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Budgens Pension Scheme


Statement of investment Principles - December 2023

1. Introduction

Budgens Pension Trustees No.2 Limited (“the Trustee”) has drawn up this Statement of Investment Principles (“the Statement”) to comply with the requirements of the Pensions Act 1995 (“the Act”) and associated legislation including the Occupational Pension Schemes (Investment) Regulations 2005 (as amended). The Statement is intended to affirm the investment principles that govern decisions about the Scheme’s investments. The Trustee’s investment responsibilities are governed by the Scheme’s Trust Deed and Rules, of which this Statement takes full regard.  

In preparing this Statement, the Trustee has consulted a suitably qualified person by obtaining written advice from Mercer Limited (“Mercer”). In addition, consultation has been undertaken with Booker Group PLC, representing the Principal Employer Booker Retail Partners GB Limited (the “Company”) to ascertain whether there are any material issues of which the Trustee should be aware in agreeing the Scheme’s investment arrangements and, in particular on the Trustee’s objectives.  

2. Process For Choosing Investments

The Scheme’s overall investment policy falls into two parts. The strategic management of the assets is fundamentally the responsibility of the Trustee (acting on advice they deem appropriate) and is driven by its investment objectives. The remaining elements of policy are part of the day to day management of the assets which is delegated to investment managers.

The Trustee has appointed Mercer to act as investment manager to implement the Trustee’s strategy. In this capacity, and subject to agreed restrictions, the Scheme’s assets are invested in multi-client collective investment schemes (“Mercer Funds”) managed by a management company (Mercer Global Investments Management Limited (“MGIM”)). MGIM has appointed Mercer Global Investments Europe Limited (“MGIE”)) as investment manager of the Mercer Funds.

In practice, MGIE delegates the discretionary investment management for the Mercer Funds to third party investment managers, and those sub-investment managers will manage either a subfund or certain segments of a sub-fund. Mercer identifies, selects, and combines highly rated fund managers who are considered best placed and resourced to manage the Scheme’s assets on a day to day basis.

In considering appropriate investments for the Scheme, the Trustee has obtained and considered the written advice of Mercer, whom the Trustee believes to be suitably qualified to provide such advice. The advice received and arrangements implemented are, in the Trustee’s opinion, consistent with the requirements of Section 36 of the Pensions Act 1995 (as amended).  

3. Investment Objectives

The Trustee’s primary objective is to act in the best interest of its members and ensure that the obligations to the beneficiaries of the Scheme can be met. The Trustee’s further objective is to target a fully funded position on a basis consistent with a low risk investment strategy. 

The Trustee understands that taking some investment risk, with the support of the Company, is necessary to improve the Scheme’s funding position. However, the targeted level of investment risk is expected to be modest in order to protect the funding position.  

The Trustee, in consultation with the Company, may consider transferring the liabilities to an insurance company when funding levels and costs allow (taking into consideration the attractiveness of insurance company rates) in order to safeguard members’ benefits.

The Trustee recognises this ultimately means investing in a portfolio of bonds but believe that at the current time some investment in equities and other growth assets (the “Growth Portfolio”) is justified to target enhanced return expectations and thereby target funding level improvements. The Trustee recognises that this introduces investment risk and these risks are discussed in the following section.

The objectives set out above and the risks and other factors referenced in this Statement are those that the Trustee determines to be financially material considerations. Non-financial considerations are discussed later in this Statement.

Should there be a material change in the Scheme’s circumstances, the Trustee will advise Mercer, who will review whether and to what extent the investment arrangements should be altered.  

4. Risk Management, Mitigation and Measurement

There are various risks to which any pension scheme is exposed. The Trustee’s policy on risk management over the Scheme’s anticipated lifetime is as follows:

  • The primary investment risk upon which the Trustee focuses is that arising through a mismatch between the Scheme’s assets and its liabilities and the Company’s ability to support this risk.
  • The Trustee recognises that whilst investment risk increases potential returns over a long period, it also increases the risk of a shortfall in returns relative to that required to cover the Scheme’s liabilities as well as producing more volatility in the funding position.
  • To control the risk outlined above, the Trustee, having taken advice, set the split between the Scheme’s Growth and Matching Portfolio such that the expected return on the overall portfolio is expected to be sufficient to meet the objectives outlined in section 3.
  • The Trustee recognises that even if the Scheme’s assets are invested in the Matching Portfolio there may still be a mismatch between the inflation and interest rate sensitivity of the assets and the liabilities. To control this risk, a detailed liability analysis is conducted as part of each investment strategy review. The asset allocation of the Matching portfolio is then constructed, tailored to the Scheme’s characteristics.
  • The Trustee recognises the risk that may arise from the lack of diversification. Under the terms of its agreement with Mercer, Mercer is required to invest in a range of collective investment
    vehicles. This assists with ensuring that the asset allocation results in an adequately diversified portfolio. Within the Growth Portfolio, the Scheme invests in the Mercer Diversified Growth fund which is diversified by asset class, geography, investment style, and underlying Investment manager. Mercer provides the Trustee with regular monitoring reports regarding the level of diversification within the Scheme’s portfolio.
  • To help diversify investment manager-specific risk, with the context of each of the Growth and Matching Portfolios, the Trustee expects that the Scheme’s assets are managed by highly rated underlying investment managers assessed as being suitable to meet the relevant fund objectives.
  • There is a risk that the Scheme’s investment managers underperform their agreed objectives. The Trustee recognises that the use of some active investment management involves such risk but that this risk may be outweighed by the potential gains from successful active management. Likewise, passive management will be used for one of a number of reasons, namely to diversify and reduce risk and when investing in markets deemed efficient where the scope for added value is limited.
  • To help the Trustee to ensure the continuing suitability of the current investments, Mercer provides the Trustee with regular reports regarding the performance of the underlying asset managers appointed within the relevant Mercer Funds to enable the monitoring of differences between the expected and experienced levels of risk and return.
  • By investing in the Mercer Funds, the Trustee does not make investments in securities that are not traded on regulated markets. However, should the Scheme’s assets be invested in such securities, in recognition of the associated risks (in particular liquidity and counterparty exposure), such investments would normally only be made with the purpose of reducing the Scheme’s mismatch risk relative to its liabilities or to facilitate efficient portfolio management. In any event, the Trustee would ensure that the assets of the Scheme are predominantly invested on regulated markets.
  • The Trustee recognises the risks inherent in holding illiquid assets. The Trustee has carefully considered the Scheme’s liquidity requirements and time horizon when setting the investment strategy and liquidity risk is managed by ensuring illiquid asset classes represent an appropriate proportion of the overall investment strategy.
  • The Scheme is subject to currency risk because some of the investment vehicles in which the Scheme invests are denominated or priced in a foreign currency. Within the context of the Mercer Funds used in the Growth and Matching Portfolios, to limit currency risk, a target non sterling currency exposure is set and reviewed as part of strategy reviews, taking into account Mercer’s advice on the appropriate level of currency hedging.

5. Investment Strategy

Given the funding strategy and investment objectives, the Trustee has established the investment strategy detailed in the table below. The Trustee believes that the investment strategy is appropriate for controlling the risks identified in previous sections. The actual asset allocation may differ from the strategic benchmark as a result of market movements.  

Benchmark Allocation (%)
Growth Portfolio 10
Matching Portfolio 90

The Trustee has appointed Mercer to implement the agreed strategic allocation to the Growth and Matching Portfolio. As part of the approach, the strategy is expected to adhere to the following practices:

  • To diversify the Growth Portfolio across asset classes, regions and investment managers within a pooled multi-asset fund; and,
  • To reduce the volatility in the funding level by seeking to align the term and nature of the Matching portfolio to the Scheme’s liabilities.

The strategy takes account of the expected deficit contributions from the Company as agreed at the latest triennial actuarial valuation.  

Responsibility for monitoring the Scheme’s asset allocation, and undertaking any rebalancing activity, is delegated to Mercer. Mercer reports quarterly to the Trustee on any rebalancing activity. 

6. Realisation of Investments

The investment strategy has been set taking into account the Scheme’s requirements for cashflow and liquidity.

The Trustee, on behalf of the Scheme, holds shares in the Mercer Funds. In its capacity as investment manager to the Mercer Funds, MGIE, and the underlying third party asset managers appointed by MGIE, within parameters stipulated in the relevant appointment documentation, have discretion in the timing of the realisation of investments and in considerations relating to the liquidity of those investments (within clear parameters).

Cashflow is taken into account by Mercer when it rebalances the Scheme’s assets in line with the strategic allocation, if required, as instructed by the Trustee. Mercer is responsible for raising cash flows to meet the Scheme’s requirements in accordance with guidelines set by the Trustee which are as follows:

  • Assets are to be divested from whichever of the Growth or Matching portfolio is overweight relative to the strategic allocation.
  • Within the overweight Growth or Matching Portfolio, assets are to be divested from the most overweight underlying fund, with the exception of funds which do not have daily liquidity.

The Trustee regularly reviews the Scheme’s asset allocation. If at any time the actual balance between the Growth and Matching Portfolios is deemed to be outside an agreed tolerance range, the Trustee will instruct Mercer to rebalance these allocations back towards the target levels. It is the intention that the Growth Portfolio allocation should not drift by more than 5%, in absolute terms, away from the relevant target allocation. The tolerance ranges are designed to ensure that unnecessary transaction costs are not incurred by frequent rebalancing.  

7. Financially material considerations and non-financial matters 

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

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

The Trustee receives monitoring reports from Mercer regarding the performance of the Scheme’s investment managers in this area.

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

As noted above, the Trustee believes that ESG factors can have a financially material impact on investment risk and return outcomes and integrates consideration of these matters within the investment strategy. The Trustee does not currently take into account non-financial matters, such as the specific views of individual members, in relation to investments. 

8. Investment Manager Arrangements  

Overview and Alignment

When engaging Mercer as investment manager to implement the Trustee’s investment strategy, the Trustee seeks to ensure that, as appropriate and to the extent applicable, Mercer is incentivised to align its strategy and decisions with the profile and nature of the liabilities of the Scheme.

The Trustee invests the Scheme assets in Mercer Funds, which are multi-client pooled collective investment schemes. The Trustee recognises that it does not have the ability to determine the risk profile and return targets of specific pooled but the Trustee expects Mercer to manage the assets in a manner that is consistent with the Trustee’s overall investment strategy. The Trustee has taken steps to satisfy itself that Mercer has the appropriate knowledge and experience to do so and keeps Mercer’s performance under ongoing review.

Should Mercer fail to align its investment strategies and decisions with the Trustee’s policies, it is always open to the Trustee to disinvest some or all of the assets invested managed by Mercer, to seek to renegotiate commercial terms or to terminate Mercer’s appointment.

Evaluation of Performance and Duration of Appointments

To evaluate performance, the Trustee receives, and considers, investment performance reports produced on a quarterly basis, which present performance information and commentary in respect of the Scheme’s funding level and the Mercer funds in which the Trustee invests the Scheme’s assets. Such reports have information covering performance for the previous three months, one-year, three years and since inception. The performance is shown in absolute terms and also relative to benchmarks (over the relevant time period) on a net of fees basis. The Trustee’s focus is on medium to long-term performance.

The Trustee also receives and considers monthly investment dashboards, which include details of the Scheme’s investment performance over the period, the estimated funding level, and information regarding the Scheme’s asset allocation.

Neither Mercer nor MGIE make investment decisions directly based on their assessment about the performance of an issuer of debt or equity. Instead, such assessments are made by the underlying third party asset managers appointed by MGIE to manage assets within the Mercer Funds. Those managers are in a position to engage directly with such issuers in order to improve their performance in the medium to long term. The Trustee is, however, able to consider Mercer’s and MGIE’s assessment of how each underlying asset manager embeds ESG into their investment process and how the manager’s responsible investment philosophy aligns with the Trustee’s own policies. This includes policies on voting and engagement.

Mercer reports annually on the stewardship activities of the underlying asset managers. This includes voting policies and their execution, and engagement activities. This ensures that the Trustee can monitor any behaviour that appears out of line with the policies of the Scheme.

The underlying asset managers are incentivised as they will be aware that their continued appointment by MGIE will be based on their success in meeting MGIE’s expectations. If MGIE is dissatisfied then it will, where appropriate, seek to replace the manager.

The Trustee is a long-term investor and does not seek to change its investment arrangements on an unduly frequent basis. However, the Trustee does keep those arrangements under review, including the continued engagement of Mercer using, among other things, the reporting described above.

Remuneration of Investment Managers and Other Costs

The Trustee monitors, and evaluates, the fees it pays for asset management services on an ongoing basis taking into account the progress made in achieving its investment objectives. The fees of Mercer and MGIE are based on a percentage of the value of the Scheme’s assets under management which covers investment management of the assets and an annual review of the strategy. The underlying third party asset managers of the Mercer Funds also charge fees based on a percentage of the value of the assets under management. In some instances, the underlying managers may also be entitled to charge fees based on their performance.

MGIE reviews the fees payable to third party asset managers managing assets invested in the Mercer funds on a regular basis with any negotiated fee savings passed directly to the Scheme. Mercer, MGIE, and third party asset manager fees are documented in a quarterly investment report prepared for the Trustee, excluding performance-related fees and other expenses involved in the Mercer funds not directly related with the management fee.

Details of all costs and expenses are included in the Mercer Funds’ Supplements, the Report & Accounts and within the Scheme’s annualised, MiFID II compliant Personalised Cost & Charges statement. The Scheme’s Personalised Cost & Charges statement also include details of the transaction costs associated with investment in the Mercer funds.

The Trustee does not have an explicit targeted portfolio turnover range, but rebalancing ranges have been designed to avoid unnecessary transaction costs being incurred by unduly frequent rebalancing. Further, performance is reviewed net of portfolio turnover costs, with the review of portfolio turnover of the underlying investment managers undertaken by MGIE 

9. Additional Assets 

Assets in respect of members’ additional voluntary contributions (AVC) are invested in pooled investment funds held by the Trustee via insurance policies.

10. Review of this Statement

The Trustee will review this Statement at least once every three years and without delay after any significant change in investment policy.

Any change to this Statement will only be made after having obtained and considered the written advice of someone who the Trustee reasonably believes to be qualified by their ability in and practical experience of financial matters and to have the appropriate knowledge and experience of the management of pension scheme investments.

The Trustee will also consult with the Company prior to making any change to this Statement. 


For and on behalf of Budgens Pension Trustees No.2 Limited

December 2023