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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