INTRODUCTION
Government requirements apply to defined contribution pension arrangements like the AJ Power Ltd No.1 Retirement & Death Benefit Scheme (the “Scheme”) from 6 April 2015. These were designed to help members achieve a good outcome from their pension savings.
The Trustees of the AJ Power Ltd No.1 Retirement & Death Benefit Scheme are required to produce a yearly statement (signed by the Chair of Trustees) which explains what steps have been taken by the trustee board, with help from our advisers, to meet the governance standards. The law sets out what information has to be included in my statement, and this is covered in sections below.
• The investment options in which members’ funds are invested (this means the “default arrangement” and other funds members can select or have assets in, such as self-select or legacy funds);
• The requirements for processing financial transactions;
• The charges and transaction costs borne by members;
• An illustration of the cumulative effect of these costs and charges;
• A value for members’ assessment; and
• Trustee knowledge and understanding.
This statement covers the period from 1st January 2023 to 31st December 2023.
The Trustees are committed to having high governance standards, to monitor the controls and processes in place in connection with the Scheme’s investments and administration. The pension arrangement is a Defined Contribution Occupational Money Purchase scheme and is a wholly insured arrangement via Aegon. This means that all the relevant administration, other services and investment funds are provided by Aegon. The scheme was set up and operates under a Trust Deed and Rules originally dated 1st August 2003.
During the scheme year we progressively accepted more members into the scheme and by the end of our scheme year (31/12/23) there were 153 members within the scheme and net assets of £3,535,984.23.
However, in November 2023 the scheme was paid-up (frozen) and all future contributions were redirected to the new auto-enrolment Group Personal Pension scheme with Royal London. The transfer of scheme assets in relation to the active members has broadly been completed and the deferred member benefits are in the process of being assessed and once these have been transferred the scheme will be wound up.
I welcome this opportunity to explain what the Trustees do to help to ensure the Scheme is run as effectively as it can be. If you have any questions about anything or any suggestions about what can be improved, please do not hesitate to contact me.
1. Default investment arrangement
Before the scheme was paid up it was used as a Qualifying Scheme for auto-enrolment. Members who joined the Scheme and who did not choose an investment option were placed into the Cautious Lifestyle fund as the default arrangement. This scheme year 53% of members had their contributions invested in the default investment arrangement. Members can also choose to invest in a range of insured pension funds provided by Aegon.
Setting an appropriate investment strategy
The Trustees are responsible for the Scheme’s investment governance which includes setting and monitoring the investment strategy for the Scheme’s default arrangement.
We had chosen Aegon’s Cautious Lifestyle fund as the Scheme’s default arrangement. Details of the investment objectives of the default arrangement are recorded in the Statement of Investment Principles which is attached to this annual statement regarding governance.
The aims and objectives of the default arrangement as stated in the Statement of Investment Principles are as follows:
• Long term growth whilst the members are far from their target retirement date.
• Gradually reducing the risk taken in the investment strategy as members become close to their target retirement date which means that members’ assets are automatically moved between different investment funds as they approach their target retirement date; and
• Having an asset allocation at the target retirement date is appropriate and consistent with how most members are expected to take their retirement savings.
Reviewing the default investment strategy
The Trustees are expected to:
• Review the investment strategy and objectives at regular intervals – at least once every 3 years or immediately following any significant change in investment policy or the scheme’s member profile. As mentioned, the scheme is now paid up and in the process of winding up (once all member benefits have been transferred).
A new default arrangement has been selected for the Royal London Group Personal Pension.
• Take into account the needs of the scheme membership.
2. Requirement for processing core financial transactions
The Trustees have received assurance from the scheme’s administrator Aegon and has taken steps to try and ensure that there were adequate internal controls to ensure that core financial transactions relating to the Scheme were processed promptly and accurately during the scheme year. This includes the following:
• Investment of contributions into the scheme
• Processing of transfers in and out of the scheme
• Transfers of assets between difference investments within the scheme and
• Payments from the scheme to members or beneficiaries
We delegate the scheme administration to Aegon (our pension provider) in association with the trustees. The service level agreement with the administrator covers the accuracy and timeliness of all core financial transactions (status of requests for money in and out within the service level), online enquiries. Many of the key service measures were ahead of target by the end of the year. The service level agreement, covering all core financial transaction processes continued to operate efficiently with the service levels above the target at 93% in December 2023 (target being 90%).
The trustees measure the accuracy of the financial transactions by carrying out sampling on certain transactions, monitoring the end-to-end process for contribution payments by reconciling monies applied to each member from their payment records with the annual audit report.
During the scheme year, the scheme was using Aegon’s Smartenrol which is an intelligent online service that automates the auto-enrolment tasks and records and their Smartpay systems for the payment and application of contributions in.
The Trustees are satisfied that over the period covered by this statement:
• The administrator was operating appropriate procedures, checks and controls and within the service level agreement:
• There have been no material administration errors in relation to processing core financial transactions; and • All core financial transactions have been processed promptly and accurately during the scheme year.
3. Charges and transaction costs paid by members
The Trustees are required to set out the ongoing charges which are paid by members rather than the employer. Which are the Annual management charges plus any additional fund expenses, such as custody costs but excluding transaction costs. This is also known as the total expense ratio (TER). The TER is paid by the members and is reflected in the unit price of the funds.
The level of charges and transaction costs applicable to the Scheme’s default arrangement during the last scheme year were an Aegon Annual Management charge of 0.70%. This includes a fixed management fee and expenses.
The level of charges applicable to the funds offered which are not part of the scheme’s default arrangement range and chosen by the member from Aegon fund list (including the use of external fund managers) range from 0.70% - 1.8%pa.
Annual management charges and transaction costs for all funds available, including the default arrangement, can be found in Appendix 1 within the Statement of Investment Principles.
The Trustees are also required to present an illustration of the impact of charges and costs on a member’s pot size. This illustration is shown in Appendix 2.
4. Value for members assessment
The Trustees are required to assess the extent to which members borne charges and transactions costs represent good value for members. There is no legal definition of “good value” and so the process of determining good value for members is a subjective one. We have received advice on how to assess good value from our advisers and considered regulatory guidance.
The Trustees have considered that it broadly means that the combination of costs and the quality of what is provided in return for those costs is appropriate for the Scheme membership, when compared to other options available in the market. The benefits of membership include amongst other things, the design of the default arrangement, the range of investment options available, the efficiency of administration processes and the extent to which Aegon (pension provider) met and exceeded its service level standards.
As stated earlier and in last year’s statement, the AJ Power Ltd No.1 R&DBS has been made paid-up since November 2023 and future contributions redirected to the new auto-enrolment scheme. It also changed from a Trust based Defined Contribution Occupational Pension Scheme with Aegon to a Group Personal Pension with Royal London.
Members then had the option of transferring their accrued benefits to the new scheme or elsewhere. The bulk of the active membership have since taken this action, and the deferred membership will have the option of transferring in the near future in order that the scheme can then be wound up.
The Royal London pension scheme has an Annual Management Charge of 0.33% for the default arrangement.
The default investment arrangement is Royal London’s Balanced Lifestyle Strategy (Drawdown), which is invested in three of their risk-targeted Governed Portfolios, within their governed range. These ready-made investment options are looked after by Royal London’s Independent Advisory Committee, who regularly review, supervise and fine-tune to make sure they stick to their objectives. This is included within the Annual Management Charge. However, members still have the option to make their won investment decisions from the full fund range.
The Trustees believe that the members have benefited from the new scheme in various ways and received good value for money in respect to the charges and costs that they incur.
5. Trustee knowledge and understanding
It is required that the trustees possess, or have access to, sufficient knowledge and understanding to run the Scheme effectively. They must:
• Be conversant with the trust deed and rules of the scheme, the scheme’s statement of investment principles and any other document recording policy for the time being adopted by the Trustees relating to the administration of the scheme generally,
• Have, to the degree that is appropriate for the purposes of enabling the individual properly to exercise his or her functions as trustee, knowledge and understanding of the law relating to pensions and trusts and the principles relating to investment the assets of occupational pension schemes.
The Trustees have measures in place to comply with the legal and regulatory requirements regarding conversance and knowledge and understanding. With the combined knowledge and understanding of the trustees, together with available advice from their financial adviser Wren Sterling (formerly RB Financial Planning Ltd) and scheme administrator Aegon, enables them to properly exercise their functions.
Jason Gibson - Chair - On behalf of the Trustees of the AJ Power Ltd No.1 R&DBS