Investment update

Investment update

The Plan’s investment strategy sets out how the money that has built up to pay members’ benefits is invested across different asset classes.

The strategy is set by the Trustee after taking advice and is set out in a formal document called the Statement of Investment Principles (SIP). The SIP is reviewed regularly and the current version, dated September 2024, is available on the Plan website.

The day-to-day decision-making about our investments is the responsibility of the Trustee’s appointed fiduciary manager, who selects specialist investment management firms to manage individual investments in their area of expertise.

This delegated approach allows the Trustee to retain ownership of the Plan’s investment strategy and focus on important strategic decisions, such as setting the overall return target for the portfolio, while the day-to-day tasks are carried out by specialist advisers.

Sections of the Plan

The Plan has two sections:

• Redland Section and
• Blue Circle Section

Assets are split between the two sections and are shown in the table below.

Formal asset sectionalisation makes it easier for the Trustee to consider future options to improve members’ benefit security.

For example, should the financial position of the Plan (or of either section) allow it, the Trustee could explore purchasing an insurance policy which reduces the Plan’s exposure to certain risks. In such a scenario, each section would need to be considered separately and it would not be possible to proceed without this formal sectionalisation of the assets.

How the assets are invested

The Plan’s assets are invested in a range of different assets, such as equities, bonds, and various diversifying assets, to reduce the risk of being over-exposed in any one area.

The Trustee uses strategies called “hedges” to protect the Plan from specific risks, similar to taking out insurance. These hedges act as safety nets, reducing the Plan’s exposure to financial shocks.

1. Interest rates & inflation risk:
• The Trustee has hedged around 90% of the Plan’s fixed and inflation linked liabilities.
• This helps prevent losses if rates rise or fall unexpectedly.

 

2. Longevity Risk (people living longer):
   • The Plan’s biggest risk is people living longer, which increases pension costs as they are paid for longer.
   • To help manage this, the Trustee has two insurance agreements (longevity swaps) with a leading international insurance company.
   • These swaps provide protection to the Plan if life expectancy rises beyond expectations.

The Plan’s long term aim is to become financially secure enough to cover all pension payments (liabilities) using low-risk investments (like UK Government bonds).

To achieve this the Trustee has set the following performance targets:

• The Redland Section targets 2.3% annual outperformance.
• The Blue Circle Section targets 1.5% annual outperformance.

These targets are linked to each sections liabilities.

Smart risk reduction:

The Trustee uses a dynamic de-risking framework – a system of automatic triggers – to act quickly when the Plan’s finances improve. By moving to lower risk investments when it can, the Plan locks in gains and strengthens the security of members’ pensions.

Investment performance

The table shows the investment performance over the one, three and five-year periods to 30 June 2024. Performance is measured against a benchmark return based on the Plan’s liabilities.

Performance to 30 June 2024

Overall the investments grew in the period up to 30 June 2024, due to falling interest rates and strong equity returns. However, the returns still fell short of the benchmark.