Baker Group of Companies Retirement Benefits Scheme

Statement of Investment Principles

The purpose of the Statement of Investment Principles (“the Statement”) is to document the principles and policies governing decisions about the investment of the assets of the Baker Group of Companies Retirement Benefits Scheme (“the Scheme”). This statement has been prepared by the Trustees of the Baker Group of Companies Retirement Benefits Scheme (“the Trustees”). It sets out the Trustees’ policy for complying with the Pensions Act 1995 and the Occupational Pension Scheme (Investment) Regulations 2005 and is adopted with effect from July 2015

The Trustees have consulted Butchers Pet Care Limited (“the Company”), who are required to give the views of the Sponsoring Company on the Statement. and have received written advice from the Scheme’s Investment Consultant, Mercer Limited (“Mercer”), which is regulated by the Financial Conduct Authority (“FCA”) in relation to investment services.

The Trustees seek to maintain a good working relationship with the Company and will discuss any proposed changes to the Statement with the Company. However, the Trustees’ fiduciary obligations are to the Scheme’s members and will take precedence over the Company’s wishes.

The Scheme’s investment arrangements, based on the principles set out in this Statement, are detailed in the Investment Implementation Policy Document (“IIPD”). Both documents are available to members on request.

The Scheme is governed by its Trust Deed and Rules which sets out all of the benefits in detail and specifies the Trustees’ investment powers. The investment powers do not conflict with this Statement.

Mercer has confirmed in writing to the Trustees that it has the appropriate knowledge and experience to give the advice required by the Pensions Act 1995 and the Occupational Pension Scheme (Investment) Regulations 2005.

The Trustees do not expect to revise this Statement frequently because it covers broad principles rather than their implementation. The Trustees will review it at least once every three years and without delay upon a material change to the Scheme or the Company.

2.1 Overall investment policy falls into two parts:

a) The strategic management of the assets is fundamentally the responsibility of the Trustees acting on expert advice and is driven by the investment objectives as set out below. The Trustees review the investment policy on a regular basis, although it is not expected to change frequently. Details are set out in Section

b) The implementation of the investment policy is the day to day management of the assets which is largely delegated to the Trustees’ selected investment managers. The policy is outlined in Section 4 with full details in the IIPD, which the Trustees update on a regular basis.

3.1 Investment Objectives

The Trustees’ primary objective is to act in the best interest of the members, and ensure that the obligations to beneficiaries of the Scheme can be met. In meeting this objective, the Trustees’ further objective is to secure full self-sufficiency or consolidation of the Scheme, so as to remove any downside risk on the obligations.

To control risk, the Trustees set the split between the Scheme’s growth and matching assets such that the expected return on the portfolio is expected to be sufficient to meet the Scheme’s long-term objectives. As the funding level improves, investments will be switched from growth assets into matching assets with the aim of reducing overall investment risk.

The Trustees recognise that a portfolio of bonds (or bond like instruments) is the strategy which will best protect against changes in the value of the liabilities and the Scheme’s ongoing and solvency positions. However, the Trustees and the Company have also considered the use of some growth asset investment within the portfolio and feel that some growth asset investment is appropriate to target the higher expected returns over bonds. The Trustees do recognise that holding growth assets (such as equities) investment will bring increased volatility in the ongoing and solvency levels in favour of potentially reduced Company contributions.

The Trustees will aim to target reaching a suitably strong funding level in order to move to an entirely bond (or bond like instrument) based investment strategy when a suitably strong funding level is achieved. The Trustees will monitor progress against this target. The Trustees will review the investment strategy on a regular basis and aim to de-risk the Scheme investment strategy over time.

The objectives set out above and the risks and other factors referenced in this Statement are those that the Trustees determine to be financially material considerations. Non-financial considerations are discussed in section 5.

3.2 Investment Risk

The Trustees regard “risk” as the likelihood of failing to achieve the objectives set out above and have, on the advice of Mercer, taken several measures which are set out in this Statement to minimise this risk, over the Scheme’s anticipated lifetime, so far as is possible.

The Trustees pay close regard to the risks which may arise through a mismatch between the Scheme’s assets and its liabilities, and the risks which may arise from the lack of diversification of investments. Subject to satisfying the risk from a mismatch of assets and liabilities, the Trustees believe that the asset allocation policy in place provides an adequately diversified distribution of assets.

The Trustees’ willingness to take on investment risk is dependent on the continuing financial strength of the Company and its willingness to contribute to the Scheme. The strength of the Company and its perceived commitment to the Scheme is monitored by the Trustees and risk will be reviewed if either of these deteriorates.

The degree of investment risk taken will also depend on the Scheme’s funding status and liability profile. The Trustees will monitor these with a view to altering the Scheme objectives and risk tolerances if there is a change in either.

There are various risks to which any pension scheme is exposed. The Trustees’ policy is to minimise these risks as far as possible, consistent with earning a satisfactory investment return to enable the Scheme to pay the benefits due to members.

The Trustees have considered the following risks:

  1. The primary risk upon which the Trustees focus is that arising through a mismatch between the Scheme’s assets and its
  2. The Trustees recognise that whilst increasing risk increases potential returns over a long period, it also increases the risk of a shortfall in returns relative to that required to cover the Scheme’s accruing liabilities as well as producing more volatility in the Scheme’s funding
  3. The Trustees’ willingness to take on investment risk is dependent on the continuing financial strength of the Company and its willingness to contribute to the Scheme. The strength of the Company and its perceived commitment to the Scheme is monitored by the Trustees, and risk will be increased if either of these deteriorates.
  4. The Trustees recognise that even if the Scheme’s assets are invested in matching assets there may still be a mismatch between the interest-rate and inflation sensitivity of the Scheme’s assets and the Scheme’s liabilities due to the mismatch in duration between matching assets and actuarial
  5. The Trustees recognise the risks that may arise from the lack of diversification of investments. Subject to managing the risk from a mismatch of assets and liabilities, and aim to ensure the asset allocation policy in place results in an adequately diversified
  6. Investments may be made in securities that are not traded on regulated markets. Recognising the risks (in particular liquidity and counterparty exposure), such investments will only be made with the purpose of reducing the Scheme’s mismatch risk relative to its liabilities or to facilitate efficient portfolio management.
  7. In any event the Trustees will ensure that the assets of the Scheme are predominantly invested on regulated
  8. There is a risk that the day-to-day management of the assets will not achieve the rate of investment return expected by the Trustees. The Trustees recognise that the use of active investment managers involves such a risk. However, for specific asset classes it believes that this risk is outweighed by the potential gains from successful active management. Likewise, passive management will be used for one of a number of reasons, namely to diversify and reduce risk and when investing in markets deemed efficient where the scope for added value is
  9. The Trustees recognise that environmental, social and corporate governance concerns, including climate change, have a financially material impact on return. Section 5 sets out how these risks are
  10. The Scheme is subject to currency risk because some of the investment vehicles in which the Scheme invests are denominated or priced in a foreign currency. To limit currency risk, the Trustees set a target non-Sterling currency
  11. Should there be a material change in the Scheme’s circumstances, the Trustees will advise Mercer, who will review whether and to what extent the investment arrangements should be
  12. Responsibility for the safe custody of the Scheme’s assets is delegated to Mercer who has appointed State Street Bank and Trust Company (“State Street”) as custodian of the assets invested in their pooled vehicles. Mercer is responsible for keeping the suitability of State Street under ongoing

3.3 Investment Strategy

The Trustees have chosen a selection of funds managed by Mercer in which to invest the Scheme’s assets. In doing so, they have delegated day-to-day management of the assets to Mercer who in turn delegates responsibility for the investment of the assets to a range of underlying specialist investment managers.  Mercer is responsible for the selection, appointment, removal and monitoring of the underlying investment managers. The underlying investment managers have full discretion to buy and sell investments on behalf of the Scheme subject to agreed constraints.

The Trustees have taken steps to satisfy itself that Mercer have the appropriate knowledge and experience to choose and combine the underlying investment managers and ensure that they are fit to manage the Scheme’s investments.

The Trustees regularly review the continuing suitability of the Scheme’s investments, including Mercer’s ability to select, appoint, remove and monitor the appointed managers. Mercer is regulated by the Financial Conduct Authority.

Full details of the Scheme’s investment strategy being implemented can be found in the IIPD.

The investment strategy is reviewed regularly by the Trustees to ensure that it remains appropriate for meeting the objectives set out in 3.1 and for controlling the risks identified in 3.2.

3.4 Consultation with the Company

As required by the Pensions Act 1995, and as a matter of good practice, the Trustees have consulted with the Company concerning the investment arrangements set out above.

The Trustees regard the choice of asset allocation policy as the decision which has most influence on the likelihood that they will achieve their investment objectives. In deciding the asset allocation strategy, the Trustees have taken advice from Mercer and make their decisions in consultation with the Company.

The strategic weights are targets and deviations from them may occur from time to time. Whilst there is no strategic allocation to cash, it is accepted that the Scheme’s investment managers will need to hold part of the investments in cash or short-term deposits, in order to manage the assets in an efficient manner.

The Trustees monitor the continued appropriateness of the strategy on an ongoing basis with the help of their advisers. However, the strategy will be reviewed in depth after each triennial actuarial valuation, though if there is a significant change (in the opinion of the Trustees) in the capital markets, the circumstances of the Scheme and/or the Company, or governing legislation between valuations, then an earlier review will be conducted.

It is the Trustees’ policy that the majority of the Scheme’s investments are in securities which can be realised at short notice, or in cash.

In addition, the Trustees’ policy is to endeavour to secure the safety of the Scheme’s assets. Custodial arrangements are outsourced to Mercer as detailed in Section 3.2.

The Trustees believe that environmental, social, and corporate governance (ESG) factors may have a material impact on investment risk and return outcomes, and that good stewardship can create and preserve value for companies and markets as a whole. The Trustees also recognise that long-term sustainability issues, particularly climate change, present risks and opportunities that increasingly may require explicit consideration.

The Trustees have delegated day to day management of the assets to Mercer who in turn delegates responsibility for the investment of the assets to a range of underlying investment managers. These investment managers are expected to evaluate ESG factors, including climate change considerations, and exercise voting rights and stewardship obligations attached to the investments, in accordance with their own corporate governance policies and current best practice, including the UK Corporate Governance Code and UK Stewardship Code.

The Trustees consider how ESG, climate change and stewardship is integrated within Mercer’s investment processes and those of the underlying managers in the monitoring process. Mercer is expected to provide reporting on a regular basis, on ESG integration progress, stewardship monitoring results, and climate-related metrics such as carbon foot printing for equities and/or climate scenario analysis for diversified portfolios.

Member views

Member views are not taken into account in the selection, retention and realisation of investments.

Investment Restrictions

The Trustees have not set any investment restrictions on the appointed investment managers in relation to particular products or activities, but may consider this in future.

Mercer levies an annual fee for advisory services based on a percentage of the value of assets under management.

Mercer levies additional fees for investment management services. These fees are based on percentage amounts of the value of the assets invested in each of the Mercer investment funds (the percentage amount varies by fund used).

Mercer and the underlying investment managers selected by Mercer have discretion in the timing of realisation of investments and in considerations relating to the liquidity of those investments within parameters stipulated in the relevant appointment documentation

Cash flows, whether positive or negative, are used to move the Scheme’s asset allocation and allocation to the individual underlying investment managers back towards the strategic allocation appropriate at that point in time given the level of de­ risking that may have occurred.

Rebalancing ranges have been set within the growth and matching portfolios to ensure the Scheme’s assets remain invested in a manner which is consistent with Guidelines agreed by the Sponsor.

Assets in respect of members’ AVCs are invested in a range of investment options. The AVC arrangements will be reviewed periodically to ensure that the investment profile of the funds available remains consistent with the objectives of the Trustees and the needs of the members. More information on the AVC providers is detailed in the IIPD.

In line with the Occupational Pension (Investment) Regulations (2005), the Trustees are required to review the Statement at least every three years and without delay after any significant changes in investment policy.

The Trustees will review this Statement in response to any material changes to any aspects of the Scheme, its liabilities, finances and the attitude to risk of the Trustees and the Company which they judge to have a bearing on the stated Investment Policy.

This review will occur no less frequently than every three years to coincide with the Actuarial Valuation or other actuarial advice. Any such review will again be based on written expert investment advice, and the Company will be consulted.