UKRF Implementation Statement

Introduction

On an annual basis, the Trustee is required to make publicly available online a statement (the Implementation Statement) covering both the Defined Contribution (DC) and Defined Benefit (DB) sections of the Barclays Bank UK Retirement Fund (UKRF, the Fund). This Implementation Statement covers the Fund year from 1 October 2020 to 30 September 2021, and sets out the following activity for the year:

  • Any review of the Statement of Investment Principles (SIP) including an explanation of any changes to the SIP;
  • How, and the extent to which, in the opinion of the Trustee, the SIP has been followed; and
  • The voting behaviour by, or on behalf of, the Trustee (including the most significant votes cast by the Trustee or on its behalf) and the use of the services of a proxy voter.

Changes to the SIP over the period

The Trustee maintains a SIP which is reviewed at least annually and following any significant changes in investment policy. The review was conducted in consultation with the principal employer, Barclays Bank PLC, and with the support of the Trustee’s investment advisers.

During the Fund year to 30 September 2021, the Trustee did not make any changes to the SIP. However, following review, an updated SIP took effect from 1 October 2021. The key outcome of the review was to include additional wording in the Risk Management section to recognise climate change as a significant financial risk. Further updates were also made to reflect recent Fund updates such as the integration of ESG factors into the default investment strategies of the Fund’s DC section.

How the Trustee has implemented its investment policies over the year

The Trustee acted in full accordance with its own investment principles and implemented the policies set out in the SIP over the year to 30 September 2021. A summary of the year’s key activities is broken down into the following categories:

Investment governance

The Trustee exercised its investment responsibilities over the year as part of its duty to act in members’ best interests. Oak Pension Asset Management Ltd (OPAM) operates under formal delegation from the Trustee, in line with parameters agreed by the Trustee. OPAM is responsible for the management of the UKRF asset portfolio and the implementation of the Trustee strategy, including the appointment, supervision and management of the Fund’s underlying investment managers and the implementation and monitoring of the Fund’s investment policy. The terms of the relationship between the Trustee and OPAM are set out in an agreement which documents the Trustee’s expectations of OPAM alongside Investment Guidelines under which OPAM is required to operate.

There were no material changes to the investment governance framework through which the Trustee makes investment-related decisions.

DB investment strategy and risk management

The SIP is owned by the Trustee with the detailed implementation and monitoring of the DB investment policy formally delegated to OPAM.

The performance of the DB assets against the objectives set out in the SIP is monitored by the Trustee with support from its strategic investment adviser and OPAM, with performance calculations provided by J.P. Morgan.

The funding level of the DB section continued to improve. The portfolio remains well diversified, with an appropriate level of investment risk and expected return with major financial risks (compared to liabilities) being mostly mitigated through hedging. The Trustee has closely monitored performance against the Fund’s investment objectives throughout the period using a monitoring framework called the Pensions Risk Management Framework (PRMF). This sets the investment objectives and acts as a reference point for decision making. The Fund has remained on track against its strategic objectives. The Fund’s cash flow and liquidity were well managed during the year and all benefits were paid as they fell due in the period.

During the period, the Trustee ratified a secondary, Long Term Funding Target in addition to the existing Primary Funding Objective. This secondary Long Term Funding Target was integrated into the PRMF alongside the key metrics agreed by the Trustee. These metrics include the expected investment return, risk controls, inflation and interest rate hedging, collateral availability, and liquidity. The Trustee monitors these metrics and the Fund’s progress against its objectives using the PRMF on a quarterly basis.

The Trustee undertakes additional monthly monitoring of the PRMF based on approximate analysis, which includes a process for monitoring if the expected investment return of the Fund’s portfolio is within a suitable range of that required to meet its objectives. The purpose of the additional monitoring is to enable the Trustee to monitor the Fund’s position more closely and to take action in a timely manner if required.

In line with its policy for controlling the level of investment risk, the Trustee completed a £5bn longevity hedging transaction in the year. The swap is designed to help protect the Fund from the financial risk of an unexpected increase to life expectancy for current pensioners. The Trustee continues to explore further ways to mitigate the Fund’s longevity risk.

DC investment strategy and risk management

The Trustee’s primary investment objective is to make available, at a reasonable cost, a number of investment options that provide members with access to a range of different asset classes that differ in their level of investment risk and expected return. The Trustee operates an open Lifestyle Fund range (which is the default investment strategy) and a range of self-select funds.

The Trustee’s last triennial review of the Fund’s DC investment options was completed in 2019 and this concluded that the design of the default investment strategy and range of self-select funds remained relevant and appropriate. The next review is scheduled for 2022.

During the period, the Trustee made changes to the UKRF Diversified Growth Fund (DGF) which is a core component of the default Lifestyle Fund range and also forms part of the self-select fund range. These changes followed a Trustee review in 2020, supported by OPAM and the Trustee’s strategic investment adviser. The review took account of the Trustee’s Responsible Investment (RI) policy and factored in the results of the survey (completed in January 2020) which captured DC members’ views on RI and related matters.

The changes to the UKRF DGF are summarised below:

  • ESG integration: the UKRF DGF is evaluated using ESG criteria to screen investments and identify material ESG risks and future growth opportunities. This creates better protection against ESG risks, including climate change, and over the longer term is likely to improve the risk-adjusted returns and provide UKRF members with a better outcome for their retirement savings.
  • Avoiding certain investments: the DGF avoids or completely divests from companies with involvement in activities and behaviours that violate internationally recognised laws, regulations and normal corporate practice.
  • Active stewardship: on behalf of the Trustee, the DGF manager, BlackRock, engages with companies regarding ESG risks and the transition to a lower carbon economy, ensuring enhanced disclosures contribute to improved understanding of how actions taken by companies address these areas.

There were no amendments to the operational structure or objective of the UKRF DGF as a result of these changes.

The Trustee regularly reviews the performance, structure and operation of all funds provided through the DC Section and this includes a formal annual investment and operational due diligence assessment of the funds by OPAM. Overall, the Trustee is comfortable that the available funds remain appropriate for members to invest in, and also that the policies in place to mitigate the material risks members face were followed and remain adequate. Ongoing monitoring and review of DC funds, including the charges and transaction costs, remains a priority for the Trustee, not only from a shorter-term perspective but also regarding the strategic, longer-term appropriateness and consistency of such funds for members’ DC pension savings.

Annually the Trustee also analyses the charges (Total Expense Ratios) and transaction costs levied by the fund managers, which were benchmarked by the Trustee’s DC investment advisers. Such costs are reported to members in the DC costs and charges section which forms part of the UKRF Annual Report. Based on external advice and input from OPAM, the Trustee confirms that the charges and transaction costs applied to the DC Section’s range of investment options are reasonable and competitive, taking into account the size and investment strategy of the UKRF DC Section.

Responsible Investment (RI)

The Trustee has a standalone RI policy, which describes the Trustee’s approach to RI in the context of managing the UKRF, outlining the guiding principles the Trustee has adopted and the core activities undertaken. An abridged version of the RI policy is included in the SIP. The full version of the RI policy can be found here.

The Trustee considers climate-related financial risks and their potential implications for the UKRF within the Fund’s wider RI approach and consideration of ESG factors. Climate change is the subject of specific risk management, measurement, stewardship, and collaborative efforts as part of the UKRF’s wider investment and RI activities.

The Trustee demands its appointed investment managers to be cognisant of climate-related financial risks and opportunities. OPAM’s engagement with managers, together with ongoing investment and operational due diligence and regular monitoring ensure that the Fund’s appointed managers incorporate climate risks and opportunities into the investment process.

The Trustee and OPAM continue integrating RI considerations within the Fund’s strategic and day-to-day management processes and decision-making, aiming for improved risk-adjusted returns across both the DB and DC sections. Key activities that are consistent with the implementation of its RI policy over the year included:

  • The Trustee stated an ambition to halve the UKRF’s greenhouse gas emissions by 2030 and to be net zero carbon over time by 2050 or sooner.
  • The Trustee, supported by OPAM and Redington, began assessing appropriate ESG metrics and targets that would facilitate improved measurement and management of climate-related risks. This process is ongoing and further details will be provided in future iterations of the Implementation Statement.
  • The Trustee, supported by OPAM, began working with a selection of its investment managers to model and conduct climate scenario analysis of the portfolio-level impact of a reduction in the carbon exposure of the portfolio. This process is ongoing and further details will be provided in future iterations of the Implementation Statement.
  • The Trustee, supported by OPAM and its strategic investment adviser, began taking steps to produce a report in line with requirements of the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 and the current recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
  • The Trustee became a signatory of the 2020 UK Stewardship Code, a substantially revised version of the 2011 UK Stewardship Code of which the Trustee was also a signatory. The Stewardship Code sets out a clear benchmark for stewardship as the responsible allocation, management, and oversight of capital to create long-term sustainable benefits for the economy, the environment and society. The Trustee’s 2020 UK Stewardship Code report provides examples of activities undertaken during the year.
  • The Trustee, supported by OPAM, participated in the working groups that developed the Institutional Investors Group on Climate Change (IIGCC) Net Zero Investment Framework. This is the first output of the Paris Aligned Investment Initiative (PAII), reflecting the overall objective to achieve global net zero emissions by 2050 – consistent with global warming staying below a 1.5󠄲°C increase.
  • During the year, the Trustee, supported by OPAM, assessed the overall UKRF impact exposures, including environmental and sustainable solutions. This allowed the Trustee and OPAM to assess potential future investments in areas that improve the sustainability (environmental and social) characteristics of the UKRF portfolio.

The Trustee will continue updating and evolving its approach to investing responsibly.

Stewardship, engagement and voting behaviour

The Trustee recognises its position as an asset owner with ultimate responsibility to its members and beneficiaries, accepting that effective stewardship can help protect and enhance the long-term value of its investments to the ultimate benefit of these beneficiaries.

For the DB assets, the Trustee has appointed EOS at Federated Hermes (EOS) as a dedicated specialist engagement provider and proxy voter to maximise the Trustee’s influence as an active owner.

As part of its ongoing process, EOS will identify companies in which the UKRF is invested and will conduct a programme of engagement where EOS considers it both desirable and feasible to influence change. This includes opportunities pertaining to corporate governance and the management of ESG issues, including the companies’ capital structure, with a view to improving long-term performance and outcomes.

The Trustee regularly monitors the effectiveness of EOS’s activities and, where appropriate, considers how engagement could inform investment decisions. OPAM monitors material stewardship activity including situations where agents take different voting actions at the same company. EOS reports to the UKRF Trustee Board on an annual basis.

Results of the voting activity undertaken by EOS are set out in the Voting Data section. This section includes information related to the most significant votes by considering items including the potential impact on financial outcome, stewardship outcome, the size of the holding in the mandate and if the vote was high-profile.

The majority of funds provided to DC members are pooled funds, managed by BlackRock and Jupiter and the Trustee has therefore delegated the stewardship, engagement and voting activities to the pooled fund managers.

For the UKRF DGF, assets are invested through a combination of pooled funds and directly held investments. As the investment manager of the DGF, BlackRock is responsible for the stewardship, voting and engagement activities for all holdings in the DGF. Through its ongoing monitoring and due diligence on the underlying funds, the Trustee is comfortable the actions of the pooled fund managers are aligned with the Fund’s policy on stewardship and engagement.

Results of the voting activity are provided in the Voting Data section.

The Trustee has a formal conflicts of interest policy which sets out its principles and procedures for identifying, assessing, and managing actual and potential conflicts of interest, including third party advisers, in order to minimise the possibility of such conflicts arising. Specifically, in relation to Fund investments, the Trustee has a general policy of no direct self-investment in Barclays Bank PLC or associated companies. This is reviewed annually and covers the circumstances in which conflicts might arise in line with the relevant guidance and requirements of the Pensions Regulator, the Pensions Act 1995 and the Companies Act 2006.

OPAM maintains a separate policy on managing conflicts of interest. This includes a review of each investment manager’s conflicts of interest policy which is undertaken as part of the managers’ operational due diligence and review process. EOS has a publicly available Stewardship Conflicts of Interest Policy which is reviewed by OPAM on behalf of the Trustee.

There were no breaches of the Trustee’s, OPAM’s or EOS’s conflicts of interest policies during the reporting period.

Asset Manager policy

The Trustee delegates the management of its relationships with third-party investment managers to OPAM with the Asset Manager policy covering both DB and DC investment arrangements. OPAM regularly monitors all UKRF managers through its investment monitoring process.

The terms of the long-term relationship between the Trustee and OPAM are set out in a separate Investment Advisory and Management Agreement (IAMA). This documents the Trustee's expectations of OPAM, alongside the investment guidelines under which OPAM is required to operate. The investment guidelines are based on a combination of the policies set out in the SIP, the Trustee's PRMF and RI Policy. The investment guidelines are updated following any changes to one of these documents, ensuring OPAM acts in the best long-term interests of the UKRF at all times.

The Trustee remains comfortable that the IAMA is effective and, over the period, continued to monitor OPAM using a framework-based approach, as well as meeting with OPAM on a regular basis. For the DB sections, based on backdated analysis used within this framework, the UKRF’s return generated over the period has exceeded the return required to achieve the UKRF’s primary funding objective.

The IAMA sets out the Trustee’s expectation with regard to OPAM’s monitoring of fees, portfolio turnover costs and turnover range, which are reviewed by OPAM annually. In assessing the appropriateness of the portfolio turnover costs at individual manager or fund level, OPAM will have regard to the actual portfolio turnover and how this compares with the expected turnover range for that mandate. In addition, the Trustee reviews the costs incurred in managing the Fund's assets annually. The Trustee and OPAM are satisfied that the costs incurred in managing the Fund’s assets and those associated with portfolio turnover during the reporting period were appropriate, taking into account the size and investment strategy of the UKRF.

The Trustee also reviewed the appropriateness of costs associated with making the changes to the UKRF DGF in the DC section as described above, in addition to the degree that these costs would impact Value for Members. The review concluded that overall, the changes would serve to increase Value for Members.

Employer related investment

The Trustee has a general policy of not investing directly in shares issued by the employer, Barclays Bank PLC, or associated companies. However, the Trustee accepts indirect exposure, for example as a result of investment in index-tracking funds (see page 22 and 57 of the UKRF’s Annual Report). The Trustee’s employer related investment is monitored regularly by OPAM and no breaches of this policy have been reported over the period.

Expected return on investments

As part of its overarching DB investment policy, the Trustee has considered the investment return and associated risk that each asset class is expected to provide. Consistent with investment management agreements and delegations, OPAM performed its role in respect of the day-to-day selection of assets to maintain the Fund’s stated expected return target.

The Trustee reviews the performance of all funds within the DC section with reference to each fund’s expected return and stated objectives. For the UKRF DGF, the target is to outperform short-term cash (i.e. deposit) rates by 4.5% pa over the long term. The self-select options include return-seeking and liability-matching funds, allowing members to target an appropriate expected return and risk profile for their requirements.

DB Voting Data

Manager EOS at Federated Hermes
1 This only counts votes that are in executed and accepted status. While the aim is to place a vote instruction on all ballots, it will not have always been executed and accepted due to requirements for powers of attorney, share-blocking, late ballot generation or requirements for physical attendance.
EOS at Federated HermesStewardship Provider
Structure EOS at Federated HermesSegregated
Relevant Period EOS at Federated Hermes1 Oct 2020 – 30 Sep 2021
Ability to influence voting behaviour of manager EOS at Federated HermesThe segregated mandate allows the Trustee to engage with the manager and influence their voting behaviour.
Number of company meetings the manager was eligible to vote at over the year EOS at Federated Hermes1,393
Number of resolutions the manager was eligible to vote on over the year EOS at Federated Hermes18,571
Percentage of resolutions the manager voted on 1 EOS at Federated Hermes90%
Percentage of resolutions the manager abstained from EOS at Federated Hermest0%
Percentage of resolutions voted with management, as a percentage of the total number of resolutions voted on EOS at Federated Hermes85%
Percentage of resolutions voted against management, as a percentage of the total number of resolutions voted on EOS at Federated Hermes14%
Percentage of resolutions voted contrary to the recommendation of the proxy adviser EOS at Federated Hermes10%

DB Significant Votes: EOS at Federated Hermes

Vote 1 Vote 2 Vote 3
Company name Vote 1Berkshire Hathaway Inc. Vote 2Amazon.com Inc. Vote 3Facebook, Inc.
Date of vote Vote 101 May 2021 Vote 226 May 2021 Vote 326 May 2021
Summary of the resolution Vote 1Report on Climate-Related Risks and Opportunities Vote 2Oversee and Report on a Civil Rights, Equity, Diversity and Inclusion Audit Vote 3Require Independent Board Chair
How the manager voted Vote 1For Vote 2For Vote 3For
If the vote was against management, did the manager communicate their intent to the company ahead of the vote? Vote 1N/A Vote 2N/A Vote 3N/A
Rationale for the voting decision Vote 1Shareholder proposal promotes better management of ESG opportunities and risks, also promotes transparency Vote 2Shareholder proposal promotes better management of ESG opportunities and risks, also promotes transparency Vote 3Shareholder proposal promotes appropriate accountability or incentivisation
Outcome of the vote Vote 1Fail Vote 2Fail Vote 3Pass
Implications of the outcome Vote 1We remain invested and continue to monitor best practice matters at the company Vote 2The voting items failed but with significant shareholder support Vote 3We remain invested and continue to monitor best practice matters at the company
Criteria on which the vote is considered “significant” Vote 1Potential impact on financial outcome Vote 2High profile / controversial voting item. Significant level of support for the shareholder resolution Vote 3Potential impact on stewardship outcome

DB Engagement Data

Manager EOS at Federated Hermes
EOS at Federated HermesStewardship Provider
Does the manager perform engagement on behalf of the holdings of the fund? EOS at Federated HermesYes
Has the manager engaged with companies to influence them in relation to ESG factors in the year? EOS at Federated HermesYes
Number of engagements undertaken on behalf of the holdings in this fund in the year EOS at Federated Hermes2,433 (engagements defined as a count of objectives or issues with a linked action over the reported period)
Number of engagements undertaken at a firm level in the year EOS at Federated Hermes4,055
Examples of engagements undertaken with holdings in the fund EOS at Federated HermesEOS continues to engage with Alphabet on its human rights impacts and gaining oversight from the board. Also continues to engage with Novartis on ESG

DC Voting Data

Manager Manager 1 Manager 2 Manager 2 Manager 2 Manager 2
Fund name Manager 1Jupiter Manager 2BlackRock Diversified Growth Fund Manager 2BlackRock World Equity Manager 2BlackRock Emerging Markets Equity Manager 2BlackRock UK Equity
Structure Manager 1Pooled fund Manager 2Segregated Manager 2Pooled fund Manager 2Pooled fund Manager 2Pooled fund
Relevant Period Manager 101 October 2020 – 30 September 2021 Manager 201 October 2020 – 30 September 2021 Manager 201 October 2020 – 30 September 2021 Manager 201 October 2020 – 30 September 2021 Manager 201 October 2020 – 30 September 2021
Ability to influence voting behaviour of manager Manager 1The pooled fund structure means that there is limited scope for the Trustee to influence the manager’s voting behaviour Manager 2The segregated mandates allows the Trustee to engage with the manager and influence their voting behaviour Manager 2The pooled fund structure means that there is limited scope for the Trustee to influence the manager’s voting behaviour Manager 2The pooled fund structure means that there is limited scope for the Trustee to influence the manager’s voting behaviour Manager 2The pooled fund structure means that there is limited scope for the Trustee to influence the manager’s voting behaviour
Number of company meetings the manager was eligible to vote at over the year Manager 158 Manager 22,632 Manager 22,110 Manager 22,440 Manager 21,194
Number of resolutions the manager was eligible to vote on over the year Manager 1844 Manager 229,488 Manager 224,646 Manager 222,336 Manager 215,314
Percentage of resolutions the manager voted on Manager 1100.0% Manager 299.7% Manager 299.8% Manager 2100.0% Manager 299.9%
Percentage of resolutions the manager abstained from Manager 10.0% Manager 20.0% Manager 20.0% Manager 23.6% Manager 21.8%
Percentage of resolutions voted with management, as a percentage of the total number of resolutions voted on Manager 197.0% Manager 293.1% Manager 292.1% Manager 289.9% Manager 293.4%
Percentage of resolutions voted against management, as a percentage of the total number of resolutions voted on Manager 12.0% Manager 26.9% Manager 27.9% Manager 210.1% Manager 26.6%
Percentage of resolutions voted contrary to the recommendation of the proxy advisor Manager 10.0% Manager 20.0% Manager 20.0% Manager 21.7% Manager 20.0%

DC Significant Votes

Jupiter Vote 1 Vote 2 Vote 3
Company name Vote 1Novozymes A/S Vote 2Tomra Systems ASA Vote 3National Express
Date of vote Vote 111 March 2021 Vote 223 April 2021 Vote 306 May 2021
Approximate size of fund's holding as at the date of the vote (as % of portfolio) Vote 11.38% Vote 22.31% Vote 30.88%
Summary of the resolution Vote 1Allow Shareholder Meetings to be Held by Electronic Means Only Vote 2Remuneration Policy / Elect Directors Vote 3Remuneration Report & Policy
How the manager voted Vote 1Against Vote 2Against Remuneration Policy / In favour of Board Vote 3Against
If the vote was against management, did the manager communicate their intent to the company ahead of the vote? Vote 1No Vote 2Yes Vote 3No
Rationale for the voting decision Vote 1In our view the company should continue to hold in-person shareholder meetings once the pandemic is over as it is an important opportunity for non-institutional shareholders to engage with management Vote 2We voted against due to concerns regarding the alignment of pay and performance Vote 3Stakeholder alignment which we view through the environmental lens of just transition, including the workforce in consideration of the pandemic year and company's significant receipt of government support
Outcome of the vote Vote 1Pass Vote 2Pass Vote 3Pass
Implications of the outcome Vote 1We remain invested and continue to monitor best practice matters at the company Vote 2We expressed concerns around the performance-alignment of the remuneration policy in a post-results call with company IR, communicated after the vote and before the meeting date on 4th May. The company confirmed they will pass on our comments to the Board and revert back to shareholders in due course. Regarding the Board, via our analysis and in engagement with the company we are monitoring the ongoing CEO succession process, at this time we believe the company would benefit most from stability and thus have decided to vote in favour of board elections Vote 3The voting items passed but with significant shareholder opposition. We have since exited our position in the company
Criteria on which the vote is considered “significant” Vote 1Potential impact on stewardship outcome Vote 2Potential impact on financial outcome Vote 3High profile / controversial voting item
BlackRock Vote 1 Vote 2 Vote 3
Company name Vote 1Union Pacific Corporation Vote 2Tyson Foods Vote 3Exxon Mobil Corporation
Date of vote Vote 113 May 2021 Vote 211 Feb 2021 Vote 326 May 2021
Approximate size of fund's holding as at the date of the vote (as % of portfolio) Vote 1N/A Vote 2N/A Vote 3N/A
Summary of the resolution Vote 1Annual Vote and Report on Climate Change Vote 2Report on Human Rights Due Diligence Vote 3Report on Corporate Climate Lobbying Aligned with Paris Agreement
How the manager voted Vote 1For Vote 2For Vote 3For
If the vote was against management, did the manager communicate their intent to the company ahead of the vote? Vote 1N/A Vote 2N/A Vote 3N/A
Rationale for the voting decision Vote 1We are supportive of the company's efforts to date with respect to this material climate issue but believe that voting in favour may accelerate the company's progress Vote 2We believe it is in the best interests of shareholders to have access to greater disclosure on this issue. The proposal is requesting the board of directors to prepare a report on the company's “human rights due diligence process to assess, identify, prevent, mitigate, and remedy actual and potential human rights impacts” given that the company has limited disclosure regarding its supply chain audits Vote 3We believe it is in the best interests of shareholders to have access to greater disclosure on this issue. Given the reputational risk to the company of misalignment in public positions on key strategic policy issues, the proposal was supported because such a report would help investors' understanding of Exxon's climate-related lobbying and participation in trade associations
Outcome of the vote Vote 1Not approved Vote 2Approved Vote 3Approved
Implications of the outcome Vote 1N/A Vote 2N/A Vote 3N/A
Criteria on which the vote is considered “significant” Vote 1Potential impact on financial outcome Vote 2High profile / controversial voting item Vote 3High profile / controversial voting item