Annual governance statement by the Trustee Directors of The Bupa Pension Scheme
- Bupa Pension Scheme Trustees Limited (BPST Ltd.)
Introduction
This statement is being made by the Trustee Directors of Bupa Pension Scheme Trustees Ltd (‘the Trustee or
Trustees’), in order to demonstrate how The Bupa Pension Scheme (‘the Scheme’) has complied with the
governance standards introduced under The Occupational Pension Scheme (Charges and Governance)
Regulations 2015. The regulations require that all relevant Occupational Trust Based Pensions Schemes, which
offer money purchase benefits, must produce an annual governance statement, to be included in the annual report,
demonstrating how the governance standards relating to the Scheme’s money purchase arrangements have been
met.
This statement covers the period from 1 July 2022 to 30 June 2023, the Scheme year-end.
During this period, the Scheme had the following money purchase arrangements, collectively referred to for the
purposes of this statement as ‘the DC Section’:
A legacy Money Purchase (MP) section.
Final Salary section additional voluntary contributions (AVCs)
As of 30 June 2023, the Scheme year-end, the remaining DC Section assets comprise:
Prudential With-profits Fund (both Money Purchase and AVCs)
Utmost Money Market Fund (Money Purchase)
Aviva With-profits Fund and other unit-linked funds (Money Purchase)
Except for the assets in the Prudential With-profits Fund, the other policies relate to members with a GMP underpin
linked to the DB Section. The Trustee intends to convert these Money Purchase assets to DB liabilities in due
course, hence leaving only the Prudential With-profits Fund assets in the DC Section thereafter.
As in previous years, the Trustee has reviewed and assessed its systems and controls in place during the Scheme
year. The Trustee believes that it has adopted the standards of practice set out in The Pensions Regulator’s DC
Code of Practice and DC Regulatory Guidance. These help to demonstrate the presence of the DC quality features,
which we believe have helped deliver good outcomes for members at retirement.
1. Investment strategy
Default investment strategy
The DC Section does not have a default investment strategy as it is not used as a qualifying scheme for automatic-
enrolment purposes. However, three funds – the Utmost Money Market Fund, the Aviva My Future Consolidation
Fund, and the Aviva Pension Lifestyle 2030 Fund - are considered as default funds for the purpose of this
Statement, as explained below.
Utmost Money Market Fund
Equitable Life approached the Trustee in early 2019 with a proposal to exchange the guarantees within the with-
profits fund for enhanced fund values. The Trustee was invited to vote on the proposal in late 2019. In preparation
for the vote the Trustee engaged their investment consultant, Willis Towers Watson, to perform an analysis of the
Equitable Life membership. Based on the outcome of the analysis, the Trustee agreed to the proposal. The vote
was carried, and all Equitable Life members were transferred to Utmost. Those members with investments in the
with profits fund were automatically transferred to the Utmost Secure Cash Fund. Following advice from Willis
Towers Watson these members were transitioned to the Utmost Money Market Fund during Q3 and Q4 2020. As
a result of this, the Money Market Fund is a default investment option for the purposes of regulatory governance.
The member charge for this fund is well below the regulatory charge cap and it is subject to the other DC investment
policies detailed in this document.
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Annual governance statement by the Trustee Directors of The Bupa Pension Scheme
- Bupa Pension Scheme Trustees Limited (BPST Ltd.) continued
Aviva My Future Consolidation Fund and Aviva Pension Lifestyle 2030 Fund
In August 2019 Aviva closed three of its existing lifestyle funds and transferred members’ assets to alternative
options. This action by Aviva also created two additional defaults, namely the Aviva My Future Consolidation Fund
and the Aviva Pension Lifestyle 2030 Fund. The member charge for these funds is well below the regulatory
charge cap and they are subject to the other DC investment policies detailed in this document.
Net Investment Performance
The Trustee is required to report on the net investment returns for the DC Section funds in which members have
held assets during the Scheme year. The tables below therefore show investment performance data in respect of
all DC Section funds over the Scheme year. At the time of writing, Aviva have been unable to provide full
performance information for the year to 30 June 2023. The Trustee continues to request this information from Aviva
through its professional advisers and will update these figures on the statement once received.
When preparing this section, the Trustee has taken account of the DWP’s statutory guidance on “Completing the
annual Value for Members assessment and Reporting of Net Investment Returns”.
Unit-linked funds
The figures for unit-linked funds in the table below are based on those issued by the different providers (Aviva,
Utmost and Prudential) over the past ten years to 30 June 2023 and are on an annualised basis, net of standard
charges.
Provider Fund Name 1 year
% p.a.
3 years
% p.a.
5 years
% p.a.
10 years
% p.a
.
Aviva
Reserve Fund (3.09)
Not available
1.56 4.43
Managed Fund 2.14
Not available
4.04 6.73
My Future Consolidation Fund* 0.93
Not available Not available Not available
Lifestyle Retirement 2030 Fund* 8.07
Not available
4.73 7.60
Lifestyle Retirement 2035 Fund 11.34
Not available
5.55 8.01
Lifestyle Retirement 2040 Fund 11.31
Not available
5.55 8.01
Utmost Money Market* 2.68 0.68 0.51
Not available
* These funds are considered as default funds for the purposes of this statement, noting that the DC Section does not have a
default investment strategy as it is not used as a qualifying scheme for automatic-enrolment purposes.
With-profits funds
With-profits funds work in a different way, with smoothed investment returns and the allocation of annual bonuses.
The figures for With-profits funds in the tables below are based on those issued by the different providers (Aviva
and Prudential) for the one, three and five calendar years to the dates shown. These show the net return of the
underlying assets without smoothing, as well as the average annual bonus rate over the corresponding period.
Provider Fund
Name
1 year
% p.a.
3 years
% p.a.
5 years
% p.a.
Aviva With
Profits
Net return*
(period to 31 December 2022)
(8.30) 0.11 1.61
Annual bonus rate 3.50 3.58
Not available
Prudential
With
Profits
Net return*
(period to 31 December 2022)
(2.50) 2.91 2.99
Annual bonus rate
(period to 15 March 2023)
1.50 1.25 1.25
*
Assumes a 1% annual charge and the figures quoted coincide with the calendar year performance announced by the
providers
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Annual governance statement by the Trustee Directors of The Bupa Pension Scheme
- Bupa Pension Scheme Trustees Limited (BPST Ltd.) continued
Statement of Investment Principles
The Trustee prepares and keeps under review a Statement of Investment Principles (SIP) that describes its
investment policy for the Scheme, including the DC Section, covering such matters as the investment objectives
and strategy for the Scheme, risk controls and the selection and monitoring of investment managers.
The SIP was last reviewed and updated in July 2023, and a copy of the latest SIP is attached as an Appendix to
this annual governance statement.
As mentioned above, consideration was given to the DC investment strategy during the Scheme year as part of
updating the SIP. The Trustee believes that the DC strategy continues to be appropriate for the needs of the
membership and has therefore not implemented any changes at this time.
Trustee review
With the support of its investment adviser, the Trustee reviews the performance of all funds, including those
considered to be a default, on an annual basis to ensure the performance remains in line with expectations.
The Trustee understands the security of assets position of the funds, and all current funds are expected to be
covered under the Financial Services Compensation Scheme (FSCS) in the event of provider default.
The Trustee considered whether to surrender and transfer the Prudential With-Profits Fund to the new Master Trust
in 2021. However, the Trustee concluded that while some elements of the Master Trust would have provided these
members with better value, the advice received was that future investment return expectations meant it was not in
members’ financial interests to transfer these funds at the time.
The Trustee has accepted that by retaining these assets in the Scheme, it has little control over them. However,
the with-profits performance and fund features continue to be strong relative to its peers, and, on balance, given
the level of governance and oversight by the Trustee of the Scheme as a whole, it is considered that these members
receive fair value for their membership.
The other remaining assets relate to members with a GMP underpin, which will be converted to defined benefit
liabilities in due course. The Trustee is therefore maintaining these assets (held with Prudential, Aviva and Utmost)
until such time that they are converted.
2. Charges and transaction costs paid by members
The level of annual charges and transaction costs
The Trustee is required to set out the on-going charges borne by members in this statement, which are annual
fund management charges plus any additional fund expenses, such as custody costs, and transaction costs.
Charges are paid by members and reflected in the unit prices.
When preparing this section of the statement, the Trustee has taken account of the DWP’s statutory guidance on
“Reporting costs, charges and other information: guidance for trustees and managers of occupational pension
schemes”.
Charges borne by members, together with transaction costs, can have a significant impact on member benefits.
Where information about member borne costs and charges is not available, the Trustee has to provide an
explanation of what steps are being taken to obtain the missing information.
At the time of writing, Aviva have been unable to provide full transaction cost information for the year to 30 June
2023. The Trustee continues to request this information from Aviva through its professional advisers and will update
these figures on the statement once received.
Transaction costs and gains are those incurred by fund managers as a result of buying, selling, lending, or
borrowing investments. These costs are allowed for within the unit price for each of the funds. In 2017, the
Financial Conduct Authority (FCA) published its policy on how asset managers must disclose transaction costs and
administration charges. The DWP subsequently amended the Regulations and its guidance on how trustees of
occupational pension schemes should disclose those costs in the annual governance statement.
Transaction costs arise as an integral feature of the investment approach taken by the fund managers and, over
time, it is expected that the management approach should provide better investment outcomes for members.
The table below shows the annual charges and total transaction costs incurred by each investment fund during the
year to 30 June 2023. This information has been provided by Aviva, Utmost and Prudential.
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Annual governance statement by the Trustee Directors of The Bupa Pension Scheme
- Bupa Pension Scheme Trustees Limited (BPST Ltd.) continued
Provider Fund Name AMC
%
Transaction
Costs %
Total Costs
%
Aviva
With Profits 0.45 0.01* 0.46
Reserve Fund 0.45 0.05** 0.50
Managed Fund 0.45 0.07 0.52
My Future Consolidation Fund 0.45
Not available Not available
Lifestyle Retirement 2030 Fund 0.45 0.04* 0.49
Lifestyle Retirement 2035 Fund 0.45 0.06* 0.51
Lifestyle Retirement 2040 Fund 0.45 0.06* 0.51
Utmost Money Market 0.50 0.01 0.51
Prudential With Profits
Not available
0.13** 0.13
* Transaction costs are as at 31 March 2023.
** The transaction cost shown is the % average of up to last 5 years to 30 June 2023.
The impact of the annual charges and transaction costs
Over a period of time, the charges and transaction costs that are taken out of a member’s pension savings can
reduce the amount available to the member at retirement. The Trustee has set out in the Appendix to this statement
illustrations of the impact of charges and transaction costs on different investment options in the Scheme. The
illustrations have been prepared in accordance with the DWP’s statutory guidance on “Reporting costs, charges
and other information: guidance for trustees and managers of occupational pension schemes” on the projection of
an example member’s pension savings.
As each member has a different amount of savings within the Scheme and the amount of any future investment
returns and future costs and charges cannot be known in advance, the Trustee has had to make a number of
assumptions about what these might be. These assumptions are explained in the Appendix.
3. Value for members
When assessing the charges and transaction costs which are payable by members, the Trustee is required to
consider the extent to which the investment options and benefits offered by the Scheme represent good value for
members.
Whilst it is difficult to give a precise definition of ‘good value’, the Code of Practice 13 includes a legal obligation to
carry out a ‘Value for Members’ assessment on an annual basis which must include:
Assessing the value of those services and features that members pay for, or where members share the cost
with the employer*.
Calculating the charges and, insofar as they are able to, transaction costs (incurred as a result of buying,
selling, lending, or borrowing investments), to which members’ funds are subject; and to assess the extent to
which they represent good value for members.
* During the Scheme year, members met investment related charges only. All other costs were met by the Trustee
and/or Bupa, including the cost of administration, governance, communications and professional advice.
The Trustee recognises that the assets remaining in the Scheme have additional benefits and/or guarantees
attached to them, which makes it harder to assess the value for members.
However, in carrying out its assessment, the Trustee has taken into account:
advice from its professional advisers
the size and nature of the remaining assets
its previous conclusion, as part of the 2021 move to a new Master Trust for the main scheme assets, that while
Prudential with-profits members may receive a better overall experience by moving to the Master Trust, future
investment return expectations meant it was not in members’ financial interests to transfer these funds at the
time
its wider governance and oversight of the Scheme.
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Annual governance statement by the Trustee Directors of The Bupa Pension Scheme
- Bupa Pension Scheme Trustees Limited (BPST Ltd.) continued
Results of the assessment
Below is a summary of the results for the Scheme, in the core areas of investment returns, services and costs
and charges.
Feature Rating
1. Investment returns Good
2 Services Fair
3. Costs and charges Fair
Given the nature of the Scheme’s investments, the Trustee has a limited ability to influence the quality of services
provided and the charges incurred by members. The Trustee has investigated the possibility of transferring assets
to a Master Trust arrangement where value may be improved in these areas, however following advice concluded
that it was not in members’ financial interest to do so. Acknowledging these challenges, the Trustee has adopted
a proportionate approach to the value for member assessment, and will continue to monitor the features of the
Scheme in line with the DWP and Pensions Regulator’s most recent guidance.
Overall, our conclusion is that members of the Scheme are receiving fair value for the costs and charges they
incur.
Core financial transactions
The Trustee is required to give details of the processes and controls in place in relation to the “core financial
transactions”. As no new contributions are being paid, these are mainly limited to:
Transferring assets related to members into or out of the DC Section
Making payments from the DC Section to or on behalf of members
Implementing investment switches requested by members.
These transactions are principally undertaken on behalf of the Trustee by the in-house Bupa Pensions Team, who
liaise with the relevant provider (Prudential, Aviva or Utmost) as and when a member chooses to retire, transfers
their benefits out of the Scheme into another pension arrangement, or wishes to make an investment change.
Requests to transfer out or make investment switches are limited in frequency, due to the nature of the investments
(with-profits and/or with a GMP underpin).
The Trustee receives quarterly reports from the Bupa Pensions Team setting out the core financial transactions
that have taken place, as well as Service Level Agreement (SLA) reporting.
The Trustee is satisfied that over the period covered by this statement:
The Bupa Pensions Team has operated appropriate procedures, checks and controls in relation to the
processing of core financial transactions
There have been no material administration errors in relation to core financial transactions
All core financial transactions have been processed promptly and accurately during the Scheme year.
Trustee knowledge and understanding
The law requires the Trustee to possess and maintain, or have access to, sufficient knowledge and understanding
to run the Scheme effectively. Each Trustee Director must:
Be conversant with the trust deed and rules of the Scheme, the Scheme’s SIP and any other document
recording policy for the time being adopted by the Trustee relating to the administration of the Scheme
generally,
Have, to the degree that is appropriate for the purposes of enabling the individual properly to exercise his or
her functions as trustee, knowledge and understanding of the law relating to pensions and trusts and the
principles relating to investing the assets of occupational pension schemes.
In order to monitor this requirement, the Trustee holds a record of the training completed by each member of the
Trustee Board.
This training record is reviewed at each quarterly Trustee meeting to identify any gaps in the knowledge and
understanding across the Trustee as a whole. Any gaps are addressed, and training provided as appropriate.
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Annual governance statement by the Trustee Directors of The Bupa Pension Scheme
- Bupa Pension Scheme Trustees Limited (BPST Ltd.) continued
Examples of topical Trustee training activities provided throughout the year, which have improved effectiveness
are:
Single Code of Practice – October 2022
Legal updates – October 2022
Spring Budget – March 2023
Task Force on Climate-Related Financial Disclosures (TCFD) – March 2023
All of the Trustee Directors have either completed the relevant modules of the Trustee Toolkit made available by
the Pensions Regulator or have equivalent experience as part of their job role or professional qualifications. Newly
appointed Trustee Directors are expected to complete the Trustee Toolkit and have formal induction training within
six months of joining the Trustee Board.
The training, and associated professional advice, is aligned with the Trustee’s annual business plan and the specific
circumstances of the Scheme and its governing documents, such that it supports effective decision making on
specific issues.
The Trustee prepares and keeps a Risk Register which is updated quarterly, covering the following categories:
Benefit Administration, Communication, Financial Management, Investment and Trusteeship. A summary is
produced at the start of the document which details any changes in risk ratings (both in likelihood and impact) over
the quarter and these are discussed as appropriate at the quarterly trustee meetings.
The Trustee undertook its last effectiveness review in line with TPR guidance in October 2022 for which a
questionnaire and skills matrix were issued by the Bupa Pensions Team to all Trustee Directors, focusing on
general Board Effectiveness, Behaviours and Trustee Knowledge and Understanding. The results were analysed
both on an individual basis for each Director and also collectively for the Board as a whole. Both the Trustee
Effectiveness Survey and Skills Matrix produced strong results. The percentages where Trustee Directors
answered ‘strongly agree’ or ‘agree’ were:
94% in the Board Effectiveness section
96% in the Behaviours section
100% in Trustee Knowledge and Understanding
The Trustee has discussed the results of the assessment and will monitor future assessments for any trends and
areas for improvement. The Trustee has appointed actuarial, investment, legal, audit and general pension advisers
to assist in running the Scheme. At least one of these advisers attend all Trustee and sub-committee meetings
and are also available to provide ongoing support and advice. Advisers are assessed on an ongoing basis.
As a result of the professional expertise and knowledge of the Trustee Directors individually (particularly those
Trustee Directors with a financial and investment background) and collectively as a Board, and taking into account
the training activities undertaken and the professional advice available to the Trustee, I am confident that the
combined knowledge and understanding of the Board enables us to exercise properly our function as the Trustee
of The Bupa Pension Scheme.
Mr Martin Potkins
Chairman of Bupa Pension Scheme Trustees Ltd Date: 19 December 2023
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Appendix to the Annual governance statement by the Trustee Directors of The Bupa Pension Scheme
- Bupa Pension Scheme Trustees Limited (BPST Ltd.)
Appendix – The impact of the annual charges and transaction costs
The illustrations below provide an indication of how, over time, the annual charges and transaction costs may
impact a member’s benefits.
Separate illustrations are given for Prudential and Utmost. Aviva has been unable to provide the necessary data,
despite the Trustee’s best endeavours to obtain this information. Details of the assumptions that apply can be found
under the illustration for each provider.
Note that in all cases, the illustrations are estimates and cannot be guaranteed. Furthermore, they do not show
the likely variance and volatility of outcomes. Projected values are rounded to the nearest £10.
The “before costs” figures represent the savings projection assuming an investment return with no deduction of
member borne fees or transaction costs. The “after costs” figures represent the savings projection using the same
assumed investment return but after deducting member borne fees and an allowance for transaction costs.
Prudential
With-profits cash accumulation fund
This is the only fund in which members are currently invested. As such, by default, it has the highest projected
growth rate and charges.
Projected pension pot values are in today’s money which means they have been adjusted for inflation. We have
used:
A starting pot size of £6,000
No future contributions are paid
The term of the investment is from age 39 to age 65
End of year
Prudential With-profits fund
Before charges After all charges + costs
1
£6,290
£6,260
5
£7,610 £7,440
10
£9,660 £9,240
15 £12,200 £11,400
20 £15,500 £14,200
25 £19,700 £17,600
27 £20,600 £18,000
Notes
1. Projected pension pot values are shown in today's terms, and do not need to be reduced further for the effect
of future inflation.
2. Retirement is assumed to be at age 65
3. Inflation is assumed to be 2.5% each year.
4. Values shown are estimates and are not guaranteed.
5. The projected growth rate is 5.0% a year
6. The assumed charge is 0.52% a year
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Appendix to the Annual governance statement by the Trustee Directors of The Bupa Pension Scheme
- Bupa Pension Scheme Trustees Limited (BPST Ltd.) continued
Utmost
Projected pension pot values are in today’s money which means they have been adjusted for inflation. We have
used:
A starting pot size of £25,000
No future contributions are paid
The term of the investment is from age 25 to age 65
End of year
Utmost money market fund
Before charges After all charges + costs
1
£24,450 £24,330
3
£23,400 £23,030
5
£22,380 £21,830
10
£20,030 £19,030
15
£17,930 £16,600
20
£16,050 £14,500
25
£14,350 £12,650
30
£12,850 £11,030
35
£11,500 £9,630
40
£10,300 £8,400
Notes
1. Projected pension pot values are shown in today's terms, and do not need to be reduced further for the effect
of future inflation.
2. Retirement is assumed to be at age 65
3. Inflation is assumed to be 2.5% each year.
4. Values shown are estimates and are not guaranteed.
5. The projected growth rate is 0.25% a year
6. The assumed charge is 0.50% a year
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