Westcode Semiconductors Limited Pension Scheme SIP

Westcode Semiconductors Limited Pension Scheme Statement of Investment Principles (SIP) - July 2020

Purpose of this Statement

This SIP has been prepared by the Trustees of the Westcode Semiconductors Limited Pension Scheme (the "Scheme"). This statement sets out the principles governing Trustee decisions to invest the assets of the Scheme.

The Scheme's investment strategy is derived from the Trustees' investment objectives. The objectives have been taken into account at all stages of planning, implementation and monitoring of the investment strategy.

Details on the Scheme’s investment arrangements are set out in the Investment Implementation Document (“IID”).

Governance

The Trustees of the Scheme will make all major strategic decisions including, but not limited to, the Scheme’s asset allocation and the appointment and termination of investment managers and platform providers.

When making such decisions, and when appropriate, the Trustees will take proper written advice. The Trustees' investment advisers, Isio, are qualified by their ability in, and practical experience, of financial matters, and have the appropriate knowledge and experience. The investment advisers' remuneration may be a fixed fee or based on time worked, as negotiated by the Trustees in the interests of obtaining best value for the Scheme.

Investment objectives

The Trustees invest the assets of the Scheme with the aim of ensuring that all members' current and future benefits can be paid. The Scheme's funding position will be reviewed on an ongoing basis to assess the position relative to the funding target and whether the investment arrangements remain appropriate to the Scheme's circumstances. The Scheme's funding target is specified in the Statement of Funding Principles.

The Scheme’s present investment objective is to achieve a return of around 2.35% per annum above the return on UK Government bonds.

Investment strategy

The Trustees take a holistic approach to considering and managing risks when formulating the Scheme’s investment strategy.

The Scheme's investment strategy was derived following careful consideration of the factors set out in Appendix A. The considerations include the nature and duration of the Scheme's liabilities, the risks of investing in the various asset classes, the implications of the strategy (under various scenarios) for the level of employer contributions required to fund the Scheme, and also the strength of the sponsoring company's covenant. The Trustees considered the merits of a range of asset classes.

The Trustees recognise that the investment strategy is subject to risks, in particular the risk of a mismatch between the performance of the assets and the calculated value of the liabilities. This risk is monitored by regularly assessing the funding position and the characteristics of the assets and liabilities. This risk is managed by investing in assets which are expected to perform in excess of the liabilities over the long term, and also by investing in a suitably diversified portfolio of assets with the aim of minimising (as far as possible) volatility relative to the liabilities.

The assets of the Scheme consist predominantly of investments which are traded on regulated markets.

Investment Management Arrangements

The investments are made through a platform provider where, with advice, the Trustees will select underlying funds from the platform to implement the chosen strategy. The platform provider will be responsible for:

  • Investing in the chosen underlying funds in the proportions agreed by the Trustees, adjusted as necessary from time to time;
  • Providing the Trustees with quarterly performance reports and asset valuations;
  • Asset rebalancing and meeting cash flow requirements, when required.

The Trustees have selected several funds on the platform in which to invest the underlying assets of the Scheme, as listed in the IID. The investment managers are regulated under the Financial Services and Markets Act 2000.

All decisions about the day-to-day management of the assets have been delegated to the investment managers via the platform provider. The delegation includes decisions about:

  • Selection, retention and realisation of investments including taking into account all financially material considerations in making these decisions;
  • The exercise of rights (including voting rights) attaching to the investments;
  • Undertaking engagement activities with investee companies and other stakeholders, where appropriate.

The Trustees will take investment managers' policies into account when selecting and monitoring managers. The Trustees will also take into account the performance targets the investment managers are evaluated on. The investment managers are expected to exercise powers of investment delegated to them, with a view to following the principles contained within this statement, so far as is reasonably practicable.

The platform provider's and investment managers' remuneration is based upon a percentage value of the assets under management. The fees have been negotiated to be competitive and are reviewed on an ongoing basis.

As the Scheme’s assets are invested in pooled vehicles, the custody of the holdings is arranged by the investment manager.

Investment Manager Monitoring and Engagement

The Trustees monitor the Scheme's investment managers; platform provider; and other stakeholders on a variety of issues. Below is a summary of the areas covered and how the Trustees will seek to engage on these matters with investment managers.

Areas for engagement Method for monitoring and engagement Circumstances for additional monitoring and engagement
Performance, Strategy and Risk The Trustees receive a quarterly performance report which details information on the underlying investments’ performance, strategy and overall risks, which are considered at the relevant Trustees meeting
  • There are significant changes made to the investment strategy
  • The risk levels within the assets managed by the investment managers have increased to a level above and beyond Trustee expectations.
  • Underperformance vs the performance objective over the period that this objective applies
Environmental, Social, Corporate Governance factors and the exercising of rights
  • The Trustees’ investment managers provide information via the platform provider on how they have engaged with issuers regarding social, environmental and corporate governance issues
  • The Trustees receive information from their investment advisers on the investment managers’ approaches to engagement
  • The manager has not acted in accordance with their policies and frameworks
  • The manager’s policies are not in line with the Trustees’ policies in this area

Through the engagement described above, the Trustees will work with the investment managers, via the platform provider, to improve their alignment with the above policies. Where sufficient improvement is not observed, the Trustees will review the relevant investment manager's appointment and will consider terminating the arrangement.

Employer-related investments

The Trustees' policy is to not hold any employer-related investments as defined in the Pensions Act 1995 and the Occupational Pension Schemes (Investment) Regulations 2005 except where the Scheme invests in collective investment schemes that may hold employer-related investments. In this case, the total exposure to employer-related investments will not exceed 5% of the Scheme's total asset value. The Trustees will monitor this on an ongoing basis to ensure compliance.

Direct investments

Direct investments, as defined by the Pensions Act 1995, are products purchased without delegation to an investment manager through a written contract. When selecting and reviewing any direct investments, the Trustees will obtain appropriate written advice from their investment advisers.

Compliance

This Statement has been prepared in compliance with the Pensions Act 1995, the Pensions Act 2004, and the Occupational Pension Schemes (Investment) Regulations 2005. Before preparing or subsequently revising this Statement, the Trustees consulted the sponsoring company and took appropriate written advice. The Statement is reviewed at least every three years, and without delay after any significant change in the investment arrangements.

Appendix A– Risks, Financially Material Considerations and Non-Financial matters

A non-exhaustive list of risks and financially material considerations that the Trustees have considered and sought to manage is shown below.

The Trustees will adopt an integrated risk management approach. The three key risks associated within this framework and how they are managed are stated below:

Risks Definition Policy
Investment The risk that the Scheme’s position deteriorates due to the assets underperforming.
  • Selecting an investment objective that is achievable and is consistent with the Scheme’s funding basis and the sponsoring company’s covenant strength
  • Investing in a diversified portfolio of assets
Funding The extent to which there are insufficient Scheme assets available to cover ongoing and future liability cash flows.
  • Funding risk is considered as part of the investment strategy review and the actuarial valuation
  • The Trustees will agree an appropriate basis in conjunction with the investment strategy to ensure an appropriate journey plan is agreed to manage funding risk over time
Covenant The risk that the sponsoring company becomes unable to continue providing the required financial support to the Scheme.
  • When developing the Scheme’s investment and funding objectives, the Trustees will take account of the strength of the covenant ensuring the level of risk the Scheme is exposed to be at an appropriate level for the covenant to support.


The Scheme is exposed to a number of underlying risks relating to the Scheme’s investment strategy, these are summarised below:

Risk Definition Policy
Interest rates and inflation The risk of mismatch between the value of the Scheme assets and present value of liabilities from changes in interest rates and inflation expectations To hedge at least the funding level of the Scheme using Liability Driven Investment funds
Liquidity Difficulties in raising sufficient cash when required without adversely impacting the fair market value of the investment To maintain a sufficient allocation to liquid assets so that there is a prudent buffer to pay members benefits as they fall due (including transfer values)
市场 Experiencing losses due to factors that affect the overall performance of the financial markets To remain appropriately diversified and hedge away any unrewarded risks, where practicable
Credit Default on payments due as part of a financial security contract To diversify this risk by investing in a range of credit markets across different geographies and sectors
Environmental, Social and Governance Exposure to Environmental, Social and Governance factors, including but not limited to climate change, which can impact the performance of the Scheme’s investments To select managers on the platform who satisfy the following criteria, unless there is a good reason why the manager does not satisfy each criteria:
  1. Responsible Investment (‘RI’) Policy / Framework
  2. Implemented via Investment Process
  3. A track record of using engagement and any voting rights to manage ESG factors
  4. ESG specific reporting
  5. UN PRI Signatory The Trustees monitor the managers on an ongoing basis
Currency The potential for adverse currency movements to have an impact on the Scheme’s investments Hedge currency risk, where appropriate to do so
Non-financial Any factor that is not expected to have a financial impact on the Scheme’s investments Non-financial matters are not taken into account in the selection, retention or realisation of investments


Appendix B

The Trustees have the following policies in relation to the investment management arrangements for the Scheme:

How the investment managers are incentivised to align their investment strategy and decisions with the Trustees’ policies
  • As the Scheme is invested in pooled funds, there is not scope for these funds to tailor their strategy and decisions in line with the Trustees' policies. However, the Trustees will invest in a portfolio of pooled funds that are aligned to the strategic objective
How the investment managers are incentivised to make decisions based on assessments of medium to long-term financial and non-financial performance of an issuer of debt or equity and to engage with them to improve performance in the medium to long-term
  • The Trustees will review the investment managers’ performance relative to medium and long-term objectives
  • The Trustees will monitor the investment managers’ engagement and voting activity on an annual basis as part of their ESG monitoring process
  • The Trustees will not incentivise the investment managers to make decisions based on non-financial performance
How the method (and time horizon) of the evaluation of investment managers’ performance and the remuneration for their services are in line with the Trustee’s policies
  • The Trustees will review the performance of all of the Scheme’s investments on a net of cost basis to ensure a true measurement of performance versus investment objectives
  • The Trustees will evaluate performance over the time period stated in the investment managers’ performance objective, which is typically 3 to 5 years
  • Investment manager fees are reviewed annually to make sure the correct amounts have been charged and that they remain competitive
The method for monitoring portfolio turnover costs incurred by investment managers and how they define and monitor targeted portfolio turnover or turnover range
  • The Trustees do not directly monitor turnover costs. However, the investment managers are incentivised to minimise costs as they are measured on a net of cost basis
The duration of the Scheme’s arrangements with the investment managers
  • The duration of the arrangements is considered in the context of the type of fund the Scheme invests in.
  • For open ended funds, the duration is flexible and the Trustees will from time-to-time consider the appropriateness of these investments and whether they should continue to be held