Value for members assessment

The Trustee assesses, at least annually, whether the DC elements of the UKRF deliver value for members. In the Trustee’s view, charges and transaction costs are likely to represent good value for members where the combination of member-borne costs and what is provided for the costs is appropriate for the membership as a whole, and when compared to other options available in the market.

The Trustee has engaged Barnett Waddingham, a specialist DC consultant, to advise the Trustee on DC governance matters and in particular to carry out an independent value for members assessment in line with codes of practice and guidance issued by the Pensions Regulator (TPR).

In December 2023 the Trustee received the independent value for members assessment covering the year to 30 September 2023 and was pleased to note again that the UKRF continues to offer excellent value for its members, given the range, quality and nature of the services provided. The key reasons for this conclusion include the robust governance processes and that members only pay the investment costs of the funds in which they are invested, which are very competitive when compared to other schemes of this nature. All other running costs are paid for by the UKRF.

Recognising that low cost does not necessarily mean good value, the assessment also considered the value for members delivered by the UKRF’s DC investment arrangements, i.e. those services for which the costs and charges are deducted from members’ funds. All relevant aspects of the UKRF’s investments were reviewed, including the governance structure, design and monitoring arrangements. Consideration was also made of the member-borne costs relative to other options in the market. The assessment reported no areas in which the DC investment arrangements detracted value.

In addition, the Trustee believes that the transaction costs provide value for members, as the ability for the investment managers to transact forms an integral part of the investment process, and gives potential for greater investment returns net of charges over time. The Trustee continues to monitor the levels of transaction costs.

Additional Voluntary Contribution (AVC) policies

Protection of assets

The Defined Contribution default investment funds

Members who did not make an active investment decision on joining the UKRF had their contributions invested in the UKRF Lifestyle Fund ranges, which are series of funds that offer members flexibility to target the year in which they expect to access their retirement savings. These were the “default investment funds” for the UKRF over the reporting period. The Trustee has also made available a range of other DC investment options that members can choose to invest in (known as the self-select range).

The Trustee is responsible for the UKRF’s investment governance. This includes setting the investment objective for the default investment funds, which considers the needs of the membership in conjunction with the Trustee’s investment objectives. The Trustee concluded the last triennial review of the UKRF Lifestyle Fund ranges in the reporting period which covered:

• A review of both the strategy and the performance of the default investment funds, and the extent to which the return on the investments (after deduction of investment charges) was consistent with the Trustee’s aims and objectives for the default funds;
• An assessment of the appropriateness of the lifestyle glide path, and its target endpoint portfolio, utilised in the default investment funds. This assessment included consideration of the ways members are choosing to access their benefits at retirement;
• An assessment of the performance of each investment option available through the self-select range; and
• A review of the membership profile including consideration of the number and risk profile of investment funds offered to members as an alternative to the default investment funds.

The review confirmed that the default investment funds remain appropriate as they are likely to provide good member outcomes at retirement. The next triennial review is scheduled for 2025.

There are two UKRF Lifestyle Fund ranges in place, both of which are classed as default investment funds.

• The UKRF Lifestyle Fund range – This default investment fund was launched in February 2017 and is open to all members. Members many years from retirement are invested in a diversified mixture of assets, with the aim of generating capital growth ahead of inflation over the long term. Members at their target retirement date are invested in a range of investments with the aim of being broadly aligned to the wider range of options now available when accessing retirement savings. During the 10-year period before a member’s target retirement date, members’ investments are phased between these two allocations (this is known as the glide path). Members should select the UKRF Lifestyle Fund that is closest to the date at which they plan to access their retirement savings. For example, if a member was born in 1980 and planned to access their retirement savings at age 60, their target retirement date would be 2040 and they should select the UKRF Lifestyle 2040 Fund.

• The UKRF Lifestyle (Closed) Fund range – Members at their target retirement date are invested predominantly in bonds and cash with the aim of providing a broad compromise between capital protection and tracking movements in annuity prices. This fund range is only comprised of the UKRF Lifestyle (Closed) Mature Fund.

Investments in the UKRF Lifestyle Fund ranges are made through index-tracking funds, derivatives or segregated assets.

The UKRF Diversified Growth Fund

The UKRF Lifestyle Fund range is comprised of underlying pooled investment funds, which includes the UKRF Diversified Growth Fund (DGF). The DGF is also available as a self-select fund.

In Q3 2023, the Trustee agreed to amend the volatility target of the DGF from 9% to 10%. “Volatility targets” are used as a tool to guide investment managers on the level of risk to take within an investment portfolio and the Trustee believes that increasing the volatility target of the DGF will better position the fund to reach its investment objective.

Statement of Investment Principles (SIP)

The Trustee has a SIP which governs its decisions about default investment funds (as well as the other DC investment options). The SIP is reviewed annually, or following a material change in investment policy and was last updated in October 2023.

A copy of the UKRF’s SIP is available here. The SIP includes the Trustee’s policy on the types of investments it considers appropriate and how it recognises and monitors investment risk. The SIP covers the:

• Trustee’s investment responsibilities;
• Investment objectives of the UKRF;
• Investment strategy of the UKRF, including the expected return on investments;
• Investment risks involved and the Trustee’s methods for managing these;
• Trustee’s policy in relation to how it takes environmental, social and governance (ESG) factors into consideration and the stewardship of investments; and
• Other relevant investment policies including the Trustee’s policy on the use of derivatives and employer related investments.

The Trustee has reviewed the performance of all of the DC investment options, including the default investment funds, on a quarterly basis and is satisfied that the long term performance is in line with the aims and objectives of each fund. A summary of the investment returns for each of the available DC investment options, along with fund factsheets and an investment guide (which provides more detail on the default investment funds and glide path), can be found on the member website.

Charges and transaction costs

The Trustee assessed the charges and transaction costs borne by members over the reporting period, for each of the investment funds in which members are invested, and has considered the extent to which the services these charges and costs relate to deliver value for members. The Trustee monitors the charges and transaction costs, to the extent updated information is available, on a regular basis.

DC investment funds available within the UKRF

The table below shows the total expense ratio and transaction costs for each investment fund available to members of the UKRF:

• Total expense ratio – This is the charge levied by the investment manager each year and is a measure of the provider’s total costs for managing and operating the investment fund. The charge consists primarily of management fees and additional expenses, such as fixed trading fees, legal fees, and the manager’s auditor and custody fees. The total expense ratio for the UKRF’s default investment funds varies depending on how far the member is from their target retirement date, as the mix of underlying assets changes.
• Transaction costs – For all funds, including the default investment funds, there are additional transaction costs paid by members. These arise when the investment managers trade within the funds and include commission, taxes, levies and the cost of stock lending. The level of transaction costs can vary depending on whether an investment fund is actively or passively managed. Transaction costs can also vary from year to year depending on the amount of transactional activity carried out by a fund.

For the UKRF Lifestyle Fund ranges the table shows:

• The costs for the UKRF Lifestyle Mature Fund (where assets are invested if members do not access their retirement savings at their target date);
• The costs for each of the ten funds currently on the glide path (the UKRF Lifestyle 2024 – 2033 Funds); and
• The cost of the funds that have yet to enter the glide path (the UKRF Lifestyle 2034 – 2062 Funds).

The table also includes the costs for the UKRF Lifestyle (Closed) Mature Fund (where assets are invested if members do not access their retirement savings at their target date).

Transaction costs for each default and self-select fund have been obtained for the reporting period. There is no transaction cost data missing for any of the UKRF’s investment options. Further information on each investment fund can be found in the individual fund factsheets, which are available to members on ePA.

* In a passively managed fund, the investment manager aims to match the return of a specific index. They do this by investing in assets that are broadly the same as those in the index. An active manager uses their expertise to select investments that they believe will perform better than an index over a period of time. As active funds require more time and involvement from the manager they tend to have higher costs than passive funds. The UKRF Lifestyle Fund ranges and the UKRF Mixed (Gilts, Cash and Growth) Fund invest in a mixture of actively and passively managed funds.

** Over the Fund year the Trustee was informed that there had been an error with the TERs reported in the Annual Report and Accounts between September 2014 and September 2022 in respect of the UKRF Emerging Markets Equity Index Fund and the UKRF Sterling Corporate Bond Fund. The costs reported were between 0.01% and 0.03% lower than the costs actually incurred by members. This is a reporting error only and there has been no impact on members’ investments which will have incurred the correct costs. The error occurred because the investment manager for these two funds, BlackRock, mis-interpretated the expense information they received from the fund administrator and therefore shared incorrect costs for reporting purposes. More information about this error can be found within the Report & Accounts area of ePA.

*** Over the Fund year the Trustee was informed that there had been an error in the TER reported in respect of the UKRF Diversified Growth Fund in the Annual Report and Accounts between September 2017 and September 2022. The costs reported were between 0.01% and 0.03% lower than the costs actually incurred by members. This is a reporting error only and there has been no impact on members’ investments which will have incurred the correct costs. The error occurred because the full extent of the fund administration costs incurred in the management of the DGF have not been taken into account when reporting the TER. More information about this error can be found within the Trustee Reports and Procedures area of ePA.

External with profit AVC policies

As noted earlier in the Value for members assessment section, some UKRF members have invested AVCs in the past in external With-Profits funds. These policies provide DC benefits to members and charges are deducted from the members’ savings. The charges and costs for these funds are:

The AVC providers have been unable to share cost data for the full reporting period. Therefore, the most up to date cost data available has been reported in the above table.

The charges deducted from the With-Profits funds include the cost of administering the fund, whereas the Total Expense Ratio applied to the UKRF investment funds just refers to the investment costs.

Effect of charges on members’ funds

The Trustee has provided illustrative examples of the cumulative effect over time of the charges and costs shown above on the value of a representative sample of members’ DC savings. The following pages provide these illustrations for a range of investment funds and a range of different member DC pot sizes that are broadly comparable to the most common DC pot sizes currently found in the UKRF. The Trustee followed statutory guidance when preparing these illustrations and gathering data for the assumptions used.

Illustration assumptions

Guidance to the illustrations

Illustrations for the open default investment fund

Illustrations for the closed default fund

Illustrations for the self-select funds

Additional information on the pot sizes used in the illustrations

For many members, the DC section of the UKRF is a top-up to benefits they have built up in either the final salary section or in the cash balance section (called ‘Afterwork’). The pot sizes used in the above illustrations reflect the comparatively small size of DC benefits compared to the final salary and cash balance benefits. The pots have been calculated with reference to each element of DC benefits within the UKRF, including DB AVCs and pure DC benefits, such as the Retirement Investment Scheme (RIS). The RIS has a large number of members with small DC pots (this is a historic section with no active members where members tended to save small amounts for a short period of time).

The pot sizes used for the illustrations are detailed in the guidance to the illustrations above. By way of comparison, active members of Afterwork have an average DC pot size of £26,786, but an average cash balance fund value of £70,000 which demonstrates how the DC section tends to be a top-up to other benefits in the UKRF. The illustrations shown do not include the cash balance section.

How to read the illustration tables

It is important to note that the illustration tables are designed to show the potential impact of costs and charges on investment returns. All of the illustrations assume a growth rate for each type of investment fund that is applied at the same rate for each year of the illustration. In reality the value of investments and the returns they generate are not guaranteed and can go down as well as up and this risk to members' retirement savings is not reflected in these illustrations.

The illustrations also assume the investment charges and transaction costs remain the same and are deducted each year. In reality the costs and charges will fluctuate each year.

The illustrations are not designed to provide UKRF members with a personalised projection of what their benefits may be worth at retirement. DC members of the UKRF should review their latest benefit statement which is available on the member pages of ePA.

The diagrams below show you how to read the tables.

More information on the DC investment funds available for UKRF members

Where are the UKRF’s DC funds invested?

The UKRF’s DC investment funds invest in underlying pooled or collective investment funds provided by investment managers. If members would like further information on the underlying investment funds that the UKRF DC funds invest in, they are able to request it from the Barclays Team. They will be able to provide members with the International Securities Identification Numbers (these are unique to each individual fund) of the funds that members are invested in.

Where can members find more information on the performance of the DC investment funds?

For the latest performance figures for each fund members should go to the Investment Performance section under Investment Information on the member pages of ePA. Past performance is not a guide to future performance and members should refer to the relevant factsheets for more information on the objectives of the funds.

Where can I find more information on the Trustee’s investment responsibilities?

The Trustee has prepared a Statement of Investment Principles which includes the Trustee's investment responsibilities, its investment strategy and approach to risk management, and how the default funds are designed and governed.

For further information, members should read Your DC Investment Guide.