Investment performance The returns versus their respective benchmarks for the Scheme’s assets held within the CIF over the one, three and five-year periods to 31 December 2022 have been as follows: 1 year (%) 3 years (% p.a.) 5 years (% p.a.) Scheme return (35.36) (8.66) (3.90) Benchmark (34.54) (8.45) (3.42) Note that any figures shown in brackets are negative amounts. In addition, the above performance data only relates to assets held under the CIF.
Market turbulence in 2022 In last year’s newsletter, we talked about the impact of the mini budget on defined benefit pension schemes that invest in gilts (government bonds). Many schemes use gilts as part of an investment strategy called liability driven investment (LDI) that seeks to track the changes in a scheme’s liabilities to help protect the overall funding position. Furthermore, some schemes hedge their LDI assets, which enables more risk to be covered with a lower amount invested. These LDI hedges require schemes to provide collateral to counterparties as security. When the value of gilts fell, they caused the value of the LDI portfolio – but also the liabilities it is held to match – to fall. Where schemes had hedged these liabilities, they were required to provide cash to maintain these positions, and some trustees had to sell other assets in order to cover these ‘collateral calls’. After the crisis hit last year, the Pensions Regulator issued new guidance to schemes on using leveraged LDI, with a requirement to maintain a certain level of liquidity to meet collateral calls when rates change. The Investment Sub-Committee and the Scheme’s investment consultants are pleased to say that the Scheme is already substantially compliant with the guidance, so no further actions were considered necessary in order to protect the Scheme.
The Trustee continues to monitor the Scheme’s investments and market developments and will take any further actions which may be required to ensure the integrity of the Scheme. It is important to remember that, as a member of a defined benefit (DB) pension scheme, market values do not affect the value of your benefits, and it is the Trustee’s responsibility to ensure that all benefits due to Scheme members are paid in full. Investment split The investment strategy includes allocating some of the Scheme’s assets to investments which aim for long-term growth. They make up the growth portfolio. The rest of the Scheme’s assets are allocated to investments which aim to protect the Scheme from changes in interest rates and inflation. These include secure income assets (bonds) and liability driven investments (LDI), which make up the protection portfolio. A copy of the Scheme’s Statement of Investment Principles (SIP) that was in place at the Scheme’s year-end of 31 December 2022 can be found online here: https://online.flippingbook.com/ view/359640/4/ The Trustee has recently reviewed the allocation of assets across these portfolios and has updated the Scheme’s SIP, as at August 2023, to reflect the outcome of their review and the de-risking strategy mentioned earlier on in this newsletter. A copy of the revised SIP can be found online here: https://online.flippingbook. com/view/754805965/
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