UTC (UK) Pension Scheme - SIP - 2021

United Technologies Corporation (UK) Pension Scheme Statement of Investment Principles

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Introduction The Trustee of the UTC (UK) Pension Scheme (“the Scheme”) is UTC Pension Trust Ltd and that company and the Directors of that company are referred to in this document as the Trustees. The Trustees have 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 Trustees have 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. In preparing this Statement the Trustees have consulted with the Principal Employer of the Scheme, Ceesail Ltd (the “Company”) to ascertain whether there are any material issues of which the Trustees should be aware in agreeing the Scheme’s investment arrangements. The Trustees have also consulted the Company over the investment objectives and investment strategy and have taken into account the Company’s views. The final decisions, however, have been made by the Trustees having taken advice from the Scheme Actuary and the Trustees’ investment consultants. The Scheme invests the majority of its assets via an investment arrangement called the UTC Common Investment Fund (“the CIF”). The CIF allows the Scheme’s assets to be managed in common with those of other pension schemes associated with the Company and its wider group. A separate document called the Investment Implementation Policy (“IIP”) details the specifics of the Scheme’s investment arrangements in the CIF. Section 2 relates to investments backing liabilities in respect of the Scheme’s defined benefit sections. Section 3 relates to the Scheme’s holdings in respect of Additional Voluntary Contributions. Section 4 relates to all assets held by the Scheme.

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Defined Benefit Sections The investment arrangements of the Scheme can be divided into two main areas. The first, the strategic management of the assets, is the responsibility of the Trustees and is driven by the investment objectives discussed in Section 2.1. The second area is the day to day management of the assets in the CIF, in which are invested the majority of assets held by the Scheme in respect of defined benefit liabilities. The Trustees have ultimate responsibility for decision making on investment matters for the Scheme. UTC Pension Trust Ltd also acts as administrator to the CIF, with responsibility for day-to-day management of the CIF. UTC Pension Trust Ltd is referred to as “the CIF Administrator” in this context. The responsibility for acting as CIF Administrator is separate and distinct to the Trustees’ general fiduciary and legal responsibilities to members and could, in theory, be transferred to another party. Hence, there is a differentiation in this Statement between the two roles, despite them being undertaken by the same legal entity. The CIF Administrator is responsible for the following in respect of assets held in the CIF:  Providing a range of sub funds representing the broad asset classes and spread of risk in which the participating schemes can invest;  Appointing (and dismissing) the investment managers of the assets within the sub funds, including deciding on the active/passive split, and agreeing the mandates and remuneration;

 Investment manager monitoring and reporting to the trustees of the participating schemes.

 Administration of the CIF and custody of the CIF assets.

The CIF Administrator has produced an Investment Implementation Policy (“IIP”) a copy of which is provided to the participating schemes’ trustees. Amongst other disclosures, the IIP sets out the investment managers used for the CIF and the mandates for which they have been appointed.

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2.1 Investment Objectives in Relation to the Defined Benefit Sections The Trustees have a duty to act in members' best interests and their primary investment objective is to ensure that benefits are met as they fall due over the long-term. In establishing an investment strategy for the defined benefit sections, the Trustees take 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 Trustees also recognise the potential impact of the mix of investments on the cost of providing benefits. An investment strategy with a relatively low expected real return may lead to higher costs to the Company than is necessary, taking account of the Trustees’ assessment of the Company’s ability to support the Scheme over the longer term. The Trustees will seek to achieve reasonable investment performance against a benchmark appropriate for the chosen strategy. The Scheme’s current investment strategy is discussed in Section 2.4. Actuarial Valuation as at 31 December 2018 The Actuarial Valuation of the Scheme at 31 December 2018 was finalised in March 2020. As part of that process, the Trustees considered the Scheme’s long term investment objectives and have implemented changes to the investment strategy to reduce investment risk. This has been achieved by implementing a Liability Driven Investment (“LDI”) mandate, which employs leverage to target specific levels of hedging against the interest rate and inflation risk associated with the valuation of the Scheme’s liabilities. De-risking framework The Trustees have also agreed a de-risking framework with the Company, which sets out a plan and protocols for taking further steps to reduce investment risk in line with future improvements in the Scheme’s funding position. The objective of the de-risking framework is to bring the Scheme into a position where it has a strong funding position and low risk investment strategy by the mid-2030s, with an expectation that the Scheme will then be largely self-sufficient, with limited need to rely on the Company for financial support thereafter. The main purpose of the de-risking framework is to improve the security of members’ benefits by bringing the Scheme into a position where its ability to provide benefits in full has a low dependence on the Company’s future financial performance. The de-risking framework is set out in a separate written agreement between the Trustees and the Company. 2.2 Expected Return for Assets Backing the Defined Benefit Sections The Trustees expect to generate a long-term return from the Scheme’s assets in excess of that which would have been achieved had no investment risk been taken within the portfolio relative to the Scheme’s liabilities, i.e. if the Scheme’s assets were invested solely in a notional portfolio of long dated UK Government debt providing coupon and redemption payments that exactly match the Scheme’s projected liabilities.

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2.3 Risk Management for Defined Benefit Sections There are various risks to which any pension scheme is exposed. The Trustees’ policy on risk management is as follows:  The primary risk upon which the Trustees focus is that arising through a mismatch between the characteristics of the Scheme’s assets and its liabilities.  The Trustees recognise 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 liabilities, while also raising volatility in the Scheme’s funding position. The Trustees have taken advice on the matter (in light of the objectives noted previously) and have considered carefully the implications of adopting different levels of risk.  The Trustees recognise the risks that may arise from the lack of diversification of investments. Subject to managing the risks associated with a mismatch between the characteristics of the assets and the Scheme’s liabilities, the Trustees aim to ensure the asset allocation policy in place results in an appropriately diversified portfolio. The Trustees believe that investing in the CIF pooled funds and strategies achieves appropriate diversification for the Scheme.  The documents governing the manager appointments, the responsibility for which falls to the CIF Administrator, 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 CIF Administrator’s prior consent. A statement on the guidelines and restrictions is attached as Appendix 2 to the CIF’s IIP.  Arrangements are in place to monitor the Scheme’s investments to help the Trustees check that nothing has occurred that would bring into question the continuing suitability of the current investments. The Trustees have delegated the responsibility to monitor the day to day management of the Scheme’s investments in the CIF to the CIF Administrator, who meets as appropriate with the current managers 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 professional custodians (either directly or through professional custodians). Should there be a material change in the Scheme’s circumstances, the Trustees will review whether and to what extent the investment arrangements should be altered; in particular whether the current risk profile remains appropriate.

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2.4 Investment Strategy for Assets Backing the Defined Benefit Sections At the date of this Statement, the Trustees, following consultation with the Company, have set the Scheme’s investment strategy to 43.5% growth assets and 56.5% protection assets in the CIF (these weightings exclude the Asset Backed Contribution structure – see below). Both the growth and protection ranges may fluctuate up to +/- 5% from this target to allow for movements in markets. As noted above under Section 2.1, the Trustees have agreed a de-risking framework with the Company, with an aim to reduce the allocation to growth assets in favour of protection assets over time, thereby increasing the security of members’ benefits and reducing reliance on future financial support from the Company. Consequently, the Trustees expect that the target allocation to growth assets will tend to reduce over time in incremental steps. Such incremental changes will generally be reflected in the CIF IIP, while this Statement is expected to be updated less frequently when there have been more material changes to the Trustees’ strategy. Goodrich Merger and Asset Backed Contributions On 1 June 2016, the Trustees agreed to accept the transfer (“the Transfer”) into the Scheme of the assets and liabilities of the Goodrich (UK) Pension Scheme (“the Goodrich Scheme”) on 1 June 2016. In conjunction with the Transfer, an asset-backed contribution (“ABC”) structure was implemented in favour of the Scheme. The ABC structure consists of two loan notes issued by Raytheon Technologies Corporation (“RTC”), (formerly United Technologies Corporation (“UTC”)) held by two Scottish Limited Partnerships (“SLPs”) in which UTC Pension Trust Ltd is a limited partner. The loan notes provide for:  Coupon payments (interest) to be paid to the SLPs (and in turn passed onto the Scheme) in respect of each loan note of 4.10% per annum; and  A final payment to the SLPs (and in turn to the Scheme) at the end of the 20-year term of the two loan notes of £134 million and £186 million respectively. The ABC structure is governed by the Scheme’s Trustees and not the Administrator of the CIF. The ABC structure is held directly by the Scheme, outside of the CIF. The ABC structure is not tradable and therefore will form part of the Scheme’s assets until 30 May 2036. Rebalancing Policy The asset mix in the CIF is monitored by the CIF Administrator on behalf of the Trustees on a regular basis to analyse any variations from the strategic allocation. If the allocation to an asset class exceeds the rebalancing trigger at the end of a quarter the CIF Administrator is authorised to rebalance having regard for the current investment and economic climate.

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Rebalancing must return the asset allocation to within +/- 5% of the strategic target allocations to growth and protection assets. 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 participating pension schemes. The CIF Administrator is also permitted to rebalance when an asset class is within the rebalancing trigger. The CIF Administrator is authorised to match off cash flows with other schemes participating in the CIF to avoid unnecessary transaction costs. 2.5 Day-to-day Management of Assets in the CIF The majority of the assets backing defined benefit liabilities are invested via the CIF. Investments of different pension schemes participating in the CIF are held via separate sub- sections. The Scheme’s assets in the CIF are invested in the sub-sections of the CIF in accordance with the allocations set out in the CIF’s IIP. Day to day management of the assets in the CIF is undertaken by a number of investment managers. The CIF Administrator 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 CIF Administrator has determined, based on expert advice, a benchmark mix of asset types and ranges within which each appointed investment manager may operate. The CIF Administrator regularly reviews the continuing suitability of the Scheme’s investments in the CIF, including the appointed managers and the balance between active and passive management, which may be adjusted from time to time. Details of the appointed investment managers can be found in the CIF’s IIP which is available to members upon request. 2.6 Management of the Assets held in the ABC Structure The Trustees undertake a monthly valuation of the ABC structure and monitor the receipt of the semi-annual coupon payments. The value of the ABC structure is externally audited once a year.

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3. Additional Voluntary Contributions The investment arrangements for assets held in respect of Additional Voluntary Contributions (“AVCs”) can be divided into two areas. The first, the strategic management of the assets, is the responsibility of the Trustees and is driven by the investment objectives discussed in Section 3.1. The second area is the day to day management of the assets. The Trustees of the Scheme have ultimate responsibility for decision making on investment matters in respect of the Scheme’s AVC policies. 3.1 Investment Objectives for AVC Holdings Benefits in respect of AVCs are provided on a defined contribution basis. This means that members’ contributions are invested to accumulate individual funds that can be used to provide a potential range of benefits at retirement, as selected by the member. The Trustees recognise that members holding assets in respect of AVCs have differing investment needs and that these may change during the course of their working lives. The Trustees also recognise that members have differing attitudes to risk. The Trustees have adopted the following objectives in respect of the Scheme’s AVC assets:

 To provide a suitable default investment option;

 To provide members with a range of investment options to enable them to tailor investment strategy to their own needs;  To offer members the opportunity to reduce investment volatility as they approach retirement; and  To avoid offering an excessive range or complexity of options, in order to keep administration costs and employee understanding to a reasonable level. 3.2 Risk Management for AVC Holdings The Trustees have taken into consideration the following aspects of risk in putting arrangements in place to invested AVCs:  The risk that a low investment return over members’ working lives secures inadequate retirement benefits.  The risk that relative market movements in the years just prior to retirement lead to a substantial reduction in the benefit that can be provided at retirement.  The risk that the chosen investment vehicle underperforms the benchmark against which the manager is assessed. 3.3 Investment Strategy for AVC Holdings The Trustees offer members a range of investment options. The Trustees believe that this range of options is suitable for meeting the investment objectives and risk considerations outlined in Section 3.1 and 3.2.

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3.4 Expected Return for AVC Holdings The Trustees expect long-term returns to be in line with the performance objectives of each of the funds or investment approaches available to members with holdings in respect of AVCs. 3.5 Separate Investment of AVCs and Monitoring AVCs are separately invested to assets in respect of the Defined Benefit Sections. The Trustees periodically review the appropriateness of the funds used to invest AVCs with the assistance of their advisors.

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4.

Additional Disclosures

4.1 Cash at Bank A low balance of assets is held by the Trustees in bank accounts to facilitate benefit payments. 4.2 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. 4.3 Environmental, Social and Governance Considerations The Trustees believe that Environmental, Social and Governance (“ESG”) factors, including but not limited to climate-related risks, are potentially financially material and therefore have a policy to take these into account, alongside other factors, in the selection, retention and realisation of investments. However, these factors do not take precedence over other financial and non- financial factors, including but not limited to historical performance or fees. The Trustees may consider both financial and non-financial factors when selecting or reviewing the Scheme’s investments. The Trustees do not apply any specific ethical criteria to their investments. Decisions relating to the financial materiality of ESG considerations are delegated to the investment managers used by the Scheme. The Trustees are aware of the approach that each of their investment managers take in relation to ESG considerations. The Trustees believe that good stewardship and positive engagement can lead to improved governance and better risk-adjusted investor returns. The Trustees delegate the exercise of rights (including voting rights) attached to the Scheme’s investments to the investment managers. The managers are all signatories to the UK Stewardship Code and/or UN Principles of Responsible Investment. In selecting, monitoring and reviewing their investment managers, where appropriate, the Trustees will consider investment managers’ policies on engagement and how these policies have been implemented. The Trustees have not considered it appropriate to take into account individual members’ views when establishing the policy on ESG factors, engagement and voting rights.

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4.4 Incentivisation of Investment Managers The Scheme’s investment managers are remunerated by fees related to the market value of the assets under management or by the value of liabilities being hedged. The investment managers are selected so that, in aggregate, the portfolio’s returns are expected to allow the Trustees’ 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 Trustees. The Trustees do not directly incentivise the investment managers to engage with issuers of equity or debt to improve their financial or non-financial performance. The Trustees expect engagement to be undertaken as appropriate and necessary to meet the objectives of the mandates given to investment managers. 4.5 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 Trustees expect the extent to which the investment managers monitor these capital structures to be appropriate to the nature of the mandate. 4.6 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 Trustees assess manager performance over a period appropriate to the specific aims of the relevant mandate, and in the context of its intended role within the Trustees’ wider strategy. The Trustees do 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. Consideration of the ongoing suitability of the managers used by the Scheme is delegated to the CIF Administrator, but is also considered as part of broader strategic reviews undertaken by the Trustees.

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