3i GROUP PENSION PLAN
Report and Financial Statements for the year ended 30 June 2020 Scheme Registration No: 10117565
3i GROUP PENSION PLAN
TABLE OF CONTENTS
Trustees and their Advisers 2
Trustees’ Report 4
Investment Report 8
Report on Actuarial Liabilities 11
Actuary’s Certificate of Schedule of Contributions 12
Statement of Trustees’ Responsibilities 13
Independent Auditor’s Report 14
Fund Account 16
Statement of Net Assets (Available for Benefits) 17
Notes to the Financial Statements 18
Independent Auditor’s Statement about Contributions 28
Summary of Contributions paid in the year 29
Implementation Statement 30
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3i GROUP PENSION PLAN
TRUSTEES AND THEIR ADVISERS
Corporate Trustees: Gardens Pension Trustees Limited whose Directors are: (Or “the Trustees") J Davies D Herbert * (Appointed with effect from 17 June 2020) S J Holland D A Huff * (Resigned with effect from 27 October 2019) H E Marsh * (Resigned with effect from 2 March 2020) C M McComb * (Appointed with effect from 20 November 2019) C L Woodley * Member-Nominated Director and The Law Debenture (1996) Pension Trust Corporation - normally represented by: D F E Curtis or E J Beverley
The above Directors of Gardens Pension Trustees Limited and the representatives of The Law Debenture (1996) Pension Trust Corporation are together referred to in this report and accounts as the “Trustee Directors” or the “Trustee Board”
Secretary to the Trustees: 3i plc 16 Palace Street London SW1E 5JD
Actuary: J D Jones FIA Lane Clark & Peacock LLP (“LCP”) 95 Wigmore Street London W1U 1DQ
Investment Advisers: Lane Clark & Peacock LLP
Auditor: Ernst & Young LLP Wessex House 19 Threefield Lane Southampton SO14 3QB
Legal Advisers: Linklaters LLP One Silk Street London EC2Y 8HQ
Bankers: Bank of Scotland 600 Gorgie Road Edinburgh EH11 3XP
Investment Managers: Legal & General Assurance (Pensions Management) Ltd (“Legal & General”) One Coleman Street London EC2R 5AA
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3i GROUP PENSION PLAN
Administrators: XPS Administration Limited Albion Fishponds Road Wokingham Berkshire RG41 2QE
Principal Employer / the “Company”: 3i plc
Annuity Policy Providers: Pension Insurance Corporation plc (“PIC”) 14 Cornhill London EC3V 3ND
Legal & General Assurance Society Ltd (“LGAS”) One Coleman Street London EC2R 5AA
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3i GROUP PENSION PLAN
TRUSTEES’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 The Trustees present to the members their annual report and financial statements for the year ended 30 June 2020. Plan Information The 3i Group Pension Plan (the “Plan”) is governed by the Plan Rules, dated 29 March 2011, including subsequent amendments. The Plan is a defined benefit pension scheme and provides pension and lump sum benefits on retirement and death in respect of those 3i employees or former 3i employees who are members of the Plan. The Plan was closed to future accrual on 5 April 2011. Plan Trustees The Trustees of the Plan (currently the two corporate trustees listed on page 2) are appointed and removed by the Principal Employer in accordance with the Plan Rules (with the consent of the Trustees, except in limited circumstances). The Pensions Act 2004 requires that at least one-third of the Directors of Gardens Pension Trustees Limited are nominated by Plan members. In accordance with this requirement, the Trustees have agreed arrangements aimed at ensuring two Member-Nominated Directors are appointed. One of the Member-Nominated Directors resigned with effect from 27 October 2019 and a new Member-Nominated Director was appointed with effect from 20 November 2019. The other Member-Nominated Director resigned with effect from 2 March 2020 and a new Member-Nominated Director was appointed with effect from 17 June 2020. The remaining Directors of Gardens Pension Trustees Limited are appointed by 3i Group plc, the ultimate parent company of 3i plc. Directors of Gardens Pension Trustees Limited may be removed by 3i Group plc, except that in the case of Member-Nominated Directors, all other Directors of Gardens Pension Trustees Limited must approve this. The Trustees are responsible for ensuring that the Plan is properly run in accordance with its governing documents and overriding laws, and that all benefits are paid as they fall due in accordance with the Plan Rules. There is an Investment Committee, which includes all the Trustee Directors and the Finance Director of 3i Group plc. The Trustee Directors are key management personnel as defined by FRS 102. Key management personnel compensation has been included in Note 18. During the year, the Trustee Board or Investment Committee (or subsets of these) met regularly (in person, by telephone or video conference) to consider and make decisions on matters relating to funding, investment and the operation of the Plan. The Trustee Directors assess their own training needs, and receive regular training aimed at ensuring they have appropriate knowledge and understanding to carry out their duties effectively. Membership The number of members of the Plan as at the year end was: 2020 2019 Active members 21 22 Deferred pensioners 557 630 Pensioners 602 589 Active members are those still in employment with 3i and whose benefits are linked to changes in their pensionable salary. Pension increases The 2019 annual increase was applied at 1 July 2019 to 589 pensions in payment. The increase applied in respect of members who accepted the Pension Increase Exchange offer made in 2015 was in accordance with statutory minimum requirements (and ranged from 0% to 2.4%). The increase applied in respect of other members was in accordance with the Plan Rules and statutory requirements (and, in the majority of cases, was between 2% and 3%, depending on when the member retired and past increases). Deferred pensions were increased in accordance with the Plan Rules and statutory requirements. There were no discretionary increases to pension benefits awarded during the year.
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3i GROUP PENSION PLAN
Transfer Values Statutory cash equivalent transfer values to other approved pension arrangements are calculated and verified as prescribed by Section 97 of the Pension Schemes Act 1993. Non-statutory transfer values are calculated on the same basis. During the year, 49 members elected to take transfer values amounting to £34.8m. No discretionary benefits were included in the calculation of transfer values. Benefit / Plan Changes In March 2017 and February 2019, the Trustees entered into bulk annuity (or ‘buy-in’) policies, both covering a proportion of the Plan’s liabilities for pensions in payment, to reduce investment and longevity risk and provide an accurate match to the pensioner liabilities covered. These were purchased with PIC and LGAS respectively. During the year (with effect from 12 May 2020) and following a competitive process, the Trustees entered into a third and final buy-in policy with LGAS to cover the Plan’s remaining known defined benefit liabilities. Together these three buy-in policies provide an accurate match for the Plan benefits of all members. This final buy-in policy was secured using the Plan’s existing assets, with no further contributions required from the Company. In light of the Plan’s resulting very strong financial position, the Trustees also agreed that Plan expenses would be paid directly by the Plan going forwards rather than continuing to be met directly by the Company. A new Schedule of Contributions reflecting this position was signed on 12 May 2020. In October 2018, the High Court ruled that pension schemes need to address inequalities that have arisen between men and women as a result of certain unequal minimum benefits (called ‘guaranteed minimum pensions’) accrued by Plan members between 1990 and 1997. The Trustees have considered the best way to equalise benefits in the Plan between men and women, as a result of this ruling, which was a complex exercise involving the consideration of a number of possible approaches. The Trustees agreed the basis on which they would equalise benefits, based on advice received from the Plan’s actuary and legal advisers. The resulting benefit adjustments, which were generally small, were made to affected pensioner members’ benefits as part of the July 2020 annual pension increase exercise. For members who are yet to draw their Plan benefits, these will be reviewed and adjusted if appropriate at the point that they come into payment. Pensions in payment from the Plan will also continue to be monitored to ensure equalisation requirements are met and adjustments made, if appropriate. On 20 November 2020, the High Court further ruled that pension schemes should address the effect of any unequal treatment between men and women resulting from guaranteed minimum pensions on certain past transfer values. As a result of this judgment, the Trustees may need to review certain transfer values paid over the period from 1990 to the October 2018 judgment and assess whether any top-up payments are required. The Trustees are already in the process of assessing whether any top-up payments need to be made in respect of certain transfer values paid since the October 2018 judgment and before the basis for equalising benefits was agreed and implemented. The Trustees will consider the implications of this latest judgment and any action to be taken. It is not possible to estimate the cost of equalising historic transfer values at this time. Additional support for the Plan The Trustees have the benefit of a guarantee from 3i Group plc whereby 3i Group plc will pay to the Plan any amount that 3i plc (or any other employer participating in the Plan) is liable to pay to the Plan, but fails to do so within 30 days of the due date. In addition to this parent company guarantee, the Trustees and 3i Group plc established a Limited Liability Partnership (“LLP”), 3i Assets LLP, as a contingent asset arrangement to provide additional security to the Plan. The target value of assets to be held in the LLP is around £213m. As at 30 June 2020, the assets held within the LLP, some or all of which would become available to the Plan in certain circumstances, were valued at £292m. As part of the 2016 actuarial valuation, the Trustees and 3i Group plc also agreed an additional arrangement which would require 3i plc to make a payment of up to £50m directly to the Plan in certain “stress scenarios” linked to a material deterioration in the strength of the 3i Group’s covenant. The contingent asset and additional stress payment arrangements were reviewed as part of the 2019 actuarial valuation, completed in September 2020, and the Trustees have agreed with 3i Group plc that they are no longer required. In reaching this conclusion, the Trustees took into account the third and final buy-in policy secured with LGAS, the Plan’s resulting very strong and secure financial position, the significantly reduced level of additional security provided by these arrangements given the Plan’s now very strong position, and the fact that they would very
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likely fall away automatically in any case following completion of the next triennial actuarial valuation as at 30 June 2022. As such, the contingent asset and stress payment arrangements are expected to be unwound either in quarter four of the 2020 calendar year or the first quarter of the 2021 calendar year. COVID-19 As a result of the COVID-19 pandemic, there was a dramatic downturn in global markets in March 2020. The outbreak of COVID-19 has resulted in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand and general market uncertainty. The effects of COVID-19 have and may continue to adversely affect the global economy, the economies of certain nations and individual issuers, all of which have the potential to negatively impact investments generally. The Trustees believe that the Plan is well placed to withstand the current market uncertainty. They are confident that the Plan will have sufficient funds to continue to meet its liabilities as they fall due for at least twelve months from the date of approval of these financial statements and therefore have prepared the financial statements on a going concern basis. In reaching this conclusion, the Trustees have considered: The continued strong financial position of the Plan and the purchase of the third and final buy-in policy with LGAS, meaning that the Plan benefits of all members are now insured via buy-in policies; The assets of the Plan (mainly comprising the three buy-in policies, with surplus assets invested in a cash fund) being comparatively low risk; 3i Group’s financial position (noting that, following the third and final buy-in, the Plan’s reliance on 3i to meet its liabilities has been significantly reduced), the financial position of the Plan’s buy-in providers and the regulatory regime in which they operate. The Trustee Board and the Trustees’ various advisers and suppliers, including XPS Administration as the Plan’s administrator, are appropriately set up to continue to operate despite COVID-19 restrictions. The Trustees have worked closely with their advisers and suppliers, as well as 3i, to help ensure that the Plan operates on as close to a ‘business as usual’ basis as possible, that members’ benefits are safe and pension payments are maintained as usual. The Trustees will continue to monitor closely the impact of COVID-19, including on the financial position of the Plan’s buy-in providers and 3i Group. Financial Development of the Plan Changes in the Plan’s net assets during the year were as follows: £) Net assets at 30 June 2019 1,017,801,117) Net withdrawals from dealings with members (57,203,593) Net returns on investments 138,908,313) Net assets at 30 June 2020 1,099,505,837)
The financial statements for the year have been prepared and audited in accordance with Sections 41(1) and (6) of the Pensions Act 1995. Taxation Status The Plan is a registered pension scheme within the meaning of Section 153 of the Finance Act 2004. Enquiries All enquiries about the Plan and individual benefit entitlements should be addressed to: The Trustees of the 3i Group Pension Plan c/o XPS Administration Limited Albion Fishponds Road Wokingham Berkshire RG41 2QE Email: [email protected].
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3i GROUP PENSION PLAN
Money and Pensions Service (MaPS) MaPS is a service, introduced in 2019, to combine the three existing providers of Government sponsored financial guidance: The Pensions Advisory Service, Pension Wise and the Money Advice Service. The MaPS can be contacted at: Money and Pensions Service Holborn Centre 120 Holborn London EC1N 2TD
MaPS Tel: 0115 965 9570 Email: [email protected] Website: www.moneyandpensionsservice.org.uk
Pensions Ombudsman If a member has a complaint against the Plan that has not been resolved to his or her satisfaction through the Plan’s Dispute Procedure, the government appointed Pensions Ombudsman can investigate complaints of injustice caused by bad administration, either by the Trustees or Plan administrators, or disputes of fact or law. The Pensions Ombudsman can be contacted at: 10 South Colonnade Canary Wharf London E14 4PU
Tel: 0800 917 4487 Email: [email protected] Website: www.pensions-ombudsman.org.uk
The Pensions Regulator (tPR) The Pensions Regulator can intervene if they consider that a scheme’s trustees, advisers, or the employer are not carrying out their duties correctly. The address for the Pensions Regulator is: Napier House Trafalgar Place Brighton BN1 4DW
Tel: 0345 600 0707 Email: [email protected] Website: www.thepensionsregulator.gov.uk
The Pension Scheme Registry The Plan is registered with the Pension Scheme Registry, which is part of the Pensions Regulator's office. The registration number is 10117565. The data held by the Registry is used by the Pension Tracing Service to assist former members of schemes to trace their scheme benefits. The Pension Tracing Service can be contacted at: Pension Tracing Service The Pension Service 9 Mail Handling Site A Wolverhampton WV98 1LU
Tel: 0800 731 0193 Website: www.gov.uk/find-lost-pension
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3i GROUP PENSION PLAN
INVESTMENT REPORT As mentioned above, following a competitive process, the Trustees purchased a third buy-in policy with LGAS in May 2020, to cover the Plan’s remaining known defined benefit liabilities, which sits alongside two other buy- in policies held with PIC and LGAS. As payment for this third buy-in, the Plan transferred the majority of its corporate bond and gilt portfolios to LGAS. The Plan also sold its equity funds in December 2019 to de-risk its investment strategy in the run-up to this third and final buy-in. The Plan’s remaining (surplus) assets are invested separately to the LGAS buy-ins, in Legal & General’s Sterling Liquidity Fund, which is a pooled investment vehicle. Day-to-day responsibility for the investment management of underlying assets is delegated to an associate company, Legal & General Investment Management Limited (“LGIM”). The Trustees determine their investment strategy after taking advice from their investment adviser and, in consultation with the Company, reviewed this strategy during the year under review. Further details are provided below. Investment objective The Trustees consider that a constructive relationship with the Company is beneficial to members and have therefore worked closely with the Company in designing and implementing the Plan’s investment objective. The Trustees’ primary investment objective is to ensure that the Plan is able to meet all member benefit payments as they fall due. Having purchased a final buy-in policy in May 2020 to cover the remainder of the Plan’s known defined benefit liabilities the Trustees will consider in due course whether to move the Plan to full “buy-out” by converting the three buy-in contracts into individual insurance policies between the relevant insurers and each member. The Trustees will only decide to move to a buy-out if and when they are fully satisfied that each insurer has withstood the market turbulence and economic upheaval resulting from the COVID-19 pandemic, and each is in a strong financial position. The Trustees’ secondary objective is to maintain the Plan’s remaining (surplus) assets in low risk, liquid assets, in order to meet ongoing Plan expenses and preserve this surplus. Statement of Investment Principles A Statement of Investment Principles (SIP) has been produced as required under Section 35 of the Pensions Act 1995 (and a copy of the latest version is available at www.mypension.com/3i). All investments made during the year were in accordance with the Trustees’ SIP. Whilst the Trustees’ investments do not carry voting rights, they recognise their responsibilities as owners of capital and believe that good stewardship practices, including monitoring and engaging with investee companies, protect and enhance the long-term value of investments. The Trustees seek to appoint providers that have strong stewardship policies and processes, which reflect the recommendations of the UK Stewardship Code issued by the Financial Reporting Council, where relevant. The Trustees periodically review, with the assistance of their investment adviser, the ongoing appropriateness of the providers’ stewardship policies. The Trustees’ view is that the fees paid to investment managers, and the possibility of their mandates being terminated, ensure they are incentivised to provide a high quality service. It is the Trustees’ responsibility to ensure that the managers’ investment approaches are consistent with their policies before any new appointment, and to monitor and consider terminating any existing arrangements that appear to be investing contrary to those policies. The Trustees expect investment managers, where appropriate, to make decisions based on assessments of the longer-term financial and non-financial performance of debt/equity issuers, and to engage with issuers to improve their performance. The Trustees assess this when selecting and monitoring managers. The Trustees evaluate investment manager performance by considering performance over both shorter and longer-term periods as available. The duration of a manager’s appointment will generally depend on strategic considerations and the outlook for future performance.
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The Trustees recognise that portfolio turnover and associated transaction costs are a necessary part of investment management and that the impact of portfolio turnover costs is reflected in performance figures provided by the investment managers. Custodial Arrangements The custodianship of the assets is arranged by the investment manager through independent third-party custodians. The custodians are responsible for the safekeeping of records and documentation relating to the ownership of listed investments, the settlement of trades and income collection. The Trustees periodically review the arrangements that the investment manager has with the custodians and bear ultimate responsibility for ensuring that the Plan’s assets continue to be held securely. Market Background for the 12 months to 30 June 2020 Global Economy Slightly weaker global growth had been in evidence for much of the second half of 2019, driven by trade tensions (most notably between the US and China), geopolitical concerns, and weak manufacturing activity. That worsened significantly in early 2020, as COVID-19 quickly spread across the globe. In attempts to contain the virus and protect healthcare systems, many countries imposed strict quarantine measures. With flights grounded, borders closed, and factories shut, both supply and demand collapsed across multiple industries and sectors, with both deep and likely long-lasting consequences for the global economy. In response, central banks across the globe made cuts to their costs of borrowing and expanded quantitative easing in an attempt to mitigate the economic impact of the pandemic. This was also met by unprecedented fiscal stimulus from governments. In combination, the impact is set to have a profound long-lasting effect on the global economy. Equity Performance UK equities enjoyed a strong second half to 2019. This performance rested in part on the result of December’s general election, which was seen by investors as reducing the risk of a No-Deal Brexit. However, UK equities were among the hardest hit in Q1 2020 with the FTSE 100 posting its worst quarterly performance since 1987. Whilst the FTSE 100 rallied over Q2 2020, it has lagged many major equity market indices, in part due to its high allocation to energy companies, which underperformed due to the short-term crash in the oil price and possibly, because of longer-term concerns over the viability of their business models. During 2019, the US stock market passed a significant milestone as it marked the country’s longest ever equity market rise, with key indices such as the S&P 500 and Dow Jones posting record highs. The reversal was brutal and sharp; both indices recorded sharp falls over the three months to March, dropping by 20% and 23% respectively. Markets have since largely recovered losses, buoyed by the unprecedented monetary policy reaction from the US Federal Reserve. Other regional equity markets also performed strongly during the first half of the year to 30 June 2020, with Eurozone equities the best of the rest, also buoyed by renewed European Central Bank stimulus. Bonds The second half of 2019 proved positive for UK bond markets, given the Bank of England’s (“BoE”) decision to maintain the base rate at 0.75% on the back of Brexit-induced uncertainty. This, coupled with falling global growth expectations and continued high demand from risk-averse investors for safe haven assets, caused both nominal and inflation-linked bond yields to fall and consequently bond prices to rise. Yields did though rise in November and December, reflecting improved investor confidence in the macroeconomic outlook. This was not a permanent rise however, as yields fell dramatically as investors’ appetite for defensive assets rose and markets reacted to the BoE’s response to the COVID-19 pandemic. The BoE cut rates twice in March, leaving the base rate at 0.1%, pledged unlimited short-term financing for large companies and expanded its Quantitative Easing programme by an additional £300bn in purchases of gilts and investment-grade corporate bonds.
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Despite a spike in credit spreads in Q1 2020, Sterling corporate bonds have performed strongly. Positive performance was driven by the fall in bond yields and a recovery in credit spreads over Q2 2020 which was aided by the BoE’s inclusion of corporate debt in its bond-purchasing programme. Investment Performance The Plan performance to 30 June 2020 and that of the constituent investment funds before fees was as follows. Last 12 months Last 3 years Last 5 years
Fund Index Fund Index Fund Index % % % p.a. % p.a. % p.a. % p.a.
Global equities (sold 10 Dec 2019)1 2.6 2.6 5.9 5.9 8.3 8.3
Gilts CSUF (sold 14 May 2020) 2 17.4 17.5 10.2 9.7 11.4 11.1 Index Linked Gilts over 5yr Fund (purchased 24 February 2020 and -2.3 -2.3 - - - - sold 8 April 2020)1 Corporate Bonds CSUF (sold 14 May 3.5 3.5 3.6 3.6 4.9 4.8 2020) 1,3 Sterling Liquidity Fund 0.7 0.4 0.6 0.4 0.6 0.4
Total Plan 4 12.7 12.7 8.0 7.6 9.5 9.3
Source: LGIM. Note that “CSUF” stands for Client Specified Unitised Fund – a pooled fund with investment guidelines specific to the Plan’s requirements as the sole investor in the fund. 1. Performance for funds sold during the year has been shown to the date of sale indicated, from 1 July 2019, 2017 and 2015 respectively. 2. Performance is estimated by LCP. From 1 October 2017, the investment manager commenced formal reporting of the Gilts CSUF performance attribution. The gilts CSUF benchmark performance is based on the Plan’s cashflow data as at 31 March 2017 (rolled forward to 30 January 2018), discounted on a gilts flat basis and scaled to the liability hedge ratios, such that it is comparable to the performance of the assets providing the hedging. 3. Performance is estimated by LCP. Performance represents the AAA-AA-A Bonds-All Stocks Index up to 31 March 2018 and the corporate bonds CSUF thereafter. The corporate bonds CSUF does not have a formal benchmark, so its benchmark performance has been set equal to the fund performance. 4. Index performance estimated by LCP.
The investment managers’ fees are paid in accordance with a negotiated scale. Employer-Related Investments During the Plan year to which the financial statements relate, there were no employer-related investments, within the meaning of Section 40 of the Pensions Act 1995.
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REPORT ON ACTUARIAL LIABILITIES Under Section 222 of the Pensions Act 2004, every scheme is subject to the Statutory Funding Objective, which is to have sufficient and appropriate assets to cover its technical provisions. The technical provisions represent the present value of the benefits members are entitled to, based on pensionable service to the valuation date. This is assessed using the assumptions determined by the Trustees in consultation with the Company and set out in the Statement of Funding Principles, which is available to Plan members on request. The most recent full actuarial valuation of the Plan was carried out as at 30 June 2019. This showed that on that date: - The technical provisions were £904 million. - The value of the assets was £993 million.
As the Plan’s funding position showed a surplus of £89m at the valuation date of 30 June 2019, the Trustees agreed, in consultation with the Company, that the Company would pay no contributions as a result of the valuation. The method and significant actuarial assumptions used to determine the technical provisions as at the 30 June 2019 valuation date are set out below (all assumptions adopted are set out in the Appendix to the Statement of Funding Principles). After the valuation date, in May 2020, the Trustees purchased a third and final buy-in policy with LGAS to cover remaining known defined benefit liabilities, which further improved the security of members’ benefits. This third buy-in was secured using Plan assets, with no additional contribution being required from the Company and leaving a residual surplus of assets in the Plan. Method The actuarial method to be used in the calculation of the technical provisions is the Projected Unit Method. Significant actuarial assumptions Discount interest rate: set equal to the return on gilts, which in turn is set by reference to the yields available at the valuation date on fixed interest gilts. Future Retail Price inflation: rates implied by the yields available at the valuation date on fixed interest and index-linked gilts. Future Consumer Price inflation: rates derived from the assumption for future retail price inflation less an adjustment equal to 0.75% per annum. Pension increases: rates derived from the assumption for future retail price inflation or future consumer price inflation (as appropriate) allowing for the caps and floors on pension increases according to the provisions in the Plan’s rules and the volatility in inflation. Pay increases: pay increases of 3.5% per annum above the assumption for the future retail price inflation. Mortality: standard tables S3NA Very Light for males and females with a scaling factor of 90%, projected from 2013 in line with the CMI 2018 core projections with smoothing parameter of 7, a long-term rate of improvement of 2% per year and initial addition parameter of 0.5% pa. GMP Equalisation: as mentioned above, the High Court has ruled that pension schemes which had been contracted out of the State Scheme on a Guaranteed Minimum Pension (‘GMP’) basis prior to 5 April 1997 must take action to treat men and women equally in relation to the GMP built up on service between 17 May 1990 and 5 April 1997. An exercise has been undertaken to modify benefits under the Plan for this period of service and affected members have been (or will be) informed as required. An allowance of £2m has been made in the technical provisions for the estimated cost of equalising these benefits for men and women. The Trustees are considering the implications of the recent High Court judgment in relation to modifying certain historic transfer values paid from the Plan. It is not possible to estimate the cost of equalising historic transfer values at this time. The next full actuarial valuation is due to be carried out as at 30 June 2022 and should be completed by 30 September 2023. The method and assumptions described above will be reviewed as part of the next valuation.
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ACTUARY’S CERTIFICATE OF SCHEDULE OF CONTRIBUTIONS
This Certificate is provided for the purpose of Section 227(5) of the Pensions Act 2004 and Regulation 10(6) of the Occupational Pension Schemes (Scheme Funding) Regulations 2005.
Name of Plan: 3i Group Pension Plan
Adequacy of rates of contributions I certify that, in my opinion, the rates of contributions shown in this Schedule of Contributions are such that the Statutory Funding Objective can be expected to continue to be met for the period for which the schedule is to be in force.
Adherence to Statement of Funding Principles I hereby certify that, in my opinion, this Schedule of Contributions is consistent with the Statement of Funding Principles dated 29 September 2020.
The certification of the adequacy of the rates of contributions for the purpose of securing that the Statutory Funding Objective can be expected to be met is not a certification of their adequacy for the purpose of securing the Plan’s liabilities by the purchase of annuities, if the Plan were to be wound up.
Date: 29 September 2020
Name: J D Jones Qualification: FIA
Address: Lane Clark & Peacock LLP 95 Wigmore Street London W1U 1DQ
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STATEMENT OF TRUSTEES’ RESPONSIBILITIES
The financial statements, which are prepared in accordance with UK Generally Accepted Accounting Practice, including the Financial Reporting Standard applicable in the UK (FRS 102), are the responsibility of the Trustees. Pension scheme regulations require, and the Trustees are responsible for ensuring, that those financial statements: show a true and fair view of the financial transactions of the Plan during the Plan year and of the amount and disposition at the end of the Plan year of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the Plan year; and
contain the information specified in Regulation 3A of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, including making a statement whether the financial statements have been prepared in accordance with the relevant financial reporting framework applicable to occupational pension schemes.
In discharging the above responsibilities, the Trustees are responsible for selecting suitable accounting policies, to be applied consistently, making any estimates and judgments on a prudent and reasonable basis, and for the preparation of the financial statements on a going concern basis unless it is inappropriate to presume that the Plan will not be wound up. The Trustees are also responsible for making available certain other information about the Plan in the form of an annual report. The Trustees also have a general responsibility for ensuring that adequate accounting records are kept and for taking such steps as are reasonably open to them to safeguard the assets of the Plan and to prevent and detect fraud and other irregularities, including the maintenance of an appropriate system of internal control. The Trustees are responsible under pensions legislation for preparing, maintaining and from time to time reviewing and if necessary revising a Schedule of Contributions showing the rates of contributions payable towards the Plan by or on behalf of the employer and the active members of the Plan and the dates on or before which such contributions are to be paid. The Trustees are also responsible for keeping records in respect of contributions received in respect of any active member of the Plan and for adopting risk-based processes to monitor whether contributions are made to the Plan by the employer in accordance with the Schedule of Contributions. Where breaches of the Schedule occur, the Trustees are required by the Pensions Acts 1995 and 2004 to consider making reports to The Pensions Regulator and the members.
By Order of the Trustees For Gardens Pension For The Law Debenture (1996) Trustees Limited Pension Trust Corporation
...... Carol Woodley David Curtis Chairman Authorised Signatory
...... Date Date
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INDEPENDENT AUDITOR’S REPORT TO THE TRUSTEES OF 3i GROUP PENSION PLAN Opinion We have audited the financial statements of the 3i Group Pension Plan for the year ended 30 June 2020 which comprise the Fund Account, the Statement of Net Assets and the related Notes 1 to 22, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’. In our opinion, the financial statements: show a true and fair view of the financial transactions of the Plan during the year ended 30 June 2020, and of the amount and disposition at that date of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the year; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’; and contain the information specified in Regulation 3A of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, made under the Pensions Act 1995. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below. We are independent of the Plan in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: the Trustees’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the Trustees have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Plan’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
Other information The other information comprises the information included in the annual report, other than the financial statements, our auditor’s report thereon and our statement about contributions. The Trustees are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information we are required to report that fact. We have nothing to report in this regard.
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3i GROUP PENSION PLAN
INDEPENDENT AUDITOR’S REPORT TO THE TRUSTEES OF THE 3i GROUP PENSION PLAN (continued) Responsibilities of the Trustees As explained more fully in the Trustees’ responsibilities statement set out on page 13 the Trustees are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Trustees determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements the Trustees are responsible for assessing the Plan’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Trustees either intend to wind up the Plan or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Plan’s Trustees, as a body, in accordance with the Pensions Act 1995 and Regulations made thereunder. Our audit work has been undertaken so that we might state to the Plan’s Trustees those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Plan’s Trustees as a body, for our audit work, for this report, or for the opinions we have formed.
Ernst & Young LLP Statutory Auditor Southampton Date: ......
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3i GROUP PENSION PLAN
FUND ACCOUNT For the year ended 30 June 2020 ) ) Note 2020) 2019) £) £) CONTRIBUTIONS AND BENEFITS ) ) ) ) Benefits paid or payable 4 19,212,135) 18,236,409) Payments to and on account of leavers 5 35,121,316) 27,246,130) Administrative expenses 6 2,870,142) 2,045)
57,203,593) 45,484,584) ) ) NET WITHDRAWALS FROM DEALINGS ) ) WITH MEMBERS (57,203,593) (45,484,584) ) ) RETURNS ON INVESTMENTS ) ) ) ) Investment income 7 10,922,558) 8,216,602) Change in market value of investments 9 128,167,020) 64,049,364) Investment management expenses 8 (181,265) (2,540)
NET RETURNS ON INVESTMENTS 138,908,313) 72,263,426) ) ) NET INCREASE IN THE FUND FOR THE YEAR 81,704,720) 26,778,842) ) ) OPENING NET ASSETS 1,017,801,117) 991,022,275)
CLOSING NET ASSETS 1,099,505,837) 1,017,801,117)
The notes on pages 18 to 27 form part of these financial statements.
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3i GROUP PENSION PLAN
STATEMENT OF NET ASSETS (AVAILABLE FOR BENEFITS) At 30 June 2020 ) ) Note 2020) 2019) £) £) ) ) INVESTMENT ASSETS 9 ) ) ) ) Equities 100) 100) Pooled investment vehicles 10 76,513,274) 703,029,286) Annuity policies 11 1,006,500,000) 310,800,000) AVC investments 12 658,854) 800,678) Cash deposits -) 1,401,665) TOTAL NET INVESTMENTS 1,083,672,228) 1,016,031,729) ) ) CURRENT ASSETS 16 18,500,605) 2,171,819) ) ) CURRENT LIABILITIES 17 (2,666,996) (402,431) ) )
CLOSING NET ASSETS 1,099,505,837) 1,017,801,117)
The notes on pages 18 to 27 form part of these financial statements. The financial statements summarise the transactions of the Plan and deal with the net assets at the disposal of the Trustees. They do not take account of obligations to pay pensions and benefits which fall due after the end of the Plan year. The actuarial position of the Plan, which takes into account such obligations, is dealt with in the Report on Actuarial Liabilities on page 11 of the Annual Report and these financial statements should be read in conjunction with that report.
These financial statements were approved by the Trustees on ...... (date)
For Gardens Pension For The Law Debenture (1996) Trustees Limited Pension Trust Corporation
...... Carol Woodley David Curtis Chairman Authorised Signatory
...... Date Date
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3i GROUP PENSION PLAN
NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2020 1. BASIS OF PREPARATION The financial statements have been prepared in accordance with the Occupational Pensions Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, Financial Reporting Standard 102 – The Financial Reporting Standard applicable in the UK and Republic of Ireland issued by the Financial Reporting Council and the guidance set out in the Statement of Recommended Practice (SORP), revised in 2018. This is the first year that the financial statements have been prepared in accordance with the revised SORP. 2. IDENTIFICATION OF THE FINANCIAL STATEMENTS The Plan is established as a trust under English law. The address for enquiries to the Plan is c/o XPS Administration Limited, Albion, Fishponds Road, Wokingham, Berkshire, RG41 2QE. 3. ACCOUNTING POLICIES (a) Accounting Convention The financial statements are prepared on an accruals basis. The Plan’s functional and presentation currency is pounds sterling. (b) Payments to Members Pensions in payment are accounted for in the period to which they relate. Benefits are accounted for in the period in which the member notifies the Trustees of his decision on the type or amount of benefit to be taken or, if there is no member choice, on the date of retirement or leaving. Individual transfers in or out are accounted for when the member liability is accepted or discharged which is normally when the transfer is received or paid. (c) Expenses Expenses are accounted for on an accruals basis. The Company bore all the costs of administration until 12 May 2020, when the Plan took over responsibility for all expenses, including any invoices unpaid as at that date. (d) Investment Income Interest receivable and annuity income is taken into account on an accruals basis. Income arising on the underlying investments of accumulation funds is reflected within the change in market value. (e) Investments Investments are included at fair value as follows: Unitised pooled investment vehicles have been valued at the latest available bid price or single price provided by the pooled investment manager. The buy-in policies are valued by the Plan Actuary at the present value of the related obligation, determined using the most recent Plan Funding valuation assumptions updated for market conditions at the reporting date. The investment in 3i Assets LLP is valued at fair value which is the cost of the capital contribution only.
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3i GROUP PENSION PLAN
NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 June 2020
4. BENEFITS PAID OR PAYABLE 2020) 2019) £) £) ) ) Pensions 17,331,229) 16,935,649) Commutation of pensions and lump sum retirement benefits 1,880,906) 1,194,233) Taxation where lifetime or annual allowance exceeded -) 106,527)
19,212,135) 18,236,409)
5. PAYMENTS TO AND ON ACCOUNT OF LEAVERS 2020) 2019) £) £) ) ) Individual transfers out to other schemes 35,121,316) 27,246,130)
6. ADMINISTRATIVE EXPENSES PAID BY THE PLAN 2020) 2019) £) £) ) ) Administration 350,558) -) Actuarial fees 1,319,885) -) Legal fees 968,160) -) Investment advice 17,523) -) Audit fees 43,200) -) The Pensions Regulator levies 5,892) -) Other advice fees 163,960) -) Miscellaneous expenses 964) 2,045)
2,870,142) 2,045)
The Company paid all expenses directly until 12 May 2020, when the Plan took over responsibility for these, including any invoices unpaid as at that date. Miscellaneous expenses include bank charges and administration fees payable by the member. 7. INVESTMENT INCOME 2020) 2019) £) £) ) ) Interest on cash deposits 15,377) 19,735) Annuity income 10,907,181) 8,196,867)
10,922,558) 8,216,602)
The annuity income has increased in 2020 due to the purchase of an additional buy-in policy with LGAS as detailed in note 11.
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3i GROUP PENSION PLAN
NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 June 2020 8. INVESTMENT MANAGEMENT EXPENSES 2020) 2019) £) £) ) ) Investment fees - management & custody 181,265) 2,540)
The Plan took over responsibility for paying investment management fees on 12 May 2020, including any invoices unpaid as at that date. Prior to this, investment management fees were paid by the Company. In the previous year, investment management expenses related to fees charged during the transfers of assets to pay the premium for the buy-in policy purchased with LGAS in February 2019.
9. RECONCILIATION OF INVESTMENTS) ) ) Value at Purchases at Sales Change in Value at 30.06.2019) cost) proceeds) market 30.06.2020) value) £) £) £) £) £) Equities * 100) -) -) -) 100) Pooled investment vehicles 703,029,286) 316,522,409) (1,030,205,824) 87,167,403) 76,513,274) Annuity policies 310,800,000) 657,538,143) (2,830,721)) 40,992,578) 1,006,500,000) AVC investments 800,678) 63,986) (212,849) 7,039) 658,854)
1,014,630,064) 974,124,538) (1,033,249,394) 128,167,020) 1,083,672,228) Cash in transit 1,401,665) ) ) -) -)
1,016,031,729) ) ) 128,167,020) 1,083,672,228)
* Investment in 3i Assets LLP. Further information is given in Note 19. Transaction costs are included in the cost of purchases and deducted from sale proceeds. Direct transaction costs include costs charged to the Plan such as fees, commissions and stamp duty. No direct transaction costs were incurred during the year. In addition to the direct transaction costs, indirect costs are incurred through the bid-offer spread on investments within pooled investment vehicles and charges made within those vehicles.
10. POOLED INVESTMENT VEHICLES The Plan’s investments in pooled investment vehicles at the year end comprised: 2020 2019 £ £ Equity - 81,772,495 Bonds - 588,059,313 Cash 76,513,274 33,197,478 76,513,274 703,029,286
As payment for the third buy-in, the Plan transferred the majority of its bond portfolios to LGAS. The Plan also sold its equity funds in December 2019 to de-risk its investment strategy ahead of the buy- in.
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3i GROUP PENSION PLAN
NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 June 2020 11. ANNUITY POLICIES The Plan held annuity policies at the year end as follows: 2020 2019 £ £
Buy-in policy with PIC 212,400,000 208,100,000 Buy-in policy with LGAS (2019) 110,300,000 102,700,000 Buy-in policy with LGAS (2020) 683,800,000 -
1,006,500,000 310,800,000
The Plan purchased a buy-in policy with PIC in March 2017, at a cost of £203.5m. In February 2019, the Plan purchased a second policy with LGAS for £95.8m. A third and final buy-in policy was purchased with LGAS in May 2020, at a cost of £654.7m. The policies were valued at 30 June 2020 by the Plan’s Actuary allowing for future investment returns in line with gilts and no additional outperformance (i.e. a ‘gilts flat’ basis). The increase in the value of the two buy- in policies since 30 June 2019 is primarily a result of changes in market conditions between 30 June 2019 and 30 June 2020 offset partially by payments made in respect of benefits insured under this policy over the year. 12. AVC INVESTMENTS The Trustees hold assets invested separately from the main fund investments to secure additional benefits on a money purchase basis for those members electing to pay additional voluntary contributions. Members participating in this arrangement receive an annual statement made up to the year end confirming the value of their fund and the movements in the year. The aggregate amounts of AVC investments are as follows: 2020 2019 £ £ Equitable Life Assurance Society (with profits and unit linked) - 328,765 Utmost Life and Pensions (unit linked) 313,571 - LGAS (with profits and unit linked)* 345,283 471,913
658,854 800,678
As at 1 January 2020, all with profits AVC policies held with Equitable Life were transferred to unit-linked policies held with Utmost Life and Pensions. Prior to the transfer, the relevant members received an uplift to their with-profits AVC funds. The uplift is included in the change in market value for AVC investments (shown in note 9 above). Included within the purchases and sales items for AVC investments (shown in note 9 above) is the transfer of Equitable Life policies to Utmost Life and Pensions (£63,986). * The AVC policies held with LGAS were transferred to ReAssure Ltd after the year end (on 7 September 2020). 13. FAIR VALUE DETERMINATION The fair value of financial instruments has been estimated using the following fair value hierarchy: Level 1: The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date. Level 2: Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly. Level 3: Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.
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3i GROUP PENSION PLAN
NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 June 2020 13. FAIR VALUE DETERMINATION (continued) The Plan’s investment assets and liabilities fall within the above hierarchy as follows: At 30 June 2020 Level 1 Level 2 Level 3 Total £ £ £ £ Equities - - 100 100 Pooled investment vehicles - 76,513,274 - 76,513,274 Annuity policies - - 1,006,500,000 1,006,500,000 AVC investments - 628,626 30,228 658,854 - 77,141,900 1,006,530,328 1,083,672,228
At 30 June 2019 Level 1 Level 2 Level 3 Total £ £ £ £ Equities - - 100 100 Pooled investment vehicles - 703,029,286 - 703,029,286 Annuity policies - - 310,800,000 310,800,000 AVC investments - 723,234 77,444 800,678 Cash 1,401,665 - - 1,401,665 1,401,665 703,752,520 310,877,544 1,016,031,729
14. INVESTMENT RISK DISCLOSURES FRS 102 requires the disclosure of information in relation to certain investment risks. These risks are set out by FRS 102 as follows: Credit risk: this is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Market risk: this comprises currency risk, interest rate risk and other price risk. Currency risk: this is the risk that the fair value or future cash flows of a financial asset will fluctuate because of changes in foreign exchange rates. Interest rate risk: this is the risk that the fair value or future cash flows of a financial asset will fluctuate because of changes in market interest rates. Other price risk: this is the risk that the fair value or future cash flows of a financial asset will fluctuate because of changes in relevant pricing factors (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.
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3i GROUP PENSION PLAN
NOTES TO THE FINANCIAL STATEMENTS (Continued) For the year ended 30 June 2020
14. INVESTMENT RISK DISCLOSURES (Continued) The Trustees determine their investment strategy after taking advice from a professional investment adviser. The Plan has exposure to these risks via the investments held to implement the investment strategy. The Trustees manage investment risks, including credit risk and market risk, within agreed risk limits which are set taking into account the Plan’s strategic investment objectives. These investment objectives and risk limits are implemented through the investment management agreement in place with the Plan’s investment manager and monitored by the Trustees by regular reviews of the investment portfolio. The table below summarises the Plan’s pooled investment vehicles and buy-in policies that have significant exposure to indirect credit and market risks. Any exposure to direct credit risks are detailed in the following notes – see note 14(i). The table and notes below consider risk from an asset-only perspective. Note that, in practice, the purchase of buy-in policies and the investment of the Plan’s remaining assets in the LGIM Sterling Liquidity Fund has greatly reduced both the funding and investment risk that the Plan is exposed to.
Credit Currency Interest Other 2020 2019 risk risk rate risk price £ £ risk
Global equities ○ ● ○ ● - 81,772,493 Corporate Bonds CSUF Corporate Bonds ● ○ ● ○ - 148,182,045
Sterling Liquidity Fund ○ ○ ○ ○ - 2,936,426 Gilts CSUF Fixed Interest Gilts ○ ○ ● ○ - 90,723,872 Index-Linked Gilts ○ ○ ● ○ - 349,282,386
Sterling Liquidity Fund ○ ○ ○ ○ - 23,112,912 Sterling Liquidity Fund ○ ○ ○ ○ 76,513,274 7,019,151
Annuity policies (buy-ins) ○ ○ ● ● 1,006,500,000 310,800,000
Key: The risk noted affects the fund significantly (●) or hardly/ not at all (○). The Plan was the sole investor in the corporate bonds and gilts CSUFs; the former consisted of a corporate bond portfolio and the Sterling Liquidity Fund, and the latter consisted of a conventional and index-linked gilts portfolio and the Sterling Liquidity Fund. Note that, as at 30 June 2020, the Plan’s investments (other than the buy-in policies) are held solely in the Sterling Liquidity Fund.
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3i GROUP PENSION PLAN
NOTES TO THE FINANCIAL STATEMENTS (Continued) For the year ended 30 June 2020
14. INVESTMENT RISK DISCLOSURES (Continued)
Further information on the Trustees’ approach to risk management, credit and market risk is set out below. This does not include the AVC investments as these are not considered significant to the overall investment strategy of the Plan. (i) Credit risk The Plan is exposed to direct credit risk from its buy-in policies as the bulk annuity providers may become insolvent. However, this is considered a low risk mitigated by the regulatory framework in which the providers operate. The Plan invests in pooled funds and is therefore exposed to direct credit risk in relation to the solvency of the investment manager and custodian of those funds. Direct credit risk arising from pooled funds is mitigated by the underlying assets of the pooled arrangements being ring-fenced from the investment manager and the regulatory environment in which the pooled manager operates. The Trustees carry out due diligence checks on the appointment of new pooled investment managers, and on an on-going basis monitor any changes to the operating environment of the pooled funds. As at 30 June 2020, the Plan is exposed to indirect credit risk, principally via the Sterling Liquidity fund, but this is not considered to be material. (ii) Currency risk As the Plan’s liabilities are denominated in Sterling, any non-Sterling currency exposure within the assets presents a currency risk. However, as at 30 June 2020, the Plan is not exposed to any direct or indirect currency risks as it only invests in the Sterling Liquidity Fund (which is denominated in Sterling) and the buy-in policies (which cover Sterling denominated liabilities). (iii) Interest rate risk As at 30 June 2020, the Plan is subject to indirect interest rate risk via the buy-in policies. However, these assets are held as part of the investment strategy because of their sensitivity to real interest rates in order to mitigate liability risk. If real interest rates (i.e. rates taking into account inflation) fall, the value of these investments will rise to match the increase in actuarial liabilities arising from a fall in the discount rate. Similarly, if real interest rates rise, these investments will fall in value as will the actuarial liabilities because of an increase in the discount rate. (iv) Other price risk As at 30 June 2020, the Plan is subject to indirect other price risk via the buy-in policies, for example, longevity risk (i.e. the chance that members live longer than expected and member benefit payments increase as a result). However, this would be matched by continued payments from the buy-in policies.
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3i GROUP PENSION PLAN
NOTES TO THE FINANCIAL STATEMENTS (Continued) For the year ended 30 June 2020
15. CONCENTRATION OF INVESTMENTS
The following investments represented over 5% of the net assets of the Plan: 2020 2019 £ % £ % Legal & General
Gilts CSUF - - 463,119,170 45.5 Corporate Bonds CSUF - - 151,118,471 14.8 Sterling Liquidity Fund 76,513,274 7.0 n/a n/a PIC annuities 212,400,000 19.3 208,100,000 20.4 LGAS annuities (2019) 110,300,000 10.0 102,700,000 10.1 LGAS annuities (2020) 683,800,000 62.2 - -
16. CURRENT ASSETS 2020) 2019) £) £) ) ) Bank balance 18,500,605) 2,171,819)
17. CURRENT LIABILITIES 2020) 2019) £) £) ) ) Unpaid benefits 9,004) -) Accrued expenses 2,252,981) -) Tax payable 405,011) 402,431)
2,666,996) 402,431)
18. RELATED PARTIES During the year, four Directors of Gardens Pension Trustees Limited were in receipt of pensions from the Plan, which are included within pensions payable, and one Director was a deferred member. Their pensions are calculated in accordance with the Plan Rules. Trustee Directors’ fees are paid by 3i plc and, during the year, amounted to £334,605 (2019: £216,476). The amount of fees paid to Trustee Directors is inclusive of VAT where this applied, although a proportion of the VAT is currently recoverable by 3i.
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3i GROUP PENSION PLAN
NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 June 2020
19. CONTINGENT ASSETS 3i Assets LLP has provided a guarantee to the Trustees of the 3i Group Pension Plan. The guarantee and indemnity is dated 7 March 2012 (subsequently amended by a deed dated 2 May 2018) and is drawn up between 3i Assets LLP, Gardens Pension Trustees Limited, The Law Debenture (1996) Pension Trust Corporation and 3i plc. 3i Assets LLP has two Partners, 3i Group plc and Gardens Pension Trustees Limited, and is governed by an amended and restated Limited Liability Partnership Agreement (“LLPA”) dated 2 May 2018. It was set up for the purpose of facilitating a contingent asset arrangement to provide additional security to the Trustees of the Plan. On 4 April 2012 3i Group plc made a capital contribution by transferring 120,481,908 shares in 3i Infrastructure plc to 3i Assets LLP. At the time of this capital contribution, these shares had a market value of £149,999,975.46. At the same time, Gardens Pension Trustees Limited made a £100 capital contribution to 3i Assets LLP on behalf of the 3i Group Pension Plan. Under the terms of the LLPA, 3i Group plc retains all income and capital rights in 3i Assets LLP and the Trustee member has no income rights and its capital rights are limited to the £100 contribution, unless there is a guarantee trigger event. The capital contribution of £100, made and held on behalf of the Plan, is included as an investment asset; see note 9. The fair value of 3i Group’s capital contribution in 3i Assets LLP at 30 June 2020 was £292 million (2019: £297 million). Under specific circumstances, including the insolvency of 3i Group plc or a material failure of 3i Group plc in its obligations to the Plan, which are detailed in the guarantee and indemnity agreement (as amended), a payment will be due to the Plan from 3i Assets LLP. If it fails to pay, Gardens Pension Trustees Limited will be able to take control of 3i Assets LLP and either ensure that the LLP complies with its obligations under the guarantee or it can take assets from the LLP for the benefit of the Plan, equal to the amounts guaranteed. A number of actions carried out by 3i Infrastructure plc (including equity raises and share consolidation exercises) have altered the number of shares held by 3i Assets LLP over time and, in 2018, 3i Group plc exercised its right to withdraw 10,787,384 shares from 3i Assets LLP as the value of assets held by 3i Assets LLP was above the target level set out in the LLPA. As at 30 June 2020, the number of shares held by 3i Assets LLP was 100,000,000. As mentioned in the Trustee Report above, as part of the 2019 actuarial valuation (completed in September 2020), the Trustees have agreed with 3i Group plc that 3i Assets LLP should be liquidated. It is expected this will be done either during quarter four of the 2020 calendar year or the first quarter of the 2021 calendar year.
20. TAXATION STATUS The Plan is a registered Pension Scheme under Chapter 2 of Part 4 of the Finance Act 2004 and is therefore exempt from income tax and capital gains tax.
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3i GROUP PENSION PLAN
NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 June 2020
21. GUARANTEED MINIMUM PENSIONS As noted in the Trustee Report, in October 2018, the High Court delivered its judgment in a case involving the Lloyds Banking Group’s defined benefit pension schemes. The judgment has wider implications for UK defined benefit pension schemes and is relevant to certain minimum benefits (called ‘guaranteed minimum pensions’) accrued by Plan members between 1990 and 1997. The High Court decided that steps must be taken to equalise certain inequalities that exist between men and women in relation to such benefits over this period and backdated amounts paid to affected members. Following the High Court’s judgment, the Trustees agreed the basis on which they would equalise benefits for the relevant Plan members, based on advice received from the Plan’s actuary and legal advisers. The resulting benefit adjustments, which were generally small, were made to affected pensioner members’ benefits as part of the 2020 annual pension increase exercise, which included back payments to some members where required. These adjustments are included in the Pensions item as shown in note 4. For members who are yet to draw their Plan benefits, these will be reviewed and adjusted if appropriate at the point that they come into payment. Pensions in payment from the Plan will also continue to be monitored to ensure equalisation requirements are met and adjustments made, if appropriate. The Trustees do not expect future adjustments made to meet equalisation requirements to be material to the financial statements and therefore have not included a liability in respect of these in these financial statements. They will be accounted for in the year they are determined. On 20 November 2020, the High Court further ruled that pension schemes should address the effect of any unequal treatment between men and women resulting from guaranteed minimum pensions on certain past transfer values. As a result of this judgment, the Trustees may need to review certain transfer values paid over the period from 1990 to the October 2018 judgment and assess whether any top-up payments are required. The Trustees are already in the process of assessing whether any top- up payments need to be made in respect of certain transfer values paid since the October 2018 judgment and before the basis for equalising benefits was agreed and implemented. The Trustees will consider the implications of this latest judgment and any action to be taken. It is not possible to estimate the cost of equalising historic transfer values at this time.
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3i GROUP PENSION PLAN
INDEPENDENT AUDITOR’S STATEMENT ABOUT CONTRIBUTIONS TO THE TRUSTEES OF THE 3i GROUP PENSION PLAN We have examined the summary of contributions to the 3i Group Pension Plan for the Plan year ended 30 June 2020 which is set out on page 29. In our opinion contributions for the Plan year ended 30 June 2020 as reported in the summary of contributions and payable under the Schedules of Contributions have in all material respects been paid at least in accordance with the Schedules of Contributions certified by the Plan Actuary on 13 September 2017 and 12 May 2020. Scope of work on Statement about Contributions Our examination involves obtaining evidence sufficient to give reasonable assurance that contributions reported in the summary of contributions on page 29 have in all material respects been paid at least in accordance with the Schedules of Contributions. This includes an examination, on a test basis, of evidence relevant to the amounts of contributions payable to the Plan and the timing of those payments under the Schedules of Contributions. Respective responsibilities of Trustees and the Auditor As explained more fully in the Statement of Trustees’ Responsibilities, the Plan’s Trustees are responsible for preparing, and from time to time reviewing and if necessary revising, a Schedule of Contributions and for monitoring whether contributions are made to the Plan by the employer in accordance with the Schedule of Contributions. It is our responsibility to provide a Statement about Contributions paid under the Schedule of Contributions and to report our opinion to you. Use of our Statement This statement is made solely to the Trustees, as a body, in accordance with regulation 4 of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, made under the Pensions Act 1995. Our audit work has been undertaken so that we might state to the Trustees those matters we are required to state to them in an auditor’s statement and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trustees as a body, for our work, for this statement, or the opinions we have formed.
Ernst & Young LLP Statutory Auditor Southampton Date: …………………......
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3i GROUP PENSION PLAN
SUMMARY OF CONTRIBUTIONS PAID IN THE YEAR During the year, no contributions were paid to the Plan by the employer under the Schedules of Contributions
This summary was approved by the Trustees on ...... (date)
Signed on behalf of the Trustees
......
Page 29
3i GROUP PENSION PLAN
IMPLEMENTATION STATEMENT The Trustees of the Plan are required to produce a yearly statement to set out how, and the extent to which, they have followed the voting and engagement policies in their SIP during the year. This is provided in Section 1 below. This statement is also required to include a description of the voting behaviour during the year by, and on behalf of, the Trustees. This includes the most significant votes cast by the Trustees or on their behalf and must state any use of the services of a proxy voter during that year. This is provided in Section 3 below. This year’s implementation statement includes the Plan’s equity holdings, despite the sale of these assets in December 2019. Note that the voting data provided by the investment manager relates to the full Plan year to 30 June 2020, as this is what is readily available. Looking ahead to future implementation statements, it is important to note that the Plan’s investment strategy and objective have changed following the completion of the third and final buy-in transaction with LGAS in May 2020. Other than the three buy-in policies held with LGAS and PIC, the Plan currently invests solely in a Sterling Liquidity Fund, which has no voting rights attached. Whilst the Trustees’ investments do not carry voting rights, they recognise their responsibilities as owners of capital, and believe that good stewardship practices, including monitoring and engaging with investee companies, protect and enhance the long-term value of investments. The Trustees seek to appoint providers that have strong stewardship policies and processes, reflecting where relevant the recommendations of the UK Stewardship Code issued by the Financial Reporting Council. 1. Last review of voting and engagement policies The voting and engagement policies in the SIP were reviewed and updated during the Plan year in September 2019. Updates were made to reflect the Trustees’ policies on financially material and non-financial matters, including environmental, social and governance (“ESG”) matters, climate change issues and stewardship, as required under new regulations (which came into force on 1 October 2019). The Trustees consulted with the Company on the updates to the SIP and the Company confirmed it was comfortable with these. Over the year, the Plan’s assets (excluding buy-in policies) have all been invested in pooled funds managed by LGIM. The Trustees have followed the Plan’s voting and engagement policies during the year, by continuing to delegate to LGIM the exercise of rights and engagement activities in relation to investments. The Trustees took steps to review LGIM’s approach to voting and engagement over the period, as described in Section 2 below. 2. Review of voting and engagement practices As part of its advice to the Trustees on the selection and ongoing review of LGIM (as investment manager), the Plan's investment adviser, LCP, carried out an assessment of the nature and effectiveness of LGIM’s approach to voting and engagement. In September 2019 the Trustees’ Investment Committee reviewed scores from LCP’s Responsible Investment (RI) Survey and qualitative RI assessments for LGIM and its funds in which the Plan held investments during the Plan year. These scores covered the approach to ESG factors, voting and engagement. The fund scores and assessments are based on LCP’s ongoing manager research programme and it is these that directly affect LCP’s manager and fund recommendations. The Trustees were satisfied with the results of the review and no further action was taken.
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3i GROUP PENSION PLAN
3. Description of voting behaviour during the year All of the Trustees’ holdings in listed equities during the year were held within pooled funds and the Trustees have delegated to LGIM the exercise of voting rights. Therefore, the Trustees are not able to direct how votes are exercised and the Trustees themselves have not used proxy voting services over the year. In this section we have sought to include voting data on the Plan’s funds that held equities as follows (both GBP hedged and unhedged versions of the non-UK funds were held, with the same underlying constituents): UK Equity Index Fund
North America Equity Index Fund
Europe (ex UK) Equity Index Fund
Japan Equity Index Fund
Asia Pacific (ex Japan) Equity Index Fund The information below is provided by LGIM. Note that, as at 30 June 2020, the Plan no longer held assets in the above-mentioned funds. 3.1 Description of LGIM’s voting processes LGIM’s voting and engagement activities are conducted by ESG professionals and its assessment of the requirements in these areas seeks to achieve the best outcome for all its clients. LGIM’s voting policies are reviewed annually and take into account feedback from its clients. Every year, LGIM holds a stakeholder roundtable event where clients and other stakeholders (civil society, academia, the private sector and fellow investors) are invited to express their views directly to the members of the Investment Stewardship team. The views expressed by attendees during this event form a key consideration as LGIM continue to develop its voting and engagement policies and define strategic priorities in the years ahead. LGIM also takes into account client feedback received at regular meetings and/or ad-hoc comments or enquiries. All decisions are made by LGIM’s Investment Stewardship team and in accordance with its relevant Corporate Governance & Responsible Investment and Conflicts of Interest policy documents, which LGIM reviews annually. Each member of the team is allocated a specific sector globally so that the voting is undertaken by the same individuals who engage with the relevant company, with the aim of ensuring that its stewardship approach flows smoothly throughout the engagement and voting process and that engagement is fully integrated into the voting decision process, therefore sending consistent messaging to companies. LGIM’s Investment Stewardship team uses the Institutional Shareholder Services (ISS) ‘ProxyExchange’ electronic voting platform to electronically vote clients’ shares. All voting decisions are made by LGIM and it does not outsource any part of the strategic decisions. LGIM’s use of ISS recommendations is purely to augment its own research and proprietary ESG assessment tools. The Investment Stewardship team also uses the research reports of Institutional Voting Information Services (IVIS) to supplement the research reports that LGIM receives from ISS for UK companies when making specific voting decisions. To ensure LGIM’s proxy provider votes in accordance with its position on ESG, LGIM have put in place a custom voting policy with specific voting instructions. These instructions apply to all markets globally and seek to uphold what LGIM considers are minimum best practice standards which LGIM believes all companies globally should observe, irrespective of local regulation or practice. LGIM retains the ability in all markets to override any vote decisions, which are based on its custom voting policy. This may happen where engagement with a specific company has provided additional information (for example from direct engagement, or explanation in the annual report) that allows LGIM to apply a qualitative overlay to its voting judgement. LGIM has strict monitoring controls to ensure its votes are fully and effectively executed in accordance with its voting policies by its service provider. This includes a regular manual check of the votes input into the platform, and an electronic alert service to inform LGIM of rejected votes which require further action.
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Process that LGIM follows for determining the “most significant” votes As regulation on vote reporting has recently evolved with the introduction of the concept of ‘significant vote’ by the EU Shareholder Rights Directive II, LGIM wants to ensure it continues to help its clients in fulfilling their reporting obligations. LGIM also believes public transparency of its vote activity is critical for its clients and interested parties to hold it to account. Historically, LGIM has regularly produced case studies and/or summaries of vote positions to clients for what it deemed were ‘material votes’. LGIM has said it is evolving its approach in line with the new regulation and is committed to providing its clients with access to ‘significant vote’ information. In determining ‘significant votes’, LGIM’s Investment Stewardship team aims to take into account the criteria provided by the Pensions and Lifetime Savings Association. This includes but is not limited to:
High profile vote which has such a degree of controversy that there is high client and/or public scrutiny. Significant client interest for a vote: directly communicated by clients to the Investment Stewardship team at LGIM’s annual Stakeholder roundtable event, or where LGIM notes a significant increase in requests from clients on a particular vote. Sanction vote as a result of a direct or collaborative engagement. Vote linked to an LGIM engagement campaign, in line with LGIM Investment Stewardship’s 5-year ESG priority engagement themes. LGIM also provides information on significant votes in the format of detailed case studies in LGIM’s quarterly ESG impact report and annual active ownership publications. 3.2 Summary of voting behaviour over the year A summary of LGIM’s voting behaviour over the year is provided in the table below. LGIM North LGIM Europe (ex LGIM Asia Pacific LGIM UK Equity LGIM Japan Equity America Equity UK) Equity Index (ex Japan) Equity Fund Index Fund Index Fund Index Fund Fund Index Fund
Approximate value of the £28.6m £18.5m £16.3m £7.8m £10.7m Trustees’ assets1 Number of holdings 694 714 513 515 394
Number of meetings eligible803 725 477 510 464 to vote Number of resolutions 11,518 8,937 8,389 6,111 3,322 eligible to vote % of resolutions voted 99.9% 99.7% 99.9% 100.0% 99.8%
% of resolutions voted with 93.0% 74.5% 82.3% 86.0% 75.0% management % of resolutions voted 7.0% 25.5% 17.3% 14.0% 25.0% against management % of resolutions abstained 0.0% 0.1% 0.4% 0.0% 0.0% % of meetings with at least one vote against 68.7% 92.7% 74.2% 67.1% 69.4% management
1 Values as at 30 June 2019 have been included for information, but all equity assets were sold during the Plan year. Note that, where applicable, unhedged and GBP-hedged share-classes (which have the same voting statistics) have been combined. Page 32
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3.3 Most significant votes over the year Further commentary is set out below on the votes during the Plan year, which LGIM believes are the most significant. Please see section 3.1 above for more information on how LGIM interprets which votes are the most significant. 3.3.1. LGIM UK Equity Index
Barclays, May 2020 LGIM voted for resolution 29 proposed by Barclays to approve Barclays' Commitment in Tackling Climate Change. LGIM also voted for resolution 30 proposed by ShareAction (a charity-based organisation that raises Responsible Investment issues on behalf of investors), which asked the bank to phase out financing for fossil fuels and utility companies that are not aligned with the Paris climate goals. Resolution 29 was supported by 99.9% of shareholders and resolution 30 was supported by 23.9% of shareholders. The resolution proposed by Barclays sets out its long-term plans and has the backing of ShareAction and co-filers (i.e. additional parties involved in raising the resolution). LGIM’s focus will now be to help Barclays on the detail of their plans and targets, more detail of which is to be published this year. LGIM plans to continue to work closely with the Barclays board and management team in the development of their plans and will continue to liaise with ShareAction, Investor Forum, and other large investors, to ensure a consistency of messaging and to continue to drive positive change. LGIM deemed this vote significant as there has been significant client interest in LGIM’s voting intentions and engagement activities in relation to the 2020 Barclays AGM.
3.3.2 LGIM North America Equity Fund ExxonMobil, May 2020 LGIM voted against Resolution 1.10 – to elect Director Darren W. Woods (combined CEO and chair of ExxonMobil), whereas 93.2% of shareholders supported his re-election. In addition to this, LGIM supported the proposal for a report on the company’s political lobbying. Approximately 30% of shareholders, including LGIM, supported votes for making the chairman role independent and for the report on lobbying. In June 2019, under LGIM’s annual 'Climate Impact Pledge' ranking of corporate climate leaders and laggards, LGIM announced that it would be removing ExxonMobil from its Future World fund range and would be voting against the chair of the board. Ahead of the company’s annual general meeting in May 2020, LGIM also announced it would be supporting shareholder proposals for an independent chair and a report on the company’s political lobbying. Due to recurring shareholder concerns, LGIM’s voting policy also sanctioned the reappointment of the directors responsible for nominations and remuneration. LGIM believes this decision sends an important signal, and it will continue to engage, both individually and in collaboration with other investors, to push for change at the company. LGIM deemed this vote significant as it voted against the chair of the board as part of LGIM’s 'Climate Impact Pledge' escalation sanction. LGIM’s voting intentions were the subject of over 40 articles in major news outlets across the world, including Reuters, Bloomberg, Les Échos and Nikkei, with a number of asset owners in Europe and North America also declaring their intentions to vote against the company.
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Amazon, May 2020 Of 12 shareholder proposals, LGIM voted to support 10. LGIM looked into the individual merits of each individual proposal, and there are two main areas which drove LGIM’s decision-making: disclosure to encourage a better understanding of process and performance of material issues (resolutions 5, 6, 7, 8, 10, 13, 15 and 16) and governance structures that benefit long-term shareholders (resolutions 9 and 14). Resolution 5 to 8, and 14 to 16 each received approx. 30% support from shareholders. Resolutions 9 and 10 received respectively 16.7% and 15.3% support. Resolution 11 received 6.1% support. Resolution 12 received 1.5% support. Resolution 13 received 12.2% support. In addition to facing a full slate of proxy proposals, in the two months leading up to the annual meeting, Amazon was on the front lines of a pandemic response. The company was already on the back foot owing to the harsh workplace practices alleged by the author of a seminal article in the New York Times published in 2015, which depicted a bruising culture. The news of a string of workers catching COVID-19, the company’s response, and subsequent details, have all become major news and was an important topic for LGIM’s engagements leading up to the proxy vote. LGIM’s team has had multiple engagements with Amazon over the Plan year. The topics of LGIM’s engagements touched most aspects of ESG, with an emphasis on social topics: Environment: details about the data transparency committed to in their 'Climate Pledge'; and
Social: establishment of workplace culture, employee health and safety.
Governance: separation of CEO and board chair roles, plus the desire for directors to participate in engagement meetings. Allegations from current and former employees were considered by LGIM to be worrying. Amazon employees had consistently reported not feeling safe at work, that paid sick leave is not adequate, and that the company only provides an incentive of $2 per hour to work during the pandemic. Also cited was an ongoing culture of retaliation, censorship, and fear. LGIM discussed with Amazon the lengths the company is going to in adapting their working environment, with claims of industry leading safety protocols, increased pay, and adjusted absentee policies. However, some of Amazon’s responses to the COVID-19 pandemic seemed to have backfired. For example, a policy to inform all workers in a facility if COVID-19 is detected caused increased media attention. Despite shareholders not giving majority support to the raft of shareholder proposals, the sheer number and focus on these continues to dominate the landscape for the company. LGIM’s engagement with the company continues as LGIM pushes it to disclose more and to ensure it is adequately managing its broader stakeholders, and most importantly, its human capital. LGIM deemed its votes on these shareholder proposals to be significant. There was significant market attention leading up to the AGM, with: 12 shareholder proposals on the table – the largest number of any major US company this proxy season;
Diverse investor coalitions submitting and rallying behind the proposals, including global, different types of investors and first-time co-filers/engagers;
Substantial press coverage – with largely negative sentiment related to the company’s governance profile and its initial management of COVID-19; and
Multiple state treasurers speaking out and even holding an online targeted pre-annual meeting investor forum entitled ‘Workplace & Investor Risks in Amazon.com, Inc.’s COVID-19 Response’’. 3.3.3 LGIM Europe (ex UK) Equity Index Fund LGIM did not deem any votes to be significant during the Plan year. 3.3.4 LGIM Japan Equity Index Fund LGIM did not deem any votes to be significant during the Plan year. 3.3.5 LGIM Asia Pacific (ex Japan) Equity Index Fund LGIM did not deem any votes to be significant during the Plan year.
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