PIMCO Europe Limited DC Pension Plan
Statement of Investment Principles – March 2023
1.

Introduction
Under legislation set out in the Occupational Pension Plans (Investment) Regulations 2005
(S.I. 2005/3378) (“the Investment Regulations”), as amended by the Occupational Pension
Schemes (Charges and Governance) Regulations 2015, it is a requirement for trustees toprepare a statement of the principles that govern their investment decisions.
The Trustee of the PIMCO Europe Limited DC Pension Plan (the “Plan”) has drawn up thisStatement of Investment Principles (the “Statement”) to comply with said requirements andthose of the Pensions Act 1995 (the “Act”) and subsequent legislation, and to fulfil the spiritof the Pensions Regulator’s DC Code of Practice no. 13. As required under the Act, theTrustee has consulted a suitably qualified person and has obtained written advice from
Mercer Limited (“Mercer”). In preparing this statement, the Trustee has given due
consideration to the reasons why the Plan uses an insurance policy and their policy forsecuring compliance with the requirements of Section 36 of the Act (choosing investments),
and in addition the Trustee has consulted PIMCO Europe Limited (the “Principal Employer”).
The Plan’s invested assets are held in an insurance policy issued by Scottish Widows
Limited (“Scottish Widows”). The Plan is a registered pension scheme as defined in section
153 of the Finance Act 2004. The Plan operates for the exclusive purpose of providing
retirement and death benefits to eligible participants and beneficiaries. Overall investment
policy falls into two parts. The first is the strategic management of members’ assets, which
is fundamentally the responsibility of the Trustee acting on advice from its investment
consultant, Mercer, and is driven by the investment objectives as set out in Section 3 below.
The second element of the policy is the day-to-day management of the assets which isdelegated to professional investment managers via the arrangements set out in the separate
Investment Policy Implementation Document (“IPID”).
Additionally, the Principal Employer has established an investment governance subcommittee (the “Governance Committee”) to make recommendations to the Trustee on therange of funds available to members. The Governance Committee will, through its terms ofreference, provide recommendations and support to the Trustee to ensure that the Plan isvalued by employees, is administered to a good standard, and has a broad and appropriate
range of investments.
The Trustee is committed to maintaining the accuracy of this Statement on an ongoing basis.
The Trustee’s investment responsibilities are governed by the Plan’s Trust Deed and thisStatement takes full regard of its provisions. A copy of the Plan’s Trust Deed is available forinspection upon request.

2.

Governance Structure
The Trustee has ultimate responsibility for the investment of the Plan's assets. The Trustee
takes some decisions itself and delegates others. When deciding which decisions to takeand which to delegate, the Trustee has taken into account whether they have the appropriate
training and expertise in order to take an informed decision. The Trustee has establishedthe following decision making structure:Page 2

2.1

2.2

2.3

2.4

2.5

Trustee•

Sets structures and processes for carrying out its role;•

Sets investment structures and their implementation, including the structure of theblended funds and the default lifestyle strategy;•

Selects and monitors investment advisers and fund managers;•

Sets structures for implementing investment strategy;•

Selects and monitors direct investments (see below); and•Makes on-going decisions relevant to the principles of the Plan's investment strategy.

Governance Committee•

Makes recommendations on the day-to-day management of the Plan’s assets and on the
structure of the blended funds and default lifestyle strategy;•

Makes on-going recommendations relevant to the principles of the Plan's investment
strategy, including the range of funds available to members; and•Provides recommendations and support to the Trustee to ensure that the Plan is valued
by employees, is administered to a good standard, and has a broad and appropriate
range of investments.

Mercer, the investment adviser•

Advises on all aspects of the investment of the Plan assets, including implementation,
suitability of the default lifestyle strategy and each fund's structure, composition andbenchmark;•

Advises on this Statement;•

Monitors investment managers; and•Provides required training.

Scottish Widows Limited, the bundled services platform provider•

Operates within the terms of this Statement and the written contract;•

Provides access to a platform through which third party funds can be accessed by theTrustee, for the Plan’s members;•

Provides pension administration services for the Plan.

Underlying fund managers•

Selects individual investments with regard to their suitability and diversification.

Page 3

2.6

3.

Mercer Workplace Savings (“MWS”)•

Conducts regular reviews of bundled services platform providers to support the Trustee
in selecting an appropriate provider;•

Provides on-going governance monitoring services (i.e. on the platform provider);•Provides investment governance of the platform provider’s fund range;•

Provides investment governance services in relation to the arrangements with theinvestment managers; and•Provides investment management services via Smartpath lifestyle strategies.

Investment Objectives
The Trustee recognises that members have differing investment needs and that these may
change during the course of members’ working lives. The Trustee also recognises thatmembers have different attitudes to risk. The Trustee believes that members should maketheir own investment decisions based on their individual circumstances. The Trustee
regards their duty as making available a range of investment options sufficient to enable
members to tailor their investment strategy to their own needs. This is described in Section
8.3 of this Statement. The Trustee also recognises that members may not believe
themselves qualified to take investment decisions. As such the Trustee makes available adefault investment option. More details regarding the default investment option are available
in Section 8.1 and 8.2 of this Statement. In addition to the default investment option,
switching members between funds without their consent can result in funds also being
determined to be ‘default’ arrangements requiring additional disclosures. An additional
default arrangement has been created in this manner, this is set out in more detail in Section
8.4 of this Statement.
These objectives translate to the following principles:a.

Offering members a ‘Lifestyle’ approach for the default investment option in which theinvestments are managed over the course of their working life;b.

Ensuring that the other investment strategy options allow members to plan for their
specific retirement objectives;c.

Making available a range of pooled investment funds which serve to meet the varying
investment needs and risk tolerances of Plan members. This includes offering bothpassively and actively managed investment funds;d.

Adopting a framework which provides flexibility to change investment managers
proactively and which allows efficient fund switching (e.g. without out-of-market risk) as
required;e.

Providing general guidance as to the purpose of each investment option;f.

Encouraging members to seek independent financial advice from an appropriate party
in determining the most suitable option for their individual circumstances;g.

In determining an appropriate balance between providing flexibility and choice, as wellas simplicity and cost control, the Trustee aims to make available a range of options
which satisfy the needs of the majority of members.

The items in this Statement are in relation to what the Trustee considers ‘financially material
considerations’. The financially material considerations in the default investment option are

Page 4

provided in more detail in Sections 8.1 and 8.2. The Trustee believes the appropriate time
horizon for which to assess these considerations within should be viewed at a member level.
This will be dependent on the member’s age and when they expect to retire. It is partly forthis reason that the default investment option is a lifestyle strategy.
The Trustee believes that environmental social and corporate governance (“ESG”) issues
including climate change are important factors to be considered when setting investment
strategy. More detail on this can be found under section 12.
The Governance Committee have noted a preference to use PIMCO funds where possible.
As such, members are offered a range of PIMCO funds as self-select options. The Trustee
understands this preference.
The Trustee regularly reviews the suitability of the options provided and from time to time willchange or introduce additional investment funds as part of the self-select fund range asappropriate. Given their fiduciary duties, MWS will review the suitability of the lifestyle
options provided and from time to time will change or introduce additional investment funds.
4.

The Trustee’s Investment Beliefs
The Trustee expects (but does not guarantee):•the long-term return on the investment options that invest predominantly in equities andother growth-seeking asset classes (e.g. Diversified Growth Funds) to exceed priceinflation and general salary growth;•

the long-term returns on the bond and cash options to be lower than the equity options;•money market funds to provide protection against changes in short-term capital values,
and may be appropriate for members receiving part of their retirement benefits in theform of tax-free cash (although it is not guaranteed that these funds will not fall in value).

In choosing the Plan's investment options, it is the policy of the Trustee to consider:5.

•

A full range of asset classes, including alternative asset classes;•

The suitability of different styles of investment management and the need for investment
manager diversification;•

The suitability of each asset class for a defined contribution scheme;•

The need for appropriate diversification.

Additional Voluntary Contributions
Members can invest additional voluntary contributions into the same funds that are available
for the investment of regular contributions paid into the Plan. The Trustee regularly reviews
the continuing suitability of the Plan’s investment arrangements. The Trustee utilises Mercer
as an investment consultant to advise on investment strategy and provider appointments,
and to assist in monitoring the funds available, both in the form of written reports andattendance at meetings.

6.

Use of an Insurance Policy
The Plan’s invested assets are held through an insurance policy with Scottish Widows. It has
no other investments other than this qualifying insurance policy. The Plan is, therefore,“wholly insured” for the purposes of regulation 8 of the Investment Regulations.

Page 5

The reasons why the Trustee believes that an insurance policy is most suited to theircircumstances, and those of the Plan beneficiaries, are as follows:

7.

a.

The Scottish Widows policy offers the Trustee the facility to design a good quality
retirement package that enables members of the Plan to invest in a range of asset
classes at a reasonable cost;b.

The financial strength of Scottish Widows and its level of commitment displayed to the
Plan;

c.

The security given by Scottish Widows’s regulation by the Financial Conduct Authority
and the Financial Services Compensation Plan;d.

The professional management of the investment funds available through Scottish
Widows’s contract and its willingness to keep the product competitive in the future;e.

Scottish Widows’s capabilities in relation to pension plan administration andcommunication to employees; andf.

The overall value-for-money offered by investing in a packaged product with Scottish
Widows. The Trustee continues to believe that this approach is in the best interests of
its members, but will regularly review this decision, with the assistance of theirinvestment advisors, to ensure that it remains so.

Day-to-Day Investment Management
The fund range offered to members is accessed through Mercer Workplace Savings(“MWS”) on the platform provided by Scottish Widows Limited (“Scottish Widows”). The
Trustee accesses the platform via a long-term insurance contract with Scottish Widows.
The Trustee has selected funds on the Scottish Widows platform, including those managed
by Mercer Global Investments Europe Limited, to provide a range of funds for the members’
contributions to be invested in. The investment funds may be changed at the Trustee’s
discretion.
Day-to-day management of the assets is delegated to professional Investment Managers
who are all authorised or regulated. The Trustee expects the Investment Managers tomanage the assets delegated to them under the terms of their contracts. The range of funds
offered to members incorporates funds from a number of Investment Managers.
The Investment Managers have full discretion to buy and sell investments on behalf of thePlan, subject to agreed constraints and applicable legislation. They have been selected fortheir expertise in different asset classes.
The Trustee recognises that it is not possible to specify investment restrictions where assets
are managed via pooled funds and furthermore, given that it is Scottish Widows that has the
direct relationship with the third parties offering the funds (and not the Trustee).
The Investment Managers have appointed custodians for the safe custody of assets held
within their pooled funds in which the Plan is invested. The custodians are responsible forthe safekeeping of the assets held and for performing various administrative duties, such as
the collection of interest and dividends and dealing with corporate actions.
The Trustee assesses the continuing suitability of the Plan’s Investment Managers on aperiodic basis. The Trustee’s investment adviser is available to provide help in monitoring
the Investment Managers, both in the form of written reports and attendance at meetings as
required by the Trustee.

Page 6

8.

Investment Options
Members who do not indicate a preference are invested in the default investment option.
Typically, a proportion of members will actively choose the default investment option
because they feel it is the most appropriate option for them. However, the vast majority ofmembers do not make an active investment decision and are, therefore, automaticallyinvested in the default investment option.

8.1

The aims of the default option
In addition to the Trustee’s Investment Beliefs (covered in Section 4), the Trustee believes
that:•

The lifestyle strategy’s growth phase structure which invests in equities and other growthseeking assets, will provide growth with some downside protection and some protection
against inflation erosion.

•

As a member’s pot grows, investment risk will have a greater impact on member
outcomes. Therefore, the Trustee believes that the default strategy that seeks to reduceinvestment risk as the member approaches retirement is appropriate.

•

Based on their understanding of the Plan’s membership, an investment strategy thattargets income drawdown and a tax-free cash lump sum (up to 25% of a members’ pot)at retirement is likely to meet a typical member’s requirements for income in retirement.
This does not mean that members have to take their benefits in this format at retirement,
it merely determines the default investment strategy that will be in place pre-retirement.
Members who intend to take their retirement benefits through other formats have theoption of switching to an alternative lifestyle strategy prior to retirement or even choosing
their own investment strategy. This position will be kept under review.

Taking into account the demographics of the Plan’s membership and the Trustee’s views of
how the membership will behave at retirement, the Trustee believes that the current default
strategy is appropriate and will continue to review this over time, at least triennially, or after
significant changes to the Plan’s demographic, if sooner.
8.2

Policies in relation to the default option
The default lifestyle strategy manages investment and other risks through a diversified
strategic asset allocation consisting of traditional and alternative assets. Risk is notconsidered in isolation, but in conjunction with expected investment returns and outcomesfor members. Any investment in derivative instruments contributes to risk reduction, or
efficient portfolio management.
•

In deciding the default lifestyle strategy, the Trustee (in conjunction with the GovernanceCommittee) has explicitly considered the trade-off between risk and expected returns.
This is a consideration when determining the balance between the different kinds ofinvestments.

•

If members wish to, they can opt to choose their own investment strategy on joining but
also at any other future date.

•

Assets in the default lifestyle strategy are invested in the best interests of members andbeneficiaries, taking into account the profile of members.

•

Assets in the default lifestyle strategy are invested in a manner which aims to ensure thesecurity, quality, liquidity and profitability of a member’s portfolio as a whole.

Page 7•

8.3

Assets are invested mainly on regulated markets (those that are not must be kept toprudent levels).

Self-Select Funds
To cater for the different risk appetites of members, the Trustee also offers three lifestyle
strategies and a range of actively managed and passively managed funds (refer to Appendix
A). This range of funds includes funds (“Mercer Building Block Funds”) whose management
has been delegated by the Trustee to Mercer Limited and other funds (“external funds”) thathave been deemed suitable. A range of asset classes have been made available, including:developed market equities, emerging market equites, real estate, multi-asset funds, gilts,
bonds, property and pre-retirement funds.
In addition to the default investment option, there are two alternative lifestyle strategies
available to members that reflect the alternative ways in which members might take theirbenefits at retirement (Annuity or Cash). The three lifestyle options available include theLifestyle Strategy Targeting Annuity, Lifestyle Strategy Targeting Cash and Lifestyle Strategy
Targeting Drawdown.
Within the Mercer Building Block Funds, Mercer is responsible for making decisions on asset
allocations, selection, appointment, removal and monitoring of underlying external
investment managers within this fund range.
All members are free to choose between any of the options. If members do not actively
choose one or more of these options, they will automatically be enrolled into the default
option.
Members determine the balance between the different kinds of investments they hold. Thisbalance will determine the expected return on member’s assets and should be related to themember’s own risk appetite and tolerances.
Further information on the fund range and lifestyle options is provided in the IPID.

8.4

Additional default arrangement
The Trustee regularly reviews the default investment option and Self-Select Fund Range
and, if deemed appropriate, makes changes to the managers available as part of these
options.
Switching members between funds without their consent can result in funds also being
determined to be ‘default’ arrangements requiring additional disclosures. An additional
default arrangement has been created in this manner as follows:
Fund
MercerActiveMoneyMarket/Cash
Fund

Date of
ChangeMarch
2020

ReasonUK Property Fund
The Cash Fund was used on a temporary basis for member
contributions while the UK Property Fund was temporarilysuspended in order to preserve the capital value of thosecontributions.

In event of any future temporary fund closures, member contributions will be redirected to
the Cash Fund, unless another fund is considered more suitable.

Page 8The aims of the additional default arrangement:•

In designing an additional default arrangement, the Trustee has explicitly considered thetrade-off between risk and expected returns.

•

Risk is not considered in isolation, but in conjunction with expected investment returns
and outcomes for members.

•

If members wish to, they can opt to move assets away from the additional default
arrangement and choose their own investment strategy at any time.

•

Assets in the additional default arrangement are invested in the best interests ofmembers and beneficiaries, taking into account the objectives of the arrangements.

•

Assets in the additional default arrangement are invested in a manner which aims toensure the security, quality, liquidity and profitability of a member’s portfolio as a whole.

•

Assets are invested in pooled funds which are daily dealing and readily realisable.

The Trustee’s policy in respect of the additional default is summarised in the table below:
Fund

MercerActiveMoneyMarket/
Cash
Fund

9.

Fund Objective andInvestments Held

Trustee Objective and Expected Risk andReturnThe aim of the Cash Fundis to provide a cash-likerate of return by investingin money market
instruments such as highquality, short term debt.

The Trustee’s objective in using this fund as the
additional default is to aim to preserve the valueof any contributions invested rather than to seek
long term investment growth. It is also
appropriate as the cost of this fund is below the
charge cap.

The Cash Fund invests inhigh quality, short termmoney market and fixedincome securities.

The Cash Fund has the lowest expectedvolatility of the funds available in the Plan.

The Trustee’s Policy with Regard to Risk
Risks in a defined contribution scheme lie with a member themselves. The Trustee has
considered risks from a number of perspectives when designing the investments for thePlan.
The list below is not exhaustive but covers the main risks that the Trustee considers and how
they are managed.

Page 9Risk

Inflation risk

Currency risk

Credit risk

Description

The risk that investment
returns do not keep pacewith inflation and does
not, therefore, secure anadequate pension.

The risk that investment
in overseas markets will
be affected by changes
in exchange rates
leading to lower returns
in pound sterling terms.

The risk that the issuer ofa financial asset, such asa bond, fails to make thecontractual paymentsdue.

How is the risk monitored andmanaged?
The Trustee makes available a range offunds, across various asset classes,with the majority expected to keep pacewith inflation. The Trustee also
considers the real returns expectedfrom the various asset classes.
The default investment option has an
explicit allocation to assets which are
expected to outperform inflation overthe long term.

The Trustee offers a number of funds
which are currency hedged to poundsterling.
The Trustee monitors the performanceof investment funds on a quarterly
basis, including quarterly market
reviews considering the movements inforeign currencies relative to poundsterling.
This risk is partially mitigated byinvestment in a range of different credit
instruments (via pooled funds). The
Trustee is satisfied that the remaining
risks are acceptable.
The Trustee reviews the performanceof the corporate bond assets on aquarterly basis.

Page 10

Members are able to set their own
investment allocations, in line with theirrisk tolerances.

Equity, property and othermarket risks

Risks additional to thoseabove where the incomeor the capital value of anasset is uncertain owing
to, for example, changes
in the profitability of an
issuing company.

Mercer Building Block Funds are
considered to have adequate
diversification across asset class,region and within each asset class.
Management of these funds is the
responsibility of MWS and Mercer.
Within active funds, management ofmany of these risks is the responsibilityof the external investment manager.
The trustee monitors the external funds.
The Trustee regularly reviews
performance of funds.

Environmental, Social andCorporate Governancerisk

Investment Manager risk

Liquidity risk

The risk thatenvironmental, social or
corporate governancefactors (including climatechange) have afinancially material
impact on the return of
the Plan’s assets.

The risk that theinvestment manager ofthe investment vehicles
underperform theexpectations of theTrustee, fails to carry out
operational tasks, does
not ensure safe-keepingof assets or breaches
agreed guidelines.

The risk that the pooled
funds, through which theTrustee allows members
to invest, do not provide
the required level ofliquidity.

The management of ESG related risks
is the responsibility of the Investment
Managers.
See Section 12 of this Statement for the
Trustee’s responsible investment andcorporate governance statement.
For the external funds the Trustee
considers advice from their investment
adviser.
Mercer takes responsibility for the
management of this risk for the Mercer
Building Block Funds.
The Trustee monitors the performanceof the investment vehicles on aquarterly basis to ensure theInvestment Managers are meeting
expectations.
This is measured by the dealing andpricing frequencies of pooled funds.
The Trustee access pooled funds via
an investment platform, which is
expected to provide daily pricing andliquidity.

Page 11

The Trustee makes available three
lifestyle strategies for members.
Lifestyle strategies automatically switch
member assets into investments whose
value is expected to be less volatile
relative to how the member wishes toaccess their pension savings as they
approach retirement age.

Pension Conversion risk

The risk that the member
is invested in a strategy
that does not reflect theway in which they intend
to take their benefits at
retirement.

The asset allocation and managementof these lifestyle strategies is the
responsibility of MWS.
Members can select a lifestyle strategy
in accordance with their personal
preferences and retirement objectives.
The default option is a lifestyle strategy
which automatically switches member
assets as they approach retirement age
into investments expected to be lessvolatile relative to variable
income/drawdown and taking a 25%
cash lump sum.
As part of the triennial default review,
the Trustee ensures the default
destination remains appropriate.

The Trustee believes that the investment strategy outlined in the IPID is appropriate forminimising, where possible, the risks outlined above.
10.

Investment Manager and Platform Fees
Details of Investment Manager and Platform fees can be found in the IPID. The fees areprovided as total expense ratios (TERs) which are the total ongoing costs of running thefunds. They are also inclusive of the per capita charge paid to Scottish Widows by PIMCO.

11.

Investment Consulting Fees
Mercer’s investment consulting fees are either based on fixed quotes for particular projects
or on a time cost basis. Mercer also receives an annual fee in respect of the MWS contract.
Mercer provides advice to the Trustee but does not have responsibility for decision making in
any area.

12.

Responsible Investment and Corporate Governance (Voting & Engagement)
The Trustee believes that environmental social and corporate governance (“ESG”) issues
can affect the performance of investment portfolios and should therefore be considered aspart of the investment process.

Page 12The Trustee believes that good stewardship can enhance long-term portfolio performance,
and is therefore in the best interests of the Plan’s beneficiaries and aligned with fiduciary
duty.
Once appointed, the Trustee gives appointed investment managers full discretion in
evaluating ESG factors, including climate change considerations, and exercising 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 Trustee notes that due to the structure of
the long term insurance contract, Scottish Widows ultimately hold the direct relationship withmanagers. The Trustee also notes that they invest in pooled vehicles and as such they may
have limited ability to impact the overall strategy of the managers. The Trustee therefore
regularly reviews the investment adviser’s ESG ratings of the external investment managers.
Where the Trustee has delegated day-to-day management of assets to Mercer, Mercer inturn 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 stewardshipobligations attached to the investments, in accordance with their own corporate governancepolicies and current best practice, including the UK Corporate Governance Code and UK
Stewardship Code.
The Trustee considers how ESG, climate change and stewardship is integrated within
Mercer’s investment processes and those of the underlying managers in the monitoringprocess. The Trustee believes that Mercer has the necessary expertise and framework inplace to effectively manage and monitor investments in line with these areas, and this is
implemented through their four pillar framework: integration, stewardship, thematicinvestment and screening. The funds for the Plan incorporate these four pillars as far as ispractical. Mercer is expected to provide reporting on a regular basis, at least annually, on
ESG integration progress, stewardship monitoring results, and climate-related metrics suchas carbon foot printing for equities and/or climate scenario analysis for diversified portfolios.
The Trustee has agreed the following stewardship priority areas for the Plan.
•

Environmental: The Trustee will prioritise engaging on climate change-related issues,
such as transitioning to a low-carbon economy and physical damages resilience.
Additionally, engagements related to pollution and the degradation of natural
resources will be a priority.

•

Social: The Trustee will prioritise engaging on human rights issues including modern
slavery, pay and safety in the workplace and supply chains, and abuses in conflictzones. Issues surrounding health and addictive products will also be reflected here.

•

Governance: the Trustee will prioritise engagements focused on inclusive anddiverse decision-making, aligned remuneration and incentives, and transparent
disclosure of material ESG factors.

The Trustee has not set any investment restrictions on Mercer or the external investment
managers in relation to particular products or activities.
Member views are not explicitly taken into account in the selection, retention and realisationof investments. The Trustee does however from time to time receive anecdotal feedback via
the employer which they and their advisers take into consideration when reviewing thedefault investment strategy and wider fund range.

Page 13

13.

Investment Manager Arrangements
The Trustee believes that an understanding of, and engagement with, asset managers’
arrangements is required to ensure they are aligned with the Trustee’s policy, including its
Sustainable Investment policy. It is the Trustee’s policy to ensure that the following are
understood and monitored:•

How asset manager arrangements incentivise asset managers to align their strategy anddecisions with the Trustee’s policies;•

How asset manager arrangements incentivise asset managers to make decisions basedon assessments about medium to long-term financial and non-financial performance ofan issuer of debt or equity and to engage with issuers of debt or equity in order toimprove their performance in the medium to long-term;•

How the method (and time horizon) of the evaluation of asset managers’ performanceand their remuneration are in line with the Trustee’s policies ;•Portfolio turnover costs incurred by the asset managers, in the context of the asset
manager’s targeted portfolio turnover (defined as the frequency within which the assets
are expected to be bought or sold); and•Duration of the arrangement with the asset manager.

Underlying investment managers are appointed by the Trustee in the case of non-delegatedfunds and by MWS for delegated funds based on their capabilities, and therefore theperceived likelihood of achieving the expected return and risk characteristics required.
Mercer’s manager research rating reflects Mercer’s forward-looking assessment of amanager’s ability to meet or exceed their objectives.
As the Trustee invests in pooled investment vehicles they accept that they have no ability to
influence investment managers to align their decisions with the Trustee’s policies set out inthis Statement. However, appropriate mandates can be selected to align with the overall
investment strategy. The underlying investment managers are made aware that theircontinued appointment is based on their success in delivering the mandate for which they
have been appointed to manage. If the Trustee or MWS (where applicable) is dissatisfied,then they will look to replace the manager. If the investment objective for a particularmanager’s fund changes, the Trustee and MWS (where applicable) will review the fundappointment to ensure it remains consistent with the Trustee’s wider investment objectives
and policies.
The Trustee and MWS expect third party investment managers to incorporate theconsideration of longer term factors, such as ESG, into their decision making process whereappropriate. The extent to which this is so will be considered during the selection, retention
and realisation of manager appointments. Voting and engagement activity should be used byinvestment managers to discuss the performance of an issuer of debt or equity. The Trustee
and MWS (for the applicable funds) will challenge decisions made including voting history
and engagement activity of the underlying investment managers with issuers of debt orequity securities held, to try to ensure the best performance over the medium to long term. If
the Trustee and MWS (where applicable) is not satisfied with the answers provided by the
manager or progress made in this regard they may seek to review the appointment of theinvestment manager.
The Trustee’s focus is on longer-term performance but shorter-term performance ismonitored to ensure any concerns can be identified in a timely manner. The Trustee reviews
both absolute and relative performance against a portfolio or underlying investment
manager’s benchmark on a quarterly basis, including assessments of both shorter andlonger time horizons. The Trustee also relies upon Mercer’s manager research capabilities.

Page 14

If an underlying manager is not meeting performance objectives, or their investment
objectives for the fund have changed, the Trustee may review the suitability of the manager,
and change managers where required. Where funds are delegated to MWS it is expectedthat MWS will review and monitor this on behalf of the Trustee. The remuneration forinvestment managers used by the Plan is based on assets under management; the levels ofthese fees are reviewed annually as part of the annual value for money assessment toensure they continue to represent value for members.
The Trustee considers portfolio turnover costs indirectly through consideration of transaction
cost data as part of the annual value for money assessment. Though the Trustee does not
currently define target portfolio turnover ranges for funds, they will engage with managers if
the portfolio turnover is higher than expected as a result of the monitoring undertaken.
Where funds are delegated to MWS it is expected that MWS set these ranges and will dothis on behalf of the Trustee. The Trustee is a long-term investor, all funds are open-ended
and therefore there is no set duration for manager appointments. The Delegated Investment
Manager is responsible for the selection, appointment, monitoring and removal of theunderlying investment managers. These decisions will be made by MWS for all delegatedfunds. The Trustee is responsible for the selection, appointment and removal of theexternally managed funds if it is no longer considered to be optimal nor have a place in thedefault strategy or general fund range. The Trustee may also choose to remove a fund fromthe fund range, if no longer considered appropriate, and the fund range is reviewed on atleast a triennial basis.
The Trustee believes that the investment managers have the necessary expertise andframeworks in place to effectively manage and monitor investments in line with the above
areas. This does not mean that all investment managers will have the same principles withregard to ESG and climate change, as these will specifically relate to the mandate of theinvestment fund which they are managing.
14.

Buying and Selling Investments
The Investment Managers have responsibility for buying and selling the underlying assets.
As already mentioned, the day-to-day activities, which the Investment Managers carry out for
the Trustee is governed by the arrangements between the Investment Managers andScottish Widows.
The funds are themselves regulated and daily-dealt with underlying investments mainly in
regulated markets, and therefore are believed to be readily redeemable based on Trustee ormember demand.

15.

Compliance with this Statement
The Trustee, Scottish Widows and Mercer each have duties to perform to ensure compliancewith this Statement. These are:•

The Trustee will review this Statement regularly on the advice of Mercer. The Trustee
will monitor the arrangement with Scottish Widows and MWS to ensure that the service
continues to meet the Plan’s needs and objectives. The Trustee will also consult with the
Principal Employer over any changes to the Statement.

•

Scottish Widows will provide full information in respect of transactions in units in theunderlying funds and valuations of the units held by the Plan from time to time as
required by the Trustee.

•

Mercer will provide the advice needed to allow the Trustee to review and update thisStatement tri-annually (or more frequently if required).

Approved by the Trustee of the PIMCO Europe Limited DC Pension Plan on 10.8.2023

Page 15

Appendix A: Mercer and Externally Managed Funds
Mercer has been selected as the Delegated Investment Manager for the DC Section of the Plan,and is responsible for the day-to-day management of the assets in funds provided by Mercer. The
Trustee has selected five externally managed funds to be made available for Plan members, theTrustee is responsible for the management of these funds. The funds as managed by Mercer as
Delegated Investment Manager and by the Trustee are laid out in the following table:
Mercer funds

Externally managed funds

Mercer Diversified Growth Fund

Scottish Widows Aquila Corporate Bond All Stocks Index

Mercer Passive Shariah Fund

Scottish Widows Aquila Emerging Markets Equity Index

Mercer Active Global Equity

Scottish Widows Aquila European Equity Index

Mercer Active Global Small Cap Equity

Scottish Widows Aquila IL Over 5 Year Gilt Index

Mercer Passive Sustainable Global
Equity Fund

Scottish Widows Aquila Japanese Equity Index

Mercer Active Money Market

Scottish Widows Aquila Over 15 Years UK Gilt Index

Mercer Growth Fund

Scottish Widows Aquila Pacific Rim Equity Index

Mercer Global Listed Infrastructure

Scottish Widows Aquila UK Equity Index
Scottish Widows Aquila US Equity Index
Scottish Widows Aquila World ex UK Equity Index
Scottish Widows L&G Future World Annuity Aware
Scottish Widows Threadneedle Pension Property
Scottish Widows PIMCO Diversified Income
Scottish Widows PIMCO Emerging Market Debt
Scottish Widows PIMCO Global High Yield Bond
Scottish Widows PIMCO Global Investment Grade Credit
Scottish Widows PIMCO Income Strategy
Scottish Widows PIMCO Dynamic Multi Asset Fund

Further information regarding these funds can be found in the Plan’s IPID.