deduction of TER and transaction costs£11743£13790£16194