Penfold GPP - Statement of Investment Principles

Introduction

The Penfold Pension is provided by Penfold Savings Limited (Penfold).

Penfold, with the oversight of the PTL Governance Advisory Arrangement (GAA), is responsible for making sure the investment options offered through the Penfold Pension are appropriate for employers that utilise the pension arrangement for their employees, and ultimately the policyholders (savers) with whom we have a direct contractual relationship.

This Statement of Investment Principles (SIP) sets out our governance approach to investing members’ assets.

The investment advisers for the scheme are Dean Wetton Advisory (the ”Investment Adviser(s)”)

This document is intended to be helpful to current and prospective employers and savers by providing insight into the purpose and beliefs of the Penfold Pension and helping them understand what the Penfold Pension offers.

Background

The Penfold Pension is a Group Personal Pension Plan (GPP) and is regulated by the Financial Conduct Authority (FCA). It provides employers with a single pension product that satisfies a number of needs, including Automatic Enrolment requirements, but can also cater for employers looking to offer a self-invested personal pension for their employees.

The Penfold Pension provides money purchase pension benefits and, under current rules, savers can take retirement benefits from any time after the age of 55. If benefits have not been taken by the age of 99, an annuity must be secured, the accrued fund transferred to another pension arrangement, or the entire pension taken as a lump sum (subject to tax).

While there is no legislative requirement for a SIP to be produced for a GPP, we have considered the legal requirements that apply to trust-based schemes as a guide. We believe this SIP is beneficial to employers and savers to help understand the default arrangements and other investment options we offer. It sets out what we aim to achieve with the investment options offered and shows how our investment policies guide the way in which savers’ money is invested.

Penfold confirms that, before preparing this SIP, it has consulted with, and has obtained and considered written advice from, the Investment Advisers. Penfold believes the Advisers to be qualified by their ability and practical experience of financial matters and to have appropriate knowledge of the investment arrangements that the Scheme requires.

Penfold is responsible for the investment of the Scheme’s assets and arranges administration of the Scheme. Where it is required to make an investment decision, Penfold may receive advice from the relevant Advisers first. It believes that this should ensure that it is appropriately familiar with the issues concerned.

In accordance with the Financial Services & Markets Act 2000 (FSMA), Penfold sets general investment policy, but has delegated the day-to-day investment of the Scheme’s assets to professional Investment Managers. The Investment Managers are authorised under the FSMA and have the expertise necessary to manage the investments of the Scheme.

At any time, Penfold may review the investment strategy and choose to implement a revised strategy prior to updating the SIP. This SIP reflects the current position at the time of writing. It will be updated to reflect any changes in strategy as soon as is practical.

Penfold confirms that this Statement of Investment Principles reflects the Investment Strategy it has implemented and/or intends to implement for the Scheme. Penfold acknowledges that it is its responsibility, with guidance from the relevant Advisers, to ensure the assets of the Scheme are invested in accordance with these Principles.

This version of the SIP was approved by the Penfold Investment Committee at a meeting held on 12th December 2022.

Contents

• Introduction
• Background
• Investment Beliefs
• Investment types
• Environmental, Social and Governance (ESG)
• Why do we have a Default Arrangement?
• What do we take into account when selecting a suitable default?
• Objectives of the default
• Overview of the Penfold default
• Self Select Range
• Risks
• Security of Assets
• Governance and operational framework
• Penfold Investment Committee
• Independent Governance Committee
• Monitoring
• Funds
• Reporting
• Conflicts of interest
• Division of Responsibilities

As well as this SIP, we have produced accompanying documents that are distributed to members upon joining the scheme and are also available upon request.

We review this SIP every three years or more frequently if there have been significant changes to the investment strategy, legislation, or the demographics of the Penfold Pension’s savers.

Investment Beliefs

Our core scheme objective is to provide a range of Pensions investment options that give savers the choice of an underlying investment strategy which adequately reflects their attitude to risk and their time horizon to retirement at a reasonable cost.

To facilitate this, the funds offered are provided via the Seccl Platform.

In the event a saver does not wish to choose their own investments in the Penfold Pension, we are provide an investment into which contributions for that saver will be made (the “Default Arrangement”).

Investment types

Blackrock is appointed as the primary asset manager to make day-to-day investment decisions in relation to the funds. The day-to-day management and monitoring of portfolio costs is delegated to the investment managers, as is the trade execution and level of turnover within the portfolios.

We ensure that the investment options offer a balance between different asset classes and markets covering a range of risk profiles. We achieve this by providing access to a range of diversified multi-asset funds managed by Blackrock. We also provide a Shariah compliant fund equity fund managed by HSBC.

The available multi-asset funds which may utilise a combination of the below asset classes. The allocation used is determined by the asset manager and may change over time, however Penfold, with the help of the investment adviser, periodically review the allocation, as well as considering the proposed risk levels, in order to ensure that the investment remain appropriate.

• Company shares (equities);
• Bonds (debt issued by governments or companies); and
• Cash and other short-term interest-bearing deposits.
• Commercial and residential property;
• Illiquid assets including infrastructure, forestry, private equity and private debt;
• Commodities through collective investment vehicles; and
• Derivatives to facilitate changes in where funds are invested or to help control investment risks.

Environmental, Social and Governance (ESG)

Financial considerations

Penfold acknowledges the growing importance of ESG issues in investing and further believes that effective management of ESG risk has the potential to add value when integrated into the investment process for long-term investors.

Penfold is aware that additional resources are required to make ESG investments have a definite cost, but believes the benefits are likely to balance the costs when managed effectively. Penfold is conscious of the need to be aware of regulatory factors which could materially affect the risks involved. Penfold believes that the extent of ESG should be limited to where there is a clear case for improving investment outcomes for members.

New products have become available on the market that implement ESG in a balanced way, without impacting on the expected performance. Penfold is considering introducing an ESG default.

Penfold’s core investment beliefs relating to ESG factors are:

• we have a responsibility to consider the impact of ESG factors on investments;
• we believe ESG issues are financially material;
• investment managers can deliver positive change through engagement with companies;
• we aim to integrate ESG considerations in the solutions and products offered; and
• we encourage investment managers to engage with companies.

Given the long-term nature of pension investments, ESG considerations are crucially important in managing risk and ensuring an investment’s long-term sustainability.

The assets are invested in pooled funds managed by external manager funds. While it is expected that investment managers take ESG considerations into account, we do not insist upon this and will not exclude a fund on these grounds alone. Our independent investment adviser also takes ESG and responsible investment into consideration when reviewing the funds available to savers.

Stewardship & Voting Rights

Due to the pooled nature of the investments, Penfold is not able to use its voting rights directly. However, by choosing Investment Managers whose principles are aligned with Penfold, the stewardship rights of the investments can be utilised effectively without incurring the higher costs of active fees. Having reviewed Blackrock’s statement on ESG and Stewardship, Penfold is comfortable that its voting rights are being used in a way that is consistent with its own viewpoints.

As part of the service offered, Penfold members have the opportunity to view upcoming voting opportunities on equities within the portfolio and may inform the Investment Manager of the preference for how to use their voting rights. The investment manager is not bound by the decisions made by members.

Penfold recognises the importance of using voting rights in good stewardship and as such will, on at least an annual basis, request their default investment manager provides a summary of the voting activity taken place on the members behalf. Penfold has identified disclosure around Climate Practices as a key theme that they will measure their manager on and so will wish to identify significant votes where their manager has voted in

Penfold delegates a number of responsibilities, including, but not limited to, the monitoring of the capital structure of the companies it invests in. Penfold also avoids conflicts of interest, both with engagement and other parties with an interest in companies it invests in, by deferring the direct engagement to the investment managers.

Penfold does not directly select companies for investment nor does it give stock-level guidance to its asset managers. This also extends to engagement whereby Penfold does not directly engage with, nor does it give guidance to, its asset managers to engage with specific companies for investment.

Where performance is deemed unsuitable, Penfold will engage the investment advisers to work with the Investment Manager to determine a resolution process on the continued suitability of the investments.

Other Financially Material Considerations

The Sharia Plan is invested in accordance with Sharia principles. Otherwise Penfold does not consciously let any other financially material consideration affect its decision-making ahead of improving the financial outcome of members.

The Default Arrangement

As well as believing that it’s helpful for members, we are required by law to have default investment arrangements. This is because:

• the Penfold Pension is a qualifying scheme for Automatic Enrolment purposes, so it must have default arrangements;
• we believe it should be easy for someone who becomes a saver of the Penfold Pension to start building retirement benefits without the need to make any investment decisions; and
• we believe that the majority of Penfold Pension savers are expected to have broadly similar investment needs.

We believe that understanding the Penfold Pension’s savers is essential in selecting and maintaining a default arrangement that meets the needs of the majority of savers. We, therefore, take into account our expectations of:

• Savers’ age profiles;
• Savers’ salary profiles (where available);
• The likely sizes of savers’ pension pots at retirement;
• The level of contributions paid by the employers and their savers;
• The costs and charges attributed to the default arrangement;
• Savers’ likely benefit choices at and into retirement based, where possible, on data gained through surveys and administration data;
• Regulatory and legislative requirements impacting default arrangements;
• The contents of this SIP; and
• That the ESG beliefs and policies are aligned with our best understanding of saver beliefs.

In selecting the default arrangement, we have taken advice from a qualified investment adviser who we believe has sufficient ability and practical experience of financial matters as well as appropriate knowledge of the investment arrangements that the Penfold Pension requires.

If (having considered any advice from our investment adviser as appropriate) we are not satisfied with a default arrangement, we may seek to instruct our investment adviser to find possible alternatives for consideration. In replacing any default, we will consider the transaction costs to savers of switching to the new default and seek to ensure these are fair.

Subject to fund benchmarks and guidelines, the fund managers are given full discretion over the choice of securities and choice of asset classes. Fund managers are expected to maintain well-diversified and suitably liquid portfolios of investments.

All of the above criteria are considered as part of the regular review of the suitability of default arrangements in line with FCA requirements.

Objectives

Default arrangements must support savers who do not wish to make an active investment choice. Through the significant influences of Automatic Enrolment, most savers invest their pension savings via a default arrangement.

It is, therefore, vital that the default arrangement has clearly defined objectives, delivers an appropriate balance between risk and return, reflects the likely diverse characteristics of savers that will invest within a default arrangement and is supported with robust communications and literature to secure good outcomes for savers.

The main objective of the default arrangements is to help deliver good outcomes for savers at retirement. This is achieved by investing in a wide range of asset classes combined with an overall risk level and return-seeking potential commensurate with the members’ ability to take on risk and their time to retirement. We would expect the default to achieve a return of at least inflation + 2.5% over a member’s lifetime.

We believe it is in the best interests of the majority of savers to offer a default arrangement which:

• manages the principal investment risks savers face;
• targets a long-term investment return above the rate of inflation while taking an appropriate level of risk for the majority of savers who do not make investment choices;
• reflects savers’ likely benefit choices at retirement; and
• provides good value for savers, given they pay the investment costs.

The levels of investment return that we expect to see and the risks for the funds used in the default arrangement are consistent with the above objectives.

Overview of the Penfold default

Penfold operates a single default which uses a diversified investment style throughout a member’s lifetime,

The Penfold default de-risks through three Blackrock multi-asset funds over a member’s lifetime. The advantage of this default is the flexibility and simplicity it provides. Blackrock gives each of these funds a risk target based on expected volatility, with the help of their investment advisers Penfold have converted this expectation into a representative long term return objective. This return is not guaranteed.

Sustainable Lifestyle

In August 2022 an additional lifestyle was introduced which uses the MyMap ESG select range. This allows members to have the risk of their investments managed as they approach retirement whilst also including an enhanced tilt towards ESG (Environmental, Social and Governance) factors. As with the default this strategy derisks through three multi asset funds via the path below:

Self Select Range

While the default arrangement, and the Sustainable Lifestyle, is designed to meet the needs of most savers, they may not meet the needs of a wider cross-section of savers. In order to support saver investment needs outside of the default arrangements, we offer a choice of investment options through a “self-select” fund range. These options are designed to be meaningfully distinct from each other in a way a typical member might understand.

The four standard “MyMap” funds each offer a distinct level of risk and return which Penfold believes members should easily be able to distinguish between. The ESG Select variants offer a distinct difference in their enhanced ESG profile, which may be desirable for some members. In addition, all funds are risk-controlled, multi-asset funds. We believe it would be appropriate for a member to hold any of them. The HSBC Islamic fund is a Shariah-compliant fund that also provides a meaningfully distinct product with a clear use case.

We formally review the investment range on a triennial basis with the support of our investment adviser but recognise the self-select fund range cannot be expected to cover the investment needs of all savers.

We also review the fund range on an ad hoc basis between review periods in response to market events, regulatory change, availability of new products and as part of the overall governance process of monitoring our funds.

Subject to fund benchmarks and guidelines, the fund managers are given full discretion over the choice of securities and the choice of asset classes for multi-asset funds. Fund managers are expected to maintain well-diversified and suitably liquid portfolios of investments.

If we are not satisfied with a fund, we may instruct our investment adviser to find possible alternatives for consideration. In replacing any fund, we will consider the transaction costs to savers of switching to the new fund and seek to ensure these are fair.

It is important to note that some specialist funds may be more costly than the default fund to invest in; therefore, a balance needs to be struck between choice and costs.

Risks

When adding, removing and monitoring funds on our self-select range, we expect our independent investment adviser to take into account the risks covered below when determining the appropriateness of a fund to be made available to savers.

Penfold recognises a number of risks involved in the investment of assets, for example:

1. The risk of failing to meet the objectives as set out in this document – Penfold will regularly monitor the investments to mitigate this risk.
2. Liquidity risk – The risk of being unable to realise assets at short notice, addressed through the holding of pooled funds of underlying liquid assets.
3. Diversification risk – the risk that assets are inadequately diversified, addressed through the asset allocation policy of the mandate, which the investment manager implements.
4. Underperformance risk – performance of funds will be compared to others in the industry regularly and may lead to changing managers or funds should it be unsatisfactory.
5. Country/political risk – the risk of an adverse influence on investment values from political intervention is reduced by diversification of the assets across many countries.
6. Organisational risk – addressed through regular monitoring of the Investment Manager and the Advisers.
7. ESG Risk – The risk that ESG issues are inadequately considered and accounted for and materially affect investment outcomes. As a result, mitigated by reviewing both Penfold’s and the Investment Manager’s ESG policies on a regular basis.

Penfold will keep these risks under regular review.

Security of Assets

In the event of a supplier failure assets may be affected, However Penfold has sought assurance that the assets are held in ringfenced pooled funds and that as such this risk is minimised. Assets are afforded protection by the financial services compensation scheme (FSCS) up to £85,000. The valuations are reflected in the audited pooled funds which reflect the daily priced underlying securities.

Governance and operational framework

Penfold Investment Committee

The Penfold Investment Committee governs the management of our funds available to Penfold Pension savers. It is made up of a number of senior managers who meet at least on a biannual basis (and ad hoc in certain circumstances), and receive regular reports and information to assure them that our key principles are being followed. They make sure our funds and policies are run in a way that is fair to all our savers and receives independent investment advice from an external investment consultant.

Independent Governance Committee

The FCA rules require firms operating workplace personal pension schemes to establish and maintain an Independent Governance Committee. Penfold has appointed the PTL Investment Governance Advisory Arrangement (the “GAA”) for this purpose. The remit of the GAA is to act solely in the interests of relevant Penfold Pension savers and to act independently of Penfold.

The GAA has FCA-mandated duties and powers to challenge Penfold on value-for-money issues and has obligations to:

• assess the on-going value for money of the Penfold Pension;
• act solely in the interests of relevant Penfold Pension savers;
• raise any concerns with the Penfold board;
• escalate their concerns to the FCA if necessary; and
• report annually on what they have done.

Monitoring

The Investment Committee is responsible for monitoring the appropriateness and performance of the default arrangement and other funds on a regular basis. We have outlined below the areas that we monitor, how we do this and how often.

Funds

We monitor the performance of funds offered to savers (in terms of both returns and risk) against the agreed or appropriate performance objectives. The performance is reviewed net of all costs including transaction costs, which means that we can see if the funds are meeting their objectives and taking into consideration explicit costs. This is to ensure that they remain fit to deliver the expected return or the risk management objective of the investments.

Funds are monitored at a basic level on a quarterly basis via the collection of data from the underlying investment providers, with a formal review taking place of each investment fund on an annual basis.

As the Penfold Pension invests in funds only, rather than individual assets, the fund managers are responsible for appointing custodians (i.e. the firms which ensure the safekeeping of the Penfold Pension’s assets) for the funds they are managing on behalf of all investors in their funds. We recognise our role in engaging with managers on this topic.

Reporting

We make available information to savers including fund fact sheets which detail the asset mix of funds and the performance against benchmark. These are available online for savers to view and are updated at least every quarter.

Conflicts of interest

In the event of a conflict of interest, we ensure that contributions are invested in the sole interests of savers and beneficiaries.

Policy for Asset Managers

• Asset Managers are paid based on a percentage of AUM. This incentivises an alignment of interests of achieving long term returns for savers
• Contracts with investment managers are not under a fixed term and managers can be replaced if at any point Penfold and their investment advisors believe they are not acting in saver’s best interests.
• Penfold review their asset manager’s beliefs to ensure they are in line with their own. Penfold is satisfied that they are aligned in beliefs in how to make decisions based on long-term financial and non-financial performance of companies.
• Performance is reviewed by Penfold and their Advisers on at least an annual basis. Penfold take a long-term performance outlook of at least 5 years, however they review managers more regularly to identify any potential issues.
• Day to day costs for investments, including turnover costs, are managed by the asset manager. Penfold, with the assistance of their Advisers, periodically reviews costs to ensure they are appropriate and in line with market rates.

Division of Responsibilities

The sections below show the key players involved in the successful running of the Penfold Pension and describes the roles they play.

Penfold

Penfold is responsible, amongst other things, for:

1. Determining the investment objectives of the Penfold Pension and reviewing these from time to time.
2. Agreeing an investment strategy designed to meet the investment objectives of the Scheme.
3. Reviewing the content of this SIP and modifying it, if deemed appropriate, in consultation with the Advisers, at least annually.
4. Reviewing the suitability of the investment policy following the results of each investment review, in consultation with the Advisers.
5. Assessing the quality of the performance and process of the Investment Managers by means of regular reviews of the investment results and other information, by way of meetings and written reports, in consultation with the Advisers.
6. Appointing and dismissing investment manager(s), the performance measurer, custodian(s) and transition manager(s) in consultation with the Advisers.
7. Assessing the ongoing effectiveness of the Advisers continually and with a full review, including an assessment of value for money, every three years.
8. Monitoring compliance of the investment arrangements with this SIP on an ongoing basis.
9. Implementing changes in the asset mix of the Final Salary Scheme and selecting and undertaking transactions in specific investments within each asset class.

Investment Adviser

The Investment Adviser will be responsible for, amongst other things:

1. Participating with Penfold in reviews of this SIP.
2. Advising Penfold how any changes within the Scheme’s membership may affect the way the assets should be invested.
3. Advising Penfold of any changes in the Scheme’s Investment Managers that could affect the interests of the Scheme.
4. Providing industry data for comparison purposes for the funds currently held.
5. Undertaking reviews of the Scheme’s investment arrangements including reviews of the asset allocation policy and current Investment Managers, and selection of new managers/ custodians/ performance measurers, as appropriate.

Investment Managers

The Investment Managers will be responsible for, amongst other things:

1. Investing assets in a manner that is consistent with the objectives set.
2. Ensuring that investment of Penfold’s assets follows prevailing legislation and within the constraints detailed in this SIP.
3. Providing quarterly reports including a review of the investment performance and any changes to their investment process.
4. Attending meetings with the Trustees as and when required.
5. Informing the Trustees of any changes in the internal performance objective and guidelines of any pooled fund used by the Scheme as and when they occur.
6. Exercising voting rights on shareholdings in accordance with their general policy.

PTL Governance Advisory Arrangement

The GAA is in place to provide an independent fair view of investment. The GAA works with Penfold to ensure the Penfold Pension offers good value for money and that the default arrangements are suitable.