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Following the review of the Scheme’s Investment Strategy
the Trustees and the Company have agreed long term funding
objectives which can be summarised as:
- to be fully funded on a Gilts basis (least risk) in a period
not exceeding 20 years
- to be 110-120% funded on a Gilts basis in a period not
exceeding 30 years.
The Trustees believe that the very long term nature of pension
scheme liabilities make the targets appropriate and a contribution
schedule has been agreed with the Company, which together
with a newly agreed investment strategy has been developed
to ensure the objectives are met.
The Scheme’s funding and investment objectives, together
with full details of the relevant processes, are set out in
the ‘Statement of Investment Principles’, copies
of which are available by writing to the Group Pensions Department
at the address shown on page 40 of the full Report
& Accounts PDF.
The charts below illustrate the current allocations by asset
type, investment manager and geographical spread. Further
details of the investment objectives and performance of each
manager can be found on page 21 of the full Report
& Accounts PDF.
In respect of the Money Purchase Section, the Scheme’s
long-term investment objective can be stated as being to consider
members’ circumstances and protect their interests and
to make available a series of funds designed to enable appropriate
decisions to be taken.
Socially Responsible Investment
Under the 1995 Pensions Act, from July 2000 trustees of occupational
pension schemes must state in their Statement of Investment
Principles (SIP) whether or not they operate an ethical investment
policy. The law requires that trustees should act in the best
interests of all beneficiaries, which generally means their
best financial interests.
The Trustee Board believes that all companies should be run
in a socially responsible way as in the long run this will
contribute to the success of those companies, but equally
recognises its fiduciary responsibility to act in the best
financial interests of the Scheme’s members. The Trustee
Board’s policy is therefore that the investment managers
should take account of social, environmental and ethical considerations
to the extent that they may have a financial impact on investment
performance. With this in mind, the Trustee Board also encourages
managers to pursue policies of engagement with the companies
in which they invest funds.
However, the Trustee Board recognises that because of the
need to closely track the Index benchmarks, it is not appropriate
for the Scheme’s passive managers (see page 21 of the
full Report
& Accounts PDF for details of the investment managers)
to take account of social, environmental or ethical considerations
in the construction of their portfolio. However, the Trustee
Board also encourages its passive managers to pursue policies
of engagement with the companies in which they invest funds.
Corporate Governance
The Scheme has instructed its investment managers to, whenever
possible, exercise voting rights attaching to investments.
While in the majority of circumstances the managers are instructed
to exercise their professional judgement on how the ‘vote’
is exercised, in potentially contentious situations the Investment
Committee is consulted. To assist in this process, the Scheme
subscribes to the voting service operated by the National
Association of Pension Funds which gives information about
matters on which shareholders are asked to vote. The Investment
Committee regularly reviews how the investment managers exercise
the Scheme's voting rights and continues to monitor the debate
on corporate governance and the role shareholders should play.
Custody of Assets
In respect of the Final Salary Section, although the Trustee
Board has delegated day-to-day management of the Scheme's
investments to external managers, the custody (safekeeping)
of most of these assets is presently carried out independently
of the managers by State Street Bank and Trust Company Limited.
In respect of the Money Purchase Section, the custody (safekeeping)
of these assets is carried out by the manager, Standard Life
Investments.
Investment Strategy
Final Salary Section
As previously mentioned, the Trustees have undertaken a major
review of the Scheme’s investment strategy designed
to achieve the long term funding objectives agreed with the
Company.
Following the changes made to the Scheme in 2004, the Trustees
are developing a strategy designed to reduce risk in a controlled
manner, whilst leaving sufficient flexibility to produce positive
returns in the future. This will involve the selling of assets
that are volatile when compared to the assets, such as equities
and the purchase of bonds which better match the pensions
provided by the scheme. It is intended that the Scheme will
hold no more than 20% of its assets in more volatile investments
by 2014.
This strategy will, as in previous years, involve the Scheme’s
asset classes and geographic areas. This diversified spread
is designed to deliver the Scheme’s required investment
performance in a risk controlled manner.
Investment Strategy
Money Purchase Section
The strategy to achieve the investment objectives of the
Money Purchase Section involves the Scheme’s assets
being spread across a number of asset classes and geographic
areas. The assets are invested in unit linked arrangements,
wrapped in insurance policies, managed by Standard Life Investments.
The Trustees make available a range of investments via pooled
funds, which seek to:
- Establish a financially efficient scheme that provides
attractive and robust long term investment options to members
that recognise their investment challenge and incorporate
institutional best practices
- Enable members to protect their benefits as they approach
retirement
- Limit the scope of members to need to take detailed investment
decisions
Currently the Trustees offer three Lifestyle strategies
which involve automatic switches from predominantly equities
to fixed interest and cash funds as the target retirement
date approaches. In addition, the Trustees offer a number
of funds offering specific equity, bond or cash investments
which may be selected by members instead of the Lifestyle
options.
The Money Purchase Section does not hold shares directly in
Kingfisher plc.
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