Chat with us, powered by LiveChat


(the "Plan")


1.    Introduction

Under legislation set out in Regulation 23 of The Occupational Pension Schemes (Scheme Administration) Regulations 1996, as amended by The Occupational Pension Schemes (Charges and Governance) Regulations 2015 (together the 'Administration Regulations'), the Trustee of the Plan (the 'Trustee') is required to prepare this annual Statement on governance. Under this legislation, the Chair of Trustees must provide an annual statement which explains what action the trustee board has undertaken to meet the new governance rules. I have provided the information required by law in this statement.

2. The Plan

The Trustee of the Plan is Closomat (Great Britain) Limited, a company incorporated in England and Wales under number 00722832. Its registered address is Building 1, Brooklands Place, Brooklands Road, Sale, Cheshire, England, M33 3SD and is referred to as “the Company”.

The Plan is an Executive Pension Plan, invested in unitised with-profits funds and the mixed fund provided by Prudential. It is no longer open to new members, and all contributions, by both members and sponsoring employers, stopped on 31 March 2007. This means that the Plan is “paid up”.

The Plan is “trust-based”, which means that it was set up under, and is governed by, a trust deed and rules. The assets of the Plan are held entirely by custodians appointed by Prudential Assurance Company Limited and the employers have no access to them. This also means that, should the Plan wind up, or any of the participating employers going out of business, the Plan’s assets are separate from the employers’ assets and completely safe. “With-profits” means that the contributions that were formerly paid by the members and the employers paid on their behalf, are pooled together with money from other pension funds that are invested in the same way, and invested in the Prudential’s with-profits fund. The contributions paid by you and on your behalf, and the profits generated from them, are used to buy units in Prudential’s with-profits fund.

The benefits provided by the Plan are what is known as defined contribution (“DC”). This means that the benefits provided are based wholly on the value of each individual member’s fund within the Plan and there is no cross-subsidy between members. The fund is managed by a professional investment manager appointed by Prudential, who puts the fund’s money into different types of investments, such as shares, property, bonds and cash. The Prudential’s in-house asset-allocation experts in the UK is currently M&G Treasury & Investment Office. They select a wide range of assets to hold in the With-Profits Fund, in line with the Fund's objective. Neither the Trustee nor the sponsoring employers has any influence over the way that the funds are invested by M&G Treasury and Investment Office. The costs of running the Prudential’s with-profits fund are deducted from the fund. What is left over (the profit) is available to be paid to the with-profits investors. The profits generated are paid in the form of annual bonuses added to your fund. There is no guarantee as to what level of profit will be paid in any year. The annual bonus rate that has been paid for the period between 1 March 2017 and 28 February 2020 is, and going forwards will be, 1.5%.

The Prudential usually tries to avoid big changes in the size of the annual bonuses from one year to the next. It does this by holding back some of the profits from good years to boost the profits in bad years, which is known as “smoothing”. There is also the possibility that a final bonus might be paid, although final bonus rates have been dropping for some years now and there is no guarantee that a final bonus will be paid will be paid.

3. Is there a default arrangement?

The Scheme is not a qualifying arrangement for auto-enrolment compliance purposes and, as such, there is no legislative requirement to have a default arrangement in place. Because the Plan is invested wholly in with-profits, there is no need for the Trustee to have a Statement of Investment Principles.

4. Requirements for processing financial transactions

As required by the Administration Regulations, the Trustees must ensure that core financial transactions are processed promptly and accurately. “Core financial transactions” for the Plan are:
• transfer of members’ assets to and from the Plan, and
• payments out of the Plan to members and other beneficiaries, such as widows and widowers.

As part of its services, Prudential looks after these administration services. Because it is an integral part of the Plan, the Trustee does not have a bespoke service level agreement in place. The Trustee’s adviser, Chartwell Wealth Management (“Chartwell”) monitors the core financial transactions on behalf of the Trustee. There have been no financial transactions over the period covered by this Chair’s statement.

5. Charges and transactions costs

As required by the Administration Regulations, the Trustee is required to report on the charges and transactions costs which are paid by members. The Trustee also needs to assess whether the charges and costs represented good value for members. I have had regard to statutory guidance in preparing this section of the statement
Costs and charges levied on your fund by Prudential comprise of:
• Market Value Reduction: Once added, annual bonuses normally cannot be taken away. However, if you take money out of the Prudential With-Profits Fund, Prudential might adjust the value of your fund if the value of the underlying assets is less than the value of your fund including all bonuses. This adjustment is known as a Market Value Reduction. It is designed to protect investors who are not taking their money out. Its application means that you get a return based on the earnings of the With-Profits Fund over the period your payments have been invested.

MVR is not taken on death or when members reach their normal retirement date. It may apply if eg you decide to transfer your money to another insurance company.
• Charges and costs: An Annual Management Charge (“AMC”) is taken by cancelling units in the Plan. The current rate of AMC is 1.14 % a year.
• Cost of guarantees and smoothing: If the eventual cost of these is more than expected, it might affect bonus rates on all plans and, in extreme circumstances, also the mix of assets in Prudential’s Fund.
• Transfers to Prudential’s shareholders: Payments are made to Prudential shareholders, who are entitled to 10% of any profit, with the remaining 90% going to plan holders through the bonuses allocated. This is taken into account when Prudential set its bonuses
• Tax: Currently, tax is not payable in the UK by our Fund on assets backing pensions business.
• Other business risks: Other risks that might affect the value of your Plan include operational risks, such as changes in regulatory requirements or taxation and profits and losses from plans in the With-Profits Fund which don’t get bonuses, such as conventional annuities.

Except for the AMC, your fund does not bear any charges directly. The other potential costs and charges set out determine the size of the bonuses applied to your fund, which cannot be taken away, except where MVR applies. The Company currently meets all advisory costs associated with operating the Scheme together with any additional bespoke member communications commissioned.

In accordance with the Pensions Regulator's DC Code of Practice number 13 (paragraphs 18-41) and with the relevant legislation, the Trustee concluded that the Plan's overall benefits and services represented value for money in comparison to the cost payable by members. The main reason for this is the fact that (as explained above in “Market Value Reduction”) early disinvestment from the with-profits fund can give rise to loss of bonuses and the Trustee considers that it would not be possible to invest in such a way as to make up any losses and ensure future growth within reasonable timeframes.

6. The effect of costs and charges

In accordance with the Administration Regulations, the Trustee has prepared a sample illustration, detailing the impact of the costs and charges typically paid by a Scheme member, on their retirement savings pot. The Trustee has had regard to statutory guidance provided by the DWP when preparing the illustration. It is important to understand how much or how little difference charges make to your pension pot. However, it is impossible to predict exactly what will happen in the future, so some assumptions have been made. The values shown are estimates and are not guaranteed. They should not be used to make future investment decisions.
These assumptions are:

  1. A pension pot of £1,000, invested entirely in the with-profits fund. It assumes there are no on-going contributions into the pension pot.
  2. The with profits fund grows at a rate of 1.5% per annum. The rate of bonus can vary from year and can go down as well as up. It has been 1.5% per annum for several years and is not expected to change in the near future.
  3. AMCs of 1.14% per annum are applied.
  4. Inflation is at the rate of 2.5% per annum. This is higher than the current rate of inflation, but inflation rates can, and do, change over long periods, so an average rate has been assumed to apply.
  5. A with-profits fund may also pay a “final bonus” when you take your pot of money. This has been ignored in the assumption since final bonuses have been very low for many years and may not be paid.
  6. The assumptions ignore any MVR that might be applied to your pot when you take your benefits.

The figures illustrate the pension pot value in “real money”, which means they take inflation into account by reducing fund values after growth and charges, at 2.5% a year. Seeing the figures in this way shows you what your pot could be worth in terms of today’s values when your benefits are eventually paid. It is important to note that inflation reduces the worth of all savings and investments, not just pensions. The effect of this is shown in the illustration and could mean your pension fund may reduce, in real terms, as well as grow.

 Value at the end of year  Projected real value with 1.5% growth and 2.5% inflation but no charges £ Projected real value with 1.5% growth and 2.5% inflation and 1.14% charges £ 
 0 1,000  1,000 
 1 990  978 
 2 979  968 
 3  969 958 
 4 959  948 
 5 949  938 
 10 901  891 
 15 855  845 
 20 812  802 
25  770  762 

7. Trustee knowledge and understanding (TKU)

Sections 247 and 248 of the Pensions Act 2004, require the Trustees to maintain an appropriate level of knowledge and understanding which, together with professional advice which is available to them, enables them to properly exercise their functions and duties in relation to the Fund.

Because of
• the nature of the Plan and
• the fact that the Plan is closed to new members and is paid up, the requirements on the Trustee for TKU is not as onerous as it would be for a larger, more complex pension scheme which is not invested wholly in an insurance policy. Nevertheless, the Trustee has
• a working knowledge of the trust deed and rules, and
• sufficient knowledge and understanding of the law relating to pensions and trusts.

8. Conflicts of interest

Because the Plan’s assets are wholly invested with the Prudential’s appointed custodians, and the Plan is funded on a DC basis, the Trustee considers that there is no conflict of interest between its role as Trustee and Principal Employer of the Plan. Nevertheless, it is aware that, should any conflict of interest arise, it will be necessary for it to consider its position. The result may be that it may (for example), take independent legal advice, or appoint a professional trustee, at least for the duration of the conflict.

Closomat Limited, Building 1, Brooklands Place, Brooklands Road, Sale Cheshire, M33 3SD