2020 Annual Report and Financial Statements

2020 Annual Report and Financial Statements

CARRIER (UK) PENSION SCHEME

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2020

Registrar of Occupational and Personal Pension Schemes Registration Number 10056305

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

CONTENTS

2

Trustee and advisers

3 to 9

Trustee’s report

10

Actuarial certificate

11 to 13

Independent auditors’ report

14

Fund account

15

Statement of net assets available for benefits

16 to 29

Notes to the financial statements

30

Independent auditors’ statement about contributions

31

Summary of contributions

32 to 33

Members’ information

34

APPENDIX – Implementation Statement

1

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

TRUSTEE AND ADVISERS

Trustee

Carrier Pension Trustee Limited

The Directors of the Trustee Company are as follows: C Andrew (Member Nominated Director) S McMullen D Roberts (Member Nominated Director) F Rodrigues M Short (Chairman)

Secretary to the Trustee

J Beake

Scheme Actuary

D Robinson – Mercer Limited

Scheme Administrators

Buck Consultants (Administration & Investment) Limited

Independent Auditors

PricewaterhouseCoopers LLP

Bankers

Lloyds Bank Plc

Legal advisers

Norton Rose Fulbright

AVC Providers

Legal & General Assurance (Pensions Management) Limited Scottish Friendly Assurance Society Limited Utmost Life & Pensions (Until July 2020)

Investment custodians

BNY Mellon

Investment adviser

Barnett Waddingham LLP – also Investment advisers to the UTC Common Investment Fund

Investment managers

UTC Pension Trust Limited – Administrator to the UTC Common Investment Fund (Until February 2020) BlackRock Investment Management (UK) Limited First Eagle Investment Management LLC Insight Investment Legal & General Assurance (Pensions Management) Limited Ruffer LLP

Principal & Participating Employers

Toshiba Carrier UK Limited - Principal and Participating Employer Carrier Transicold UK Limited - Participating Employer

2

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

TRUSTEE’S REPORT

Introduction

The Trustee is pleased to present its report on the Carrier (UK) Pension Scheme ("the Scheme") for the year ended 31 December 2020.

The Scheme was established on 30 April 1976 to provide benefits to relevant employees of the Principal and Participating Employers.

The Scheme closed to new members with effect from 1 May 2006.

In accordance with HMRC requirements the Scheme is registered under Chapter 2, Part 4 of the Finance Act 2004. As a consequence employer contributions are normally eligible for tax relief and income and capital gains earned by the Scheme receive preferential tax treatment. The Scheme is governed by the Trust Deed and Rules and is a defined benefit arrangement. All members of the Scheme were contracted-out of the State Second Pension, up until 6 April 2016 when contracting-out by final salary pension schemes was abolished by the Government.

The only changes to the Scheme’s trust deed and rules in 2020 comprised a deed of amendment which was executed on 24 February 2020 to amend the Scheme’s termination and winding-up provisions.

Closure of the Scheme to the Future Accrual of Benefits

As reported in the previous year, the Participating Employers of the Scheme commenced consultation with active members in September 2019 with regard to a proposal to close the Scheme to the future accrual of benefits. The consultation process concluded in November 2019, following a 60 day consultation period as required by law. Following a period of reflection the Participating Employers decided to proceed with the closure with effect from 31 March 2020. The affected members were informed of this decision in notices issued by the Participating Employers in December 2019. The Principal Employer issued a formal notice of closure of the Scheme to the future accrual of benefits to the Trustee on 26 February 2020. As a consequence from 31 March 2020 no further benefits will accrue in the Scheme.

Trustee

The Trustee of the Scheme is a company called Carrier Pension Trustee Limited (‘the Trustee’). The directors of the Trustee company have essentially the same responsibilities as if they were individual trustees. In accordance with the Trust Deed, the Trustee is appointed and may be dismissed by the Principal Employer. The Trustee has responsibility for setting the investment strategy and for managing the Scheme, and the directors usually meet four times a year for this purpose. Further or fewer meetings may be scheduled depending on matters requiring consideration by the Trustee during the year. All occupational pension schemes must implement arrangements that provide for at least one-third of the total number of directors of the Trustee company to be member-nominated. The arrangements for the nomination and selection must be proportionate, fair and transparent. The board of the Trustee currently comprises of five trustee directors as shown on page 2. Two of these individuals are appointed by the Scheme’s membership and three are appointed by the Principal Employer of the Scheme. The Trustee periodically reviews registers of risks and conflicts to ensure that appropriate internal controls are in place and remain effective and have appointed professional advisers to support them in delivering the Scheme objectives. These professionals are detailed on page 2.

3

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

TRUSTEE’S REPORT

Financial development of the Scheme

The financial statements have been prepared and audited in compliance with regulations made under section 41 (1) and (6) of Pensions Act 1995.

Significant developments affecting the financial position of the Scheme during the year include:

 The overall value of the Scheme has increased by £1,475k from £125,418k to £126,893k.

 The net increase above comprised investment returns of £8,676k and a reduction of £7,201k in respect of dealings with members.

Membership

Changes in membership of the Scheme during the year were as follows:

Active

Pensioners

Deferred Members

Total

Members

Membership at 1 January 2020

59

309

413

781

Prior year adjustment

-

3

(4)

(1)

Membership at 1 January 2020

59 (3)

312

409 (14)

780

Retirements

17

-

New spouse and dependent pensions

-

6

-

6

Transfers out

(1)

- -

(11)

(12)

Members leaving prior to pensionable age

(55)

55

-

Deaths

- -

(10) 325

-

(10) 764

439

Total membership at 31 December 2020

Pensioners include 41 individuals (2019: 37) receiving a pension upon the death of their spouse at the year end.

Deferred Members includes members with preserved and deferred benefits.

These membership figures do not include movements notified to the Administrator after the completion of the annual renewal. These are shown as a "prior year adjustment" in the following year.

Transfer values

Cash equivalents paid during the year with respect to transfers have been calculated and verified in the manner prescribed by the Pensions Schemes Act 1993 and do not include any allowance for discretionary benefits.

Pension increases

As at 6 April 2020 pensions in payment in excess of the Guaranteed Minimum Pension (‘GMP’) and accrued before 6 April 1997 were increased by the fixed rate of 3.0%. Pensions accrued after 6 April 1997 and before April 2000 were increased by 3.0% being the higher of 3.0% or the rate determined from the Consumer Prices Index capped at 5.0% p.a. Pensions accrued between April 2000 and March 2005 were increased by 2.4% in line with the Retail Prices Index capped at 5.0% p.a. Pensions accrued after 6 April 2005 were increased by 2.4% based on the Retail Prices Index to September 2019 capped at 2.5% p.a. GMPs accrued after 1988 increased by 1.7%. There were no discretionary increases.

Preserved pensions are revalued in line with statutory requirements.

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CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

TRUSTEE’S REPORT

Report on Actuarial liabilities

As required by Financial Reporting Standard 102, ‘The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (FRS 102), the financial statements do not include liabilities in respect of promised retirement benefits. Under section 222 of the Pensions Act 2004, every scheme is subject to the Statutory Funding Objective, which is to have sufficient and appropriate assets to cover its technical provisions, which represent the present value of benefits to which members are entitled based on pensionable service to the actuarial valuation date. This is assessed at least every three years using assumptions agreed between the Trustee and the employers and set out in the Statement of Funding Principles, a copy of which is available to members on request.

The latest actuarial valuation as at 31 December 2019 was finalised on 31 March 2021.

A summary of the funding position, in accordance with the Statutory Funding Objective, at the actuarial valuation date, was as follows:

Value of assets available to meet technical provisions

£125.1m £127.7m

Value of technical provisions

Past service deficit

£2.6m

Funding ratio

98%

The value of technical provisions is based on Pensionable Service to the valuation date and assumptions about various factors that will influence the Scheme in the future. The following significant actuarial assumptions have been used in the calculations;



Discount interest rate: o

Pre-retirement: 3.50% pa Post-retirement: 1.90% pa

o



Future Retail Price inflation: 2.85% pa

 Future consumer Price inflation: 2.30% pa



Pension increases: o

GMPs accrued post 5 April 1988: 2.30% pa o Non GMP benefits accrued pre 6 April 1997: 3.00% pa o Benefits accrued from 6 April 1997 to 31 March 2000: 3.25% pa o Benefits accrued from 1 April 2000 to 5 April 2005: 2.85% pa o Benefits accrued from 6 April 2005: 2.50% pa



Mortality: o

Base table: S3PMA (males) and S3PMA_M (females). o Future improvements: CMI 2019 core projection model except Sk = 7.5 with a 1.75% pa long term improvement trend. The Participating employers are required to pay contributions to the Scheme in accordance with the Schedule of Contributions signed on 13 April 2018 until 31 March 2021 and in accordance with the Schedule of Contributions signed on 31 March 2021 from that date. As shown above the actuarial valuation at 31 December 2019 revealed a funding shortfall of £2.6m. To correct the shortfall, the employer will pay a contribution of £540,000 pa whilst the deficit remains at or above £540,000 as assessed each December. If the deficit as assessed each December falls below £540,000, lower contributions will be payable to reflect the actual deficit. The payments will normally be made monthly, but the Trustee and employer can agree for payments to be made earlier if appropriate.

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CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

TRUSTEE’S REPORT

The Scheme incurs costs related to ongoing administration and other expenses and levies such as the Pension Protection Fund levy. The Trustee has agreed with the employer that the employer will make a contribution of £360,000 per annum to the Scheme to cover the estimated running expenses of the Scheme, subject to the proviso in the following paragraph. The employer will also reimburse the cost of the Pension Protection Fund levy. If the most recent actuarial report as at 31 st December certifies the assets of the Scheme are more than 105% of the Scheme’s liabilities on the Technical Provisions funding basis (derived using a consistent approach with that adopted for the 31 st December 2019 actuarial valuation) the contributions in respect of administrative and other expenses may be suspended until such time as a subsequent actuarial report certifies the assets to be less than 105% of the Scheme’s liabilities on the Technical Provisions basis.

The next actuarial valuation is due as at 31 December 2022.

Separation of United Technologies Corporation

As previously reported, in November 2018 United Technologies Corporation (UTC) announced its separation in to three separate businesses comprising of Carrier, Collins Aerospace and Otis. The separation took place on 3 April 2020. In light of UTC’s separation, the Trustee negotiated a revised parent guarantee, to replace the parent guarantee previously provided by UTC. The replacement guarantee was executed on 24 February 2020 and is provided by Carrier Global Corporation. A letter of the same date, signed as a deed by Carrier Global Corporation and the Trustee sets out terms that Carrier Global Corporation and the Trustee have agreed in relation to the replacement guarantee.

A Deed of Release was also executed on 24 February 2020, releasing UTC from the parent guarantee that was previously in place.

Investments

The Trustee has produced a Statement of Investment Principles as required by Section 35 of the Pensions Act 1995 and a copy is available on request.

The majority of the Scheme’s investments were held within the UTC Common Investment Fund (the ‘CIF’) at the beginning the year. However, in anticipation of the break-up of the UTC Group of companies on 3 April 2020 as referred to above, the Scheme withdrew from the CIF in February 2020 and all assets will, in future, be held directly by the Scheme.

The investment managers are remunerated on a fee basis, based on the value of the investments under their management.

The Scheme's investments are made in accordance with the Occupational Pension Schemes (Investment) Regulations 2005.

Under the terms of a Parent Guarantee provided by UTC (up to 24 February 2020) the Trustee agreed not to change the growth/protection split of the Scheme’s assets without seeking agreement from the Principal Employer first. The same terms apply in respect of the Parent Guarantee (effective from 24 February 2020) now provided by Carrier Global Corporation.

Custodians

Bank of New York Mellon was appointed to act as overall custodian to the Scheme following its withdrawal from the CIF in February 2020.

6

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

TRUSTEE’S REPORT

Investment performance

The returns for the consolidated Scheme assets have been as follows:

 12 months ending 31 December 2020; increase of 11.72%  3 years ending 31 December 2020; increase of 6.80%

Employer related investments

At 31 December 2020, 0.01% of the Scheme assets were indirectly invested in the employer through pooled investment vehicles with Legal and General and BlackRock.

Socially responsible investment

The Trustee believes that environmental, social and governance (“ESG”) factors, including but not limited to climate change, are potentially financially material over periods extending out to the funding of all benefits, and therefore have a policy to consider these, alongside other factors, when selecting or reviewing the Scheme’s investments. The Trustee will be reliant on the information presented by the investment managers and their investment advisors regarding the extent to which an investment manager allows for ESG in making their investment decisions. Furthermore, an investment manager’s excellence in this area will not take precedence over other factors, including (but not limited to) historical performance or fees. For the investments held in pooled funds, ESG considerations are set by each of the investment managers. The Scheme’s investment managers will ultimately act in the best interests of the Fund’s assets to maximise returns for a given level of risk.

For the investments held in segregated portfolios, the Trustee delegates ESG considerations to the investment managers such that it helps the portfolio to achieve its objective.

The Trustee believes that good stewardship and positive engagement can lead to improved governance and better risk-adjusted investor returns. The Trustee delegates the exercise of the rights (including voting rights) attaching to the Scheme’s investments.

The Trustee has taken into consideration the UK Stewardship Code, and the investment managers all have stated corporate governance policies which comply with many or all of these principles.

In selecting and reviewing their investment managers, where appropriate, the Trustee will consider the investment managers’ policies on engagement (including exercise of voting rights) and how these policies have been implemented.

The Trustee does not consider any non-financial matters, such as members’ ethical views, when constructing the investment strategy and/or when selecting or reviewing fund managers.

Implementation Statement

In conjunction with the Scheme investment adviser the Trustee has prepared an Implementation Statement covering the voting and engagement policies and the actions of investment fund managers used by the Scheme. A copy of this Implementation Statement is provided at Appendix I to these financial statements.

COVID-19

Since March 2020, Covid-19 has had a profound effect on domestic and global economies, with disruption and volatility in the financial markets.

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CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

TRUSTEE’S REPORT

The Trustee, in conjunction with their advisers, monitor the situation closely and review any actions that are deemed to be necessary. This includes monitoring the employer covenant, the operational impact on the Scheme and the Scheme’s investment portfolio. The extent of the impact on the scheme’s investment portfolio, including financial performance, will depend on future developments in financial markets and the overall economy, all of which are uncertain and cannot be predicted.

Statement of Trustee’s responsibilities

The Trustee’s responsibilities in respect of the financial statements

The financial statements, which are prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including the Financial Reporting Standard applicable in the UK and Republic of Ireland (“FRS 102”), are the responsibility of the Trustee. Pension scheme regulations require, and the Trustee is responsible for ensuring, that those financial statements:  show a true and fair view of the financial transactions of the Scheme during the Scheme year and of the amount and disposition at the end of the Scheme year of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the Scheme year; and  contain the information specified in Regulation 3A of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, including making a statement whether the financial statements have been prepared in accordance with the relevant financial reporting framework applicable to occupational pension schemes. In discharging these responsibilities, the Trustee is responsible for selecting suitable accounting policies, to be applied consistently, making any estimates and judgements on a prudent and reasonable basis, and for ensuring that the financial statements are prepared on a going concern basis unless it is inappropriate to presume that the Scheme will continue as a going concern.

The Trustee is also responsible for making available certain other information about the Scheme in the form of an annual report.

The Trustee has a general responsibility for ensuring that accounting records are kept and for taking such steps as are reasonably open to it to safeguard the assets of the Scheme and to prevent and detect fraud and other irregularities, including the maintenance of an appropriate system of internal control. the https://online.flippingbook.com/view/977401477/ website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Trustee is also responsible for the maintenance and integrity of

The Trustee’s responsibilities in respect of contributions

The Trustee is responsible under pensions legislation for preparing, and from time to time reviewing and if necessary revising, a schedule of contributions showing the rates of contributions payable to the Scheme by or on behalf of employers and the active members of the Scheme and the dates on or before which such contributions are to be paid. The Trustee is also responsible for keeping records in respect of contributions received in respect of any active member of the Scheme and for adopting risk-based processes to monitor whether contributions that fall due to be paid are paid into the Scheme in accordance with the schedule of contributions.

Where breaches of the schedule occur, the Trustee is required by the Pensions Acts 1995 and 2004 to consider making reports to the Pensions Regulator and to members.

8

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

ACTUARIAL CERTIFICATE

10

GARRTER (UK) PENSTON SCHEME YEAR ENDED 31 DECEMBER 2O2O Independent auditors'report to the Trustee of Carrier (UK) Pension Scheme

Report on the audit of the financial statements Opinion ln our opinion, Carrier (UK) Pension Scheme's financial statements:

show a true and fair view of the financial transaction$ of the $cheme during the year ended 31 December 2020, and of the amount and disposition at that date of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the year; have been properly prepared in accordance with United Kingdom Gengrally Accepted Accounting Practice (United Kingdom Accounting Standards comprising FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of lreland", and applicable law), and contain the information specified in Regulation 34 of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996.

a

a

We have audited the financial statements, included in the Annual Report and Financial Statements, which comprise: the statement of net assets available for benefits as at 31 December 2020; the fund account for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Basis for opiniorr We conducted our audit in accerdance with lnternational Standards on Auditing (UK) ("lSAs (UK)") and applicable law. Our responsibilities under lSAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section gf our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. -* We remained independent of the Scheme in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Conclusions relating to going eoncern Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Scheme's ability to continue as a going concern for a period of at least twelve months from when the financial staternents are authorised for issue. Independence

ln auditing the financial statements, we have concluded that the Trustee's use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Scheme's ability to continue as a going concern.

Our responsibilities and the responsibilities of the Trustee with respect to going concern are described in the relevant sections of this report.

Reporting on other information The other information comprises all the information in the Annual Report and Financial $tatements other than the financial statements, our auditors' report thereqn and our auditors' statement about contributions. The Trustee is respOnsible fgr the ether information. Our oipinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or any form of assurance thereon.

11

CARRTER (UK) PENSTON SCHEME YEAR ENDED 31 DECEMBER 2O2O Independent auditors'report to the Trustee of Carrier (UK) Pension Scheme ln connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. lf we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. lf, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

Responsibilities for the financial statements arrd the atrclit Responsibilities oJ the Trustee for the linanciq.l staternents

As explained more fully in the statement of Trustee's responsibilities, the Trustee is responsible for ensuring that the financial statements are prepared in accordanqe with the applicable framework and for being satisfied that they show a true and fair view. The Trustee is also responsible for such internal control as it determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. ln the preparation of the financial statements, the Trustee is responsible for assessing the $cheme's ability to continue as a going concern, disclosing, as apBlicable, matters related to going concern and using the going con_cern basis of accounting unlegs the Trustee either intends to wind up the Scheme, or has no realistic alternative but to do ss. Auditors' respons ib ilitios for th e audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with lSAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered-m?terial if, individually or in the aggregate, they could reasonably be expected to influence the economie decisions ef users taken on the basis of these financial statements. lrregularities, including fraud, are instances bf non-compliance with laws and regulations. We design procedures in llne with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the Scheme and its environment, we identified thaf the principal risks of non- compliance with laws and regulations related to the administration of the Scheme in accordance with the Pensions Acts 1995 and 20Q4 and regulations made under them, and codes of practice issued by the Pensions Regulator; and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered the direct impact of these laws and regulations on the financial statements. We evaluated incentives and opportunities for fraudulent manipulation of the financial statements, including the risk of override of controls, by the Trustee and those responsible for, or involved in, the preparation of the underlying accqunting records and financial statements, and determined that the principal risks were related to'posting inappropriate journals to conceal misappropriation of assets and inappropriate adjustments of asset valuations. Audit procedures performed included: o Testing of journals where we identified particular risk criteria. o Qbtaining independent confirmations of material investment valuations and cash balances at the year end. o Reviewing estimates and judgements made'in the preparation of the financial statements. . Reviewing meeting minutes, any correspondence with the Pensions Regulator, contra9ts and agreements, and holding discussions with the Trustee to identify significant or unusual tt'ansactions and known or suspected instances of fraud or non-compliance with laws and regulations.

12

GARRTER,(UK) PENSTON SCHEME YEAR ENDED 31 DECEMBER 2O2O Independent auditors'report to the Trustee Of Carrier (UK) Pension Scheme There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsrespgnsibilitieE. This description forms part, of our auditqrs' repoft. tlse ofthis report I This report, including the opinion, has been prepared for and only for the Trustee as a body in accordance with section 41 of the Pensions Act 1995 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpgse or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 0n 11,r.r*- "k^ Lr^^ se Gopz. s LL F PricewaterhouseCoopers LLP Chartered Accountants and $tatutory Auditors Manchester Date Qtlar

13

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

FUND ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2020

All amounts in tables are in £ thousands unless otherwise stated.

Note

2020

2019

Contributions and other income Employer contributions

1,534

2,382

Employee contributions

10

42

Total contributions

4

1,544

2,424

Benefits and other outgoings Benefits Payments to and on account of leavers

5 6 7 8

2,766 5,271

2,521 5,143

Administrative expenses

702

533

Other payments

6

24

8,745

8,221

Net withdrawals from dealings with members

(7,201)

(5,797)

Net returns on investments Investment Income

9

1,244 7,616 (184)

1,390

Change in market value of investments Investment management expenses

10 11

15,906

(93)

8,676

17,203

Net increase in the fund

1,475

11,406

Opening net assets at 1 January

125,418

114,012

Closing net assets at 31 December

126,893

125,418

The notes on pages 16 to 29 form part of these financial statements.

14

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

NOTES TO THE FINANCIAL STATEMENTS

All amounts in tables are in £ thousands unless otherwise stated.

1 General information

The Scheme is established as a trust under English law on 30 April 1976 to provide benefits to relevant employees of the Principal and Participating Employers and is registered in the United Kingdom. The registered office is at Pentagon House, Sir Frank Whittle Road, Derby DE21 4XA.

The Scheme closed to new members with effect from 1 May 2006.

In accordance with HMRC requirements the Scheme is registered under Chapter 2, Part 4 of the Finance Act 2004. As a consequence both employee and employer contributions are normally eligible for tax relief and income and capital gains earned by the Scheme receive preferential tax treatment. The Scheme is governed by the Trust Deed and Rules and is a defined benefit arrangement. All members of the Scheme were contracted-out of the State Second Pension, up until 6 April 2016 when contracting- out by final salary pension schemes was abolished by the Government. The Participating Employers of the Scheme commenced a consultation with active members in September 2019 with regard to a proposal to close the Scheme to the future accrual of benefits. The consultation process concluded in November 2019, following a 60 day consultation period as required by law. Following a period of reflection the Participating Employers decided to proceed with the closure with effect from 31 March 2020. The affected members were informed of this decision in notices issued by the Participating Employers in December 2019.

The Principal Employer issued a formal notice of termination of the Scheme to the Trustee on 26 February 2020. As a consequence from 31 March 2020 no further benefits will accrue in the Scheme.

2 Basis of preparation of the financial statements

The individual financial statements of Carrier (UK) Pension Scheme have been prepared in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, Financial Reporting Standard (FRS) 102 - The Financial Reporting Standard applicable in the UK and Republic of Ireland issued by the Financial Reporting Council (“FRS 102”) and the guidance set out in the Statement of Recommended Practice “Financial Reports of Pension Schemes” (revised June 2018) (“the SORP”).

3 Accounting policies

The following principal accounting policies, which have been applied consistently, have been adopted in the preparation of the financial statements.

Currency The Scheme’s functional currency and presentational currency is pounds sterling (GBP).

Assets and liabilities in foreign currencies are expressed in sterling at the rates of exchange ruling at the year end. Foreign currency transactions are translated into sterling at the spot exchange rate at the date of the transaction.

Gains and losses arising on conversion or translation are dealt with as part of the change in market value of investments.

16

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

NOTES TO THE FINANCIAL STATEMENTS

Contributions Normal contributions, both from the members and from the employers, are accounted for on an accruals basis in the month employee contributions are deducted from the payroll.

Employer normal contributions include contributions in respect of salary sacrifice arrangements made available to certain members by the Employers.

Additional voluntary contributions from the members are accounted for on an accruals basis, in the month deducted from the payroll.

Employers’ deficit contributions and contributions towards expenses and PPF levies are accounted for by reference to the schedule of contributions and, if appropriate, on the same basis as the corresponding expense.

Benefits Pensions in payment are accounted for in the period to which they relate.

Where members can choose whether to take their benefits as a full pension or as a lump sum with reduced pension, retirement benefits are accounted for on an accruals basis on the later of the date of retirement and the date the option is exercised.

Other benefits are accounted for on an accruals basis on the date of retirement, death or leaving the Scheme as appropriate.

Transfers to and from other schemes Transfer values represent the capital sums either receivable in respect of members from other pension schemes of previous employers or payable to the pension schemes of new employers for members who have left the Scheme. These are accounted for on an accruals basis, which is normally when cash is paid, or where the Trustee has agreed to accept the liability in advance of receipt of funds from the date of the agreement. Administrative and other expenses Administrative expenses, premiums on term insurance policies and investment management expenses are accounted for on an accruals basis. Investment income and expenditure Income from any pooled investment vehicles which distribute income, is accounted for on an accruals basis on the date stocks are quoted ex-dividend/interest. Income from bonds is accounted for on an accruals basis and includes income bought and sold on purchases and sales of bonds. Other interest on cash and short term deposits and income from other investments are accounted for on an accruals basis. The change in market value of investments during the year comprises all increases and decreases in the market value of investments held at any time during the year, including profits and losses realised on sales of investments and unrealised changes in market value. In the case of pooled investment vehicles which are accumulation funds, where income is reinvested within the fund without issue of further units, change in market value also includes such income. Transaction costs are included in the cost of purchases and sale proceeds. Transaction costs include costs charged directly to the Scheme such as fees, commissions, stamp duty and other fees. Other investment management expenses are accounted for on an accruals basis.

17

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

NOTES TO THE FINANCIAL STATEMENTS

Valuation and classification of investments Investment assets and liabilities are included in the financial statements at fair value. Where separate bid and offer prices are available, the bid price is used for investment assets and the offer price for investment liabilities. Otherwise, the closing single price, single dealing price or most recent transaction price is used.

Where quoted or other unit prices are not available, the Trustee adopts valuation techniques appropriate to the class of investment.

The methods of determining fair value for the principle classes of investments are:

 Bonds and certain pooled investment vehicles which are traded on an active market are included at the quoted price, which is normally the bid price.  Unitised pooled investment vehicles which are not traded on an active market but where the manager is able to demonstrate that they are priced daily, weekly or at each month end, and are actually traded on substantially all pricing days are included at the last price provided by the manager at or before the year end.  Exchange traded futures are valued at the difference between exchange settlement prices and inception prices.  Forward exchange contracts are valued at the gain or loss that would arise from closing out the contract at the reporting date by entering into an equal and opposite contract at that date.  Swaps are valued at the net present value of future cash flows arising therefrom.  With profits insurance policies (including those held as AVC investments) are reported at the policy value provided by the insurer based on cumulative reversionary bonuses declared and the current terminal bonus.  AVC investments are valued at the market value provided by the AVC provider at the year-end date.  Accrued interest is excluded from the market value of bonds, but is included in investment income receivable.

4 Contributions

2020

2019

Employer contributions Normal

293 787

1,340

Deficit

540

PPF Levy Expenses Additional

86

67

368

385

-

50

1,534

2,382

Employee contributions Normal

10

41

Additional voluntary

-

1

10

42

Total contributions

1,544

2,424

Regular contributions in respect of both employers and employees ceased after March 2020 as a consequence of the Scheme closing to the accrual of further benefits.

Deficit funding contributions are payable until March 2026 (previously December 2023) at the rate of £540k pa whilst the deficit, as calculated annually, is greater than £540k. Lower amounts are payable if the deficit is calculated to be below £540k. Furthermore, there is provision for payments in advance with the agreement of the Trustee and employers. In the year advanced payments of deficit funding contributions which would otherwise have been received in the year to 31 December 2021 amounted to £247k.

18

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

NOTES TO THE FINANCIAL STATEMENTS

Contributions towards administrative expenses are payable at the rate of £360k pa whilst the Scheme assets do not exceed 105% of the Scheme liabilities at the latest 31 December funding update as certified by the Actuary. Contributions to cover the cost of life assurance premiums are also payable.

5 Benefits

2020

2019

2,286

2,086

Pensions

477

405

Lump sums on retirement

3

30

Lump sums on death

2,766

2,521

6 Payments to and on account of leavers

2020

2019

Individual transfers to other schemes

5,271

5,143

7 Administrative expenses

2020

2019

123 365

48

Administration and processing Actuarial and investment fees

267

18

10

Audit fees Legal fees PPF levy

105

135

90

72

1

1

Other expenses

702

533

8 Other payments

2020

2019

Term assurance premiums

6

24

9 Investment income

2020

2019

1,237

1,310

Income from bonds

3 4

49 31

Interest on cash deposits Other investment income

1,244

1,390

19

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

NOTES TO THE FINANCIAL STATEMENTS

10 Reconciliation of net investments

Opening value

Purchases at cost and derivative payments

Sales proceeds and derivative receipts

Change in market value

Closing value

Bonds

30,005 91,746

1,586

(4,454) (20,635) (2,224)

1,845 6,024

28,982 93,732

Pooled investment vehicles

16,597

Derivatives

135 282

2,277

180

368 220

AVC investments

-

(76)

14

122,168

20,460

(27,389)

8,063

123,302

Cash

707 409

(445)

550 361

Other investment balances

(2)

123,284

7,616

124,213

With the exception of AVC policies all investments were held via the CIF throughout 2019 and as at 31 December 2019.

As a consequence of the break-up of the UTC Group of companies, the Scheme withdrew from the CIF in February 2020 and thereafter all Scheme assets have been held directly by the Scheme. Because the assets held previously via the CIF were already owned by the Scheme, no purchases were required or are included in the table above.

There were no direct transaction costs in the year.

In addition to the direct transaction costs, indirect costs are incurred through the bid-offer spread on pooled investment vehicles and charges made within those vehicles. It is not possible to quantify the level of indirect transaction costs.

11 Investment management expenses

2020

2019

Administration, management and custody

184

93

12 Pooled investment vehicles

2020

2019

Equities

72,554 14,321

69,615 12,742

Bond

Diversified growth Absolute return

3,596 2,505

4,325 4,221

Cash

756

843

93,732

91,746

20

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

NOTES TO THE FINANCIAL STATEMENTS

13 Derivatives

2019 Total

2020 Total

Assets

Liabilities

Assets Liabilities

Exchange traded Futures

-

-

-

11

(11)

-

Over-the-counter contracts Forward foreign currency

397 345

(33)

364

256 452

(8)

248

Swaps

(341)

4

(565)

(113)

742

(374)

368

719

(584)

135

Objectives and policies for holding derivatives

The Trustee has authorised the use of derivative financial instruments by the investment managers as part of their investment strategy as follows;

 Futures and Swaps: Interest rate swaps and bond and interest rate futures may be used by bond managers for the purposes of implementing duration, country allocation, yield curve and investment views.  Forward foreign currency: FX may be used for currency hedging purposes, but not for speculative purposes.

Forward foreign currency contracts

2020 Fair value Assets

2020 Fair value Liability

Currency bought

Currency sold

Number of contracts

Expires within

Nominal value

GBP GBP USD

EUR USD GBP

1 5 3

2 months 2 months 2 months

94

1

- -

9,275

396

969

-

(33) (33)

397

The nominal value represents the sterling value of the foreign currency amount of the contract translated at the year-end spot rate.

Swaps

2020 Fair value Assets

2020 Fair value Liability

Type of swap

Expires within

Notional principal

6,447 9,135

UK interest rate swap

7 - 26 years 7 - 26 years

284

-

Overseas interest rate swap

61

(341)

345

(341)

21

CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020

NOTES TO THE FINANCIAL STATEMENTS

The notional principal of the swap is the amount used to determine the swapped receipts and payments. Collateral of £140k (2019; £70k) is held for the unrealised gain or loss on swaps comprising cash. This is held in attached accounts with Lloyds Bank, Merrill Lynch and National Westminster Bank and is not included within the Scheme assets.

14 AVC investments

The Trustee holds assets invested separately from the main fund securing additional benefits on a money purchase basis for those members electing to pay additional voluntary contributions (‘AVCs’). Members participating in this arrangement each receive an annual statement confirming the amounts held to their account and the movement in the year. The aggregate value of AVC investments is set out below:

2020

2019

Utmost Life & Pensions

-

54

206

214

Legal & General Scottish Friendly

14

14

220

282

15 Cash and other net investment balances

2020

2019

Cash - sterling

769

849

Cash – foreign currency

(219)

(142)

Total cash

550

707

Accrued investment income

361

409

16 Fair value of investments

The fair value of financial instruments has been estimated using the following fair value hierarchy;

Level (1): The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level (2): Inputs (other than quoted prices included within level (1)) that are observable for the asset or liability, either directly or indirectly.

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