CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020
NOTES TO THE FINANCIAL STATEMENTS
17 Investment risks
Types of risk relating to investments
FRS 102 requires the disclosure of information in relation to certain investment risks.
Credit risk : this is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.
Market risk : this comprises currency risk, interest rate risk and other price risk.
Currency risk : this is the risk that the fair value or future cash flows of a financial asset will fluctuate because of changes in foreign exchange rates. Interest rate risk : this is the risk that the fair value or future cash flows of a financial asset will fluctuate because of changes in market interest rates. Other price risk : this is the risk that the fair value or future cash flows of a financial asset will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The Trustee determines the investment strategy. The Scheme has exposure to these risks because of the investments it makes in following the investment strategy set out below. The Trustee manages investment risk, including credit risk and market risk, within agreed risk limits which are set taking into account the strategic investment objectives. These investment objectives and risk limits are implemented through the investment management agreements in place with the Scheme’s investment managers and monitored by the Trustee by regular reviews of the investment portfolio.
Further information on the Trustee’s approach to risk management, credit and market risk is set out below. This does not include AVC investments as these are not significant to the overall Scheme investments.
Investment strategy
The Trustee has stated the following objectives for the investment of the assets held in the Scheme:
To provide the Scheme with two broad headings, growth assets and protection assets, that allows the Scheme the ability to construct a portfolio which is appropriate and suitable to the specific circumstances. Protection assets are held to move broadly in line with the long term liabilities of the Scheme. Growth assets are return seeking investments principally comprising UK and overseas equities. To diversify investments among the two strategies so that the assets are not unnecessarily exposed to concentration risk. To contain Scheme costs to the lowest reasonable level. To undertake Scheme transactions for the sole benefit of Scheme beneficiaries and for the exclusive purpose of providing pension benefits. To achieve reasonable long-term performance on the assets held in the Scheme.
The Statement of Investment Principles sets out the principles underlying the investment arrangements. The table below sets out the Scheme strategy as at 31 December 2020.
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