Schlumberger UK Pension Scheme Chair ......2016. Having established that the drawdown target...

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1 Schlumberger UK Pension Scheme Chair’s Annual Governance Statement (in respect of the period 1 January 2019 31 December 2019) This statement has been prepared by Schlumberger Trust Company Limited, the Trustee of the Schlumberger UK Pension Scheme (‘the Scheme’) in order to demonstrate how the Scheme has complied with the governance standards introduced under The Occupational Pension Schemes (Charges and Governance) Regulations 2015 1 . This Statement applies to both the Personal Money Fund (PMF), the defined contribution element of Final Salary Benefit (FSB) section (‘Blue Section’) and the Defined Contribution (DC) section (‘Orange Section’) of the Scheme. Details of legacy Additional Voluntary Contribution (AVCs) arrangements are also included in this Statement. General Investment principles The Trustees general investment principles are as follows: To offer a suitable default investment strategy appropriate for the profile of members that do not make an investment decision taking into account their expected risk tolerances while optimising investment returns; and To supplement this with a range of suitable self-select investment options (including alternative self-select lifestyle strategies) which offer sufficient investment choice to satisfy members differing risk appetites and risk profiles, and retirement objectives. Investment strategy relating to the Scheme’s default investment option Although members have the choice of where to invest, the Trustee must also make available a default strategy for those members that do not make an investment decision on joining the Scheme. The objective of the default strategy is to generate capital growth over the long term through exposure to equities and diversified assets providing an appropriate balance between risk and return. In the seven years prior to retirement, the strategy aims to reduce the vola tility of the member’s expected pension fund by increasing the allocation to bonds and cash with a proportionately lower allocation to growth seeking assets. The strategy is designed on the basis that the majority of members are likely to aim to maintain a level of investment growth at retirement age and move the majority of their PMF to a drawdown arrangement which allows members to take income as and when required. A formal strategic review of the Scheme’s default strategy was completed and agreed by the Trustee during the reporting period in November 2019. The review was conducted by the Trustee in conjunction with its investment advisers. In conducting the review, the Trustee assessed whether the current default strategy was still appropriate and considered the following areas: DWP Guidance states that the default fund should, as far as is reasonable, take account of the likely characteristics and needs of the employees who are automatically enrolled into it. Market data shows that there is a general trend towards people taking drawdown at retirement and that people who have pension pots valued at £250,000 or more are especially likely to take drawdown. 1 Inserted into Regulation 23 of The Occupational Pension Schemes (Scheme Administration) Regulations 199 6

Transcript of Schlumberger UK Pension Scheme Chair ......2016. Having established that the drawdown target...

Page 1: Schlumberger UK Pension Scheme Chair ......2016. Having established that the drawdown target remained appropriate for the default strategy, further analysis was undertaken to consider

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Schlumberger�UK�Pension�Scheme

Chair’s�Annual�Governance�Statement (in�respect�of�the�period�1�January�2019 – 31�

December�2019)

This�statement�has�been�prepared�by�Schlumberger�Trust�Company�Limited,�the�Trustee�of�the�

Schlumberger�UK�Pension�Scheme�(‘the�Scheme’)�in�order�to�demonstrate�how�the�Scheme�has�

complied�with�the�governance�standards�introduced�under�The�Occupational�Pension�Schemes�

(Charges�and�Governance)�Regulations�20151.�This�Statement�applies�to�both�the�Personal�Money�

Fund�(PMF),�the�defined�contribution�element�of�Final�Salary�Benefit�(FSB)�section�(‘Blue�Section’)�

and�the�Defined�Contribution�(DC)�section�(‘Orange�Section’)�of�the�Scheme. Details�of�legacy�

Additional�Voluntary�Contribution (AVCs) arrangements�are�also�included�in�this�Statement.

General�Investment�principles

The�Trustee’s�general�investment�principles�are�as�follows:

� To�offer�a�suitable�default�investment�strategy�appropriate�for�the�profile�of�members�that�do�not�make�an�investment�decision taking into�account�their�expected�risk�tolerances while�optimising�investment�returns;�and�

� To�supplement�this�with�a range�of�suitable�self-select�investment�options�(including�alternative�self-select�lifestyle�strategies)�which�offer�sufficient�investment�choice�to�satisfy�members�differing�risk�appetites�and�risk�profiles,�and�retirement�objectives.

Investment�strategy�– relating�to�the�Scheme’s�default investment�option

Although�members�have�the�choice�of�where�to�invest,�the�Trustee�must�also�make�available�a�default�

strategy for�those�members�that�do�not�make�an�investment�decision�on�joining�the�Scheme.

The�objective�of�the�default�strategy�is�to�generate�capital�growth�over�the�long�term�through�exposure�

to�equities�and�diversified�assets�providing�an�appropriate�balance�between�risk�and�return.�In�the�

seven�years�prior�to�retirement,�the�strategy�aims�to�reduce�the�volatility�of�the�member’s�expected�

pension�fund�by�increasing�the�allocation�to�bonds�and�cash with�a�proportionately�lower�allocation�to�

growth�seeking�assets.�The�strategy�is�designed on�the�basis�that�the�majority�of�members�are�likely�

to�aim�to�maintain a�level�of�investment�growth at�retirement�age�and�move the�majority�of�their�PMF

to�a�drawdown�arrangement�which�allows�members�to�take�income�as and�when�required.

A formal strategic review�of�the�Scheme’s�default�strategy�was�completed�and�agreed�by�the�Trustee�

during�the�reporting�period�in�November�2019.

The review�was conducted�by�the�Trustee�in�conjunction�with�its�investment�advisers. In�conducting�

the�review,�the�Trustee�assessed whether�the�current�default�strategy�was still�appropriate�and�

considered�the�following�areas:�

� DWP�Guidance�states�that�the�default�fund�should,�as�far�as�is�reasonable,�take�account�of�

the�likely�characteristics�and�needs�of�the�employees�who�are�automatically�enrolled�into�it.

� Market�data�shows�that�there�is�a�general�trend�towards�people�taking�drawdown�at�

retirement�and�that�people�who�have�pension�pots�valued�at�£250,000�or�more�are�especially�

likely�to�take�drawdown.

�1�Inserted�into�Regulation�23�of�The�Occupational�Pension�Schemes�(Scheme�Administration)�Regulations�199�6�

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� Modelling�based�on�Scheme�data�suggests�that�a�typical�member�would�be�likely�to�build�up�a�

DC�fund�in�excess�of�£250,000�at�retirement�over�the�course�of�their�DC�journey.

� Since�the�pension�freedoms�were�introduced,�the�Scheme�has�seen�an�increase�in�transfers�

to�external�arrangements�and�a�reduction�in�the�number�of�members�opting�to�buy�an�annuity.�

It�is�anticipated�that�many�of�the�transfers may�be�moving�to�a�drawdown�structure.

� There�had�been�no�significant�changes�to�the�overall�profile�of�the�membership�or�any�

relevant�legislative�changes�since�the�existing�default�strategy�was�implemented�in�March�

2016.

Having�established�that�the�drawdown�target�remained�appropriate�for�the�default�strategy,�further�

analysis�was�undertaken�to�consider�the�continued�suitability�of�its�risk�and�return�profile,�including�the�

seven-year�switching�profile.��This�included�modelling�of�the�potential�outcome�for�a�member�over�

their�lifetime�in�the�Scheme.��The�review�concluded�that�the�overall�profile�of�the�current�default�

strategy�remained�well�aligned�with�the�retirement�needs�and�objectives�of�Scheme�members�and�

should�be�retained.

Acknowledging�that�the�overall�risk�profile and�design�of�the�default�strategy remained�appropriate,�

the�Trustee�also�considered�its�individual�fund�composition�taking�into�account long�term�

performance.�All�component�funds�had�either�met�or�exceeded�their�benchmarks�over�three�and�five�

year�periods�with�the�exception�of�the�UK�Equity�Fund�which�was�only�slightly�behind�its�benchmark�

and�the�Diversified�Growth�Fund�which�had�not�met its�benchmark�and�was�an�area�of�concern�for�the�

Trustee.�The�Trustee�also�considered�emerging�good�investment�practice.�As�a�result�of�the�review,�

the�Trustee�decided�to�make�the�following�changes:��

� Replace�the Diversified�Growth�Fund�(which�makes�up�25%�of�the�assets�in�the�growth�

phase)�with�a�10%�global�equity�portfolio�(consisting�of�25%�actively�managed�and�75%�

passively�managed�funds)�and�a�15%�broad�credit�portfolio. This�was�primarily�due�to�

concerns�around�the�performance�of�the�Diversified�Growth�Fund.�The�replacement�portfolio�

was�designed�to�ensure that�diversification�remained�in�the�portfolio�both�in�terms�of�fund�

classes�and�assets�within�each�class.

� Change�the Overseas/UK�equity�split�in�the�global�equities�from�60/40�to�70/30�in�order�to�

achieve�better�equity�allocation�by�market�capitalisation.

� Replace�Index�Linked�Gilts�with�Fixed�Income�Gilts�and�Corporate�Bonds�to�better�match�the�

pricing�of�non-inflation linked�annuities�as�these�are�the�typical�choice�of�members�who�opt�to�

buy�an�annuity.

All the�changes�set�out�in�this�section�were�implemented�during�the�first�quarter�of�2020. The�first�two�of�these�changes�relate�to�the�growth�phase�applicable�to�all�the�lifestyle�options.�The�final�change�just�relates�to�the�pre-retirement�de-risking�period�of�the�annuity�lifestyle.

Replacement�of�the�Diversified�Growth�Fund�as�a�self-select�option

Due�to�the�concerns�noted�above,�the�Trustee�also�decided�to�remove�the�Diversified�Growth�Fund�as�a�self-select�investment�option and�automatically�transition�members’�investments�in�this�fund�to�the�Scheme’s�Balanced�Multi-Asset Fund (BMAF).� In�order�to�expedite�this�change�and�ensure no�member�remained�in�an�under-performing�fund,�the�Trustee�effected�this�change�automatically.��The�Trustee�recognises�that�the�BMAF�is technically�considered a ‘default’ arrangement�under�the�regulations�and�as�such,�took�account�of�the�guiding�principles�in�selecting�it�as�an�appropriate�replacement.��

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In�selecting�the�BMAF, during�2019�the�Trustee�considered and�reviewed�its suitability�in�terms�of�objective,�risk�/�return�profile and historical performance,�concluding�that�it�offered�a�more�appropriate

‘multi-asset’�option�for�Scheme�members.

This�change�was�affected�during�the�first�quarter�of�2020 (outside�of�the�reporting�period).��The�Trustee�last�reviewed�the�BMAF�in�2018�and�will�formally�review�the�BMAF as�a�default�arrangement�alongside�the�Scheme’s�main�default�investment�option�every�three�years.

A�copy�of�the�Scheme’s�Statement�of�Investment�Principles,�including�those�relating�to�the�default�

strategies is�appended�to�this�statement.

Regular�investment�Monitoring

The�Trustee�delegates�detailed�investment�oversight�to�Schlumberger�Common�Investment�Fund�

Limited�(SCIFL)�but�also�maintains�an�investment�sub-committee�to�carry�out�appropriate strategic

investment�monitoring.�SCIFL and�the�Trustee take�advice�from�professional�investment�advisers�to�

ensure�that�they�have�the�appropriate�knowledge,�competency�and�experience�to�manage�the�

Scheme’s�assets.

The�Trustee regularly reviews�the underlying�performance�of�the�funds�within�the�default�strategy,�the�

alternative lifestyle�strategies�and�the�self-select�funds on�at�least�a�quarterly�basis. SCIFL�prepares�

detailed�quarterly�reports�for�the�Trustee�on the�performance�of�the�investment�managers�against�the�

agreed�benchmarks which�are set�out�in�the�Statement�of�Investment�Principles.�This�enables�the�

Trustee�to�review�performance�of�the�funds�and,�in�conjunction�with�its�investment�advisers,�make�

changes�to�the�investment�managers�if�required.

Financial�transactions

The�Trustee�has�appointed�Willis�Towers�Watson�to�provide�administration�services�for�the�Scheme.

Willis�Towers�Watson�has�a�dedicated�administration�team�in�place�to�service�the�Scheme.��All�

administration�tasks�are�logged�and�automatically�monitored�by�a�workflow�system�that�is�managed�

by�a�senior�member�of�the�dedicated�team. To�help�ensure�work�is�accurate,�all�administration�tasks�

completed�are�peer�reviewed (without�exception). Time�critical�financial�transactions�are�flagged�and�

prioritised.�The�administrator�has�a�separate�contribution�processing�team�which�ensures�investment�

and�banking�transactions�are�checked�and�fully�reconciled. There�is�also�a�separate�Treasury�Team�

which�monitors�the�Trustee’s�bank�account on a�daily�basis.

Processing�core�financial�transactions

The�Trustee has�an�agreed�Service�Level�Agreement�(SLA)�in�place�with�Willis�Towers�Watson,�which�

defines�the�agreed�targets�for�the�accurate�completion�of�core�financial�transactions (such�as�

contribution�investments,�investment�switches,�transfers�and�benefit payments) and�all�other�Scheme�

administration�tasks. Willis�Towers�Watson�aims�to�complete�95%�of�administration�tasks�within�SLA.

The�Pension�Administration�Team�Leader�reviews a�workflow�planning�report�on�a�daily�basis�to�

identify�cases�that�are�due�to�be�processed.�All�priority�cases�identified�from�this�report�are�highlighted�

to�the�Pension�Administration�Team�to�ensure�that�core�financial�transactions�are�processed�in�a�

timely�manner.

Monthly�contributions�are�paid�into�the�Trustee�bank�account�by�the�end�of�each�month.�The�units�

from�these�contributions�are�allocated�and�the�funds�reconciled�between�the�fourth�and�seventh�of�the�

following�month. The�total�amount�of�contributions�due�is�checked�against�the�cash�received�in�the�

trustee�bank�account�each�month;�any�discrepancies�are�reported�by�the�Treasury�Administrator�and�

followed�up�promptly. The�Cash�Management�Team�undertakes�monthly�reconciliations�between�

contribution�remittance�and�the�payment�schedule;�any�exceptions�identified�are�reported�and�

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followed�up�promptly�by�the�Team�Leaders. In�addition, as�part�of�the�AAF�audit�of�Willis�Towers�

Watson’s�administration�controls�and�processes (which�covered�the�period�from�1�October�2018�to�30�

September 2019),�KPMG’s commentary�confirmed�that�controls�tested�were�operating�with�sufficient�

effectiveness and�that, for�those�contributions inspected,�all had�been�loaded�and�dealt�with�promptly.

The�processing�of�investment�switches�and�transfers-in are�fully�automated�via�straight-through�

processing.��Retirement and�death�claim payments,�transfers-out�and�contribution�processing�are�

predominantly�automated,�with�some�manual�oversight�to�facilitate�checks�and�reconciliations.

Critical�administration�tasks�have�tighter�SLAs�than�less�critical�ones.��Death�cases�are�processed�

within�four�working�days�of�receipt�of�the�request. Retirement�payments�and�transfer�out�payments�

both�have�SLAs�of�five�working�days�from�when�all�of�the�requirements�are�received.�Switches�can�be�

initiated�by�members�on�ePA�and�are�processed�within�two�working�days�as�they�are�fully�automated.

Willis�Towers�Watson prepares�detailed�reports�of�performance�against�SLAs�which�are�evaluated�by�

the�Trustee�on�a�quarterly�basis at�each�main�Board�meeting.��These�reports�include�full�asset�

reconciliations�and�commentary�on�any�member�complaints.��

Over�the�reporting�period,�overall�quarterly�performance�against�SLAs�ranged�from�89%�to�94%�(with�

three�of�the�four�quarters�recording�performance�of�at�least�90%). The�SLA�performance�for�transfer�

out�payments�declined�a�little�in�quarters�three�and�four�of�2019�due�to�delays�in�receiving�third�party�

information�needed�to�verify�FCA�and�HMRC�registration�status�as�part�of�enhanced�due�diligence�

requirements.�The�administration�team�did�keep�members�informed of�the�reasons�for�these�delays�at�

the�time. 100%�of�DC�investment�transactions�relating�to�members’�investment�and�contribution�

decisions�were�achieved�within�SLA�target�for�two�of�the�four�quarters. Performance�against SLAs�for�

the�DC�investment�transactions�for�the�other�two�quarters�were�94%�and 91%. The�DC�investment�

transaction�tasks�that�did�not�meet�SLA�related�to�changes�to�a�member’s�Target�Retirement�Age�and�

these�changes�did�not�affect�their�individual�investment�of�contributions.

In�addition�to�the�formal�quarterly�administration�monitoring�process,�the�Schlumberger�Pensions�

Team�continues�to�hold�weekly�calls�with�the�Willis�Towers�Watson�administration�team�in�order�to�

monitor�and�resolve�any�administration�issues.

Administration�issues

The�historic�maternity�pay�contribution�issues reported�last�year have�now�been�corrected�on�an�

ongoing�basis.�The�maternity�pay�errors�that�were�made�between�2012�and�March�2017�have�now�

been�rectified�and�members�have�been�informed�in�writing�about�these�amendments.� Corrections�are�

still�required�in�respect�of�the�maternity�pay�errors�that�occurred�between�April�2017�and�March�2018.�

This�work�is�ongoing�and�member�accounts�will�be�fully�reconciled�as�well�as�compensation�provided�

for�investment�losses�to�ensure�members�suffer�no�detriment.�

WTW�has�been�working�closely�with�the�Schlumberger�Pensions�Team�on�data�cleansing�activities,�

specifically�ensuring�that�common�and�conditional�member�data�is�correct.�The�Pensions�Team�has�

investigated�the�reasons�for�any�missing�member�data�identified�and�DWP�traces�have�been�issued�

where�necessary�to�obtain�missing�information.�

Wider�oversight

The Trustee’s�Risk�&�Compliance�subcommittee�meet�with�the�administration�team�to�undertake�its�

annual�evaluation�of process�and�risk�controls. This�highlighted�that�these�remained�robust.

At�the�close�of�the�reporting�period,�with�the�support�of�Willis�Towers�Watson,�the�Trustee�revisited�its�

review of�the�Scheme’s�governance�processes�and�internal�controls�and was�satisfied�that�these�

remain�compliant�with�the legal�requirements�as�set�out�in�the�Pensions�Regulator’s�updated�DC�

Code�of�Practice�No.�13�in�the�sections�covering ‘Scheme�management�skills’�and�‘Administration’.�

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Conclusion�

Based�on the Trustee’s�regular�monitoring�of�administration�performance�and�the results�of�its�

process�evaluation,�the�Trustee�is�satisfied�that�the�Scheme’s�core�financial�transactions�have�been�

processed�promptly�and�accurately�during�the�Scheme�year.�

Charges�and�transaction�costs

All�PMF�investment�and�administration�costs�are�met�by�the�Scheme�sponsor on�behalf�of�members.��

Members�do�not�pay�any�charges. This�is�a�defining�feature�of�the�Scheme�in�which�over�99%�of�the�

Scheme’s�DC�assets�are�invested.��In�addition,�the�Trustee�considers�its�robust�governance�

approach,�sophisticated�investment�design�and�dedicated�communication�and�engagement�strategy�

as�key�factors�which ensure�that�members�receive�excellent�value�for�money.

The�only�DC�element�of�the�Scheme where�members�do�pay�charges�relates�to�the�legacy�external�

Additional�Voluntary�Contribution�(AVC)�policies,�in�which�a�handful�of�members�remain.��These�are�

considered�below.

AVCs

At�the�end�of�the�reporting�period,�The�Trustee�held�external�AVC�policies�with�Equitable�Life (which�

was�transferred�to�Utmost Life�and�Pensions�Limited (‘Utmost’) just�outside�of�the�reporting�period�on�

1�January�2020) and�Aviva. The�small�number�of�members�invested�in�these�policies�bear�the�

investment and�administration�costs�associated�with�these�policies and�the�Trustee�has�taken�account�

of�the�statutory�guidance in�reporting�the�costs�for�these�funds.

Under�Equitable�Life,�during�the�reporting�period�members only had�investments�in�the�With-Profits�

Fund.�The�charges�applying for�the�With-Profits�Fund�are�deducted�within�the�calculation�to�determine�

the�annual�bonus�payment�and�this�is�not�explicitly�disclosed.�However,�Equitable�Life�has�confirmed

that�its�annual�administration�cost�was�1%�of�the�fund�holding�and�reported�that underlying�Fund�

transaction�costs�for�the�period�were 0.07%.�It�should�be�noted�that�Equitable�Life�transferred�its�

business�to�Utmost from�1�January�2020�and�all�assets�invested�in�the�Equitable�Life�With-Profits�

Fund�were�transferred�to�the�Utmost�Secure�Cash�Investment�Fund.�As�this�took�place�during�the�

2020�Scheme�Year,�it�will�be�reported�on�in�full�within�the�next�Chair’s�Statement.�

Under�Aviva,�during�the�reporting�period�members�only�had�investments�in�the�With-Profits�Fund.�The�

member�charges�applying�for�the�With-Profits�Fund�are�deducted�within�the�calculation�to�determine�

the�annual�bonus�payment.�Aviva�has�confirmed�that�the annual�administration�cost was�0.60%�and

reported underlying�transaction�costs�for�the�period�were 0.09%.

The�Trustee�continues�to�monitor�each�provider’s�annual�bonus�declaration�as�part�of�its�ongoing�

investment�policy but�see�the�section�below�for�further�information�on�Equitable�Life.

Illustration�showing�the�compound�effect�of�costs�and�charges

The�Occupational�Pension�Schemes�(Administration�and�Disclosure)�(Amendment)�Regulations�2018�

require the�Trustee�to�produce a�‘pounds�and�pence’�illustration showing�the�compounded�effect�of�

costs�and�charges.�The�Trustee�has�prepared�a�set�of�illustrations in�respect�of�the�former�Equitable�

Life (now�with Utmost) and�Aviva�AVCs and�these�can�be�found�in�the�Appendix.�The�Trustee�has�not�

prepared�a�‘pounds�and�pence’�illustration�for�the�main�fund�range�under�the�PMF as�members�do�not�

pay�administration�or�investment�costs in�relation�to�these�funds.

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AVC Value�for�Money�(VFM)

During�the�reporting�period,�Equitable�Life�received�High�Court�approval�for�its�with-profits�Guarantee�

Exchange�Scheme�with�policy�values�uplifted�in�lieu�of�the�removal�of�the�with-profits�guaranteed�

growth�rate�from�1�January�2020�alongside�the�transfer�of�its�business�to�Utmost. In�light�of�these�

changes,�the�Trustee�reviewed�the�options�it�had�available�in�relation�to�these�AVCs�and�made�the�

decision�to�transfer�them�to�the�main�fund�range�within�the�PMF.�The�Trustee�believes�this�will�provide�

better�value�than�retaining�the�AVCs�with�Utmost as�members�will�bear�no�further�charges�and�will�be�

invested�in�a�range�of�robustly�monitored�funds�that�have�been�specifically�designed�for�the�Scheme’s�

membership.��This�transfer�is�scheduled�to�take�place�in�2020.

During�the�reporting�period,�the�Trustee�also�undertook�a�review�of�the�Aviva�With-profits�policy,�considering�the�most�recent�bonus�rates�and�policy�features�(such�as�communication�and�administration�support)�against�the�charges�and�transaction�costs,�concluding�that�this�policy�provides�reasonable�value�for�members. This�review�follows�on�from�the�Trustee’s�previous�reviews�of�its�Aviva�policy�undertaken�through�2017�and�into�2018. The�Trustee�is�further�assessing�whether�member�value�would�be�enhanced�if�the Aviva With-profits investments�were�transferred�to�the�main�fund�range�within�the�PMF. Due�to�the�specific�characteristics�of with-profits�funds�(particularly�the�capital�value�guarantee�and�bonus�distribution)�this�review�is�complex�and�was�ongoing�as�at�the�end�of�the�reporting�period. It�is�expected�to�complete�in�2020�and�will�be�reported�on�in�full�in�next�year’s�statement.

Trustee�knowledge�and�understanding�(TKU)

The�Trustee�has�a�TKU�process�in�place�which�enables�it, together�with�professional�advice,�to�exercise�its�function�as�Trustee�of�the�Scheme.��Formal�training is�typically�provided�at�each�quarterly�meeting�and�over�the�reporting�period,�DC�related�topics included:

� Changes�to�pensions�legislation�relating�to�auto-enrolment,�The�Pensions�Regulator�and�The�

Pensions�Ombudsman�provided�by�Keystone�Law.

� ‘DC�Code�of�Practice’�by�the�Scheme’s�advisers,�Willis�Towers�Watson

� ‘Sustainable�investment�(ESG)’�provided�by�the�Scheme’s�advisers,�Willis�Towers�Watson.�

This�ESG�training�helped�inform�the�trustees�about�changes�required�to�the�Statement�of�

Investment�Principles this�year.

� ‘Changes�to�Trustee�reporting�requirements�(including�updates�to�the�SIP)�provided�by�the�

Scheme’s�advisers,�Willis�Towers�Watson�

� DC�investment�training�covering�diversified�private�markets�and�alternatives provided�by�Isio,�

the�Trustee’s�investment�advisers.�

Additional�areas�were�covered that specifically�relate to�the�Defined�Benefit�Section�of the�Scheme�which�have�not�been�reported�in�this�Statement.

TKU�assessment

In�September�2019,�the�Trustee�assessed�its�depth�of�knowledge and�understanding using�a�questionnaire�based�on�The�Pension�Regulator’s�Code�of�Practice�7 covering:

1. The�law�relating�to�trusts

2. The�law�relating�to�pensions

3. The�basic�principles�relating�to�the�

investment�of�assets

4. Running�a�defined�contribution�

occupational�arrangement

5. Investment�choice�and�the�implications�

for�members

6. Fund�management

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7��

7. A�working�knowledge�of�the�Scheme’s�

own�trust�documentation

8. A�working�knowledge�of�the�Scheme’s�

Statement�of�Investment�Principles

9. A�working�knowledge�of�the�Scheme’s�

other�relevant�documents�

10. Scheme�operation

.�

This�assessment�was�independently�run�on�behalf�of�the�Trustee by Willis�Towers�Watson.�The�results�showed�the�Trustee�collectively�had�a�good level�of�knowledge and�understanding�in�all�the�above�areas.

Following�the�assessment,�a Trustee�Training�Plan�was implemented for�2020�based�on�its results�particularly to�further�strengthen�its�depth of�knowledge and�understanding�in�certain�areas.�Areas�of�training�planned�for�2020�include�investment�issues�(for�example�investment�choices�for�DC�members),�a�refresh�on�the�legal�aspects�of�pension�schemes�and�governance�documentation.�

The�Trustee�plans to�undertake another�TKU�assessment�in�2021�to�assess the�extent�to�which the�training�has�been�successful�in�closing�any�knowledge�gaps.

The�Trustee’s�wider�approach�to�meeting�the�TKU�requirements�also�includes:

� Maintenance�of�a�Business�Plan and�a�set�of�Key�Performance�Indicators�(KPIs),�which�

incorporates�a�framework�for�the�Trustee’s�self-evaluation�of�performance�and�identification�of�

any�pertinent�knowledge�gaps by�reference�to�the�Pensions�Regulator’s�Trustee�toolkit.��This�

process�is�collectively�used�as�the�basis�for�confirming�that�the�Trustee�and�its�advisors�are�

properly�exercising�their�respective�duties�and�also�drives�the�agenda�for�formal�training�over�

the�year.�

� New�Trustee Directors’ needs�are�assessed�and�appropriate�training�is�provided�within�the�

first�six�months,�typically in�conjunction with�the�Scheme’s�advisers.

� Planned�relevant�training�is�incorporated�into�the�quarterly�meetings�– with�dedicated�slots�for�

external�speakers.

� Training�from�advisers�on�topical�items�is�provided quarterly�in�the�form�of�‘hot�topics’�updates

– with�pertinent�areas�of�focus�highlighted.

� All�training�and�attendance�at�appropriate�seminars�are�recorded�under�the�minutes�of�the�

formal�Trustee�quarterly�meetings.

� All�Scheme�documents�are�reviewed�by�the�Trustee�and�its advisers�in�line�with�the�Business�

Plan�or�sooner�if�required�for�specific�reason.��Recent�examples�where�the�Scheme’s�

governing documentation�has�been�consulted�have�generally�concerned�Defined�Benefit

issues�within�the�Scheme�such�as�a�review�of�the�ill-health�and�serious�ill-health�policies.

� All�Scheme�documents,�including�documents�setting�out�the�Trustee’s�current�policies�and�

meeting�papers�etc. are�available�on�a�dedicated�online�Trustee�site�(OnePlace),�to�which�all�

Trustees�have�direct�access.

� All�Trustees�have�completed�the�Pensions�Regulator’s�trustee�toolkit�or�are�working�towards�

completion�(this�is�actively�monitored and�reported�on�annually�as a KPI).

� When�considering�Scheme�design�change,�or�ensuring�legislative�requirements�are�met,�the�

Trustee�consults the�Scheme’s�Trust�Deed�&�Rules�and�associated�documents�and�seek�

appropriate�professional�advice. Any�example�of�this�over�the�reporting�period�would�be�

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8��

reference�to�the�SIP�whilst�reviewing�the�Scheme’s�default�design�and�future�investment�

policy.

The�Trustee�is�confident�that�the�above�framework,�in�conjunction�with�the�appropriate�professional�

advice�from�its�advisers,�provide�it�with�sufficient�knowledge�and�understanding to�properly�exercise�

its�function�of�Trustee�of�the�Scheme.��

Impact�of�Covid�19

Since�the�year-end,�consequent�on�the�global�impact�of�the�Coronavirus�(Covid-19)�pandemic,�the�value�of�investment�assets�and�liabilities�(across�all�categories)�have�been�impacted.�This�is�a�non-adjusting�subsequent�event,�as�it�does�not�impact�the�valuation�of�assets�as�at�the�year-end�date.�It�is�not�possible,�at�this�time,�to�quantify�the�change�in�market�value�in�a�meaningful�way,�due�to�ongoing�volatility,�as�the�situation�is�fluid�and�unpredictable.

At�an�operational�level,�the�Trustee�is�working�with�the�administrators�to�minimise�any�disruption�to�administration�service�delivery.�For�example,�there�may�be�some�delays�to�responding�to�member�enquiries�and�processing�of�transactions.�The�Trustees�are�keeping�this�matter�under�regular�review.

��

This�Governance�Statement�was�approved�by�the�Trustee�and

Signed�by�the�Chair�on�behalf�of�the�Trustee�of�the�Scheme:

Date:�

APPENDIX�1:�Illustration�of�the�effect�of�costs�and�charges�on�a�member’s�external�AVC�pension�pot�in�today’s�terms�(Aviva�and�Utmost�policies�only)�

APPENDIX�2:�SIPs�

29th�July�2020

S M White

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Appendix - Illustration of the effect of costs and charges on a member’s external AVC pension pot in today’s terms (Aviva and Utmost policies only)

The illustration has been prepared in accordance with the relevant statutory guidance and reflects the impact of costs and charges for members who hold AVCs in the Aviva With-profits Fund and the Utmost Cash Fund (formally Equitable Life With-profits Fund). The illustrations are projected to the Scheme’s Normal Retirement Age (NRA) of 60. The Utmost AVC policy has a NRA of 65 and so for completeness, the illustration also includes an example member aged over 60 with a target retirement age of 65.

The illustrations show the projected fund values in today’s terms based on certain assumptions before and after charges so that the potential impact of charges is clearly shown. 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 possible, 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.

The Utmost Cash Fund illustration shows negative ‘real’ growth as longer-term cash returns are not expected to keep pace with inflation. Members should be aware that the Trustee’s intention is to transition the Utmost Cash Fund investments into more financially rewarding funds though the Scheme PMF by year end.

Example Member Years to NRA Aviva With-profits Fund

Before charges After charges Youngest member (Age 39)

1 £610 £600 3 £620 £610 5 £630 £610

10 £660 £620 15 £700 £630 20 £730 £640 21 £740 £640

Average member (Age 55)

1 £7,070 £7,020 3 £7,210 £7,070 5 £7,360 £7,110

Approaching retirement (Age 59)

1 £40,400 £40,120

Example Member Years to NRA

Utmost Cash Fund

Before charges After charges

Youngest member (age 45)

1 £7,920 £7,880

3 £7,760 £7,640

5 £7,610 £7,420

10 £7,240 £6,870

15 £6,880 £6,370

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Average member, also approaching NRA (age 57)

1 £5,940 £5,910

3 £5,820 £5,730

Post NRA member (approaching policy NRA of 65)

1 £15,840 £15,760

Assumptions and notes

1. Projected pension account values are shown in today’s terms.

2. Costs/charges that are shown as a monetary amount and reductions are made halfway

through the year.

3. Annual investment returns, less costs/charges are assumed to be applied at the end of the

year.

4. Charges and costs are deducted before applying investment returns.

5. Inflation is assumed to be 2.5% each year.

6. No additional contributions are assumed.

7. Values shown are estimates and are not guaranteed.

8. The real projected growth rates for each fund are as follow:

• Aviva With-profits Fund – 1.00%

• Utmost Secure Cash Fund – -1.00%

9. Transaction costs and other charges for the period have been provided by Aviva (0.6 p.a.

charge plus 0.09% transaction costs and Utmost (0.5% p.a. no transaction costs).

10. Pension scheme’s Normal Retirement Age (NRA) is 60 but the Normal Retirement Date for

the Utmost policy is 65 and so an additional projection has been included.

11. Example members (Aviva With-profits Fund)

• Youngest: age 39, starting fund value: £600 (no further contributions)

• Average: age 55, starting fund value: £7,000 (no further contributions)

• Approaching retirement: age 59, starting fund value: £40,000 (no further

contributions)

12. Example members (Utmost Cash Fund)

• Youngest: age 45, starting fund value: £8,000 (no further contributions)

• Average (approaching NRA): age 57, starting fund value: £6,000 (no further

contributions)

• Post NRA (approaching policy NRD of 65): age 64, starting fund value:

£16,000 (no further contributions)

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S Smoker

G Park

Signed for and on behalf of the Directors ofthe Schlumberger Trust Company Ltd

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