Defined Benefit Pension Scheme

The Jockey Club Racecourses Pension Scheme (“the Scheme”)
Chair’s Statement – 31 July 2023

In accordance with the requirements of the Occupational Pension Schemes (Charges and Governance) Regulations 2015 (‘the Regulations’), the Trustees are required to provide a statement relating to the governance of the defined contribution benefits within the Scheme.

This statement covers the period from 1 August 2022 to 31 July 2023 and has been prepared by the Chair of the Trustees – William Medlicott.

In this scheme there are two different sets of DC members; those with Protected Rights and those who are AVC members.

For Protected Rights Account members, the following sections will cover Governance, Charges and Net Investment returns.

For AVC only members, please refer to the sections that follow the Protected Rights Account members information.

Background

The Scheme is a defined benefit (DB) arrangement which means that the benefits are calculated on a pre-determined basis specified in the Scheme Rules. The Scheme was contracted out using the protected rights method in respect of service accrued after 6 April 1997 (providing each member with a protected rights account).  These protected rights accounts act as an underpin to the defined benefits payable under the Scheme Rules.

Upon retirement, death or transferring out of the Scheme, the value of the defined benefit is checked against the value of the protected rights account and the higher benefit is provided to the member.

The assets in relation to these protected rights benefits are invested within the DB assets of the Scheme. Members therefore have a notional protected rights account, which is valued in line with the return on the Scheme’s DB assets. 

Where members had less than two years’ service and left the Scheme prior to 6 April 2012, their protected rights accounts were retained within the Scheme and form a defined contribution (DC) only benefit as at that time, it was not possible to provide a return of contributions in respect of their protected rights contributions.

Following the abolition of protected rights on 6 April 2012, the Trustees made a resolution in June 2012 which converted members’ protected rights funds into individual accumulation funds which act in the same way as non-protected rights funds but continued to act as an underpin to post 97 benefits.

The Trustees are currently in the process of discharging these benefits with a small number of members trying to be traced to complete the exercise.

In addition to those members with protected rights accounts, all members could make additional voluntary contributions (AVCs) on a DC basis to provide additional benefits at retirement.

Governance of the Default Investment Arrangement

Protected Rights Account

The assets in relation to the protected rights benefits are invested within the Scheme’s DB assets. As such, this is the Scheme’s default investment arrangement for DC benefits, as defined in the Regulations.

In the Scheme there are members with Protected Rights only and others who have Protected Rights with DB benefits as well.

As part of the actuarial valuation as of 31 July 2023, using best estimate valuation calculations, the total Protected Rights underpin amount was £900,000 consisting of £55,000 in respect of Protected Right only members and £845,000 for those with a Protected Rights underpin with DB benefits.

The Trustees do not formally review the investment strategy of the assets attributed to the DC protected rights accounts to assess its appropriateness for members but regularly review the investment strategy and performance of the assets in relation to the DB funding. The last formal review of the investment strategy for the Scheme’s DB assets was in April 2021 with further consideration given more recently resulting in a series of adjustments made to the strategy.

Charges and Transaction Costs

Protected Rights Account

The investment returns on the Scheme’s DB assets considers the annual fund management charges of between 0.14% to 1.50% depending on the investment fund. However, members with Protected Rights benefits have notional holdings in the DB scheme and for the purposes of the valuation of these benefits, assumed investment growth is linked to the FTSE All Share Total Return index and an allowance for investment expenses of 0.50% pa is made.

These charges are incurred by members when valuing their protected rights accounts to assess whether the underpin bites. Given this basis of valuation, a projection of the effect of charges and costs has not been included as a result.

Net Investment Returns for the DC Section

Protected Rights Account

The following table reflects the actual performance of the DB Scheme over varying periods which the DC Section’s returns are based on.
These returns have been manually calculated using growth asset only returns taken from the report and accounts over the last 3 years ending 31 July 2023.

The Trustees have prepared a Statement of Investment Principles which sets out the Trustees’ aims and objectives relating to {the Defined Benefit/} investment strategy. A copy of the SIP can be found https://www.thejockeyclub.co.uk/defined-benefit-pension-scheme/

Governance of the Default Investment Arrangement

AVC only

There is no default investment fund requirement for AVC members, with a range of funds available for investment.

As of 31 July 2023, the AVC funds under management were:

The Scheme currently offers a range of AVC investment choices with both Utmost Life and Pensions (Utmost, formerly Equitable Life) and Royal London. The Scheme deemed default investment arrangement for the AVCs, as defined in the Regulations, is the Cautious Lifestyle Strategy (Annuity) with Royal London, under which funds are invested more cautiously as members near retirement age, with the aim of buying an annuity at retirement. The default investment option changed from the Cautious Retirement Investment Strategy in 2021, as part of a review which Royal London conducted on its legacy strategies.

The underlying funds which make up the Cautious Lifestyle Strategy (Annuity) and the de-risking period is detailed in the table below:

On 1 January 2020, Equitable Life transferred all its policies to Utmost, and members who were invested in the With Profits fund had their fund holdings switched to Unit Linked funds from this date. Monies previously held in the Secure Cash fund for the first 6 months moved into the Investing at Age range of funds with effect from 1 July 2020.

As part of the transition from Equitable Life to Utmost, the Trustees communicated details to members about the default lifestyle fund options with Utmost, recommending that members consider whether the way in which their AVCs are invested remains appropriate. 

The Trustees considered the appropriateness of the current AVC arrangements in June 2023, as well as the options available to them. This review was undertaken in the knowledge that most members use their AVC funds as the first option to provide additional tax-free cash at retirement. The Trustees concluded that no changes needed to be made at this time, however they Trustees plan to communicate to members about the options available to them in relation to the AVC arrangements.

Charges and Transaction Costs

AVCs only

In addition to the default option, members are able to self-select their AVC investment funds. The total expense ratio (TER) for each fund, which is made up of an annual management charge and other indirect costs for the Royal London funds is 0.53% pa.

All AVC funds under management with Utmost have been invested in Unit Linked funds since 1 January 2020. These funds are subject to an ongoing investment management charge between 0.53% - 0.75% per annum. The TER charge for the Clerical Medical With-Profits fund is considered when declaring annual interest rates rather than being an explicit charge deducted from members’ funds.

In addition to these explicit member charges, members may also incur transaction costs (incurred as a result of buying, selling, lending or borrowing investments). The transaction costs for the Royal London funds are calculated to 31 July 2023 and the Utmost/Clerical Medical funds are to 30 June 2023.

The following tables summarise the total costs and charges for the funds invested in, as follows:

ROYAL LONDON FUNDS

Utmost Funds

* Transaction charge is to 31 December 2021.

** Members of Equitable Life’s With-Profits Fund were transferred into Utmost’s Secure Cash Fund on 1 January and remained there until 30 June 2020. Where no election was made to transfer to another fund during this period, members’ investments were placed into the Investing at Age target dated funds.  Due to the nature of the funds the asset mix and TER will depend on the term to retirement for each member.

***The total expense ratio is implicit in the bonus rate set for the current year.

The Utmost Investing at Age strategy uses an Automatic Investment Option which means it is designed to gradually reduce a member’s exposure to equities from age 55 to and through taking their retirement benefits. The strategy uses a combination of the Utmost Multi Asset Moderate and Cautious funds to achieve this balance.

For the Clerical Medical With-Profits Fund, members are also eligible to receive a final bonus at maturity. The amount of the final bonus may be lower, or nil, on transfer or encashment before maturity.

A Market Value Reduction may be applied to the With Profits Fund on transfer or encashment before maturity. This ensures that members who choose to leave the fund before their normal retirement date do so on terms that properly reflect the underlying value of their policy.

In addition to the above member-borne costs and charges, the sponsoring employer meets the cost of ongoing governance and administration services for the AVC’s.

In assessing value-for-members for the AVC scheme, the Trustees have only considered the costs and charges met by members.

The Appendix to this Statement provides an illustration of the cumulative effect of charges for the AVC scheme only and not the DC protected rights given the way members benefits are notionally attributed.

Net Investment Returns

AVCs only

The following table reflects the performance of each fund over varying periods based on investment after charges have been deducted and has taken into account the statutory guidance when preparing this section of the statement. They have been calculated on a geometric basis and assume a £10,000 investment fund.

Royal London Funds

*Royal London With Profit fund have not provided past performance information. Annual bonuses are added, and a final bonus may be payable. In 2022, an annual bonus of 2.15% was added (including profit share).

Utmost Funds

We have been unable to obtain net investment returns for the Clerical Medical With-Profits Fund. The Utmost performance has been produced to 29 July 2022.

Value for Members

Under the Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021, trustees of schemes providing DC benefits are required to carry out an assessment of their scheme’s value for members from their first scheme year-end after 31 December 2021.

Following the Regulator’s guidance, an assessment of value for members has been carried out for the Protected Rights accounts which considered the following aspects:

• Costs and charges
• Net investment performance
• Governance and administration

Looking at the costs and charges, the DC benefits of the Scheme are more expensive than those quoted by another comparator DC pension provider who also include administration services within their AMC.

It should however be noted that whilst they have provided indicative terms, they are unable to accept benefits from the scheme given the underpins that exist.

Looking at net investment returns, again using the performance of the DB Scheme as a proxy in the absence of insured pooled funds for DC members. There is no default or range of self-select funds for members to choose, so attributed performance is based entirely on the growth assets of the DB Scheme.

Performance over 3 years shows solid positive returns. When reviewed against the other comparator schemes used in the assessment, the DC Section did not deliver broadly equivalent returns over the time periods considered.

There are some other areas where improvements could be made when considering Governance and Administration. 

These relate to:

• Extending the communication options available to members with DC benefits
• Evidencing that sufficient time is spent on discussing DC members’ outcomes
• Considering the proxy returns members receive where they appear lower than those from a DC alternative.

While falling outside the scope of the value for member assessment regulations outlined by the Pensions Regulator, we note that members have AVCs with Royal London and Utmost which appear to be satisfactory given the review that has taken place.

Overall, our assessment concludes that the DC benefits do not meet the requirements laid down by The Pensions Regulator.

There are certain changes that can be made that are simple and practical to implement which we have noted above.

We are mindful that the Regulator expects member outcomes to be improved where their standards are not met.  We have taken a number of steps to explore alternative remedies.  The reality is that for a small value of funds, where no new monies are being added providers are unable or unwilling to offer suitable alternative and better arrangements.  We will continue to review and seek to improve the current arrangements as far as is possible.

The Trustees will consider the assessment in further detail and the recommendations contained in it with a view to implementing change where needed.

Core Financial Transactions

The Trustees receive and review reports from the Scheme’s administrators on at least a 6-monthly basis to monitor the level of administration services being provided to members.

The processing of core financial transactions is monitored by the administrators, who have implemented internal control procedures to help ensure that such transactions are processed promptly and accurately (including a relevant review process). These activities include procedures to ensure the accuracy of benefit calculations and settlements and the prompt resolution of any inconsistencies identified. Activities covered include controls and procedures to manage the settlement of benefits and individual transfers out.

The Trustees are satisfied that during the period of this statement, there have been no significant delays in processing these transactions or issues to report. The latest administration report showed that 100% of service levels were met.

Trustee Knowledge & Understanding

It is important that the Trustees continue to have sufficient knowledge and understanding to fulfil their duties. This is complemented by having a professional trustee (Capital Cranfield Trustees) on the trustee board. All new Trustees are required to undertake training following their appointment, including use of the Pensions Regulator’s Trustee Toolkit.

 All Trustees have also been provided with and have a working knowledge of the Scheme’s documents including the Trust Deed and Rules, SIP and other informal policies.

The Trustees are supported by independent and professional advisers who ensure that they are kept abreast of the latest legislative, regulatory and market developments that apply to the Scheme. These advisory appointments are also periodically reviewed.

Training is delivered during Trustees’ meetings when the Trustees are considering issues, the understanding of which is enhanced through training. Relevant training materials are included in Trustees’ meeting packs.

All training received by the Trustees is recorded and the training needs of the Trustees are regularly reviewed by the Trustees and their advisers to identify any relevant gaps in knowledge.

The annual DC value for member assessment is an agenda item at the Trustees’ meeting.

In addition, Capital Cranfield Trustees are subject to AAF audit requirements which require each of its professional trustees to attend a number of technical training sessions per year.

Member Communications

Annual statutory money purchase illustrations were provided to members in respect of their AVC funds. No other DC communications were provided.

How to contact the Trustees

If you have any further queries regarding the Scheme, please contact:

First Actuarial LLP
2nd Floor
Mayesbrook House
Lawnswood Business Park
Leeds

LS16 6QY
Tel: 0113 818 7300
Email: leeds.admin@firstactuarial.co.uk

William Medlicott

Chair of the Trustees of the Jockey Club Racecourses Pension Scheme

[Date]

Appendix – Cumulative impact of costs and charges (AVC scheme only)

The tables below show the cumulative impact of costs and charges (as set out in the main body of this Statement) for the AVC scheme only.

They are presented in the format prescribed by legislation and on the specific assumptions outlined below.  In considering choices, members should have regard to the impact of inflation and charges but also the actual investment performance of their fund choices.

The following table assumes a lump sum of £12,597 with assumed future growth rates by asset type as set out in the footnote, and then discounted for assumed inflation at 2.5% pa. This then shows the projected pots in “today’s money”.

Royal London – Default Funds

Other funds available to AVC Members

Assumptions:                                     

1. Projected pension pot values are shown in today's terms and do not need to be reduced further for the effect of future inflation
2. The starting pot size is assumed to be £12,597 for illustration purposes. The actual average fund size may be more or less than this amount.
3. Inflation is assumed to be 2.5% each year
4. No further contributions have been assumed
5. Values shown are estimates and are not guaranteed
6. The projected growth rate for each fund are as follows:
   
   

Governed Portfolio 1                                       3.59% pa above inflation

Governed Portfolio 2 (Annuity)                       3.32%  pa above inflation

Governed Portfolio 3 (Annuity)                       2.66%  pa above inflation

Royal London Annuity                                    1.82% pa above inflation

Utmost Multi Asset Cautious                          2.90%  pa above inflation

Royal London European                                 4.20% pa above inflation

Jockey Club Racecourses Pension Scheme
Implementation Statement
Year Ending 31 July 2023

Glossary

Introduction

This Implementation Statement reports on the extent to which, over the Scheme Year, the Trustees have followed their policy relating to the exercise of rights (including voting rights) attaching to the Scheme’s investments. In addition, the Implementation Statement summarises the voting behaviour of the Scheme’s investment managers and includes details of the most significant votes cast and the use of the services of proxy voting advisers.

In preparing this statement, the Trustees have considered guidance from the Department for Work & Pensions which was updated on 17 June 2022.

Relevant Investments

The Scheme’s assets are invested in pooled funds and some of those funds include an allocation to equities. Where equities are held, the investment manager has the entitlement to vote.

At the end of the Scheme Year, the Scheme invested in the following funds which included an allocation to equities:

• BlackRock ACS World ESG Equity Tracker Fund
• BlackRock Dynamic Diversified Growth Fund
• Partners Fund (Guernsey)

The Partners Fund (Guernsey) typically has an allocation of only 20% to equities and accounted for only 9% of the Scheme portfolio as at 31 July 2023. This equity allocation therefore accounts for approximately 1.8% of portfolio. This is not considered to be significant by the Trustees and the Partners Fund (Guernsey) has not been included in the following analysis.

The Trustees' Policy Relating to the Exercise of Rights

Summary of the Policy

The Trustees' policy in relation to the exercise of rights (including voting rights) attaching to the investments is set out in the SIP, and a summary is as follows:

• The Trustees believe that good stewardship can help create, and preserve, value for companies and markets as a whole and the Trustees wish to encourage best practice in terms of stewardship.
• The Trustees invest in pooled investment vehicles and therefore accept that ongoing engagement with the underlying companies (including the exercise of voting rights) will be determined by the investment manager's own policies on such matters.
• When selecting a pooled fund, the Trustees consider, amongst other things, the investment manager’s policy in relation to the exercise of the rights (including voting rights) attaching to the investments held within the pooled fund.
• When considering the ongoing suitability of an investment manager, the Trustees (in conjunction with their Investment Adviser) will take account of any particular characteristics of that manager’s engagement policy that are deemed to be financially material.
• The Trustees will normally select investment managers who are signatories to the UNPRI.
• If it is identified that a fund’s investment manager is not engaging with companies the Trustees may look to replace that fund. However, in the first instance, the Trustees would normally expect their Investment Adviser to raise the Trustees' concerns with the investment manager.

Has the Policy Been Followed During the Scheme Year?

The Trustees' opinion is that their policy relating to the exercise of rights (including voting rights) attaching to the investments has been followed during the Scheme Year. In reaching this conclusion, the following points were taken into consideration:

• There has been no change to the Trustees' belief regarding the importance of good stewardship.
• The Scheme’s invested assets remained invested in pooled funds over the period.
• No new pooled funds were put in place during the Scheme Year.
• During the Scheme Year, the Trustees considered the voting records of the investment manager over the period ending 30 June 2022.
• Since the end of the Scheme Year, an updated analysis of the voting records of the investment manager based on the period ending 30 June 2023* has been undertaken as part of the work required to prepare this Implementation Statement. A summary of the key findings from that analysis is provided below.
• The investment managers used by the Scheme are UNPRI signatory.

*Note the voting analysis was over the year ending 30 June 2023 because this was the most recent data available at the time of preparing this statement. The Trustees are satisfied that the analysis provides a fair representation of the investment manager's voting approach over the Scheme Year.

The Investment Manager's Voting Record

A summary of the investment manager's voting record is shown in the table below.

Notes

These voting statistics are based on the manager’s full voting record over the 12 months to 30 June 2023 rather than votes related solely to the funds held by the Scheme.

Use of Proxy Voting Advisers

The Investment Manager's Voting Behaviour

The Trustees have reviewed the voting behaviour of the investment manager by considering the following:

• broad statistics of its voting record such as the percentage of votes cast for and against the recommendations of boards of directors (i.e. “with management” or “against management”);
• the votes it cast in the year to 30 June 2023 on the most contested proposals in nine categories across the UK, the US and Europe;
• the investment manager's policies and statements on the subjects of stewardship, corporate governance and voting.

The Trustees have also compared the voting behaviour of the investment manager with its peers over the same period.

Further details of the approach adopted by the Trustees for assessing voting behaviour are provided in the Appendix.

The Trustees' key observations are set out below.

Voting in Significant Votes

Based on information provided by the Trustees' Investment Adviser, the Trustees have identified significant votes in nine separate categories. The Trustees consider votes to be more significant if they are closely contested. i.e. close to a 50:50 split for and against. A closely contested vote indicates that shareholders considered the matter to be significant enough that it should not be simply “waved through”. In addition, in such a situation, the vote of an individual investment manager is likely to be more important in the context of the overall result.

The five most significant votes in each of the nine categories based on shares held by the Scheme’s investment manager are listed in the Appendix. In addition, the Trustees considered the investment manager’s overall voting record in significant votes (i.e. votes across all stocks not just the stocks held within the funds used by the Scheme).

Analysis of Voting Behaviour

BlackRock

BlackRock appear to have reverted somewhat to a stance of being more supportive of directors and less supportive of shareholders tackling ESG issues than many of their peers.

In BlackRock’s defence, it is likely that the success of voting choice has left BlackRock with a divergent client bank. Those that wanted to take a stronger stance on ESG issues are likely to have taken up the option to let someone else take voting decisions on their behalf. The remaining clients who BlackRock continue to represent may naturally be more supportive of directors and BlackRock’s voting approach may suit them.

Partners

The Partners Fund typically has an allocation of about 20% to listed strategies but the Trustees have excluded this fund from their analysis.

The Scheme's allocation to the Partners Fund represents about 9% of total assets meaning exposure to listed strategies via the fund equates to approximately 1.8% of total Scheme assets. The Trustees do not consider this to be significant.

Partners do operate stewardship guidelines which set out principles that they will apply in all the areas we would expect them to consider. They are not signatories to the UK Corporate Governance Code but they have been assessed as A+ by UNPRI (for Strategy & Governance).

Conclusion

Based on the analysis undertaken, the Trustees have no material concerns regarding the voting records of BlackRock. However, the Trustees will keep the voting actions of BlackRock under review, noting that BlackRock’s voting records could be improved relative to some other managers.

William Medlicott                                                        Date: 8 January 2024

Signed on behalf of the Trustees of the Jockey Club Racecourses Pension Scheme

Significant Votes

The table below records how the Scheme’s investment manager voted in the most significant votes identified by the Trustees.

Note

Where the voting record has not been provided at the fund level, we rely on periodic information provided by investment managers to identify the stocks held.  This means it is possible that some of the votes listed above may relate to companies that were not held within the Scheme’s pooled funds at the date of the vote. Equally, it is possible that there are votes not included above which relate to companies that were held within the Scheme’s pooled funds at the date of the vote.

Methodology for Determining Significant Votes

The methodology used to identify significant votes for this statement uses an objective measure of significance: the extent to which a vote was contested - with the most Significant Votes being those which were most closely contested.

The Trustees believe that this is a good measure of significance because, firstly, a vote is likely to be contentious if it is finely balanced, and secondly, in voting on the Trustees behalf in a finely balanced vote, an investment manager’s action will have more bearing on the outcome.

If the analysis was to rely solely on identifying closely contested votes, there is a chance many votes would be on similar topics which would not help to assess an investment manager’s entire voting record. Therefore, the assessment incorporates a thematic approach; splitting votes into nine separate categories and then identifying the most closely contested votes in each of those categories.

A consequence of this approach is that the total number of Significant Votes is large. This is helpful for assessing an investment manager’s voting record in detail but it presents a challenge when summarising the Significant Votes in this statement. Therefore, for practical purposes, the table on the previous page only includes summary information on each of the Significant Votes.

The Trustees have not provided the following information which DWP’s guidance suggests could be included in an Implementation Statement:

• Approximate size of the Scheme’s holding in the company as at the date of the vote.
• If the vote was against management, whether this intention was communicated by the investment manager to the company ahead of the vote.
• An explanation of the rationale for the voting decision, particularly where: there was a vote against the board; there were votes against shareholder resolutions; a vote was withheld; or the vote was not in line with voting policy.
• Next steps, including whether the investment manager intends to escalate stewardship efforts.

The Trustees are satisfied that the approach used ensures that the analysis covers a broad range of themes and that this increases the likelihood of identifying concerns about an investment manager’s voting behaviour.

The Trustees have concluded that this approach provides a more informative assessment of an investment manager’s overall voting approach than would be achieved by analysing a smaller number of votes in greater detail.