Scheme investments
The role of the trusteesThe trustees of the schemes have the ultimate responsibility for ensuring that the money in the schemes is invested appropriately. Their main concern is that investments made today will be sufficient to pay benefits both now and in the future in other words, that there will be enough money to pay our pensions!
In addition, the trustees are responsible for making available to scheme members, beneficiaries and certain other parties, audited accounts for each scheme year. Currently, the scheme year runs to 31 March each year. A copy of the latest set of accounts for your scheme is available for you to view.
Do the trustees personally invest the schemes’ money?
No. The trustees appoint skilled and experienced advisers to help them in reaching investment decisions. They also appoint investment managers who make day-to-day investment choices.
As an example, one investment manager might be appointed to manage a portfolio of overseas equities (these are shares in overseas companies). The trustees establish a mandate (this is a legal instruction) that controls how that manager can operate, and then allocate a part of the schemes’ funds to that manager. Within the limits of his mandate the manager is free to use the skills of his investment management team to make investment selections. Thus, he will buy specific company shares that he believes will perform well and generate the investment returns needed.
The trustees have appointed Watson Wyatt to work with the investment committee (see below) to advise them when they make investment decisions. This is a key role and Watson Wyatt is recognised as being perhaps the best-resourced UK investment consulting firm. Nevertheless, the trustees recognise that they are ultimately responsible for making appropriate investment decisions.
How are the assets of the schemes safeguarded?
The trustees have appointed the Northern Trust as the custodian of the schemes’ assets. Northern Trust is a US-based custodian bank with a global reach. Including our own schemes’ assets of about £1.6 billion, Northern Trust has assets under custody of about $4 trillion (about £1,985 billion).
Northern Trust keeps possession of the assets, under trust law, on behalf of the schemes’ trustees. They also ensure that the investment decisions taken by the investment managers are enacted and provide reporting tools to enable the trustees and their administrators to collate information concerning asset transactions and values.
How are the investments managed?
Investment committee
How is the investment performance monitored and controlled?
The investment committee help the trustees to monitor investment performance.
The committee meet with selected investment managers every quarter and review the investment reports provided by all the managers. This provides an opportunity to question the managers on their investment choices and processes.
The trustees have appointed the WM Company, a specialist performance measurement company, to produce regular reports on the performance of the schemes assets and investment managers compared with pre-agreed measurement points called ‘benchmarks’. Often, the benchmark is simply a single, generally available index. For example, a portfolio of UK equities (shares held in UK companies) might be measured against the FTSE All-share Index as published by the Financial Times. WM also produce figures to show how our schemes are doing compared with the ‘average’ pension scheme as measured by the WM All Funds Universe. This helps the committee and the trustees to assess how well the schemes and investment managers individually are performing.
From time to time, the committee also receives presentations from external advisers and WM.
The trustees take account of the recommendations of the committee and their advisers when reaching decisions; for example on the choice of investment managers, the appropriate ‘benchmark’ to be used, or the appropriate weighting to be allocated to asset classes.