INTRODUCTION
Government requirements apply to defined contribution pension arrangements like the
AJ Power Ltd No.1 Retirement & Death Benefits 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 Benefits 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 the 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 are born 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 2022 to 31st December 2022.
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.
We have progressively accepted more members into the scheme and by the end of our scheme year (31/12/22) there were 138 members within the scheme (77 active members and 61 deferred members) and net assets of £2,935,841.80.
I welcome this opportunity to explain what the Trustees do to help to ensure the schemes are run as effectively as they can be. If you have any questions about anything or any suggestions on what can be improved, please do not hesitate to contact me.
1. Default investment arrangement
The scheme is used as a Qualifying Scheme for auto-enrolment. Members who join the Scheme and who do not choose an investment option are placed into the Cautious Lifestyle fund as the default arrangement. This year 47% 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 have 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 that 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.
- 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 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 different 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), and online enquiries. Due to the Covid impact on the financial services’ industry (like many other industries’) had recruitment challenges, which impacted on the levels of customer service Aegon were able to provide. However, they made significant progress in the second half of, with many of the key service measures ahead of target by the end of the year and continuing to improve during 2023. despite the decline in early 2022, the service level agreement, covering all core financial transactions processes continued to operate efficiently with the service levels able the target at 93% in December 2022 ( target being 90%) and Claims remaining above 95%.
The trustees measure the accuracy of the financial transactions by carrying out sampling on certain transactions, and 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.
The scheme also uses 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 worldwide 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 member 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 as a whole, when compare 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.
The Trustees have assessed member’s investment returns and overall fund performance to ensure that the charges borne by the members are reasonable for each fund we offer. Market factors have been taken into account. The Trustees considered that higher costs in specialist funds are usual and justified should the member wish to invest in such funds. Value for money does not necessarily mean the lowest fee, and the overall quality of the service received has also been considered in this assessment.
The Trustees financial advisers to the scheme have confirmed that the fund charges are competitive for the types of funds available to members.
The value for money assessment considered the following:
- Annual management charges and administration fees
- Net of cost performance in the context of their investment objectives
- Transaction costs.
In carrying out the assessment, the Trustees also consider the other benefit members receive from the Scheme which include:
- Oversight and governance, including ensuring the scheme is compliant with relevant legislation, such as the charge cap. The charge for the default strategy is below the charge cap of 0.75% per annum. Monitor the scheme and address any material issues that may impact members.
- The design of the default arrangement and how this reflects the membership as a whole.
- The range of investment options and strategies to meet the membership’s different returns/risks and income preferences.
- The quality of communications delivered to members eg. Annual benefit statements.
- The quality of support services, such as online access to their individual plan and fund information; and
- The efficiency of administration processes and the extent to which the administrator met its service level standards.
Although the trustees were comfortable with the quality and efficiency of the administration processes and the transactions costs. We have been able to secure an improved pension scheme going forward with Royal London, changing from a Trust based Defined Contribution Occupational Pension Scheme to a Group Personal Pension.
Royal London is the UK’s largest mutual life, pensions, and investment company with a strong financial strength rating of A from Standard & Poor’s credit rating company and have been awarded 5 stars for service two years in a row.
The new pension arrangement will have an reduced Annual Management Charge of 0.33% for the default arrangement (compared to 0.70% currently).
On becoming a Royal London policyholder, each member will be eligible to any Profitshare awarded each year, by adding a share of the profits to each plan. Last year 0.15% was awarded to members’ pension plans, however, there’s no guarantee that Royal London will be able to award Profitshare every year.
To help members achieve good outcomes there is the availability of a Mobile App to easily track the value and performance of your pension plan, and among other things there will be more flexibility and ease as to how members can access their pension benefits upon retirement.
The new default investment arrangement will be 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 will still have the option to make their won investment decisions from the full fund range.
The new scheme will start with effect from 1st November 2023 with active members’ contributions automatically redirected to the new scheme. Members will then have options regarding their existing pension pots. Communication to members will be issued during this period.
Overall, the Trustees believe that members will benefit from the new scheme in various ways and receive 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 RB Financial Planning Ltd and scheme administrator Aegon, enables them to properly exercise their functions.
James Mcllveen - Chair - On behalf of the Trustees of the AJ Power Ltd No.1 R&DBS