Costs and charges

Why are investment costs and charges important?

Over time, investment costs and charges could have a noticeable impact on the value of members’ retirement savings, so it’s important to understand how they work – and what members are getting for their money. Although it’s important to understand investment costs and charges and how much members might pay, remember that it’s just one factor to consider when deciding how to invest retirement savings.

What are the costs and charges?

The Trustee must calculate and disclose the charges and, so far as they are able to do so, the transaction costs borne by members during the Plan year.

For these purposes 'charges' means Plan administration and investment charges. They do not include transaction costs, costs relating to certain court orders, charges relating to pension sharing on divorce, winding up costs, or costs solely associated with the provision of death benefits.

Transaction costs are those incurred as a result of buying, selling, lending or borrowing investments. During the Plan year, the charges applied to the default arrangement that constituted the Plan’s default Lifestyle option, the Global Growth Lifestyle were as follows:

What are the transaction costs?

The Trustee has requested, via its advisers, transaction costs information from the Plan’s fund managers and we have provided this below.

Transaction costs arise when the fund manager buys, sells, lends or borrows investments. These costs are allowed for within the unit prices of the funds, which means they are not readily visible. In 2017, the Financial Conduct Authority (FCA) published its policy on how fund managers must disclose transactions costs. Due to the way they are calculated, the cost of the transaction may be reported as a negative figure (i.e. a gain has been made as a result of the transaction), because the price of a trade when transacted was lower than when the instruction to make the trade took place.

Charges and transaction costs

The Trustee reviews the charges paid by members on a regular basis with the help of its advisers. The allocation of assets between the components within the lifestyle strategies will change as the member approaches their selected retirement date. The maximum potential charge for the default investment option was 0.16%.

The total expense ratio (TER) is applied to all funds and is a measure of the costs associated with managing and operating an investment fund. These costs consist primarily of annual management charges and variable additional expenses such as trading, legal and auditor fees and other operational expenses.

Transaction costs are those incurred by the investment manager as a result of buying, selling, lending or borrowing investments. Transaction costs are typically categorised as being explicit costs or implicit costs.

• Explicit costs are directly observable and include broker commissions and taxes Implicit costs cannot be observed in the same way but can also result in a reduction in the value of capital invested.
• Implicit costs include market impact or delay costs which can also result in a gain for the fund (i.e. negative transaction cost).

The TER and transaction costs are set out separately in the table below:

Default arrangement	Total Expense Ratio (TERs)
Default arrangementGlobal Growth Lifestyle	Total Expense Ratio (TERs)Range from 0.07% - 0.16%

Component Funds	Total Expense Ratio (TERs)	Transaction Costs (%)
Component FundsGlobal Growth Fund 60% in the Global Equity 30:70 Index Fund 40% in the Diversified Fund	Total Expense Ratio (TER)0.16%	Transaction Costs0.02%
Component FundsPre-Retirement Fund	Total Expense Ratio (TER)0.08%	Transaction Costs-0.02%
Component FundsCash Fund	Total Expense Ratio (TER)0.07%	Transaction Costs0.00%

The level of charges applying during the reporting period for all other self-select funds that do not form part of the default arrangement:

Self-select funds	Total Expense Ratio (TERs)	Transaction Costs (%)
Self-select fundsGlobal Equity 30:70 Index Fund	Total Expense Ratio (TER)0.14%	Transaction Costs0.04%
Self-select fundsDiversified Fund	Total Expense Ratio (TER)0.19%	Transaction Costs-0.02%
Self-select fundsUK Equity Index Fund	Total Expense Ratio (TER)0.09%	Transaction Costs-0.02%
Self-select fundsWorld (ex UK) Equity Index Fund	Total Expense Ratio (TER)0.15%	Transaction Costs0.07%
Self-select fundsWorld Emerging Markets Equity Index Fund	Total Expense Ratio (TER)0.36%	Transaction Costs0.00%
Self-select fundsEthical Global Equity Index Fund	Total Expense Ratio (TER)0.30%	Transaction Costs0.00%
Self-select fundsOver 5 Year Index-Linked Gilts Index Fund	Total Expense Ratio (TER)0.05%	Transaction Costs0.12%
Self-select fundsHybrid Property (70:30) Fund	Total Expense Ratio (TER)0.62%	Transaction Costs-0.18%
Self-select fundsInvestment Grade Corporate Bond – All Stocks – Index Fund	Total Expense Ratio (TER)0.08%	Transaction Costs-0.03%

The level of charges applying during the reporting period for those funds within the Intermec Section of the Plan are as follows:

Intermec funds	Total Expense Ratio (TER)	Transaction Costs
Self-select fundsTEAMS Active UK Long Gilts Fund	Total Expense Ratio (TER)0.25%	Transaction Costs0.09%
Self-select fundsTEAMS UK Equities Fund	Total Expense Ratio (TER)0.85%	Transaction Costs0.14%
Self-select fundsAegon BlackRock 70:30 Global Equity Index Fund	Total Expense Ratio (TER)0.16%	Transaction Costs0.04%
Self-select fundsAegon BlackRock Aquila Life Over 15 Year UK Gilt Fund	Total Expense Ratio (TER)0.11%	Transaction Costs0.01%
Self-select fundsAegon BlackRock Cash Fund	Total Expense Ratio (TER)0.13%	Transaction Costs0.01%
Self-select fundsAegon BlackRock Ascent Life Overseas Equity Fund	Total Expense Ratio (TER)0.79%	Transaction Costs0.16%

The Company meets the cost of the charges for the Intermec funds.

From 6 April 2015, all trustees have been required (insofar as they are able) to assess transaction costs and report on them in the Chairman's statement.

The Financial Conduct Authority (FCA) has established a defined methodology to calculate transaction costs. These requirements took effect from 3 January 2018 and investment managers are now obliged to report transaction costs using this methodology going forward.

In order to comply with the requirements as fully as possible at this point in time, the Trustee has asked LGIM, BlackRock and TEAMS for details of transaction costs. LGIM, TEAMS and BlackRock have provided transaction costs incurred by members at a fund level and these details have been included in the table above.

There is currently limited information available for benchmarking the transaction costs, particularly as the standardised reporting format has only recently been made available. However, based on the information we do hold, the transaction costs reported during the period do not appear unreasonable and some of the funds have reported a negative transaction cost (net gain).

The Occupational Pension Schemes (Administration and Disclosure) (Amendment) Regulations 2018 requires the Trustee to produce an illustration showing the compounding effect of costs and charges on DC funds and include this in the annual Chairman's Statement. As a result, the Trustee has set out an illustration in appendix A which shows the projected values based on three example members of the Plan (these are not actual members). The three examples show members at different ages, with different average pension savings and investing in a range of different investment options. The projections compare what the investments could potentially grow to at age 65 before and after charges have been deducted.

Utmost (formerly Equitable Life) and Prudential AVC policies

Following High Court approval on 4 December 2019, Equitable Life has implemented the Guarantee Exchange Scheme (GES) with effect from 1 January 2020 and transferred its With-Profits funds to Utmost Life and Pensions ('Utmost'). The Trustee voted in favour of the GES proposal after considering detailed analysis of the uplifts and expected future performance for members. In June 2020, the Trustee transferred all of the assets from Utmost (except for the Clerical Medical With-Profit fund) into the Plan. The Clerical Medical With-Profit fund was not included as part of the transfer as penalties have been applied by Clerical Medical in the event of transfer before normal retirement age.

As at 31 March 2020 there only remains closed AVC policies with Utmost and Prudential that are under the Honeywell Retirement Plan and are therefore included as part of the Plan's Chairman's statement. Members are invested in the following funds:

Utmost

• Equitable Life With-Profits Fund: there were members invested in this fund until 31 December 2019. No explicit member charges were applicable however, a 1.0% deduction to the total value of the With-Profits Fund was applied to cover the costs of managing the With-Profits Fund. A further deduction of 0.5% was applied to cover the costs of the With-Profits Fund's guarantees. This fund was transferred to the Secure Cash fund on 1 January 2020.
• Secure Cash fund: transferred to the Plan's Cash Fund in June 2020.
• Clerical Medical With-Profits fund: the latest annual bonus rate applying from 1 February 2020 is 0.20% which is net of the annual management charge of 1.00%.

Prudential

• With-Profits Fund – the Fund’s annual management charge is 1%.

Other costs

The TERs described above cover the investment and administration services provided by the relevant insurers. Members do not bear any of the other costs of the Plan (for example the fees for the Plan's administration and advisers). These costs are met either by Employers or from the Plan's reserves.

The latest payment schedule is effective from 1 April 2019 and requires contributions from the employers to cover the costs of administering the scheme which are calculated as a fixed percentage of the employer payrolls. The increase in the number of members in recent years meant that the amounts being received were in excess of the administration expenses actually being incurred. The Trustees therefore decided to reduce the percentage rate at which these contributions are made, with the reduction applying from 1 November 2019. The Payment Schedule is being updated to reflect this reduction.

Costs and charges

The aim of this illustration is to show the cumulative effect of the costs and charges incurred by members when investing in a selection of funds provided by the Plan through the LGIM investment platform. The costs and charges considered in the ‘After charges’ column in the table below take into consideration the TERs and the aggregated transaction costs. The Trustees have followed statutory guidance in putting together the illustration.

The assumptions used are intended to model the behaviour of assets and market conditions over the long term. They are not meant to be reflective of the actual, or even likely, course of those investment markets in the short term. The return forecasts are not intended to imply, nor should be interpreted as conveying, any form of guarantee or assurance of the future performance of the funds in question, either favourable or unfavourable.

Neither the Trustee, the Administrator or LGIM can give members financial advice. Members should seek advice form an independent financial adviser if they are unsure about their investment choices. For help with finding a financial adviser in your area, please contact the Money and Pensions Service using www.maps.org.uk.

Where we have been provided with negative transaction costs, these have been used in the calculations of the 'Pounds & Pence' illustration below. Negative costs are a feature of price movements in a fund as members trade in and out of the fund and are not a reflection of explicit costs paid by members. Because of this, it is not expected that transaction costs for the affected funds will always be negative.

Reporting of transaction costs has only recently been introduced and we will be building up more information in this area in the future which will enable us to provide more meaningful transaction cost information over longer periods. It is important to note that using a negative or zero cost during any one scheme year may not accurately represent the actual transaction costs a member may expect to see in any future Plan year.

Pound & Pence illustration

Example Member	Projection period (years)	Global Growth Lifestyle (default)		Global Equity 30:70 Index Fund		Diversified Fund		Hybrid Property (70:30) Fund		Cash Fund
		Before charges	After charges	Before charges	After charges	Before charges	After charges	Before charges	After charges	Before charges	After charges
Example MemberYoungest member	Projection period (years)1	Global Growth Lifestyle (default) - before charges£1,200	Global Growth Lifestyle (default) - after charges£1,200	Global Equity 30:70 Index Fund - before charges£1,200	Global Equity 30:70 Index Fund - after charges£1,200	Diversified Fund - before charges£1,200	Diversified Fund - after charges£1,200	Hybrid Property (70:30) Fund - before charges£1,200	Hybrid Property (70:30) Fund - after charges£1,200	Cash Fund - before charges£1,200	Cash Fund - after charges£1,200
Example MemberYoungest member	Projection period (years)3	Global Growth Lifestyle (default) - before charges£3,700	Global Growth Lifestyle (default) - after charges£3,700	Global Equity 30:70 Index Fund - before charges£3,700	Global Equity 30:70 Index Fund - after charges£3,700	Diversified Fund - before charges£3,600	Diversified Fund - after charges£3,600	Hybrid Property (70:30) Fund - before charges£3,700	Hybrid Property (70:30) Fund - after charges£3,600	Cash Fund - before charges£3,600	Cash Fund - after charges£3,500
Example MemberYoungest member	Projection period (years)5	Global Growth Lifestyle (default) - before charges£6,200	Global Growth Lifestyle (default) - after charges£6,200	Global Equity 30:70 Index Fund - before charges£6,200	Global Equity 30:70 Index Fund - after charges£6,200	Diversified Fund - before charges£6,100	Diversified Fund - after charges£6,100	Hybrid Property (70:30) Fund - before charges£6,200	Hybrid Property (70:30) Fund - after charges£6,100	Cash Fund - before charges£5,900	Cash Fund - after charges£5,900
Example MemberYoungest member	Projection period (years)10	Global Growth Lifestyle (default) - before charges£12,700	Global Growth Lifestyle (default) - after charges£12,600	Global Equity 30:70 Index Fund - before charges£13,000	Global Equity 30:70 Index Fund - after charges£12,900	Diversified Fund - before charges£12,400	Diversified Fund - after charges£12,300	Hybrid Property (70:30) Fund - before charges£12,700	Hybrid Property (70:30) Fund - after charges£12,300	Cash Fund - before charges£11,500	Cash Fund - after charges£11,400
Example MemberYoungest member	Projection period (years)15	Global Growth Lifestyle (default) - before charges£19,700	Global Growth Lifestyle (default) - after charges£19,500	Global Equity 30:70 Index Fund - before charges£20,300	Global Equity 30:70 Index Fund - after charges£20,000	Diversified Fund - before charges£19,000	Diversified Fund - after charges£18,700	Hybrid Property (70:30) Fund - before charges£19,600	Hybrid Property (70:30) Fund - after charges£18,800	Cash Fund - before charges£16,800	Cash Fund - after charges£16,700
Example MemberYoungest member	Projection period (years)20	Global Growth Lifestyle (default) - before charges£27,100	Global Growth Lifestyle (default) - after charges£26,600	Global Equity 30:70 Index Fund - before charges£28,200	Global Equity 30:70 Index Fund - after charges£27,700	Diversified Fund - before charges£25,800	Diversified Fund - after charges£25,300	Hybrid Property (70:30) Fund - before charges£26,800	Hybrid Property (70:30) Fund - after charges£25,400	Cash Fund - before charges£22,000	Cash Fund - after charges£21,800
Example MemberYoungest member	Projection period (years)25	Global Growth Lifestyle (default) - before charges£35,000	Global Growth Lifestyle (default) - after charges£34,200	Global Equity 30:70 Index Fund - before charges£36,800	Global Equity 30:70 Index Fund - after charges£36,000	Diversified Fund - before charges£32,800	Diversified Fund - after charges£33,100	Hybrid Property (70:30) Fund - before charges£34,500	Hybrid Property (70:30) Fund - after charges£32,200	Cash Fund - before charges£26,900	Cash Fund - after charges£26,600
Example MemberYoungest member	Projection period (years)30	Global Growth Lifestyle (default) - before charges£43,300	Global Growth Lifestyle (default) - after charges£42,100	Global Equity 30:70 Index Fund - before charges£46,100	Global Equity 30:70 Index Fund - after charges£44,800	Diversified Fund - before charges£40,000	Diversified Fund - after charges£39,100	Hybrid Property (70:30) Fund - before charges£42,600	Hybrid Property (70:30) Fund - after charges£39,100	Cash Fund - before charges£31,500	Cash Fund - after charges£31,200
Example MemberYoungest member	Projection period (years)35	Global Growth Lifestyle (default) - before charges£52,100	Global Growth Lifestyle (default) - after charges£50,500	Global Equity 30:70 Index Fund - before charges£56,200	Global Equity 30:70 Index Fund - after charges£54,300	Diversified Fund - before charges£47,600	Diversified Fund - after charges£46,200	Hybrid Property (70:30) Fund - before charges£51,200	Hybrid Property (70:30) Fund - after charges£46,300	Cash Fund - before charges£36,000	Cash Fund - after charges£35,600
Example MemberYoungest member	Projection period (years)40	Global Growth Lifestyle (default) - before charges£61,400	Global Growth Lifestyle (default) - after charges£59,200	Global Equity 30:70 Index Fund - before charges£67,000	Global Equity 30:70 Index Fund - after charges£64,500	Diversified Fund - before charges£55,400	Diversified Fund - after charges£53,600	Hybrid Property (70:30) Fund - before charges£60,200	Hybrid Property (70:30) Fund - after charges£53,700	Cash Fund - before charges£40,300	Cash Fund - after charges£39,700
Example MemberYoungest member	Projection period (years)45	Global Growth Lifestyle (default) - before charges£69,600	Global Growth Lifestyle (default) - after charges£66,800	Global Equity 30:70 Index Fund - before charges£78,800	Global Equity 30:70 Index Fund - after charges£75,400	Diversified Fund - before charges£63,400	Diversified Fund - after charges£61,100	Hybrid Property (70:30) Fund - before charges£69,800	Hybrid Property (70:30) Fund - after charges£61,300	Cash Fund - before charges£44,400	Cash Fund - after charges£43,700
Example MemberYoungest member	Projection period (years)49	Global Growth Lifestyle (default) - before charges£74,500	Global Growth Lifestyle (default) - after charges£71,500	Global Equity 30:70 Index Fund - before charges£89,000	Global Equity 30:70 Index Fund - after charges£84,700	Diversified Fund - before charges£70,100	Diversified Fund - after charges£67,300	Hybrid Property (70:30) Fund - before charges£77,800	Hybrid Property (70:30) Fund - after charges£67,500	Cash Fund - before charges£47,500	Cash Fund - after charges£46,700
Example MemberAverage member	Projection period (years)1	Global Growth Lifestyle (default) - before charges£33,200	Global Growth Lifestyle (default) - after charges£33,100	Global Equity 30:70 Index Fund - before charges£33,300	Global Equity 30:70 Index Fund - after charges£33,200	Diversified Fund - before charges£33,000	Diversified Fund - after charges£33,000	Hybrid Property (70:30) Fund - before charges£33,100	Hybrid Property (70:30) Fund - after charges£33,000	Cash Fund - before charges£32,500	Cash Fund - after charges£32,500
Example MemberAverage member	Projection period (years)3	Global Growth Lifestyle (default) - before charges£39,600	Global Growth Lifestyle (default) - after charges£39,500	Global Equity 30:70 Index Fund - before charges£40,100	Global Equity 30:70 Index Fund - after charges£39,900	Diversified Fund - before charges£39,100	Diversified Fund - after charges£39,000	Hybrid Property (70:30) Fund - before charges£39,500	Hybrid Property (70:30) Fund - after charges£39,000	Cash Fund - before charges£37,500	Cash Fund - after charges£37,400
Example MemberAverage member	Projection period (years)5	Global Growth Lifestyle (default) - before charges£46,300	Global Growth Lifestyle (default) - after charges£45,900	Global Equity 30:70 Index Fund - before charges£47,000	Global Equity 30:70 Index Fund - after charges£46,700	Diversified Fund - before charges£45,300	Diversified Fund - after charges£45,000	Hybrid Property (70:30) Fund - before charges£46,100	Hybrid Property (70:30) Fund - after charges£45,000	Cash Fund - before charges£42,400	Cash Fund - after charges£42,200
Example MemberAverage member	Projection period (years)10	Global Growth Lifestyle (default) - before charges£63,500	Global Growth Lifestyle (default) - after charges£62,700	Global Equity 30:70 Index Fund - before charges£65,500	Global Equity 30:70 Index Fund - after charges£64,600	Diversified Fund - before charges£61,200	Diversified Fund - after charges£60,400	Hybrid Property (70:30) Fund - before charges£63,100	Hybrid Property (70:30) Fund - after charges£60,500	Cash Fund - before charges£54,200	Cash Fund - after charges£53,900
Example MemberAverage member	Projection period (years)15	Global Growth Lifestyle (default) - before charges£81,900	Global Growth Lifestyle (default) - after charges£80,300	Global Equity 30:70 Index Fund - before charges£85,500	Global Equity 30:70 Index Fund - after charges£83,800	Diversified Fund - before charges£77,600	Diversified Fund - after charges£76,300	Hybrid Property (70:30) Fund - before charges£81,000	Hybrid Property (70:30) Fund - after charges£76,400	Cash Fund - before charges£65,500	Cash Fund - after charges£65,000
Example MemberAverage member	Projection period (years)20	Global Growth Lifestyle (default) - before charges£99,400	Global Growth Lifestyle (default) - after charges£97,200	Global Equity 30:70 Index Fund - before charges£107,100	Global Equity 30:70 Index Fund - after charges£104,500	Diversified Fund - before charges£94,600	Diversified Fund - after charges£92,500	Hybrid Property (70:30) Fund - before charges£98,900	Hybrid Property (70:30) Fund - after charges£92,700	Cash Fund - before charges£76,300	Cash Fund - after charges£75,500
Example MemberAverage member	Projection period (years)25	Global Growth Lifestyle (default) - before charges£114,000	Global Growth Lifestyle (default) - after charges£111,300	Global Equity 30:70 Index Fund - before charges£130,500	Global Equity 30:70 Index Fund - after charges£126,600	Diversified Fund - before charges£112,200	Diversified Fund - after charges£109,200	Hybrid Property (70:30) Fund - before charges£119,900	Hybrid Property (70:30) Fund - after charges£109,500	Cash Fund - before charges£86,600	Cash Fund - after charges£85,600
Example MemberApproaching retirement	Projection period (years)1	Global Growth Lifestyle (default) - before charges£104,700	Global Growth Lifestyle (default) - after charges£104,500	Global Equity 30:70 Index Fund - before charges£105,200	Global Equity 30:70 Index Fund - after charges£105,000	Diversified Fund - before charges£104,200	Diversified Fund - after charges£104,100	Hybrid Property (70:30) Fund - before charges£104,700	Hybrid Property (70:30) Fund - after charges£104,200	Cash Fund - before charges£102,700	Cash Fund - after charges£102,600
Example MemberApproaching retirement	Projection period (years)3	Global Growth Lifestyle (default) - before charges£113,800	Global Growth Lifestyle (default) - after charges£113,300	Global Equity 30:70 Index Fund - before charges£115,900	Global Equity 30:70 Index Fund - after charges£115,400	Diversified Fund - before charges£113,000	Diversified Fund - after charges£112,500	Hybrid Property (70:30) Fund - before charges£114,300	Hybrid Property (70:30) Fund - after charges£112,600	Cash Fund - before charges£108,000	Cash Fund - after charges£107,800
Example MemberApproaching retirement	Projection period (years)5	Global Growth Lifestyle (default) - before charges£122,300	Global Growth Lifestyle (default) - after charges£121,500	Global Equity 30:70 Index Fund - before charges£127,000	Global Equity 30:70 Index Fund - after charges£126,000	Diversified Fund - before charges£121,900	Diversified Fund - after charges£121,000	Hybrid Property (70:30) Fund - before charges£124,100	Hybrid Property (70:30) Fund - after charges£121,000	Cash Fund - before charges£113,200	Cash Fund - after charges£112,800
Example MemberApproaching retirement	Projection period (years)10	Global Growth Lifestyle (default) - before charges£141,100	Global Growth Lifestyle (default) - after charges£139,600	Global Equity 30:70 Index Fund - before charges£156,200	Global Equity 30:70 Index Fund - after charges£153,800	Diversified Fund - before charges£144,500	Diversified Fund - after charges£142,500	Hybrid Property (70:30) Fund - before charges£149,600	Hybrid Property (70:30) Fund - after charges£147,200	Cash Fund - before charges£125,800	Cash Fund - after charges£125,500

Projected values are rounded to the nearest hundred.