UTC (UK) Pension Scheme - Annual Report and Financial Statements (Including Chair's Statement)
Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
Registrar of Occupational and Personal Pension Schemes Registration Number 12001105
Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
CONTENTS
2 to 3
Trustee and advisers
4 to 13
Trustee’s report
14 to 25
Statement regarding DC governance
26
Actuarial certificate
27 to 29
Independent a uditors’ report to the Trustee of United Technologies Corporation (UK) Pension Scheme
30
Fund account
31
Statement of net assets available for benefits
32 to 45
Notes to the financial statements
46
Independent a uditors’ statement about contributions to the Trustee of United Technologies Corporation (UK) Pension Scheme
47
Summary of contributions
48 to 49
Members’ information
APPENDIX I
The UTC Common Investment Fund – Report and Financial Statements
APPENDIX II
United Technologies Corporation (UK) Pension Scheme - Implementation Statement
APPENDIX III
United Technologies Corporation (UK) Pension Scheme - Statement of Investment Principles
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Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
TRUSTEE AND ADVISERS
Trustee
UTC Pension Trust Limited The directors of the Trustee company are as follows: G P Smart (Chairman) J M Fazzino (Resigned with effect from 17 May 2023) G A Hawes (Appointed with effect from 8 March 2023) I K Hayward * K E Levine A R Smith * J A Sullivan (Appointed with effect from 17 May 2023)
* Member nominated directors
Secretary to the Trustee Directors
J C Beake
Principal employer
Ceesail Limited – a wholly owned subsidiary of RTX Corporation (previously known as Raytheon Technologies Corporation)
Participating employers
Crompton Technology Group Limited Goodrich Actuation Systems Limited Goodrich Control Systems HS Marston Aerospace Limited Rosemount Aerospace Limited
Actuary
O McCulloch FIA, Barnett Waddingham LLP
Scheme administrator
Buck Consultants (Administration & Investment) Limited Mercer Limited (in respect of the Goodrich section until 31 December 2023). Aptia UK Limited (in respect of the Goodrich section from 1 January 2024 until May 2024).
Independent auditors
PricewaterhouseCoopers LLP
Bankers
Lloyds Bank Plc
Covenant advisers
Cardano Advisory Limited
Legal advisers
Shoosmiths LLP
Committees
Benefits Sub-Committee Goodrich Section Administration Transfer Sub-Committee Guaranteed Minimum Pension (GMP) Working Party
Investment custodians
Bank of New York Mellon
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Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
TRUSTEE AND ADVISERS
Investment adviser
Barnett Waddingham LLP – Investment adviser to The UTC Common Investment Fund
Investment managers
UTC Pension Trust Limited – Administrator to The UTC Common Investment Fund Aviva Investors Jersey Unit Trusts Management Limited BlackRock Investment Management (UK) Limited First Eagle Investment Management LLC (Until August 2023) Insight Investment Management Legal & General Assurance (Pensions Management) Limited M & G Investment Management Limited Phoenix Life Limited Ruffer LLP Aviva Life & Pensions UK Limited Legal & General Assurance (Pensions Management) Limited Phoenix Life Limited Prudential Assurance Company Limited Scottish Widows Schroder Personal Wealth Limited Standard Life Assurance Limited
AVC providers
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Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
TRUSTEE’S REPORT
Introduction
The Trustee (UTC Pension Trust Limited) is pleased to present its report on the United Technologies Corporation (UK) Pension Scheme ("the Scheme") for the year ended 31 December 2023.
The Scheme was established on 2 January 2009 as a vehicle for consolidating a number of legacy pension arrangements which had existed through various UK based companies which are now within the RTX Corporation (“RTX”) (previously known as Raytheon Technologies Corporation) group, and formerly within the United Technologies Corporation group. In accordance with HMRC requirements the Scheme is registered under Chapter 2, Part 4 of the Finance Act 2004. As a consequence, any employee and employer contributions are normally eligible for tax relief and income and capital gains earned by the Scheme receive preferential tax treatment.
Closure of the Scheme to the future accrual of benefits
The Scheme is an occupational defined benefit pension scheme which is closed to new members and has been closed to the future accrual of benefits since 31 March 2020.
Separation of United Technologies Corporation
On 3 April 2020 United Technologies Corporation separated its overall activities into three separate businesses and on the same date merged with Raytheon Company to form Raytheon Technologies Corporation (now known as RTX Corporation). As a consequence of the above reorganisation the Trustee negotiated a revised parent guarantee with Raytheon Technologies Corporation (now RTX) which was executed on 31 March 2020. This has been further updated by a parent guarantee that was signed on 1 February 2024 between the Trustee and RTX.
Payments Deed
On 31 March 2020 a Payments Deed was executed setting out the contributions required to be paid by RTX Corporation to the Scheme. This Payments Deed was updated on 15 December 2022 following finalisation of the actuarial valuation at 31 December 2021 and has been further updated on 30 August 2023 by the “Payments Deed 2023” which currently defines the contributions re quired to be paid to the Scheme.
Rule changes
There was one rule change in the year. This was to amend the Scheme rules to permit late retirement for members of the Sutrak section.
Administration
The Trustee has taken the decision to consolidate the administration of all sections of the Scheme, and from June 2024 Buck Consultants (Administration & Investment) Limited have been the sole Administrator.
Trustee
The Trustee of the Scheme, appointed by the Principal Employer, is a company called UTC Pension Trust Limited (‘the Trustee’) . The directors of the Trustee have essentially the same responsibilities as if they were individual trustees.
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UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
TRUSTEE’S REPORT
The Trustee has responsibility for setting the strategy and for managing the Scheme and the directors usually meet at least four times a year for this purpose. Further or fewer meetings may be scheduled depending on matters requiring consideration by the Trustee during the year. All occupational pension schemes must implement arrangements that provide for at least one-third of the total number of directors of the Trustee company to be member-nominated. The arrangements for the nomination and selection must be proportionate, fair and transparent. The Articles of Association of the Trustee contain provisions for the appointment and removal of Trustee company directors and the board ordinarily comprises of six directors. Four of these individuals are appointed by Ceesail Limited, the Principal employer of the Scheme. The remaining two positions are filled by member nominated directors who are appointed in accordance with the nomination and selection procedures applicable under Section 242 of the Pensions Act 2004. A list of the directors is shown on page 2 of this report.
Trustee fees are shown in note 7 to the financial statements.
T he Trustee periodically reviews registers of risks and conflicts to ensure that appropriate internal controls are in place and remain effective and have appointed professional advisers to support them in delivering the Scheme objectives. These professionals are detailed on pages 2 and 3. The Trustee has also established a Benefits Sub-committee (‘BSC’) which comprises of a minimum of three individuals. Currently three directors of UTC Pension Trust Limited and the Secretary to the Trustee Directors are appointed to the BSC. The BSC has full delegated authority from the Trustee Board to exercise a number of powers and decisions without the need for further consultation with, or authorisation from, the Trustee Board. This includes, but is not limited to, the exercise of Trustee discretions regarding the distribution of death benefits and determining ill health retirements, and to oversee certain administrative matters relating to the Scheme. The Trustee has also established two additional sub-committees: the Goodrich Section Administration Transfer Sub-Committee (GSATSC), and the Guaranteed Minimum Pension (GMP) Working Party (GMP WP). These are both temporary sub-committees set up to oversee extra-ordinary exercises that are currently underway.
Membership
Changes in membership of the Scheme during the year were as follows:
Deferred Pensioners Pensioners
Dependants/ beneficiaries
Total
Membership as at 31 December 2022
3,775
4,229
760
8,764
Prior year adjustment
(3)
14
25
36
Adjusted membership as at 1 January 2023
3,772
4,243
785
8,800
Members retiring Death in deferment
(167)
167
- - -
-
(10) (15)
- -
(10) (15)
Members leaving with refund/transfer out
Trivial commutations
(5)
(2)
(2)
(9)
Pensioners who died in the year New spouse and dependent pensions Dependent pensions ceasing in the year
- - -
(125)
(44)
(169)
- -
70 (1)
70 (1)
Membership as at 31 December 2023
3,575
4,283
808
8,666
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Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
TRUSTEE’S REPORT
Prior year adjustments primarily refer to members who have leave dates in the previous accounting year who are processed after the year end. Typically, this is leavers in December.
The above include 6 (2022: 6) members for whom the Scheme is in receipt of annuity insurance payments.
Transfer values
Cash equivalents paid during the year with respect to transfers have been calculated and verified in the manner prescribed by the Pensions Schemes Act 1993 and do not include any allowance for discretionary benefits.
Pension increases
Increases to pensions in payment in the period are dependent upon the rules of their legacy pension arrangement and when the benefits were accrued and the minimum and maximum rates of increase for each section are set out in the table below. Deferred pensions are increased in accordance with statutory requirements. None of the increases were discretionary.
Minimum level of increase
Maximum level of increase
Average level of increase
Section
Claverham
0.0%
4.9%
4.3%
Goodrich
2.6%
13.4%
6.4%
Haskel
2.5%
4.9%
4.1%
HMD
0.0%
4.9%
2.7%
HSIC
2.5%
4.9%
4.9%
H S Marston [IMI]
0.0%
3.8%
3.3%
H S Marston [Facsimile]
0.0%
5.0%
4.3%
Kidde
0.0%
5.0%
3.8%
Linde
0.0%
4.9%
3.5%
Otis
0.0%
4.9%
2.3%
Page
0.0%
5.0%
3.3%
Sutrak
0.0%
4.9%
4.0%
Member pensions comprise a number of elements. The minimum and maximum levels of pension increases relate to elements of pensions, not necessarily the entire pension in payment.
Deferred pensions are increased in line with statutory requirements and/or the rules applicable to members depending upon the section of the Scheme to which they relate.
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Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
TRUSTEE’S REPORT
Financial development of the Scheme
The financial statements have been prepared and audited in compliance with regulations made under section 41 (1) and (6) of the Pensions Act 1995.
Significant developments affecting the financial position of the Scheme during the year include:
The overall value increased by £13.5m from £1,568.8m to £1,582.3m comprising;
Return on investments £86.3m.
o
o Reduction from dealing with members £72.8m.
Report on actuarial liabilities
As required by Financial Reporting Standard 102, ‘The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (FRS 102), the financial statements do not include liabilities in respect of promised retirement benefits. Under section 222 of the Pensions Act 2004, every scheme is subject to the Statutory Funding Objective, which is to have sufficient and appropriate assets to cover its technical provisions, which represent the present value of benefits to which members are entitled based on pensionable service to the valuation date. This is assessed at least every three years using assumptions agreed between the Trustee and the employers and set out in the Statement of Funding Principles, a copy of which is available to members on request.
The latest valuation as at 31 December 2021 was prepared on a market related basis and was signed on 31 January 2023.
A summary of the funding position, in accordance with the Statutory Funding Objective, at the valuation date, was as follows:
Value of assets available to meet technical provisions
£2,535m £2,288m
Value of technical provisions
Past service surplus
£247m
Funding ratio
111%
At 31 December 2023 the Scheme Actuary estimated that the funding position was as follows;
Value of assets available to meet technical provisions
£1,562m £1,459m
Value of technical provisions
Past service surplus
£103m
Funding ratio
107%
Within the actuarial valuation as at 31 December 2021, Asset Backed Funding arrangements were valued at £376.8m. This had reduced to £220.0m as at 31 December 2023 following an assessment of the probability of the Trigger-off mechanism being activated over the period to June 2036 (see also ‘ Investments ’ below). On a basis consistent with that adopted for the latest actuarial valuation, the current funding ratio would be 114%. The actuarial method used in the calculation of the technical provisions is the Projected Unit Method. The value of technical provisions is based on Pensionable Service to the valuation date and assumptions about various factors that will influence the Scheme in the future. The following significant actuarial assumptions have been used in the calculations: Discount interest rate: Determined by taking into account market indicators of the returns available at the date of the valuation and the long-term strategic allocation of assets agreed by the Trustee after taking professional advice.
The return on Government bonds will be taken as a suitable market index yield.
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Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
TRUSTEE’S REPORT
As a proportion of the Scheme’s funds are invested in assets such as equities which would be expected to outperform Government bonds over the long term, an allowance will be made for this in the discount rate. The allowance is determined by the Trustee based on information provided by its professional advisers. The initial discount rate is the Bank of England gilt curve plus decreasing margin of 1.55% pa decreasing linearly to 0.70% pa in 2036 and thereafter remaining at 0.70% pa. Future Retail Price inflation: By looking at the cost of investing in Government bonds with payments linked to inflation compared to the cost of investing in Government bonds not linked to inflation, it is possible to arrive at a figure for the average market view of future price inflation. This will then be compared to the latest Treasury targets for inflation in the UK, when deriving the assumption to use. A deduction may be made for the inflation risk premium implicit within Government bonds. Future Consumer Price Inflation: The Consumer Price Index (CPI) assumption will be based on the Retail Price Index (RPI) assumption less a deduction of 1.0% until 2030 to reflect the expected difference between RPI and CPI inflation over that period. Pension increases: Derived from the term dependent rates for future retail prices and consumer price inflation allowing for the caps and floors on pension increases according to the provisions in the Scheme’s rules. Mortality: The rates of mortality assumed will reflect the latest reports published by the Continuous Mortality Investigation Bureau most relevant to the membership of the Scheme, with allowance for expected future improvements in longevity. This assumption may be adjusted on the advice of the Scheme Actuary or in the light of evidence relating to the actual mortality experience of the Scheme, the industry in which the members work, or the distribution of pension payment amounts.
For the period pre and post retirement, standard tables S3PMA with a scaling factor of 95% for males and S3PFA with a scaling factor of 100% for females was used.
RTX Corporation and the participating employers are required to pay or procure the payment of contributions to the Scheme, or to make such other payments as are from time to time required, by the most recent Schedule of Contributions and Payments Deed as amended from time to time. As shown above the actuarial valuation at 31 December 2021 revealed a funding surplus of £247m. Consequently, no deficit reducing contributions were payable for the year to 31 December 2023 and none are currently payable. Under the Payments Deed 2023 which became effective from 30 August 2023, unless the Scheme funding level at 31 August (as estimated by the Scheme Actuary) is equal to or more than 110%, the Employers are required to pay contributions towards the Scheme expenses. In the year to 31 December 2023 this resulted in no contribution being receivable because the funding level was greater than 110%. Employer contributions are also required under the Payments Deed 2023 to cover the cost of the risk and scheme-based Pension Protection Fund Levy (‘PPF Levy’) payments where the Scheme funding level at 31 August (as estimated by the Scheme Actuary) is below 110%. Where the funding level is equal to or more than 110%, the Employers are required to pay contributions equal to the excess over £600,000 of the cost of the PPF Levy. In the year ended 31 December 2023 no contributions were payable because the funding level was greater than 110% and the PPF Levy costs were below £600,000.
Contributions in respect of benefit augmentations requested by an employer and approved by the Trustee remain payable. No such contributions were requested in 2023.
The next actuarial valuation is due as at 31 December 2024.
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Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
TRUSTEE’S REPORT
Equalisation of Guaranteed Minimum Pension (GMP) liabilities
In October 2018, the High Court determined that benefits provided to members who had contracted out of the state second pension must be recalculated to reflect the equalisation of state pension ages between May 1990 and April 1997 between men and women. In November 2020, a further ruling by the High Court determined that transfers out of a scheme in respect of members who had contracted out of the state second pension must also be recalculated to reflect the equalisation of state pension ages between May 1990 and April 1997 between men and women. The Trustee is continuing to review, with its advisers, the implications of this ruling on the Scheme. As soon as this review is finalised and any liability quantified, a communication will be issued to affected members.
Investments
The Trustee has produced a Statement of Investment Principles dated 22 August 2023 (which replaced the previous version dated 27 September 2021) as required by Section 35 of the Pensions Act 1995 and a copy is appended to this annual report and financial statements. All Scheme investments are held within The UTC Common Investment Fund (‘ CIF ’) except for Asset Backed Funding arrangements and Insurance policies relating to Sutrak section members as detailed below and Additional Voluntary Contributions (‘ AVCs ’) . The day to day management and the safe custody of the Scheme's investments has been delegated by the Trustee to UTC Pension Trust Limited, the Administrator of the CIF (‘the CIF Administrator’) as shown on page 3 of this report. The CIF Administrator oversees the CIF on behalf of participating pension plans of RTX Corporation in the United Kingdom. The Statement of Investment Principles agreed by the Trustee of the Scheme determines the parameters within which the Administrator of the CIF must act in respect of the Scheme. Having regard to the Scheme’s Statement of Investment Principles, the CIF Administrator prepared a n Investment Implementation Policy. A copy of the latest Investment Implementation Policy agreed by the CIF Administrator is dated 2 February 2024 and a copy is available on request. In the event that more than one pension scheme participates from time to time in the CIF, the Trustee holds separately identifiable assets within the CIF rather than a single holding representing the total value of the combined asset classes. This gives the Scheme flexibility in the selection of asset classes.
The CIF report and financial statements for the year ended 31 December 2023 are appended to this annual report and financial statements.
Throughout 2023 and as at 31 December 2023 the Scheme was the only current participating pension scheme within the CIF.
The Scheme’s investment strategy is set out in the CIF report and financial statements.
The investment managers are remunerated through unit pricing or on an invoice basis, based on the value of investments under their management. Where unit pricing results in charges that are greater than amounts agreed between the Scheme and the manager, rebates are received as cash or additional unit holdings. Investment manager fees are reviewed on a periodic basis by the CIF Administrator.
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Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
TRUSTEE’S REPORT
In June 2016, the Scheme entered into Asset Backed Funding (ABF) arrangements which involved the investment, through two Special Purpose Vehicles (SPV), in two unsecured, interest-bearing loan notes with an aggregate value of £320m. The ABF/SPV arrangements are held directly by the Scheme and are, therefore, not held or managed within the CIF and are not included in the benchmark asset allocations. The ABF/SPV arran gements have in place a ‘Trigger - off mechanism’ which switches off cash flows to the Scheme in certain circumstances. The Trigger-off mechanism is activated when the funding level of the Scheme is equal to or exceeds 95% (including the value of the ABF/SPV) on an actuarial buy-out basis. The valuation of the ABF/SPV arrangements recognises the expected economic benefit the Scheme derives from the related cash flows. The cash flows largely reflect the profile of payments associated with the loan notes, namely the annual coupon/interest under the loan notes and the bullet (re)payment of £320m at the end of the arrangements in June 2036. The valuation of the ABF/SPV arrangements is dependent upon the probability of the Trigger-off mechanism being activated over the period to June 2036. The fair value of the arrangements as at 31 December 2023 amounted to £220.0m.
The Scheme’s former defined contribution investments in respect of the Sutrak section are held and managed by Phoenix Life Limited outside the CIF.
AVC arrangements are also managed by the providers shown on page 3 of this report outside the CIF.
The Trustee has considered the nature, disposition, marketability, security and valuation of the Scheme’s investments and considers them to be appropriate relative to the reasons for holding each class of investments. Further details of investments are set out in the notes to the financial statements.
Significant movements of assets between managers and strategies during the year were as follows;
In the first quarter of 2023 disinvestments with an aggregate value of £76m were effected from Legal & General Pooled Equity Funds (£21.0m), Ruffer Absolute Return Fund (£50.0m), and First Eagle Amundi Fund (£5.0m). £72.2m of these monies were required to meet calls on the Aviva Secure Income Fund with the balance being retained for regular cashflow purposes. The remaining balance of the First Eagle Amundi Fund (£27.4m) was surrendered in August 2023 with 50% of the proceeds (£13.7m) being re-invested in Legal & General Pooled Equity Funds and the remaining 50% (£13.7m) being re-invested in Ruffer Absolute Return Fund.
Amounts totalling £36.8m were transferred from BlackRock Diversified Growth Fund to BlackRock Secure Income Fund in satisfaction of calls during the year.
£28.8m surrender proceeds were received from M&G Property Fund following a decision to withdraw from this investment. A further and final 20% of the value of this investment (amounting to approximately £7.1m) remains to be settled in 2024 under the terms applicable to surrenders. Regular, quarterly distributions from investment managers amounted to £33.9m from Legal & General Secure Income Fund (£5.0m), Aviva Secure Income Fund (£2.4m), BlackRock Secure Income Fund (£2.3m), M&G Property Fund (£1.5m), and Insight (£22.7m). These monies were required and retained for cashflow purposes.
The Scheme's investments are made in accordance with the Occupational Pension Schemes (Investment) Regulations 2005.
Custodians
The CIF Administrator is responsible for appointing and replacing custodians. Bank of New York Mellon has been the overall custodian since November 2009.
The Trustee is satisfied that the CIF has controls in place to ensure that the investment management and the custody are adequately controlled.
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Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
TRUSTEE’S REPORT
Investment performance
The returns for the Scheme assets held within the CIF have been as follows:
Year to 31 December 2023 – 5.05% increase. 3 years to 31 December 2023 (annualised) – 10.21% decrease. 5 years to 31 December 2023 (annualised) – 1.97% decrease.
The Asset Backed Funding arrangements increased in value by 3.48% from £212.6m to £220.0m during the year.
Market volatility
As noted in this report, the Scheme’s investment strategy includes the use of liability driven investment (LDI) and segregated investment in bonds that seeks to provide a broad match to changes in the Scheme’s liability values in order to help protect the Scheme’s overall funding position. These LDI and bond investments respond in a similar way to the Scheme’s liabilities, when government bond yields and expected inflation change.
There are currently no concerns regarding the Scheme funding level, its ability to meet the payment of benefits to members, or its ability to continue as a going concern.
The Trustee continues to monitor the situation and is well placed to take any further action as required.
Employer related investments
At 31 December 2023, less than 0.01% (2022; 0.01%) of the assets were indirectly invested in RTX, the ultimate parent of the principal employer of the Scheme through pooled investment vehicles with BlackRock (2022; BlackRock and Legal & General).
Environmental, Social and Governance considerations
The Trustee recognises that Environmental, Social and Governance (‘ESG’) issues can and will have a material impact on the companies, governments and other organisations that issue or otherwise support the assets in which the Scheme invests. In turn, ESG issues can be expected to have a material financial impact on the returns provided by those assets. The Trustee delegates responsibility for day-to-day decisions on the selection of investments to its investment managers. The Trustee has an expectation that the investment managers will consider ESG issues in selecting securities and other investments or will otherwise engage with the issuers of the Scheme’s underlying hold ings on such matters in a way that is expected to improve the long-term return on the associated assets.
In choosing investment managers, the Trustee and its advisers take the following factors into account in the selection, retention and realisation of investments:
Selection of investments: assessment of the investment managers' ESG integration credentials and capabilities, including stewardship.
Retention of investments: developing a process to monitor ESG considerations on an ongoing basis by regularly seeking information on the responsible investing policies and practices of the investment managers.
Realisation of investments: requesting information from investment managers about how ESG considerations are taken into account in decisions to realise investments.
The Trustee also takes these factors into account as part of its investment process to determine a benchmark asset allocation and considers them as part of ongoing reviews of the Scheme’s investments.
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Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
TRUSTEE’S REPORT
The Trustee does not currently impose any specific restrictions on the investment managers with regard to ESG issues but will review this position from time to time. The Trustee receives information from the investment managers on their approach to selecting investments and engaging with issuers with reference to ESG issues. With regard to the specific risk to the performance of the Scheme’s investments associated with the impact of climate change, the Trustee takes the view that this falls within its general approach to ESG issues. The Trustee will continue to monitor market developments in this area in conjunction with its investment adviser. The Taskforce on Climate-R elated Financial Disclosures (‘TCFD’) have introduced disclosures which are now reflected in legislation applying to UK pension schemes and the Scheme has prepared a report outlining its approach to TCFD. This report is available on the Trustee website which can be found at https://online.flippingbook.com/view/667561390/
Implementation Statement
In conjunction with the Scheme ’s investment adviser the Trustee has prepared an Implementation Statement covering, amongst other matters, the voting and engagement policies and the actions of investment fund managers used by the Scheme. A copy of this Implementation Statement is provided at Appendix II to the Annual Report and forms an integral part hereof.
Statement of t rustee’s responsibilities
The t rustee’s responsibilities in respect of the financial statements
The financial statements, which are prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including the Financial Reporting Standard applicable in the UK and Republic of Ireland (“FRS 102”), are the responsibility of the trustee. P ension scheme regulations require, and the trustee is responsible for ensuring, that those financial statements: show a true and fair view of the financial transactions of the scheme during the scheme year and of the amount and disposition at the end of the scheme year of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the scheme year; and contain the information specified in Regulation 3A of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, including making a statement whether the financial statements have been prepared in accordance with the relevant financial reporting framework applicable to occupational pension schemes. In discharging these responsibilities, the trustee is responsible for selecting suitable accounting policies, to be applied consistently, making any estimates and judgements on a prudent and reasonable basis, and for ensuring that the financial statements are prepared on a going concern basis unless it is inappropriate to presume that the scheme will continue as a going concern.
The trustee is also responsible for making available certain other information about the scheme in the form of an annual report.
The trustee has a general responsibility for ensuring that accounting records are kept and for taking such steps as are reasonably open to it to safeguard the assets of the scheme and to prevent and detect fraud and other irregularities, including the maintenance of an appropriate system of internal control. The trustee is also responsible for the maintenance and integrity of the FlippingBook website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
TRUSTEE’S REPORT
The t rustee’s responsibilities in respect of contributions
The trustee is responsible under pensions legislation for preparing, and from time to time reviewing and if necessary revising, a schedule of contributions showing the rates of contributions payable to the scheme by or on behalf of employers and the active members of the scheme and the dates on or before which such contributions are to be paid. The trustee is also responsible for keeping records in respect of contributions received in respect of any active member of the scheme and for adopting risk-based processes to monitor whether contributions that fall due to be paid are paid into the scheme in accordance with the schedule of contributions.
Where breaches of the schedule occur, the trustee is required by the Pensions Acts 1995 and 2004 to consider making reports to the Pensions Regulator and to members.
Member information
Member information, including contact details, is set out on pages 47 and 48.
Approval
The Trustee’s report on pages 4 to 13 was approved by the Trustee board and signed on behalf of the board:
.................................................................................. Trustee Director
7/25/2024
Date:
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Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
STATEMENT REGARDING DC GOVERNANCE
The Occupational Pension Schemes (Scheme Administration) Regulations 1996 (the “Administration Regulations”) require the Trustee to include an annual statement regarding governance of money purchase benefits in the annual report.
Money Purchase Benefits
During the Scheme year, the Scheme has contained the following money purchase benefits:
Benefits transferred into the Goodrich (UK) Pension Scheme (“Goodrich”) by members of Goodrich on a money purchase basis and held in “transfer accounts” for each member, and subsequently transferred into the UTC (UK) Pension Scheme (“the Scheme”) as part of the bulk transfer of assets and liabilities from Goodrich to the Scheme on 1 June 2016 (“TACC Benefits”). In addition, the Scheme provides a number of benefits to members which are subject to an underpin. There is a possibility that these underpin benefits could, in the appropriate circumstances and at certain times, be money purchase benefits. These benefits may be summarised as follows: Some TACC Benefits are subject to a Guaranteed Minimum Pension (GMP) underpin, so that the minimum benefit which must be provided from the TACC Benefits is the member’s GMP. If the value of the TACC Benefits for an individual member is greater than the GMP, this benefit will be money purchase in nature. In these circumstances, the benefits will be treated in the same way as other TACC Benefits, and the comments below about TACC Benefits will apply equally to these benefits. The Trustee has been informed that, during the Scheme year, none of the underpinned TACC Benefits were money purchase in nature. The Scheme also has a number of AVC policies with six providers. The vast majority of the assets are held with three providers. As the TACC benefits are determined to have been money purchase in nature during the Scheme year these AVC policies are subject to extra reporting which we have included in this Statement. We have taken a proportionate approach and reported on those AVC providers that hold the vast majority of assets.
TACC Benefits
As noted above, TACC Benefits are any benefits which were transferred into Goodrich on a money purchase basis and subsequently transferred to the Scheme on a money purchase basis on 1 June 2016.
TACC Benefits are invested in the Scottish Widows AVC policy applicable to the Goodrich Section of the Scheme. Members with TACC Benefits are able to choose from the same range of investments that apply to those who have made AVCs to Goodrich or to the Goodrich Section of the Scheme. This means that they may invest in the Lifestyle Investment Option or may self-select their funds from the range available under the policy. There is no default arrangement applying to TACC Benefits for the purposes of the Administration Regulations. As there is no default arrangement, the requirement for a Statement of Investment Principles (SIP) prepared in accordance with regulation 2A of the Occupational Pension Scheme (Investment) Regulations 2005 does not apply. The Scheme is not being used as a qualifying scheme for automatic enrolment purposes.
However, as the majority of members of the AVC policy invest using the Lifestyle Investment Option, further details of this option are provided below.
Under the Lifestyle Investment Option, prior to ten years before the member’s selected retirement date, a member’s fund is invested as follows:
75% in the SW Aquila 50/50 Global Equity Index CS1 Fund; and 25% in the SW Mercer Diversified Growth CS1 Fund.
14
Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
STATEMENT REGARDING DC GOVERNANCE
The SW Aquila 50/50 Global Equity Index CS1 Fund invests primarily in equities, both in the UK and overseas markets. The fund has approximately 50% invested in UK company shares. The remaining 50% is split equally between investments in US, Europe (excluding the UK) and Far East companies. The fund aims to provide returns consistent with the markets in which it invests and provides broad exposure to countries around the world. The SW Mercer Diversified Growth Fund is a mixed asset fund, the objective of which is to outperform cash by 3.5% over the long-term. This fund invests in assets which tend to produce higher levels of return but with higher risk.
Ten years from the selected retirement date a member’s fund is progressively switched into the SW BlackRock Sterling Liquidity CSW Fund in accordance with the following table:
Prior to Selected Retirement Age
SW Aquila 50/50 Global Equity Index CS1
SW Mercer Diversified Growth Fund CS1
SW BlackRock Sterling Liquidity CSW
%
%
%
More than 10 years
75 75 65 55 45 35 25 15
25 25 35 45 55 55 50 45 40 30 15
0 0 0 0 0
10 years 9 years 8 years 7 years 6 years 5 years 4 years 3 years 2 years 1 year
10 25 40 55 70 85
5 0 0 0
Less than 1 year
0
100
The SW BlackRock Sterling Liquidity CSW Fund is a money market fund, which aims to achieve an investment return in line with the Bank of England Sterling Overnight Index Average.
By investing in this manner, the Trustee expects to deliver growth over the member’s lifetime within the Scheme without excessive risk taking, and with an increased focus over the final ten years of reducing volatility to enable members approaching retirement to make financial plans for the period after retirement. The Trustee considers this approach to be in the best interests of relevant members and beneficiaries.
Processing scheme transactions
The Trustee has a specific duty to ensure that core financial transactions (including the transfer of member assets into and out of the Scheme, transfers between different investments within the Scheme and payments to and in respect of members) relating to money purchase benefits are processed promptly and accurately.
TACC Benefits
Transactions in respect of TACC Benefits are undertaken on the Trustee’s behalf by the administrator of the Goodrich Section of the Scheme, Mercer, and its investment manager Scottish Widows. The Trustee has reviewed the processes and controls implemented by those organisations and considers them to be suitably designed to achieve these objectives. The Trustee has also agreed service levels with Mercer & Scottish Widows, both in terms of timeliness and accuracy, and reporting of performance against those service levels. In addition, Mercer provides additional oversight of the services provided by Scottish Widows through monthly meetings and an annual review of their capabilities.
15
Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
STATEMENT REGARDING DC GOVERNANCE
The service level agreement (SLA) in place with the administrators covers the processing of contributions, investment of contributions, payments into and out of the Scheme and responses to general member enquiries. During the Scheme year, core financial transactions encompassed:
investment switches – SLA of 3 Business Days; and payments out of the Scheme (i.e. transfer-out or retirement payment) - SLA of 5 Business Days.
A summary of Mercer & Scottish Widows’ performance against SLAs is summ arised in the table below:
Core Financial Transaction
Monthly SLA Performance
Jan 23
Feb 23
Mar 23
Apr 23
May 23
Jun 23
Jul 23
Aug 23
Sep 23
Oct 23
Nov 23
Dec 23
Investment Switches Payments Out
-
-
-
-
-
-
-
-
-
-
-
-
100%
-
- 100% 75% 100% 100% 100% 67% 100% 100% 100%
The administrator provides quarterly reports to detail the service performance in each of these areas, relative to the SLAs in place. The Trustee monitors compliance with these service levels as well as any complaints raised by members or issues identified in terms of the accuracy of core financial transactions during dedicated Benefit Sub-Committee meetings, as well as regular Trustee meetings.
AVCs
The vast majority of transactions relating to the Scheme’s AVCs are undertaken on the Trustee’s behalf by Scottish Widows. The Trustee has agreed service levels with Scottish Widows, both in terms of timeliness and accuracy against those service levels, covering the processing of contributions, investment of contributions, payments into and out of the Scheme and responses to general member enquiries. Scottish Widows (via Mercer) provide quarterly reports to detail the service performance in each of these areas, relative to the service level agreements in place. The Trustee monitors compliance with the service levels alongside that of TACC benefits at regular Benefit Sub-Committee and Trustee meetings. In relation to AVCs held with Legal & General, the Trustee has delegated administrative oversight to Buck who report back to the Trustee on its performance against SLAs part of its quarterly reporting to both the Benefits Sub-Committee and regular Trustee meetings. There are no formal SLAs in place with the Scheme’s other AVC providers, however the Scheme’s administrators report back to the Trustee with any specific issues relating to the administration of the separate AVC policies.
Issues occurring during the year
Concerns over Mercer’s administrative performance were raised prior to and throughout the Scheme Year and, in some cases, have been ongoing for some time. A large number of complaints had been received both in relation to the timeliness and accuracy of the administration service provided and so the Trustee has reviewed the complaints lodged on a case-by-case basis to ensure these are resolved in good time. Despite an improvement in Mercer’s performance, the Trustee has decided to transfer the administration of the Scheme’s TACC benefits and AVCs invested with Scottish Widows to Buck, the Scheme’s other incumbent administrator. The Trustee has worked with its advisers, Mercer and Buck to facilitate the transfer of the Scheme’s administration with effect from June 2024.
16
Docusign Envelope ID: 7C50003C-051D-4E0C-907A-F452AD5C4EA2
UNITED TECHNOLOGIES CORPORATION (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2023
STATEMENT REGARDING DC GOVERNANCE
Assessment
Overall, the Trustee believes that the measures described above enable it to effectively monitor the promptness and accuracy of the core financial transactions of the Scheme’s TACC benefits and AVCs. Taking the above issues into consideration, the Trustee is confident that all other core financial transactions over the Scheme year have been processed promptly and correctly, and that the Administration Regulations have been met.
Charges and transaction costs
The Administration Regulations require the Trustee to make an assessment of charges and transaction costs borne by members in respect of money purchase benefits and the extent to which those charges and costs represent good value for money for members.
TACC Benefits
The Trustee makes available a range of seven investment funds which may be chosen by members as an alternative to the Lifestyle Investment Option. These funds allow members to take a more tailored approach to managing their own pension investments. Three of these funds (see ‘TACC Benefits’ Section above) comprise the Lifestyle Investment Option. These funds attract annual investment management charges as shown in the table below.
Investment Fund
Expense ratio
Transaction Costs Incurred During Scheme Year
Average Transaction Costs*
SW Mercer Diversified Growth CS1 SW Threadneedle Pension Property CS1 SW BlackRock 50/50 Global Equity Index CS1 SW BlackRock World ex UK Equity Index CS1
0.480%
0.183%
0.214%
0.880%
-0.202%
0.108%
0.243%
0.026%
0.014%
0.235%
0.010%
-0.001%
SW BlackRock Sterling Liquidity CSW
0.250%
0.015%
0.014%
SW BlackRock Over 15 Years UK Gilt Index CSW SW BlackRock UK Equity Index CSW
0.244%
0.029%
-0.010%
0.243%
0.081%
0.028%
* Covering a five-year period as per statutory guidance. In certain circumstances the methodology used for calculating transaction costs (known as slippage) can lead to negative costs being reported. This can be, for example, where other market activity pushes the price of the asset being traded down, whilst the transaction was in progress, resulting in the asset being purchased for a lower price than when the trade was initiated.
Illustrative examples of the cumulative effect over time of the application of charges, based on the assumptions detailed therein, are provided under the heading ‘Demonstrating the impact of costs and charges’ below.
Other AVC policies
There are five other AVC providers in addition to Scottish Widows mentioned above. The two other main providers are Legal & General and Standard Life. These providers cover the vast majority of members and assets. The three other AVC providers, Prudential, Phoenix Life and Aviva, were unable to provide the necessary information on member-borne cost and charges and subsequently we only report on those provided by Legal & General and Standard Life in this section The Trustee will work with Prudential, Phoenix Life and Aviva with a view to disclosing this information in the 2024 Scheme Year DC Governance Statement.
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