Background and purpose
Nordea Bank London Pension Plan (the "Plan") is an occupational pension scheme established in the United Kingdom under trust and is governed by a definitive trust deed dated 26 October 2009, with subsequent amendments.
The Plan was established to provide retirement benefits to certain groups of employees of Nordea Bank Abp (former or current employees in the Nordea Bank London branch) and was closed to future pension accrual on 31 December 2014. For Defined Benefit Section members the Plan provides benefits on a member's retirement or death based on the member's earnings at that time.
The EU Shareholder Rights Directive II has been transposed into UK legislation and the UK government requires Nordea Bank London Pension Plan to publish their "Statement of Investment Principles" (SIP) on a publicly available website.
The SIP includes description of for instance financially material considerations (including ESC considerations), the approach to stewardship of the investments and asset manager arrangements and the engagement and voting policy.
Statement of Investment Principles – September 2020
This Statement has been prepared by the Trustees of the Nordea Bank London Pension Plan. It sets out the principles that govern the decisions about the investment of the Plan’s assets.
In preparing this Statement, the Trustees have obtained written advice from the Plan’s Investment Consultant, Mercer. Where matters described in this Statement may affect the Plan’s funding policy, input has also been obtained from the Plan Actuary. We will obtain similar advice whenever we review this Statement.
The Trustees’ investment powers are set out within the Plan’s governing documentation and relevant legislation. If necessary, the Trustees will take legal advice regarding the interpretation of these. We note that, according to the law, we have ultimate power and responsibility for the Plan’s investment arrangements.
We will discuss any proposed changes to this Statement with Nordea Bank Abp (the “Bank”). However, our fiduciary obligations to Plan members will take precedence over the Bank’s wishes, should these ever conflict.
We will seek to adopt investment arrangements that are in keeping with best practice, including the principles underlying the (Myners) Code of Best Practice for pension fund investment published in 2001.
We will review this Statement annually, or if there are changes to the legislative framework or if there are relevant, material changes to the Plan and/or the Bank. These include changes in the Plan’s liabilities and finances and in the attitude to risk of the Trustees or the Bank.
As Trustees, we are accountable for the investment of the Plan’s assets. When we make investment decisions, we will refer to this Statement to ensure that the Plan’s investment arrangements are consistent with our investment principles.
The Trustees’ primary investment objective is to invest the Plan’s assets in such a manner that members’ benefit entitlements can be paid as and when they fall due.
Before deciding to take investment risk relative to the liabilities, we received advice from the Investment Consultant and Plan Actuary, and held discussions with the Bank.
Our willingness to take investment risk is dependent on the continuing financial strength of the Bank and its undertaking to contribute appropriately to the Plan. The financial strength of the Bank and its perceived commitment to the Plan is monitored.
Diversification of risks
We have taken the following risks into consideration when developing a suitable strategic benchmark:
- Interest rate risk exists if the projected cash flow profile of the assets held differs from that of the projected liabilities.
- Inflation risk exists if the projected cash flows from the assets have different linkages to inflation from the projected liabilities.
- Credit risk reflects the possibility that the payments due under a bond might not be made by the issuer, and similarly that the dividends expected from an equity investment might not be paid.
- Currency risk will arise through investment in non-Sterling assets. Given that the Plan’s liabilities are denominated in Sterling, changes in exchange rates will impact the relative value of the assets and liabilities.
- Volatility risk concerns the stability of the market value of assets such as equities and property, where the price achievable may be particularly affected by short term sentiment and is not certain until the point of sale.
- Regulatory risk arises from investing in a market environment where the regulatory regime may change. This may be compounded by political risk in those environments subject to unstable regimes.
- Liquidity risk arises from holding assets that are not readily marketable and realisable.
- Concentration risk arises for example when a high proportion of the Plan’s assets are invested in securities, whether debt or equity, of the same or related issuers.
Defined Benefit assets – Strategic benchmark
The Trustees have decided that 100% of the Plan’s Defined Benefit (DB) assets are to be passively managed and have appointed Legal & General Investment Management (L&G) to manage all the Plan’s assets.
We have delegated responsibility for the day to day management of the Plan’s assets to L&G, the investment manager.
The Plan’s current strategic investment benchmark is detailed in the table below.
|Asset Class||Allocation (%)|
|Global Equities (30% UK, 70% Overseas)||10|
|Fixed Interest Gilts||30|
|Index Linked Gilts||20|
|2055 Fixed Interest Gilt Fund||40|
The Trustees will consider the Plan’s asset allocation relative to benchmark once a year. Following this review, any rebalancing will be done on a discretionary basis, once the Trustees have consulted with the Bank to obtain their views on the Plan’s asset allocation. Any other decisions to rebalance during the year will be done on an ad hoc basis.
Since there are currently no contributions being paid, the Plan is expected to be cash flow negative for the foreseeable future, i.e. the invested assets will need to be sold on a regular basis in order to meet outgoings. The Trustees’ current policy is to source disinvestments in line with the strategic benchmark allocation outlined above. This is subject to review from time to time.
Defined Benefit assets – Investment manager benchmarks & fees
30% FTSE All Share;
|0.20% p.a. of the first £2.5m
0.19% p.a. of the next £7.5m
0.175% p.a. of the next £15m
|Fixed Interest Gilts|
|0.15% p.a. of the first £5m
0.125% p.a. of the next £5m
0.1% p.a. of the next £20m
|Index Linked Gilts|
FTSE A Index-Linked
|0.10% p.a. of the first £5m
0.075% p.a. of the next £5m
0.05% p.a. of the next £20m
|2055 Fixed Interest Gilt Fund|
Single stock Treasury
|0.10% p.a. of the first £5m
0.075% p.a. of the next £5m
0.05% p.a. of the next £20m
Socially Responsible Investment and Corporate Governance
The Trustees believe that environmental, social, and corporate governance (ESG) factors may have a material impact on investment risk and return outcomes, and that good stewardship can create and preserve value for companies and markets as a whole. The Trustees also recognise that long-term sustainability issues, particularly climate change, present risks and opportunities that increasingly may require explicit consideration.
The Trustees expect the appointed investment managers to evaluate ESG factors, including climate change considerations, when making investment decisions. The Trustees also expect the relevant investment managers to exercise voting rights and stewardship obligations attached to the investments, in accordance with their own corporate governance policies and current best practice, including the UK Corporate Governance Code and UK Stewardship Code. Where necessary, the Trustees will engage with the managers regarding their stewardship activity.
The Trustees consider how ESG, climate change and stewardship is integrated within investment processes in appointing new investment managers and monitoring existing investment managers. Monitoring is undertaken on a regular basis and is documented periodically.
The Trustees have not set any investment restrictions on the appointed investment managers in relation to particular products or activities but may consider this in future.
The Trustees do not explicitly consult members when making investment decisions.
Investment Manager ArrangementsAlignment with the Trustees’ Policies
When engaging with investment managers to implement the Trustees’ investment strategy outlined above, the Trustees are concerned that, as appropriate and to the extent applicable, the investment managers are incentivised to align their strategy and decisions with the objectives of the Plan.
However, as the Plan is only invested in multi-client pooled funds, the Trustees accept that they do not have the ability to determine the risk profile and return targets of specific funds. The Trustees are able to make investment manager appointments in such a manner that the assets are managed consistent with the investment strategy for the Plan. The investment managers are incentivised by the knowledge that the Trustees will review their appointment if, over time, they do not meet expectations.
Investment managers are appointed by the Trustees based on their capabilities and, therefore, their perceived likelihood of achieving the expected return and risk characteristics required for the asset class they are selected to manage.
Since the Plan’s investments are solely in passively managed mandates where outperformance is not the primary goal, the Trustees will seek guidance from their Investment Consultant in relation to their forward-looking assessment of the manager’s ability to achieve the stated mandate objectives.
If the investment objective for a particular fund changes, or if other factors change that could have an impact on the manager’s ability to meet its objectives, the Trustees will review the fund appointment to ensure it remains appropriate and consistent with the Trustees’ wider investment objectives.
Incentivisation and Medium/Long-Term Decision Making
The Trustees do not have a policy about making investment decisions based on their assessment of the performance of an issuer of debt or equity. Instead, assessments of the medium to long-term financial and non-financial performance of an issuer are made by the investment managers, where applicable. These managers may be in a position to engage directly with such issuers in order to improve their performance in the medium to long term. The Trustees do however consider the Investment Consultant’s assessment of how each investment manager integrates ESG and stewardship into their investment process. Further detail can be found in Section ‘Social Responsible Investment and Corporate Governance.
Evaluation and Remuneration
The Trustees receive investment performance reports on a quarterly basis. The Trustees review the performance against a suitable index used as the benchmark (where appropriate), and/or against the managers’ stated performance target over the relevant period. The Trustees maintain a focus on long term performance. They may review a manager’s appointment if the manager has extended periods of underperformance, there is a material change in personnel or there are developments that may severely impact the outcome of the investment.
The investment managers are remunerated by way of a fee calculated as a percentage of assets under management.
The Trustees may meet with investment managers if they are dissatisfied with their performance or engagement activity, and may choose to terminate the relationship with the manager if they see fit.
Portfolio Turnover Costs
The Trustees do not currently monitor portfolio turnover costs in respect of the Plan and have no set portfolio turnover targets; rather the Trustees assess investment performance net of the impact of the costs of such activities.
Duration of the Arrangements
The Trustees are long-term investors and are not looking to change the investment arrangements on a frequent basis. There is therefore no set duration for manager appointments. The Trustees will retain an investment manager unless:
- There is a change to the overall investment strategy that no longer requires exposure to that asset class or manager;
- The manager appointment has been reviewed and the Trustees have decided to terminate the mandate.
Defined Contribution Assets
There are no longer any invested assets in the Defined Contribution section of the Plan.
Compliance with this Statement
On a regular basis, the Trustees will review this Statement in response to any material changes to any aspect of the Plan, its liabilities, finances and the attitude to risk of the Trustees and the Bank, which is judged to have a bearing on the stated investment policy. Any such review will again be based on expert investment advice and will be in consultation with the Bank.
The Trustees will, at a minimum, review this Statement every three years. The Statement will be amended more frequently should any changes be made to the Plan’s investment arrangements, or objectives. The Trustees are committed to maintaining the accuracy of this Statement on an on-going basis.