Carrier (UK) Pension Scheme - SIP - 2021

Carrier (UK) Pension Scheme - SIP - 2021

Carrier (UK) Pension Scheme

Statement of Investment Principles

1.

Introduction

The Trustee of the Carrier (UK) Pension Scheme (“the Scheme”) has drawn up this Statement of Investment Principles ( “the Statement”) to comply with:

 The Pensions Act 1995, as amended by the Pensions Act 2004;

 The Occupational Pension Schemes (Investment) Regulations 2005, as amended by the Occupational Pension Schemes (Investment) (Amendment Regulations 2010;

 The Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2018; and

 The Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2019.

In producing the Statement, the Trustee has also considered the findings of the Myners review published in 2001 (including subsequent updates).

The Statement is intended to affirm the investment principles that govern decisions about the Scheme ’s investments.

A separate document called the Investment Implementation Policy (“IIP”) details the specifics of the Scheme ’s investment arrangements.

In preparing this Statement the Trustee has consulted the Principal Employer of the Scheme, Toshiba Carrier UK 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. The Trustee has also consulted the Company over the investment objectives and investment strategy and has taken into account the Company’s views. The final decisions, however, have been made by the Trustee having taken advice from its investment consultants.

2.

Investment Objectives

 The Trustee has a duty to act in the members' best interests.

 In establishing an investment strategy for the Scheme, the Trustee takes into account the impact of both short-term and longer-term considerations. A key short-term consideration will be the effect of different asset mixes on the scheme-specific funding level. However, the Trustee also recognises the potential impact of the mix of investments on the long-term benefit costs. An investment strategy with a relatively low expected real return may jeopardise the Company's continued support of the Scheme, since this strategy may lead to increasing costs.

 The Trustee will seek to achieve reasonable investment performance against a benchmark appropriate for the chosen strategy.

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 The funding strategy of the Scheme assumes growth asset investment returns for non- pensioners and protection asset investment returns for pensioners. Therefore the current growth/protection split of the Scheme’s assets (6 0%/40%) is close to the non- pensioner/pensioner liability split and is likely to remain reasonable in the short to medium term.

 Any decision to change the asset allocation would need to have regard to the effect that this might have on the Parent Guarantee provided by Carrier Global Corporation.

Following finalisation of the Scheme’s actuarial valuation at 31 st December 2019, the Trustee and Company have agreed to a 60%/40% split between growth and protection assets for the time being. The Trustee continues to obtain advice from its investment consultants regarding scope for de-risking the Scheme further.

3.

Risk Management and Measurement

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

 The primary risk upon which the Trustee focuses is that arising through a mismatch between the Scheme ’s assets and its liabilities.

 The Trustee recognises that whilst increasing risk increases potential returns over a long period, it also increases the risk of a shortfall in returns relative to those required to provide the Scheme’s liabilities as well as producing more short-term volatility in the Scheme ’s funding position. The Trustee has taken advice on the matter and (in light of the objectives noted previously) considered carefully the implications of adopting different levels of risk.  The Trustee recognises the risks that may arise from the lack of diversification of investments. Subject to managing the risk from a mismatch of assets and liabilities, the Trustee aims to ensure the asset allocation policy in place results in an adequately diversified portfolio.  The documents governing the manager appointments include a number of guidelines which, among other things, are designed to ensure that only suitable investments are held by the Scheme. The managers are prevented from investing in asset classes outside of their mandate without the Trustee’s prior consent.  Arrangements are in place to monitor the Scheme ’s investments to help the Trustee check that nothing has occurred that would bring into question the continuing suitability of the current investments. The Trustee meets regularly and receives regular reports from all the investment managers and the independent investment consultants. These reports include an analysis of the overall level of risk and return, along with their component parts, to ensure the risks taken and returns achieved are consistent with those expected.

 The safe custody of the Scheme ’s assets is delegated to profess ional custodians (either directly or via the investment managers).

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Should there be a material change in the Scheme ’s circumstances, the Trustee will review whether, and to what extent, the investment arrangements should be altered; in particular whether the current risk profile remains appropriate.

4.

Investment Strategy

The Trustee has agreed with the Company to an investment strategy of 60% growth assets (equities and target return funds) and 40% protection assets (traditional UK gilts, index-linked gilts, liability driven investment (LDI), corporate bonds and cash). Both the growth and protection ranges may fluctuate by up to +/-10% to allow for movements in the markets. The Trustee believes that this mix of assets is currently appropriate for controlling the risks identified in Section 3 and meeting the investment objectives set out in Section 2.

The investment strategy is subject to review at least every three years or in the event of significant changes to the characteristics of the Scheme’s liabilities.

Rebalancing Policy

The actual asset mix is monitored by the Trustee on a regular basis to analyse any variations from the strategic allocation. If an asset class exceeds the rebalancing trigger at the end of a quarter, the asset allocation is normally rebalanced, but having regard for the current investment and economic climate. Rebalancing must return the asset allocation to within the range of the strategic allocation of 60% growth +/- 5% and 40% protection +/- 5%. Any switch out or into an asset class must pay due regard to the impact on the other asset classes and the cashflow requirements of the Scheme.

5.

Day-to-Day Management of the Assets

Day to day management of the Scheme’s assets is undertaken by a number of investment managers. The Trustee has taken steps to satisfy itself that the managers have the appropriate knowledge and experience for managing the Scheme ’s investments , and that they are carrying out their work competently.

The Trustee has determined, based on expert advice, appropriate benchmarks, objectives and/or investment guidelines for each manager.

The Trustee regularly reviews the continuing suitability of the Scheme ’s investments, in cluding the appointed managers and the balance between active and passive management, which may be adjusted from time to time.

Details of the appointed managers can be found in the IIP, which is available to members upon request.

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6.

Expected Return

The Trustee expects to generate a return on the assets, over the long term, in excess of that which would have been achieved if a minimal level of investment risk had been taken within the portfolio, i.e. if the assets had been invested solely in a portfolio of long dated UK Government debt appropriate to the nature of the Scheme’s liabi lities. It is recognised that the Scheme’s investment performance may deviate significantly from such a minimal risk level of return.

7.

Additional Voluntary Contributions (AVCs)

Additional Voluntary Contributions are separately invested.

The Trustee periodically reviews the appropriateness of the AVC funds with the assistance of their advisors.

8.

Cash at Bank

A low balance of assets is also held in deposit and current bank accounts to facilitate benefit payments.

9.

Realisation of Investments

The investment managers have discretion in the timing of realisation of investments and in considerations relating to the liquidity of those investments within parameters stipulated in the relevant appointment documentation.

The Scheme ’s a ssets are held in funds and securities that are believed to be readily realisable.

10.

Environmental, Social and Governance Considerations

The Trustee believes that environmental, socia l 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 sele cting 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 ESG issues are not financially material to the risk-adjusted returns achieved by the Scheme’ s LDI strategy, given its sole purpose is to provide a hedge against the Scheme’s exposure to movements in nominal interest rates and inflation.

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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.

11.

Incentivisation of Investment Managers

The Scheme’s investment managers are remunerated by fees related to the market value of the assets under management.

The investment managers are selected so that, in aggregate, the portfolio’s returns are expected to allow the Trustee’s investment objectives to be met.

The investment managers are not directly incentivised to align the approach they adopt with any non-financial policies or objectives set by the Trustee.

The Trustee does not directly incentivise the investment managers to engage with issuers of equity or debt to improve their financial or non-financial performance. The Trustee expects engagement to be undertaken as appropriate and necessary to meet the objectives of the mandates given to investment managers.

12.

Capital Structure of Investee Companies

Responsibility for monitoring the make-up and development of the capital structure of investee companies is delegated to the investment managers. The Trustee expects the extent to which the investment managers monitor these capital structures to be appropriate to the nature of the relevant mandate.

13.

Duration of Appointment for Investment Manager Appointments

The performance of the Scheme’s investment managers and mandates is assessed over a mixture of shorter and longer term time horizons. Ultimately, the Trustee assesses manager performance over a period appropriate to the specific aims of the relevant mandate, and in the context of its intended role within the Trustee ’ s wider strategy.

The Trustee does not specify any predetermined duration of appointment with the Scheme’s current investment managers.

Each of the existing mandates is open-ended in nature and therefore does not have a specified maturity.

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14.

Portfolio Turnover Costs

The Trustee acknowledges that portfolio turnover costs can impact on the performance of the investments. The Trustee expects the investment managers to change underlying holdings to an extent necessary to meet the objectives of their mandates. The reasonableness of such turnover will vary by each mandate and will change according to market conditions.

The Trustee has not set a specific portfolio turnover target for their overall strategy. Neither has the Trustee prescribed a target for the underlying mandates.

The investment managers provide information on portfolio turnover to the Trustees, so that this can be monitored as appropriate.

15.

Conflicts of Interest

The Trustee maintain a separate conflicts of interest policy and register. Subject to reasonable levels of materiality, these documents record any actual or potential conflicts of interest in relation to investee companies or the investment managers, while also setting out a process for their management.

16.

Review of this Statement

The Trustee will review this Statement annually and 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 whom 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.