3595094 Telefónica UK Pension Plan

3595094

of 138

Telefónica UK Pension Plan

Trustee’s annual report and financial statements for the year ended 30 September 2020

Registered number: 1026


Trustee’s annual report and financial statements

for the year ended 30 September 2020

3595094

of 138

Table of Contents

Trustee, Principal Employer and its advisers ................................................................. 3

Trustee’s report ........................................................................................................... 5

Independent Auditor’s report to the Trustee of the Telefónica UK Pension Plan ........... 25

Fund account............................................................................................................. 28

Statement of net assets (available for benefits) ........................................................... 29

Notes to the financial statements ................................................................................ 31

Independent Auditor’s Statement about Contributions ................................................. 71

Summary of Contributions payable during the year ended 30 September 2020 ............ 73

Appendix A - Certification of Schedule of Contributions ............................................... 74

Appendix B - DC Governance statement from 1 October 2019 to 30 September 2020.. 75

Appendix C – Implementation Statement .................................................................. 119




3595094

of 138

Trustee, Principal Employer and its advisers

Trustee Telefónica UK Pension Trustee Limited

Directors of the Trustee Company Anthony Soothill – Chair

Andrew Davies – Member Nominated Director

Capital Cranfield Pension Trustees Ltd – represented by

Martine Trouard-Riolle

Jeannie Drake – Member Nominated Director

Adrian Gorham

Amanda Stokes-Waters – Member Nominated Director

Mark Leonard

Secretary to the Trustee Robert Harwood

Principal Employer Telefónica UK Limited

Scheme Actuary Bart Huby FIA, Lane Clark & Peacock LLP

Pension administrators Defined Benefit section

Lane Clark & Peacock LLP (for Sections 2, 2A, 3 and 3A)

Defined Contribution section

Aberdeen Standard Investments PLC (for Sections 1, 1A and

1B)

Independent auditors RSM UK Audit LLP

Investment managers Defined Benefit section

BlackRock Investment Management (UK) Limited

M&G Investment Management Limited

Apollo Capital Management L.P.

Partners Group Private Market Strategies 2 S.A.

Morgan Stanley Investment Management (appointed

12 December 2019)


Aberdeen Standard Investments PLC




3595094

of 138

Trustee, Principal Employer and its advisers continued

AVC providers Standard Life Investments Limited

Utmost Life and Pensions Limited (from 1 January 2020 until

1 May 2020)

Investment adviser KPMG LLP (until 2 March 2020)

Isio LLP (appointed 2 March 2020)

Custodians Defined Benefit section

BlackRock - BNY Mellon Asset Servicing

The custodians for all other investments are selected by the

investment managers

Legal adviser Sacker & Partners LLP

Covenant adviser Trevor Civval, Penfida Limited

Banker HSBC UK Bank plc

Enquiries Defined Benefit section

Lane Clark & Peacock LLP (For Sections 2, 2A, 3 and 3)

St Paul’s House

St Paul’s Hill

Winchester

SO22 5AB

Email: [email protected]


Aberdeen Standard Investments PLC (for Sections 1, 1A and

1B)

Standard Life House

30 Lothian Road

Edinburgh

EH1 2DH


Further information about the Telefónica UK Pension Plan can

also be found at www.telefonicapensions.com

mailto:[email protected]


http://www.telefonicapensions.com/




3595094

of 138

Trustee’s report

The Trustee is pleased to present its annual report on the Telefónica UK Pension Plan (‘the Plan”), together

with the financial statements of the Plan for the year ended 30 September 2020.

Constitution of the Plan

The Plan provides pension or lump sum benefits payable to members on retirement from their employment or

to their dependants on death before or after retirement in respect of both the Defined Benefit section (“DB”)

and the Defined Contribution section (“DC”).

There are eight sections to the Plan:

Section 1 – A money purchase or DC section of the Plan open to all employees joining the Principal

and Participating Employers on or after 1 April 2001.

Section 1A – A DC section of the Plan for employees who have opted out of one of the DB sections

of the Plan since 1 July 2011 or who chose to join the section following the closure of sections 2,

2A, 3 and 3A to future accrual on 28 February 2013.

Section 1B – A DC section of the Plan for employees who were auto enrolled between 1 April 2013

and 31 December 2017. At that date, all section 1B members became Section 1 members and

Section 1 became the receiving scheme for all auto-enrolments.

Section 2 – A final salary or DB section of the Plan which is closed to new entrants but was open to

new employees between March 1986 and April 2001. This section of the Plan was closed to future

accrual on 28 February 2013.

Section 2A – A DB section of the Plan for Section 2 members who chose Option 2 as part of the

2011 Pensions Review. This section of the Plan is closed to new entrants and was closed to future


Section 3 – A DB section of the Plan which is closed to new entrants, but was open to new

employees before March 1986. This section of the Plan is closed to new entrants and was closed to

future accrual on 28 February 2013.

Section 3A – A DB section of the Plan for Section 3 members who chose Option 2 as part of the

2011 Pensions Review. This section of the Plan is closed to new entrants and was closed to future


Life Assurance Only – Non-pension members are covered for life assurance only through the Plan.




3595094

of 138

Trustee’s report continued

Constitution of the Plan continued

The Plan is registered under the Finance Act 2004 and the Trustee knows of no reason why this status

should be prejudiced or withdrawn.

Management of the Plan

The Trustee of the Plan is Telefónica UK Pension Trustee Limited and the Directors are listed on page 3.

Under the Definitive Trust Deed, subject to the rules regarding Member Nominated Directors, the Trustee

and Trustee Directors are appointed and removed by the Principal Employer. The board currently comprises

seven Trustee Directors, including three who are elected by the active and pensioner members of the Plan.

The Directors meet at quarterly intervals to conduct normal business and on such other occasions as are

deemed to be necessary. The Directors have appointed committees in circumstances where it is felt that the

conduct of its affairs would be facilitated by a committee structure.

Financial statements and financial development of the Plan

The financial statements have been prepared and audited in accordance with regulations made under

sections 41(1) and (6) of the Pensions Act 1995.

The fund account and statement of net assets (available for benefits) on pages 28 to 30 show that the value

of the Plan’s assets increased by £33,330,000 to £2,163,216,000 during the year. The increase was

comprised of net additions from dealings with members of £12,016,000 together with net returns on

investments of £21,314,000.

Further details of the financial developments of the Plan may be found in the audited financial statements on

pages 28 to 70.

Transfers

Cash equivalents paid during the year with respect to transfers have been calculated and verified in the

manner prescribed by the Pension Schemes Act 1993 and in accordance with the regulations under the

Occupational Pension Schemes (Transfer Values) (Amendment) Regulations 2008, Pensions Act 2004.

No discretionary benefits were included in the calculation of the transfer values.




3595094

of 138


Pension increases

A bulk pension increase exchange (PIE) exercise was carried out in 2019 which permitted existing Plan

pensioners to surrender their non-statutory pension increase in exchange for an additional fixed rate

pension. In exercising the PIE option, a member would surrender the part of their entitlement to pension

increases that related to pre 6 April 1997 pensionable service (in excess of GMP). 99 pensioner members

opted to take this option.

In accordance with the Plan’s Rules pensions in payment were increased as follows:

▪ The Guaranteed Minimum Pension (GMP) in respect of any contracted-out employment between

6 April 1988 and 5 April 1997 is increased each year by the Plan in line with the increase (if any) in the

Consumer Prices Index (CPI) up to a maximum of 3%. This year the increase was 1.7%.

▪ The GMP in respect of any contracted-out employment prior to 6 April 1988 was not increased by the

Plan.

▪ Pension in respect of pre 6 April 1997 service for members who opted for pension increase exchange

received no increases.

▪ Pension in excess of GMP increases each year in line with the increase (if any) in the Retail Price

Index (RPI) capped for Section 2 and 2A members at 5.0%. This year the increase was 2.4%.

The deferred pensions in respect of members who have left the Plan with an entitlement to benefits at

normal retirement date were also increased as follows:

Members of Sections 2 and 2A:

▪ GMP and deferred pensions were increased in accordance with legislative requirements.

▪ Excess – Statutory Section 52A Orders (CPI.) Post April 2009 revaluation is CPI capped at 2.5% pa.

Members of Sections 3 and 3A:

▪ Full benefit receives increases in accordance with the Pension (Increase) Act 1971 (CPI). There is a

proportionate first increase. There is no cap but it is floored at zero each year.

▪ GMP and deferred pensions were increased in accordance with legislative requirements.

No discretionary increases were awarded during the year (2019: £Nil).




3595094

of 138


Report on actuarial liabilities (DB sections only)

As required by Financial Reporting Standard 102, “The Financial Reporting Standard applicable in the United

Kingdom and the 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 valuation date.

This is assessed at least every 3 years using assumptions agreed between the Trustee and the Employer

and set out in the Statement of Funding Principles.

The latest actuarial valuation was completed by the Scheme Actuary as at 30 September 2017. The results

of this valuation were presented in a report dated 29 November 2018. The results showed that the

calculated technical provisions were £1,561.9m, the Plan’s assets were £1,409.4m and the resulting deficit

was £152.5m. The Plan was therefore 90% funded on a technical provisions basis as at

30 September 2017. It was agreed that the funding shortfall would be eliminated by the payment of the six

deficit funding contributions of £25m each, payable by each 10 January from 2019 to 2024 inclusive.

The next full valuation is to be carried out as at 30 September 2020 and is due to be completed no later than

31 December 2021.

Assumptions

The 2017 valuation adopted the ‘projected unit method’, under which the technical provisions are calculated

as the amount of assets required as at the valuation date to meet the projected benefit cashflows, based on

benefits accrued to the valuation date and the various assumptions made.




3595094

of 138


Report on actuarial liabilities (DB sections only) continued

Assumptions continued

The technical provisions were calculated on the following key assumptions;

Key financial assumptions % pa

Rate of RPI price inflation 3.4

Rate of CPI price inflation 2.4

Rate of return from gilts 1.8

Rate of investment returns above gilts

until 30 September 2029

1.8

Rate of investment returns above gilts

from 1 October 2029

0.25

Rate of pension increases

RPI price inflation capped at 5% pa 3.3

CPI price inflation capped at 3% pa 2.1

Financial assumptions shown are single equivalent average rates.

Other assumptions

Other assumptions applied are as follows:

▪ The timing of retirement is allowed for having regard to the Plan’s past experience. The following table

describes the rate of retirements assumed at each age.

Age Percentage of members retiring each year at

each age

50-59 5%

60 100%

▪ Members over age 60 who have not yet retired are assumed to retire immediately at the valuation date.

▪ Non-pensioner members of section 2 are assumed to commute 20% of their pension on retirement.

For non-pensioner members of section 3, it is assumed that they will commute 10% of their pension in

addition to the standard amount they receive on retirement. Commutation is assumed to take place on

the current terms offered by the Plan, with allowance made for the assumed rates of improvement in

member mortality over time.




3595094

of

138


Report on actuarial liabilities (DB sections only) continued

Other assumptions continued

▪ There is insufficient experience within the Plan to determine bespoke mortality tables based on the

Plan’s membership. Standard tables have therefore been selected, adjusted appropriately for the

demographics of the Plan membership, and allowance for future improvements in longevity, resulting in

the following assumptions both pre and post retirement:

▪ S2NA tables with:

▪ the proportion of members dying at each age being 95% of the proportion in the standard

tables; and

▪ allowance being made for future improvements from 2007 according to the CMI_2017

projections based on each member’s actual date of birth, with a long-term rate of

improvement of 1.5% pa and a smoothing parameter Sk=8.

▪ 85% of current pensioners are assumed to have a spouse or civil partner as at the valuation date. 85%

of other members assumed to be married or have a civil partner at retirement, or earlier death.

▪ Spouses/civil partners assumed to be three years younger than male members or three years older

than female members.

▪ Allowance is made for the potential additional costs of rectifying inequalities in benefits due to GMPs,

by including an additional reserve equivalent to increasing the Technical Provisions by 10% in respect

of post-1988 GMP liabilities (resulting in a reserve of £5m for the 2017 valuation).

▪ Expenses are met from the Plan’s assets and so an allowance is made with a reserve in the Technical

Provisions of 2% of benefit payments.

▪ Pension Protection Fund levies are either met directly by the Company or paid as additional

contributions.




3595094

of

138


Impact of Employer activity on the Plan

On 7 May 2020, Telefonica SA and Liberty Global announced the terms of a proposed merger of Telefonica

UK with UK Virgin Media. This transaction will, if completed, have an impact on the covenant of the Plan; the

Trustee has engaged with Telefonica in order to assess the materiality of that impact and agreed a mitigation

settlement should the merger complete. The Trustee understands that completion of the merger is expected

to occur around the middle of 2021.

The Trustee has received the initial results of the actuarial valuation as at 30 September 2020, and has

reached agreement with the Principal Employer on the funding basis to be used for the valuation and on the

deficit recovery contributions, contingent on whether the proposed merger of Telefónica UK with UK Virgin

Media goes ahead. As part of this agreement the Employer made a payment to the Plan of £55m on

31 December 2020, in place of the £25m due under the existing Recovery Plan in January 2021 and in

anticipation of the contributions that will be agreed for the 2020 valuation.

During March 2020 the worldwide spread of Covid-19 (Coronavirus) caused increased investment market

volatility and significant falls in global equity markets. This had an adverse impact on the funding level of the

Plan, which was taken into account in the actuarial valuation as at 30 September 2020 and has been

reflected in the deficit recovery contributions agreed with the Principal Employer contingent on whether the

proposed merger of Telefónica UK with UK Virgin Media goes ahead. Since then, investment markets have

been stable and the funding position has improved slightly (as of mid-February 2021). The Trustee

continues to monitor the impact of market movements on the Plan’s funding position with support from its

actuarial and investment advisers.

The Telefonica UK Pension Plan was closed to future accrual with effect from 30 November 2020.

The Employer has set up a new pension scheme within the Legal & General Worksave Pension Mastertrust

from 1 December 2020. A bulk transfer to the Mastertrust covering the majority of the DC Section members

is expected later in 2021.




3595094

of

138


Membership

DB sections (2, 2A, 3 and 3A)

The membership of the Plan at the beginning and end of the year and changes during the year are set out below.

Deferred members 2020

Deferred members at the start of the year 3,314

Adjustment 1

Retirements (90)

Transfers out (29)

Deaths (6)

Deferred members at the end of the year 3,190

Pensioners 2020

Pensioners at the start of the year 1,101

Adjustment (1)

New pensioners 90

New dependants 11

Deaths (4)

Pension cessation (2)

Pensioners at the end of the year 1,195

Pensioners include 75 dependants (2019: 66 [Restated]) receiving a pension following the death of a member.

Non-pension members are covered for life assurance only through the Plan.




3595094

of

138


Membership continued

DC sections (1, 1A and 1B)

Active members 2020

Active members at the start of the year 6,061

New actives 664

Adjustments (1)

Retirements (8)

Transfers out (49)

Deaths (2)

Refund of contributions (2)

Active to deferred (947)

Active members at the end of the year 5,716

Deferred members 2020

Deferred members at the start of the year 7,114

Adjustments 3

New deferred members 947

Retirements (24)

Transfer out (211)

Deaths (7)

Deferred at the end of the year 7,822

Included within the new actives above are the Auto-enrolled members who have subsequently decided to opt

out of the Plan. New actives are therefore shown gross of opt outs.

The Employer has set up a new pension scheme within the Legal & General Worksave Pension Mastertrust

from 1 December 2020. A bulk transfer to the Mastertrust covering the majority of the DC Section members

is expected later in 2021.




3595094

of

138


Regulatory bodies

The Pensions Ombudsman is appointed by the Secretary of State for the Department for Work and Pensions

to investigate and determine any complaint or dispute of fact of law in relation to occupational pension

schemes.

The Pensions Ombudsman can be contacted at:

10 South Colonnade

Canary Wharf

London

E14 4PU

Tel: 0800 917 4487

www.pensions-ombudsman.org.uk

The Pensions Regulator is responsible for occupational pension schemes and enforcing the law that relates

to them. It has wide ranging powers which include the ability to:

▪ suspend, disqualify and remove trustees for consistently not carrying out their duties;

▪ wind up schemes where necessary;

▪ apply for information to prevent the misuse and misappropriation of scheme assets and apply for

restitution where necessary; and

▪ take action to prevent schemes being left in deficit with nobody to meet the liability.

The Trustee, its advisers, the Employer and anyone connected with the administration of the Plan have a

statutory duty to report in writing to The Pensions Regulator if there are any breaches of legislation which are

deemed to be materially significant to The Pensions Regulator.

The Trustee also has certain responsibilities in respect of contributions which are set out in the statement of

Trustee’s responsibilities.

The Pensions Regulator can be contacted at:

Napier House

Trafalgar Place

Brighton

BN1 4DW

Tel: 0345 600 0707

www.thepensionsregulator.gov.uk

http://www.pensions-ombudsman.org.uk/




3595094

of

138


Regulatory bodies continued

The Pension Tracing Service is designed to help former members of pension schemes trace their benefits if

they have lost contact with the pension scheme in question. The Pension Tracing Service can be contacted

at:

The Pension Tracing Service

The Pension Service 9

Mail Handling Site A

Wolverhampton

WV98 1LU

Tel: 0800 731 0193

www.gov.uk/find-pension-contact-details

Further information

Any enquiries about the Plan or a member's own pension position should be addressed as follows:

DB sections (2, 2A, 3 and 3A)

Lane Clark & Peacock LLP, St Paul’s House, St Paul’s Hill, Winchester, SO22 5AB.


DC sections (1,1A and 1B)

Aberdeen Standard Investments PLC, Standard Life House, 30 Lothian Road, Edinburgh, EH1 2DH.







3595094

of

138


Investment management

The Trustee delegates the day-to-day management to professional external investment managers. The

Trustee sets the investment strategy for the Plan after taking advice from the Plan’s investment adviser. The

Trustee has put in place investment mandates with their investment managers which implement this

strategy. The Plan’s investments are regarded as readily marketable.

The investments of the Plan are managed on behalf of the Trustee by the Plan’s investment managers:

DB section

▪ BlackRock Investment Management (UK) Limited (“BlackRock”) – Segregated portfolios

▪ M&G Investment Management Limited (“M&G”) – Pooled Investment Vehicles

▪ Apollo Capital Management, L.P. (“Apollo”) - Pooled Investment Vehicles

▪ Partners Group Private Market Strategies 2 S.A. (“Partners Group”) - Pooled Investment Vehicles

▪ Morgan Stanley Investment Management (“Morgan Stanley”) (appointed 12 December 2019)

DC section

▪ Aberdeen Standard Investments plc (“Aberdeen”) - Pooled Investment Vehicles

Custodial arrangements

The assets managed by BlackRock are segregated portfolios, which are held by the Plan’s global custodian,

BNY Mellon Asset Servicing (“BNYM”).

The DB section’s other assets are invested in pooled funds and the respective Investment Managers are

responsible for appointing a custodian.

The DC section assets are managed by Aberdeen and all assets are held by their custodian Citi.

The custodians are responsible for the safe keeping, monitoring and reconciliation of documentation relating

to the ownership of investments. Investments are held in the name of the custodian’s nominee companies, in

line with common practice for pension scheme investments.




3595094

of

138


Statement of Investment Principles

In accordance with section 35 of the Pensions Act 1995, a Statement of Investment Principles (“SIP”) has

been prepared by the Trustee which incorporates the investment strategy. There were no significant

departures from the SIP during the year. The deviation from the strategic weights are due to market

movements. The relative positioning versus the benchmark is reviewed at least on a quarterly basis. The SIP

was updated in September 2020.

Investment strategy – DB section

The Trustee has opted to follow a “spread-value investing” approach, which is designed to help close the

deficit with a relatively high degree of certainty, alongside any other funding. It is expected that this approach

will exhibit much less volatility than an equity-based investment strategy. The Trustee considers this a long-

term strategy that is expected to remain in place until the Plan achieves its secondary objective of becoming

self-sufficient – i.e. this approach is strategic in nature, rather than opportunistic / tactical.

Spread-value investing involves taking advantage of the legal protections (such as seniority in the case of

liquidation) and contractual obligations (such as fixed temporal constraints regarding contractual lifetime and

payments) of credit assets, which the Trustee believes are well suited to meeting the Plan’s objectives with

greater certainty than a strategy which utilises subordinate non-contractual income assets (e.g. equities).

Liability Driven Investing (LDI) is used to manage the re-investment and inflation risk of the credit assets –

most credit assets have much shorter maturities than the Plan’s liabilities and so must be re-invested when

they mature. This significantly reduces the asset and liability mismatch risk.

The Plan’s Partners Group mandate has been fully drawn since November 2018 and is distributing capital on

a regular basis. To maintain the strategic allocation to private market credit, the Trustee has committed

capital to the M&G Real Estate Debt Fund (REDF VI).

The private market credit, REDF VI and semi-liquid credit assets have been selected as the Trustee believes

they offer an illiquidity and/or a complexity return premium which more than compensates for the loss of

liquidity. However, the Trustee has limited the allocation to such assets to manage the potential liquidity risk.




3595094

of

138


Investment strategy – DB section continued

The Plan’s current investment strategy is expected to return LIBOR + 2.3% p.a. using the following

investment strategy:

Asset Investment

Manager

Exposure

(% of total

assets)

Net Spread (1)

(above LIBOR)

(%)

Active investment grade corporate

bonds

BlackRock

Investment

Management

20.0 1.3

Liquid credit M&G 15.0 2.3

Semi-liquid credit Apollo 10.0 3.5

Private market credit M&G 12.5 3.7

Private market credit (illiquid) Partners Group 12.5 3.7

Credit Default Swaps (CDS) overlay BlackRock 30.0 1.3

LDI overlay BlackRock n/a n/a

Collateral for CDS and LDI BlackRock 30.0 -

Total 130.0 2.3

(1) Estimated spread as at 31 December 2016, net of expected default losses and fees

Investment performance – DB section

The tables below show the performance versus benchmarks (net of investment management fees) for the

aggregate Plan:

1 Year

%

3 Years

% pa (1)

5 Years

% pa(1)

Plan -0.1 8.1 n/a

Benchmark 0.6 7.2 n/a

Source: BNYM, Isio Calculations, BlackRock.

Notes: Performance is net of fees and as at 30 September 2020.

The Plan’s benchmark is based on the performance of Liability matching gilts (“LMG”) + 2.3%. LMG is a

bespoke portfolio of gilts that reflects the nature of the Plan’s liabilities.




3595094

of

138


Investment performance – DB section continued

The DB Section’s benchmark composition is currently:

▪ 100% liability proxy returns

▪ LMG + 2.3%

▪ LMG is a bespoke portfolio of gilts that reflects the nature of the Plan’s liabilities.

In Q1 2020 markets experienced significant volatility as economies shut down to control the spread of

COVID-19. Despite this, the Plan’s assets recovered strongly in Q2 and Q3 2020, in line with wider credit

markets.

The Plan’s investment in M&G Liquid Credit had a particularly strong year as M&G used the COVID-19

volatility to select credits that they felt were priced cheaply relative to their chance of default. Therefore, the

credit market recovery seen in Q2 and Q3 2020, led to M&G comfortably outperforming the Fund’s

benchmark.

As at 30 September 2020, the Plan is invested solely in credit assets. It invests in such a way that these

assets closely match the nature of the Plan’s liabilities – both in respect to term and sensitivity to changes in

interest rates or inflation expectations. The Plan invests in a range of credit assets of differing liquidity, with

illiquid assets utilised in order to earn a return premium, whilst ensuring enough liquidity remains to meet any

cash requirements.




3595094

of

138

Trustee’s report continued Investment performance – DB section continued

1 Year

Fund Index

%

3 Years

Fund Index

% p.a.

5 Years

Fund Index

% p.a.

BlackRock Liability Driven

Investment (LDI) Overlay 5.4 N/A 20.3 N/A N/A N/A

BlackRock Investment Grade

Corporate Bonds 6.4 5.0 7.9 7.2 7.7 7.0

BlackRock Credit Default

Swaps (CDS) Overlay -3.7 N/A -0.2 N/A N/A N/A

M&G Liquid Credit 4.4 0.4 2.9 0.3 N/A N/A

Apollo Semi-liquid Credit 0.1 0.2 2.6 1.7 N/A N/A

Partners Group Private

Market Credit (Illiquid) N/A N/A N/A N/A N/A N/A

M&G REDFVI (illiquid) N/A N/A N/A N/A N/A N/A

Source: Isio, BlackRock, M&G, Apollo

Note: Performance is net of fees to 30 September 2020

Investment strategy – DC section

The Trustee aims to provide a range of investments that are suitable for meeting members' long and

short-term investment objectives in a prudent manner. They have taken into account their understanding of

members' circumstances, in particular members' attitudes to risk and term to crystallising their pension

savings.

There are four lifestyle strategies offered by the Plan which gradually de-risk over time and a range of

investment options for members who want to create a bespoke portfolio. If a member does not want to select

an investment option themselves their investments will be directed into a default arrangement.

The Trustee has decided to make changes to the underlying investments within the growth phase of the

default, introducing an explicit investment in equities, incorporating ESG considerations and factor-based

investment. The changes are being implemented in a phased approach and started in January 2020

continuing into 2021.




3595094

of

138


Market performance – DC section

Fund 1 Year

Fund Index

%

3 Years

Fund Index

% p.a.

5 Years

Fund Index

% p.a.

SL Mobile Diversified Growth Fund* 4.8 2.5 3.8 3.6 N/A N/A

SL Mobile Flexible Retirement Fund** 3.3 3.8 N/A N/A N/A N/A

SL Veritas Global Focus Fund 4.3 8.2 8.7 12.1 14.3 17.0

SL BlackRock UK Focus Fund -0.5 -12.6 4.3 0.8 6.9 7.5

SL BlackRock (50:50) Global Equity Fund -6.8 -4.8 1.8 2.8 8.4 9.2

SL iShares UK Equity Index Fund -16.6 -16.6 -3.4 -3.3 3.3 3.4

SL iShares Index Linked Gilt Fund 1.3 0.4 7.3 7.0 8.4 8.3

SL BlackRock Over 15 Year Corporate

Bond Fund 5.9 6.2 7.4 7.9 8.6 9.0

Standard Life Deposit and Treasury Fund 0.2 0.4 0.3 0.5 0.2 0.4

SL HSBC Islamic Global Equity Index Fund 22.8 23.6 17.1 17.9 19.2 20.0

Note

* SL Mobile Diversified Growth Fund inception date is August 2016 and therefore 5 year returns are not yet available for this fund. ** SL Mobile Flexible Retirement Fund inception date is February 2019 and therefore returns are not yet available for this fund over the periods stated. Units of investments are purchased in a Standard Life wrapped fund which is then invested in the underlying funds (managed by BlackRock, iShares, HSBC, Standard Life or Veritas). Performance figures are quoted net of fees prior to any pricing basis swings being applied. Source: Standard Life




3595094

of

138


Voting rights and socially responsible investment

Most decisions about the day-to-day management of the assets have been delegated to the investment

managers via written agreements. This delegation includes decisions about:

▪ realisation of investments;

▪ social, environmental and ethical considerations in the selection, retention and realisation of

investments; and

▪ the exercise of rights (including voting rights) attached to the investments.

The Trustee takes the Investment Managers’ policies on the above items into account when selecting and

monitoring them.

The Trustee has also undertaken an Impact Assessment of Plan assets in line with the DWP requirements

and expect to review Plan assets with regard to Environmental, Social, and Governance factors on an

annual basis.

Employer-related investment

As at 30 September 2020, the Plan was indirectly exposed to various employer-related investments of less

than 0.05% of assets of the Plan, as detailed below. There were no other employer-related investments

within the meaning of section 40(2) of the Pensions Act 1995 and the Occupational Pension Schemes

(Investment) Regulations 2005 during the year.

The percentage of invested assets of indirect employer-related investments as at 30 September 2020 as

follows:

▪ M&G Alpha Opportunities Fund 0% (2019: 0.22%)

▪ M&G Liquid Credit: 0.24% (2019: 0%)

▪ Apollo: 0.20% (2019: 0%).




3595094

of

138


Statement of Trustee’s responsibilities

The financial statements, which are prepared in accordance with UK Generally Accepted Accounting

Practice, including the Financial Reporting Standard applicable in the UK (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 Plan during the Plan year and of the

amount and disposition at the end of the Plan year of its assets and liabilities, other than liabilities to

pay pensions and benefits after the end of the Plan 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 a statement

whether the financial statements have been prepared in accordance with the relevant financial

reporting framework applicable to occupational pension schemes.

In discharging the above responsibilities, the Trustee is responsible for selecting suitable accounting policies,

to be applied consistently, making any estimates and judgments on a prudent and reasonable basis, and for

the preparation of the financial statements on a going concern basis unless it is inappropriate to presume

that the Plan will not be wound up.

The Trustee is also responsible for making available certain other information about the Plan in the form of

an annual report.

The Trustee also has a general responsibility for ensuring that adequate accounting records are kept and for

taking such steps as are reasonably open to them to safeguard the assets of the Plan and to prevent and

detect fraud and other irregularities, including the maintenance of an appropriate system of internal control.




3595094

of

138


Statement of Trustee’s responsibilities continued

The Trustee is responsible under pensions legislation for preparing, maintaining and from time to time

reviewing and if necessary revising a schedule of contributions showing the rates of contributions payable

towards the Plan by or on behalf of the Employer and the active members of the Plan 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 Plan and for adopting risk-based

processes to monitor whether contributions are made to the Plan by the Employer 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 the members.

The Trustee is responsible for the maintenance and integrity of the pension and financial information

included on the Telefonica UK Pension Plan website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may

differ from legislation in other jurisdictions.

Signed for and on behalf of the Trustee

11 March 2021

Date:

Anthony Soothill, Chair Telefónica UK Pension Trustee Limited




3595094

of

138

Independent Auditor’s report to the Trustee of the Telefónica UK Pension Plan

Opinion

We have audited the financial statements of the Telefonica UK Pension Plan for the year ended

30 September 2020 which comprise the fund account, statement of net assets and notes to the financial

statements, including a summary of significant accounting policies. The financial reporting framework that

has been applied in their preparation is applicable law and United Kingdom Accounting Standards including

FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom

Generally Accepted Accounting Practice).

In our opinion the financial statements:

▪ show a true and fair view of the financial transactions of the Plan during the year ended

30 September 2020 and of the amount and disposition at that date of its assets and liabilities, other

than the liabilities to pay pensions and benefits after the end of the year;

▪ have been properly prepared in accordance with United Kingdom Generally Accepted Accounting

Practice; 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, made under the

Pensions Act 1995.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and

applicable law. Our responsibilities under those standards are further described in the Auditor’s

responsibilities for the audit of the financial statements section of our report. We are independent of the Plan

in accordance with the ethical requirements that are relevant to our audit of the financial statements in the

UK, including the FRC’s Ethical Standard and we have fulfilled our other ethical responsibilities in

accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and

appropriate to provide a basis for our opinion.




3595094

of

138

Independent Auditor’s Report to the Trustee of Telefónica UK Pension Plan continued

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to

report to you where:

▪ the Trustee’s use of the going concern basis of accounting in preparation of the financial statements is

not appropriate; or

▪ the Trustee has not disclosed in the financial statements any identifiable material uncertainties that

may cast significant doubt about the Plan’s ability to continue to adopt the going concern basis of

accounting for a period of at least twelve months from the date when the financial statements are

authorised for issue.

Other information

The other information comprises the information included in the annual report, other than the financial

statements and our auditor’s report thereon. The Plan’s Trustees is responsible for the other information. Our

opinion on the financial statements does not cover the other information and we do not express any form of

assurance conclusion thereon.

In 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. If we

identify such material inconsistencies or apparent material misstatements, we are required to determine

whether there is a material misstatement in the financial statements or a material misstatement in the other

information. If, 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 in this regard.

Responsibilities of Trustee

As explained more fully in the statement of Trustee’s responsibilities set out on pages 23 and 24, the Trustee

is responsible for the preparation of financial statements and for being satisfied that they give a true and fair

view, and for such internal control as the Trustee determines is necessary to enable the preparation of

financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Trustee is responsible for assessing the Plan’s ability to continue

as a going concern, disclosing, as applicable, matters related to going concern and using the going concern

basis of accounting unless the Trustee either intends to liquidate the Plan or to cease operations, or has no

realistic alternative but to do so.




3595094

of

138

Independent Auditor’s Report to the Trustee of Telefónica UK Pension Plan continued

Auditor’s responsibilities for the 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 auditor’s 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 ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,

they could reasonably be expected to influence the economic decisions of users taken on the basis of these

financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial

Reporting Council’s website at http://www.frc.org.uk/auditorsresponsibilities. This description forms part of

our auditor’s report.

Use of our report

This report is made solely to the Plan’s Trustee as a body, in accordance with Regulation 3 of the

Occupational Pension Schemes (Requirements to obtain Audited Accounts and a Statement from the

Auditor) Regulations 1996 made under the Pensions Act 1995. Our audit work has been undertaken so that

we might state to the Plan’s Trustee those matters we are required to state to them in an auditor’s report and

for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to

anyone other than the Plan and the Plan’s Trustee as a body, for our audit work, for this report, or for the

opinions we have formed.

RSM UK Audit LLP

Statutory Auditor

Chartered Accountants

Portland

25 High Street

Crawley

West Sussex

RH10 1BG

Date:

sdd3

Karen Tasker RSM signature

sdd3

Typewritten Text

11 March 2021




3595094

of

138

Fund account

Note DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Total

2019

£’000

Employer contributions 25,000 41,269 66,269 63,728

Employee contributions - 722 722 668

Total contributions 5 25,000 41,991 66,991 64,396

Transfers in 6 - 943 943 493

Other income 7 1,943 - 1,943 2,741

26,943 42,934 69,877 67,630

Benefits paid or payable 8 (26,440) (1,470) (27,910) (28,530)

Payments to and on account of leavers 9 (16,105) (12,248) (28,353) (28,683)

Administrative expenses 10 (1,598) - (1,598) (1,530)

Other payments 11 - - - (2)

(44,143) (13,718) (57,861) (58,745)

Net (withdrawals)/additions from dealings with

members (17,200) 29,216 12,016 8,885

Returns on investments

Investment income 12 18,510 - 18,510 36,712

Change in market value of investments 13 (4,916) 10,997 6,081 306,858

Investment management expenses 16 (3,277) - (3,277) (2,941)

Net return on investments 10,317 10,997 21,314 340,629

Net (decrease)/increase in the fund during the year (6,883) 40,213 33,330 349,514

Net assets of the Plan

At 1 October 1,723,912 405,974 2,129,886 1,780,372

At 30 September 1,717,029 446,187 2,163,216 2,129,886

The notes on pages 31 to 70 form part of these financial statements.




3595094

of

138

Statement of net assets (available for benefits)

Note DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Total

2019

£’000

Restated

Investment assets

Bonds 13 1,430,329 - 1,430,329 1,445,671

Pooled investment vehicles 13/18 859,813 442,921 1,302,734 1,176,885

Derivatives 13/20 21,053 - 21,053 57,054

AVC investments 13/24 8,648 - 8,648 9,824

Cash 13 34,320 - 34,320 -

Other investment balances 13/21 4,346 100 4,446 1,538

2,358,509 443,021 2,801,530 2,690,972

Investment liabilities

Derivatives 13/20 (11,610) - (11,610) (12,924)

Cash 13 - - - (14,071)

Other investment balances 13/21 (11,449) - (11,449) (4,026)

Amounts due under repurchase

agreements 13/22 (624,398) - (624,398) (534,613)

(647,457) - (647,457) (565,634)

Total net investments 13 1,711,052 443,021 2,154,073 2,125,338

Current assets 27 7,883 3,533 11,416 6,977

Current liabilities 28 (1,906) (367) (2,273) (2,429)

Net assets of the Plan at 30 September 1,717,029 446,187 2,163,216 2,129,886

The notes on pages 31 to 70 form part of these financial statements.

The prior year values have been restated due to assets which were previously classified as cash instruments

being reclassified as pooled investment vehicles which is deemed to be more appropriate.




3595094

of

138

Statement of Net Assets (available for benefits) continued

The financial statements summarise the transactions of the Plan and deal with the net assets at the disposal of

the Trustee. They do not take account of obligations to pay pensions and benefits which fall due after the end

of the Plan year. The actuarial position of the Plan, which takes into account such obligations, is dealt with in

the Report on actuarial liabilities on pages 8 to 10 of the Trustee’s report and these financial statements

should be read in conjunction with this Report.

These financial statements were approved for and on behalf of the Trustee by:

11 March 2021

Date:





3595094

of

138

Notes to the financial statements

1. Basis of preparation

The individual financial statements 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 102 – The Financial Reporting Standard applicable in the UK and Republic of

Ireland, and the guidance set out in the Statement of Recommended Practice (Revised 2018).

The financial statements have been prepared on a going concern basis. On 6 May 2020, Telefónica SA and

Liberty Global announced the terms of a proposed merger of Telefónica UK with UK Virgin Media. This

transaction will, if completed, have an impact on the covenant of the Plan; the Trustee has engaged with

Telefónica in order to assess the materiality of that impact and agreed a settlement should the merger

complete. The Trustee understands that completion of the merger is expected to occur around the middle of

2021.

The Trustee has assessed the Plan’s assets, technical provisions and the employer covenant. At the date of

signing these financial statements the Trustee of the Plan is able to comfortably cover its related outgoings

until at least 12 months from signing. As a result, and together with the strong position of the Principal

Employer, the Trustee considers the preparation of the financial statements on a going concern basis to be

appropriate.

2. Identification of the financial statements

The Plan is established as a trust under English law. The address for enquires to the Plan is included in the

Trustee’s Report on page 4.




3595094

of

138

Notes to the financial statements continued

3. Comparative disclosures for the Fund Account

FRS 102 requires presentation of comparative information in respect of the preceding period for all amounts

presented in the current period’s financial statements. In order to comply with this requirement the DB and

DC comparative amounts which are aggregated on the face of the fund account and are not shown

elsewhere in the notes to the financial statements are presented below:

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Change in market value of investments 292,628 14,230 306,858

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Net (withdrawals) / additions from dealings with

members

(16,864) 25,749 8,885

Net returns on investments 326,399 14,230 340,629

Net increase in the fund during the year 309,535 39,979 349,514

Net assets as at 30 September 2018 1,414,377 365,995 1,780,372

Net assets as at 30 September 2019 1,723,912 405,974 2,129,886

4. Accounting policies

The principal accounting policies of the Plan are as follows:

4.1. Currency

▪ The Plan'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.




3595094

of

138


4. Accounting policies continued

4.2. Contributions

▪ Employer normal contributions and salary sacrifice contributions that are expressed as a

rate of salary are accounted for on the same basis as the employees' contributions, in

accordance with the Schedule of Contributions in force during the year.

▪ Employee contributions, including AVCs, are accounted for by the Trustee when they are

deducted from pay by the Employer.

▪ Employer deficit funding contributions are accounted for on the due dates on which they are

payable in accordance with the Schedule of Contributions and Recovery Plan under which

they are being paid.

4.3. Transfer values

▪ Individual transfers in or out of the Plan are accounted for on a cash basis which is when

members’ liability is accepted or discharged.

4.4. Other income

▪ Claims on term insurance policies and other forms of income are accounted for on an

accruals basis.

4.5. Benefits paid or payable

▪ 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 or death as

appropriate.




3595094

of

138



4.5 Benefits paid or payable continued

▪ Where the Trustee agrees or is required to settle tax liabilities on behalf of a member (such

as where lifetime or annual allowances are exceeded) with a consequent reduction in that

member's benefits receivable from the Plan, any taxation due is accounted for on the same

basis as the event giving rise to the tax liability and shown separately within ‘Benefits Paid or

Payable’.

4.6. Payments to and on account of leavers

▪ Refunds and opt-outs are accounted for on an accruals basis on the date on which the

Trustee is notified of the member's decision to leave the Plan.

4.7. Administrative and other payments

▪ Administrative expenses are accounted for on an accruals basis and where applicable net of

VAT.

4.8. Other Payments

▪ Other payments are accounted for on an accruals basis.

4.9. Investment income and change in market value

▪ Income from pooled investment vehicles which distribute income is accounted for when

declared by the investment manager.

▪ Investment income arising from the underlying investments of the pooled investment

vehicles which do not distribute income is rolled up and reinvested within the pooled

investment vehicles. This is reflected in the unit price and reported within 'Change in market

value'.

▪ Income from bonds is accounted for on an accruals basis and includes interest bought and

sold on investment purchases and sales.

▪ Other interest on cash and short-term deposits and income from other investments are

accounted for on an accruals basis.




3595094

of

138



4.9. Investment income and change in market value continued

▪ Receipts and payments under swap contracts, representing the difference between the

swapped cash flows, are included in investment income. Receipts and payments of all other

derivative contracts are reported with sales proceeds and purchases at cost respectively.

▪ Income and expenditure received and paid under repurchase contracts is accounted for on

an accruals basis and included within investment income.

▪ 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 during the year.

▪ Income received by the Plan in respect of unfunded pension payments is accounted for on

an accruals basis.

4.10. Investment management expenses and transaction costs

▪ Investment management expenses are accounted for on an accruals basis and shown net

within investment returns.

▪ Transaction costs are included in the cost of purchases and sale proceeds. Transaction

costs include costs charged directly to the Plan such as fees, commissions, stamp duty and

other fees.




3595094

of

138



4.11. Investment assets/liabilities

▪ 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 price, single dealing price or

most recent transaction price is used.

▪ Bonds are stated at their clean prices. Accrued income is accounted for within investment

income. 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 have been valued at the latest available bid price or

single price provided by the pooled investment manager. Shares in other pooled

arrangements have been valued at the latest available net asset value (“NAV”), determined

in accordance with fair value principles, provided by the pooled investment manager.

▪ Exchange traded futures are valued as the sum of the daily mark-to-market, which is a

calculated difference between the settlement prices at the reporting date and the inception

date.

▪ Over the counter (OTC) Swaps are valued taking the current value of future cash flows

arising from the swap determined using discounted cash flow models and market data at the

reporting date.

▪ Over the counter (OTC) Forward foreign exchange contracts are valued by determining 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.

▪ Repurchase agreements - the Plan continues to recognise and value the securities that are

delivered out as collateral, and includes them in the financial statements. The cash received

is recognised as an asset and the obligation to pay it back is recognised as a liability.

▪ 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.




3595094

of

138


5. Contributions

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Employer contributions:

Deficit funding 25,000 - 25,000

Normal - 41,269 41,269

25,000 41,269 66,269

Employee contributions:

Normal - 672 672

Additional voluntary contributions - 50 50

- 722 722

25,000 41,991 66,991

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Employer contributions:

Deficit funding 25,000 - 25,000

Normal - 38,728 38,728

25,000 38,728 63,728

Employee contributions:

Normal - 662 662

Additional voluntary contributions - 6 6

- 668 668

25,000 39,396 64,396




3595094

of

138


5. Contributions continued

Employer normal contributions include contributions in respect of salary sacrifice arrangements made

available to members by the Employer.

In order to remove the shortfall assessed for the actuarial valuation as at 30 September 2017, a Recovery

Pan dated 24 October 2018 provided for deficit funding contributions to be payable by the Employer of £25m

per annum by each 10 January from 2019 to 2024 inclusive. The valuation as at 30 September 2020 is now

ongoing and, although it is not as yet complete, the Employer made a payment of £55m on 31 December

2020 in place of the £25m due in January 2021 and in anticipation of the contributions that will be agreed for

the 2020 valuation, these being £157.5m on or before 31 December 2021 and if the merger completes, a

further £212.5m before 31 December 2022.

6. Transfers in

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Individual transfers in from other schemes - 943 943

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Individual transfers in from other schemes - 493 493




3595094

of

138


7. Other Income

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Claims on term insurance policies 1,785 - 1,785

Compensation 150 - 150

Sundry income 8 - 8

1,943 - 1,943

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Claims on term insurance policies 2,735 - 2,735

Sundry income 6 - 6

2,741 - 2,741

8. Benefits paid or payable

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Pensions 18,812 - 18,812

Commutation of pensions and lump sum

retirement benefits 6,769 969 7,738

Lump sum death benefits 859 477 1,336

Taxation where lifetime or annual

allowance exceeded - 24 24

26,440 1,470 27,910




3595094

of

138


8. Benefits paid or payable continued

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Pensions 16,977 - 16,977

Commutation of pensions and lump sum

retirement benefits

7,230

1,291

8,521

Lump sum death benefits 2,830 202 3,032

27,037 1,493 28,530

Taxation arising on benefits paid or payable is in respect of members whose benefits exceeded the lifetime or annual

allowance and who elected to take lower benefits from the Plan in exchange for the Plan settling their tax liability.

9. Payments to and on account of leavers

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Refunds of contributions in respect of:

Non-vested leavers 1 - 1

Individual transfers out to other schemes 16,104 12,248 28,352

16,105 12,248 28,353

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Refunds of contributions in respect of:

Non-vested leavers 2 - 2

Individual transfers out to other schemes 16,034 12,647 28,681

16,036 12,647 28,683




3595094

of

138


10. Administrative expenses

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Actuarial, Administration and processing 985 - 985

Audit fees 102 - 102

Legal fees 322 - 322

Pension Protection Fund levies and

regulatory fees 1 - 1

Other professional fees 187 - 187

Bank and sundry charges 1 - 1

1,598 - 1,598

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Actuarial, Administration and processing 973 - 973

Audit fees 50 - 50

Legal fees 331 - 331

Other professional fees 175 - 175

Bank and sundry charges 1 - 1

1,530 - 1,530




3595094

of

138


11. Other payments

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Guaranteed Minimum Pension - - -

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Guaranteed Minimum Pension 2 - 2

12. Investment income

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Income from bonds 20,499 - 20,499

Expense from repurchase agreements (4,484) - (4,484)

Foreign exchange gain (107) - (107)

Income from pooled investment vehicles 17,623 - 17,623

Income/(payments) from swaps (15,017) - (15,017)

Income received in respect of unfunded

pensions

59

-

59

Interest on cash deposits (63) - (63)

18,510 - 18,510




3595094

of

138


12. Investment income continued

DB

2019

£’000

Restated

DC

2019

£’000

Total

2019

£’000

Restated

Income from bonds 26,319 - 26,319

Expense from repurchase agreements (4,856) - (4,856)

Foreign exchange gain 466 - 466

Income from pooled investment vehicles 5,892 - 5,892

Income/(payments) from swaps 8,857 - 8,857

Income received in respect of unfunded

pensions 99 - 99

Interest on cash deposits (65) - (65)

36,712 - 36,712

Included within interest on cash deposits is interest on the cash trading accounts with the investment

managers.






3595094

of

138


13. Reconciliation of investments

DB (Sections 2, 2A, 3 and 3A) reconciliation of investments held at the beginning and the end of the year:

Value at

30 September

2019

£’000

Restated

Purchases at

cost and

derivative

payments

£’000

Sales proceeds

and derivative

receipts

£’000

Change in

market value

£’000

Value at

30 September

2020

£’000

Bonds 1,445,671 250,540 (277,994) 12,112 1,430,329

Pooled investment

vehicles

774,163

594,441

(502,840)

(5,951)

859,813

Derivatives 44,130 14,698 (38,657) (10,728) 9,443

2,263,964 859,679 (819,491) (4,567) 2,299,585

AVC investments 9,824 15 (842) (349) 8,648

2,273,788 859,694 (820,333) (4,916) 2,308,233

Cash deposits (14,071) 34,320

Amounts due under

repurchase

agreements

(534,613)

(624,398)

Other investment

balances

(2,488)

(7,103)

1,722,616 1,711,052






3595094

of

138


13. Reconciliation of investments continued

DC (Sections 1 and 1A) reconciliation of investments held at the beginning and the end of the year:

Value at

30 September

2019

£’000

Purchases at

cost and

derivative

payments

£’000

Sales proceeds

and derivative

receipts

£’000

Change in

market value

£’000

Value at

30 September

2020

£’000

Pooled investment

vehicles

402,722 42,920 (13,718) 10,702 442,921

Other investment

balances

- 100

402,722 443,021

14. Transaction costs

Transaction costs are included in the cost of purchases and deducted from sale proceeds. Direct transaction costs

include costs charged to the Plan such as fees, commissions and stamp duty.

DB transaction costs analysed by main asset class and type of cost are as follows:

Fees

£’000

Commission

£’000

Taxes

£’000

Total 2020

£’000

Total 2019

£’000

Bonds - - - - -

Other 156 9 - 165 286

Total 2020 156 9 - 165 286

Total 2019 286 - -

In addition to the transaction costs disclosed above, indirect costs are incurred through the bid-offer spread on

investments within pooled investment vehicles and charges made within those vehicles for both DB and DC

investments. It has not been possible for the Trustee to quantify such indirect transaction costs.




3595094

of

138


15. Allocation of Defined Contribution investments

The DC section investments purchased by the Plan are allocated to provide benefits to the individuals on whose behalf

corresponding contributions are paid. The investment manager holds the investment units on a pooled basis for the

Trustee. The Plan administrator allocates investment units to members. The Trustee may hold investment units

representing the value of employer contributions that have been retained by the Plan that relate to members leaving

the Plan prior to vesting.

DC section assets are allocated to members and the Trustee as follows:

2020

£’000

2019

£’000

Members 442,726 402,429

Trustee 295 293

443,021 402,722

16. Investment management expenses

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Administration, management and custody 2,733 - 2,733

Advisory fees 586 - 586

Fee rebates (42) - (42)

3,277 - 3,277

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Administration, management and custody 2,380 - 2,380

Advisory fees 561 - 561

2,941 - 2,941




3595094

of

138


17. Taxation

The Plan is a registered Pension Scheme under Chapter 2 of Part 4 of the Finance Act 2004 and is therefore exempt

from income tax and capital gains tax.

18. Pooled investment vehicles

The Plan’s investments in pooled investment vehicles at the year-end comprised:

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Liquid credit 225,573 - 225,573

Semi liquid credit 134,241 - 134,241

Private credit 345,027 - 345,027

Real estate debt fund 112,297 - 112,297

Equity - 76,485 76,485

Bonds - 22,898 22,898

Absolute return/Diversified growth - 332,666 332,666

Cash 42,675 10,872 53,547

859,813 442,921 1,302,734

DB

2019

£’000

Restated

DC

2019

£’000

Total

2019

£’000

Restated

Liquid credit 221,916 - 221,916

Semi liquid credit 141,236 - 141,236

Private credit 394,069 - 394,069

Real estate debt fund - - -

Equity - 77,477 77,477

Bonds - 21,121 21,121

Absolute return/Diversified growth - 295,307 295,307

Cash 16,942 8,817 25,759

774,163 402,722 1,176,885

The prior year values have been reclassified to asset classes deemed to be more appropriate.




3595094

of

138


19. Pooled investment vehicles – Sole investor fund

The Plan is the sole investor in the Partners Group Private Markets Credit Strategies Fund. This is included

within the pooled investment vehicles included in note 18. A breakdown of the underlying assets are

detailed below.

2020

£’000

2019

£’000

Senior secured debt 276,021 323,137

Subordinated debt 34,503 47,288

Preferred equity 24,152 15,763

Equity 10,351 7,881

345,027 394,069

20. Derivatives (DB section only)

The Trustee has authorised the use of derivatives by their investment managers as a part of their investment

strategy as follows:

▪ Forward foreign exchange: in order to maintain appropriate diversification of investments, a proportion

of the underlying investment portfolio is invested overseas. To balance the risk of investing in foreign

currencies whilst having an obligation to settle benefits in GBP, the investment managers use forward

foreign exchange contracts to remove as far as possible the currency exposure of these overseas

investments.

▪ Credit default swaps (“CDS”): In order to target an expected return above LIBOR on the collateral held

to support the LDI portfolio, the Plan enters into credit default swaps on specific indices. This means

the Plan receives a premium on an ongoing basis, but is subject to the credit risk that any of the

underlying companies could default.

▪ Futures: Futures are used in the active corporate bond portfolio, at the discretion of the investment

manager, for efficient portfolio management.

The total collateral available for use for the derivative contracts was £548.7m as at 30 September 2020,

(2019 £522.3m) which supports both the LDI and CDS mandates. The management of collateral is

delegated to BlackRock who can use any assets held within the LDI / CDS portfolio for this purpose. As at 30

September 2020, £4.0m of this was pledged and £8.1m was held as collateral.




3595094

of

138


20. Derivatives (DB section only) continued

At the year-end the Plan had the following derivatives:

2020

Assets

£’000

2020

Liabilities

£’000

2020

Total

£’000

2019

Assets

£’000

2019

Liabilities

£’000

2019

Total

£’000

OTC Swaps 20,945 (11,484) 9,461 56,919 (12,869) 44,050

Futures 54 (41) 13 73 (51) 22

Forward FX

contracts

54

(85)

(31)

62

(4)

58

21,053 (11,610) 9,443 57,054 (12,924) 44,130

A summary of the Plan’s outstanding derivative contracts at the year-end aggregated by key characteristics is set out

on the following pages.




3595094

of

138



OTC Swaps

Nature Notional

amounts

£’000

Expires Asset

value

£’000

Liability

value

£’000

Cleared Inflation Swaps 46,230 10 - 20 years - (3,553)

Cleared Inflation Swaps 25,460 1 - 10 years - (1,167)

Cleared Interest rate Swaps 33,314 10 - 20 years 4,075 -

Cleared Zero Coupon Swaps 188,257 5 - 10 years 6,459 -

Cleared Zero Coupon Swaps 62,930 10 - 20 years 5,852 -

Cleared Zero Coupon Swaps 10,850 5 - 10 years - (508)

Cleared Zero Coupon Swaps 10,565 10 - 20 years - (1,128)

Credit Default Swaps 64,437 5 - 10 years 4,167 -

Credit Default Swaps 128,874 10 - 20 years 390 -

Credit Default Swaps 138,661 10 - 20 years - (124)

Inflation Swaps 743 5 - 10 years 2 -

Inflation Swaps 61,290 < 5 years - (1,027)

Inflation Swaps 135,917 5 - 10 years - (2,186)

Inflation Swaps 49,554 10 - 20 years - (1,655)

Inflation Swaps 541 20 - 30 years - (135)

Interest rate Swaps 5,320 < 5 years - (1)

Total 2020 20,945 (11,484)




3595094

of

138



Futures

Nature Economic

exposure

£’000

Expires Asset

value

£’000

Liability

value

£’000

EURO-BTP FUTURE (EUX) 2,239 < 3 months 22 -

EURO-BUND FUTURE (EUX) 5,889 < 3 months - (19)

EURO-BUXL 30Y BND FUTURE (EUX) 1,575 < 3 months - (22)

LONG GILT FUTURE (ICF) 5,592 < 3 months 12 -

US 10YR ULTRA FUTURE (CBT) 4,102 < 3 months 20 -

Total 2020 54 (41)

Forward FX

Contract Settlement

date

Currency

bought

Currency

sold

Asset

value

£’000

Liability

value

£’000

OTC Forward FX < 1 month GBP 1,360,833 EUR 1,490,000 9 -

OTC Forward FX < 1 month GBP 7,815,790 EUR 8,700,000 - (77)

OTC Forward FX < 1 month EUR 3,990,000 GBP 3,575,440 44 -

OTC Forward FX < 1 month EUR 1,470,000 GBP 1,337,809 - (4)

OTC Forward FX < 1 month USD 200,000 GPB 157,610 - (3)

OTC Forward FX < 1 month GBP 109,030 USD 140,000 1 -

OTC Forward FX < 1 month USD 68,667 GBP 90,000 - (1)

Total 2020 54 (85)




3595094

of

138


21. Other investments

The Plan’s other investments at the year-end comprised:

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Unsettled trades (sales) 4,341 - 4,341

Unsettled trades (purchases) (7,814) - (7,814)

Cash in transit 5 - 5

Investment income receivable/Payable (3,635) - (3,635)

(7,103) - (7,103)

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Unsettled trades (sales) - - -

Unsettled trades (purchases) (4,026) - (4,026)

Cash in transit 8 - 8

Investment income payable/receivable 1,530 - 1,530

(2,488) - (2,488)




3595094

of

138


22. Repurchase agreements

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Repurchase agreements (624,398) - (624,398)

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Repurchase agreements (534,613) - (534,613)

The Plan uses repurchase agreements (“repos”) within the BlackRock LDI Portfolio, whereby the Plan has sold

assets with the agreement to repurchase at a fixed date and price. The cash raised from repos are used to purchase

additional UK Government Bonds (“Gilts”), with the aim of better matching the Plan’s assets with its liabilities. The

Plan enters into new repo contracts when existing ones expire in order to retain the target exposure to Gilts.

At the year-end September 2020 £636.2m (2019 £603.1m) of bonds reported in the Plan's assets are held by

counterparties under repurchase agreements.

23. Concentration of investments

The following investments represent more than 5% of the net assets of the Plan.

2020

£’000

%

2019

£’000

%

Partners Group Private Markets Credit Strategies 345,027 16.0 394,069 18.5

Aberdeen Mobile Diversified Growth Pension Fund 315,986 14.6 283,462 13.3

M&G Alpha Opportunities Fund 225,574 10.4 221,916 10.4

Apollo Total Return Fund (offshore) Ltd 134,241 6.2 141,236 6.6

M&G Real Estate Debt Fund 112,297 5.2 - -




3595094

of

138


24. DB - Additional Voluntary Contributions (“AVCs”)

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. Members participating in this arrangement

each receive an annual statement confirming the amounts held in their account and the movements in the year. The

aggregate amounts of AVC investments are shown in note 13.

25. Fair value hierarchy

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 (ie developed using market

data) for the asset or liability, either directly or indirectly.

▪ Level 3: Inputs are unobservable (ie for which market data is unavailable) for the asset or liability.

The Plan’s investment assets and liabilities have been fair valued using the hierarchy categories as follows:

DB at 30 September 2020 Level 1

£’000

Level 2

£’000

Level 3

£’000

Total

£’000

Bonds - 1,430,329 - 1,430,329

Pooled investment vehicles 42,676 225,574 591,563 859,813

Derivatives 13 9,430 - 9,443

AVC investments - 8,648 - 8,648

Cash 34,320 - - 34,320

Repurchase agreements - (624,398) - (624,398)

Other investment balances (7,103) - - (7,103)

69,906 1,049,583 591,563 1,711,052




3595094

of

138


25. Fair value hierarchy continued

DB at 30 September 2019 Level 1

£’000

Restated

Level 2

£’000

Restated

Level 3

£’000

Restated

Total

£’000

Restated

Bonds 755 1,444,916 - 1,445,671

Pooled investment vehicles 27,576 211,281 535,306 774,163

Derivatives 22 44,108 - 44,130

AVC investments - 9,812 12 9,824

Cash (14,071) - - (14,071)

Repurchase agreements - (534,613) - (534,613)

Other investment balances (2,488) - - (2,488)

11,794 1,175,504 535,318 1,722,616


being reclassified as pooled investment vehicles, repurchase agreements being reclassified as level 2 from

level 1 and the M&G Alpha Opportunities Fund being reclassified from Level 3 to level 2.

DC at 30 September 2020 Level 1

£’000

Level 2

£’000

Level 3

£’000

Total

£’000

Pooled investment vehicles - 442,921 - 442,921

Other investment balances 100 - - 100

100 442,921 - 443,021

DC at 30 September 2019 Level 1

£’000

Level 2

£’000

Level 3

£’000

Total

£’000

Pooled investment vehicles - 402,722 - 402,722




3595094

of

138


26. Investment risk disclosures

Investment risks

FRS 102 requires the disclosure of information in relation to certain investment risks. These risks are set out by

FRS 102 as follows:

▪ Credit risk: this is the risk that one party to a financial instrument will cause a financial loss for the other party by

failing to discharge an obligation.

▪ Market risk: this comprises currency risk, interest rate risk and other price risk.

▪ Currency risk: this is the risk that the fair value or future cash flows of a financial asset will fluctuate

because of changes in foreign exchange rates.

▪ Interest rate risk: this is the risk that the fair value or future cash flows of a financial asset will fluctuate

because of changes in market interest rates.

▪ Other price risk: this is the risk that the fair value or future cash flows of a financial asset will fluctuate

because of changes in market prices (other than those arising from interest rate risk or currency risk,

whether those changes are caused by factors specific to the individual financial instrument or its issuer,

or facts affecting all similar financial instruments traded in the market).

The Plan has exposures to these risks because of the investments it makes to implement its investment strategy. The

Trustee manages investment risks, including credit risk and market risk, within agreed risk limits which are set taking

into account the Plan’s strategic investment objectives. These investment objectives and risk limits are implemented

through the investment management agreements in place with the Plan’s investment managers and monitored by the

Trustee by regular review of the investment portfolios.

Further information on the Trustee’s approach to risk management and the Plan’s exposures to credit and market risks

are set-out below. These fit in with the Plan’s investment strategy. Other risks include those associated with the cash

and pooled investment vehicles and the risks inherent within derivative contracts.

The Plan is the sole investor in the Partners Group Private Markets Credit Strategies Fund. As such the investment

risk disclosures have been written on a ‘look through’ basis in respect of this investment.




3595094

of

138


26. Investment risks disclosures continued

Investment Strategy – DB Section

The Trustee has opted to follow a “spread-value investing” approach, which is designed to help close the

deficit with a relatively high degree of certainty, alongside any other funding. It is expected that this approach

will exhibit much less volatility than an equity-based investment strategy. The Trustee considers this a long-

term strategy that is expected to remain in place until the Plan achieves its secondary objective of becoming

self-sufficient – ie this approach is strategic in nature, rather than opportunistic / tactical.

Spread-value investing involves taking advantage of the legal protections (such as seniority in the case of

liquidation) and contractual obligations (such as fixed temporal constraints regarding contractual lifetime and

payments) of credit assets, which the Trustee believes are well suited to meeting the Plan’s objectives with

greater certainty than a strategy which utilises subordinate non-contractual income assets (eg equities).

Liability Driven Investing (LDI) is used to manage the re-investment and inflation risk of the credit assets –

most credit assets have much shorter maturities than the Plan’s liabilities and so must be re-invested when

they mature. This significantly reduces the asset and liability mismatch risk.

The Plan’s Partners Group mandate has been fully drawn since November 2018 and is distributing capital on

a regular basis. To maintain the strategic allocation to private market credit, the Trustee has committed

capital to the M&G Real Estate Debt Fund (REDF VI).

The private market credit, M&G Real Estate Debt Fund and semi-liquid credit assets have been selected as

the Trustee believes they offer an illiquidity and/or a complexity return premium which more than

compensates for the loss of liquidity. However, the Trustee has limited the allocation to such assets to

manage the potential liquidity risk.

The Plan’s current investment strategy is expected to return LIBOR + 2.3% pa using the investment strategy

on the next page.




3595094

of

138


26. Investment risk disclosures continued

Investment Strategy – DB Section continued

Asset Investment Manager Exposure (%

of total assets)

Net spread (1)

above LIBOR

Active investment grade

corporate bonds

BlackRock Investment

Management

20.0%

1.3%

Liquid credit M&G Investment

Management Limited

15.0%

2.3%

Semi-liquid credit Apollo Global Management

10.0% 3.5%

Private market credit M&G Investment

Management Limited

12.5% 3.7%

Private market credit* Partners Group (UK) Limited 12.5% 3.7%

Credit default swaps

(CDS) overlay


Management

30.0% 1.3%

Liability driven

investments (LDI)

overlay


Management

N/A N/A

Collateral for the LDI

and CDS overlays


Management

30.0% 0.0%

Cash fund Morgan Stanley Investment

Management

N/A N/A

130.0% 2.3%

Notes: (1) Estimated spread as at 31 December 2016, net of expected default losses and investment management fees.

*The Plan is the only investor in the pooled fund.




3595094

of

138



Investment Strategy – DC Section

The Trustee aims to provide a range of investments that are suitable for meeting members' long and short-

term investment objectives in a prudent manner. They have taken into account their understanding of

members' circumstances, in particular members' attitudes to risk and term to crystallising their pension

savings.

There are four lifestyle strategies offered by the Plan which gradually de-risk over time and a range of

investment options for members who want to create a bespoke portfolio. If a member does not want to select

an investment option themselves their investments will be directed into a default arrangement.

The Trustee has decided to make changes to the underlying investments within the growth phase of the

default, introducing an explicit investment in equities, incorporating ESG considerations and factor-based

investment. The changes are being implemented in a phased approach and started in January 2020

continuing into 2021.

The tables below summarises the allocations that have significant exposure to these risks:

DB Section Credit

risk

Currency

risk

Interest

rate

risk

Other

price

risk

Market value

2020

£’m

Market value

2019

£’m

BlackRock - Collateral and

LDI/CDS overlay (Direct) ● ○ ● ○ 547.8 690.3

BlackRock - Corporate Bonds

(Direct) ● ○ ● ○ 266.0 281.8

M&G – Liquid Credit (Direct and

Indirect) ● ○ ○ ○ 225.6 221.9

Apollo – Semi-Liquid Credit (Direct

and Indirect) ● ○ ○ ○ 134.2 141.2

Partners Group – Private Credit

(Direct and Indirect) ● ○ ○ ○ 345.0 394.0

M&G – REDF VI (Direct and

Indirect) ● ○ ○ ○ 112.3 -

Other ○ ○ ○ ○ 71.4 44.5

Key: The risk noted affects the fund significantly (●) or hardly / not at all (○).




3595094

of

138



DC assets (including AVCs in respect of DB section)

Credit risk Currency

risk

Interest

rate risk

Other

price

risk

Market

value

2020

£’m

Market

value

2019

£’m

SL Mobile Diversified Growth

Fund* ● ● ● ● 318.5 286.2

SL Mobile Flexible Retirement

Fund** ● ● ● ● 2.9 0.8

SL Veritas Global Focus Fund ○ ● ○ ● 11.3 9.0

SL BlackRock UK Focus

Pension Fund ○ ○ ○ ● 2.6 2.2

SL BlackRock (50:50) Global

Equity Fund ○ ● ○ ● 49.0 51.4

SL iShares UK Equity Index

Fund

○ ○ ○ ● 21.8 24.8

SL iShares Index Linked Gilt

Index Fund

● ○ ● ● 4.8 4.9

SL BlackRock Over 15 Year

Corporate Bond Fund ● ○ ● ● 19.1 17.4

Standard Life Deposit and

Treasury Fund ● ○ ● ● 11.0 9.5

SL HSBC Islamic Global Equity

Index Fund ○ ● ○ ● 10.1 6.4

Credit risk

The Plan is exposed to direct credit risks as a result of the financial instruments held in the segregated

accounts. The Plan invests in pooled investment vehicles (“PIVs”) and is therefore directly exposed to credit

risk in relation to the units it holds in these PIVs. The Plan is also exposed to indirect credit risk where the

PIV invests in bonds.




3595094

of

138



Credit risk continued

Credit risk arising on bonds is mitigated by investing in investment grade corporate bonds which are rated at

least investment grade, i.e. Bonds which are BBB rated or above (as per Standard & Poor’s ratings system).

The Plan invests in UK government bonds which are considered to have low credit risk. The Plan also

invests in some non-investment grade bonds. The Trustee manages the associated credit risk through

diversification to minimise the impact of default by any one issuer.

Credit risk arising on derivatives depends on whether the derivative is exchange traded or over the counter

(OTC). OTC derivative contracts are not guaranteed by any regulated exchange and therefore the Plan is

subject to risk of failure of the counterparty. The credit risk for OTC derivatives is reduced by collateral

arrangements.

Cash is held within financial institutions which are at least investment grade credit rated. The Plan’s holdings

in pooled investment vehicles are unrated. Direct credit risk arising from pooled investment vehicles is

mitigated by the underlying assets of the pooled arrangements being ring-fenced from the pooled manager,

the regulatory environments in which the pooled managers operate and diversification of investments

amongst a number of pooled arrangements. The Trustee carries out due diligence checks on the

appointment of new pooled investment managers.

The Plan also invests in gilt repurchase agreements as part of its hedging portfolio. The underlying assets

are UK government bonds which are considered to have low credit risk.

Credit risk on direct corporate bonds is broken down by type:

Credit rating 2020

£’m

2019

£’m

Investment Grade 1,430.3 1,445.7

Non-Investment Grade 5.8 -

Unrated* 345.1 394.0

*Includes Partners Group Private Credit where the Plan is the sole investor in the pooled fund.




3595094

of

138




The table below summarises the allocations that have significant exposure to credit risk:

Category Risk Nature 2020

£’m

2019

£’m

BlackRock - Collateral and LDI/CDS

overlay Direct

547.8 690.3

BlackRock - Corporate Bonds Direct and Indirect 266.0 281.8

M&G – Liquid Credit Direct and Indirect 225.6 221.9

M&G – REDF VI Direct 112.2 -

Apollo – Semi-Liquid Credit Direct 134.2 141.2

Partners Group – Private Credit Direct and Indirect 345.0 394.0

Total Defined Benefit Assets 1,630.8 1,729.2

Defined contribution assets (including AVCs in respect of DB section)

Asset Class Risk Nature 2020

(£’m)

2019

(£’m)

Bond PIV (1) Direct/Indirect 24.0 22.2

Cash PIV (2) Direct/Indirect 11.0 9.5

Other PIV (3) Direct 416.3 380.8

Total

451.3 412.5

(1) BlackRock over 15y Corporate Bond Fund and BlackRock over 15y Index Linked Gilt fund.

(2) Aberdeen Deposit and Treasury Fund.

(3) Other PIVS include all remaining funds listed on page 21




3595094

of

138




A summary of pooled investment vehicles by type of arrangement is as follows:

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Open ended investment companies 225.6 - 225.6

Public limited liability company** 345.0 - 345.0

Cayman Islands exempted company 134.2 - 134.2

Real estate debt fund 112.2 - 112.2

Authorised unit trusts 16.3 442.9 459.2

Investment company with variable capital

(SICAV)***

26.5

-

26.5

859.8 442.9 1,302.43

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Open ended investment companies 221.9 - 221.9

Public limited liability company** 394.1 - 394.1

Cayman Islands exempted company 141.2 - 141.2

Authorised unit trusts 16.9 402.7 419.6

774.1 402.7 1,176.8

** Public limited liability company orgamised and existing under the laws of the Grand-Duchy of Luxembourg, and which has the status of an unregulated securitization company within the meaning of the Securitization Law.

***investment company with variable capital (SICAV) incorporated and authorised under Part I of the Law in accordance with the provisions of the UCITS Directive and listed on the official list of UCITS approved by the Luxembourg Regulatory Authority.




3595094

of

138



Interest rate risk

The Plan is subject to interest rate risk from bonds owned within the defined benefit segregated accounts

and the defined contribution pooled funds.

Defined Benefit assets


(£’m)

2019

(£’m)

BlackRock LDI / CDS Direct 547.8 740.3

BlackRock Corporate

Bonds

Direct 266.0 281.8

813.8 1,022.1

The interest rate risk above is mitigated by the present value of the Plan’s liabilities being calculated based

on current yield curves. Therefore, any loss on assets due to changes in interest rates will also result in a

reduction in the present value of the Plan’s liabilities.

Defined Contribution assets (including AVCs in respect of DB section)


(£’m)

2019

(£’m)

Bond Funds Direct/Indirect 24.0 22.2

Bond Funds include BlackRock over 15y Corporate Bond Fund and BlackRock over 15y Index Linked Gilt

fund.




3595094

of

138



Interest rate risk continued

Defined Contribution assets (including AVCs in respect of DB section)


(£’m)

2019

(£’m)

Cash Direct/Indirect 11.0 9.5

Other PIV Direct 416.3 380.8

Other PIV includes multi-asset and equity funds.

In the DC section, the Plan invests in pooled vehicles that invest in fixed income products that will be

exposed to indirect interest rate risk. Investing in pooled funds, the interest rate risk is diversified by term,

investing in assets from a range of maturities. Interest rate risk has been considered in the design of the

investment strategies and funds appropriate for how members may wish to take their benefits at retirement

e.g. using bond assets that closely align with price movements in the cost of purchasing an annuity.

Other price risk

The DB section invests solely in contractual assets whose market value is determined predominantly by

credit and interest rate conditions. As a result, direct and indirect other price risks are not deemed to be

significant in the DB section’s investment strategy. The DB section is exposed to inflation derivatives in its

LDI mandate, however, these are structured in line with the Plan’s inflation-linked liabilities and therefore are

not expected to contribute significantly to other price risk.

All assets in the DC Section are held in pooled vehicles that are well diversified and other price risks are

mitigated by the investment managers investing in a diverse range of assets.




3595094

of

138



Currency risk

Within the DB section’s segregated mandates the investment managers use forward foreign exchange

contracts to remove as far as possible the currency exposure on overseas investments. There is no direct

currency risk within the Plan's pooled vehicles (in either the DB or DC sections), as all units are held in a

sterling share class. Indirect currency risk may exist within the pooled vehicles if the underlying investments

are held in non-sterling assets, however, the Plan’s investment managers invest in a diverse range of

positions which mitigates this risk.

27. Current assets

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Contributions due in respect of:

Employer - 3,214 3,214

Employees - 53 53

Due from the Employer 630 - 630

Other debtors 1,117 - 1,117

Cash balances 6,136 266 6,402

7,883 3,533 11,416




3595094

of

138


27. Current assets continued

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Contributions due in respect of:

Employer - 3,198 3,198

Employees - 54 54

Other debtors 244 - 244

Due from the Employer 627 - 627

Cash balances 2,854 - 2,854

3,725 3,252 6,977

All contributions due to the Plan at 30 September 2020 and 30 September 2019 relate to September 2020 and

September 2019 respectively and were paid in full to the Plan in accordance with, and within the timescales of, the

Schedule of Contributions in force for those years, and therefore do not constitute employer-related investments.




3595094

of

138


28. Current liabilities

DB

2020

£’000

DC

2020

£’000

Total

2020

£’000

Unpaid benefits 372 362 734

Tax due to HM Revenue & Customs - PAYE 252 5 257

Accrued expenses 1,282 - 1,282

1,906 367 2,273

DB

2019

£’000

DC

2019

£’000

Total

2019

£’000

Unpaid benefits 599 - 599

Tax due to HM Revenue & Customs - PAYE 237 - 237

Accrued expenses 1,593 - 1,593

2,429 - 2,429

29. Employer-related investments

Except for the amount due from the Employer shown in note 27, as at the year ended 30 September 2020 there

were no direct employer-related investments as defined in the Pensions Act 1995.

The percentage of invested assets of indirect employer-related investments as at 30 September 2020 were

as follows:

▪ M&G Alpha Opportunities Fund 0% (2019: 0.22%)

▪ M&G Liquid Credit: 0.24% (2019: 0%)

▪ Apollo: 0.20% (2019: 0%).




3595094

of

138


30. Related-party transactions

Certain administration and secretarial activities are carried out on behalf of the Trustee by the Principal

Employer. The costs, which cannot be identified, are borne by the Principal Employer.

£629,734 (2019: £627,401) is due back to the Plan from the Employer in respect of VAT paid on

administration expenses.

The following Trustee Directors who served during the year are members of the Plan:

▪ Anthony Soothill (Pensioner)

▪ Adrian Gorham (Deferred)

▪ Andrew Davies (Pensioner)

▪ Amanda Stokes-Waters (Deferred, also active member of DC section until 30 November 2020)

▪ Mark Leonard (Deferred)

All contributions and benefits are paid in accordance with the Plan Rules. Included within note 10 is £69,544

(2019: £54,938) in respect of Trustee fees of which £25,162 (2019: £9,985) was outstanding at year end.

Income of £29,485 (2019: £94,427) was received by the Plan during the year and £29,887 (2019: £4,864)

was outstanding at the year end from the Employer in respect of unfunded pension payments. This income

was used to pay pensions during the year for certain members.

31. Capital commitments

The Plan had capital commitments at the Plan year end of £87m (2019: £Nil) in respect of investments

managed by M&G Investment Management Limited.




3595094

of

138


32. GMP

On 26 October 2018, the High Court handed down a judgment involving the Lloyds Banking Group’s defined

benefit pension schemes. The judgment concluded that schemes should be amended to equalise pension

benefits for men and women in relation to GMP benefits. The issues determined by the judgment arise in

relation to many other defined benefit pension schemes.

Under the ruling schemes are required to backdate benefit adjustments in relation to equalisation and

provide interest on the backdated amounts. A further consequential ruling on 20 November 2020 means that

the Trustee will have an obligation to provide top up payments for members who transferred out of the Plan

in the past, where they would have been entitled to extra benefits in the Plan due to GMP equalisation,

should such members make a claim for a top up payment.

The Trustee of the Plan is aware that this issue affects the Plan and is taking advice on what should be done

and what the financial impact is likely to be. The impact on the Plan of any backdated benefits and related

interest that might be payable and due before the effective date of the accounts is however not expected to

be material. The Trustee has therefore not included a liability in respect of these matters in these financial

statements. They will be accounted for in the year they are determined.

33. Post year end event

The Trustee has received the initial results of the actuarial valuation as at 30 September 2020, and has

reached agreement with the Principal Employer on the funding basis to be used for the valuation and on the

deficit recovery contributions, contingent on whether the proposed merger of Telefónica UK with UK Virgin

Media goes ahead. As part of this agreement the Employer made a payment to the Plan of £55m on

31 December 2020, in place of the £25m due under the existing Recovery Plan in January 2021 and in

anticipation of the contributions that will be agreed for the 2020 valuation.




3595094

of

138

Independent Auditor’s Statement about Contributions, under Regulation 4 of The Occupational

Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor)

Regulations 1996, to the Trustee of the Telefonica UK Pension Plan

Statement about contributions payable under Schedule of Contributions

We have examined the Summary of Contributions payable to the Telefónica UK Pension Plan (“the “Plan”)

on page 73 for the year ended 30 September 2020.

In our opinion contributions for the Plan year ended 30 September 2020 as reported on page 73 and payable

under the Schedule of Contributions have in all material respects been paid at least in accordance with the

Schedule of Contributions certified by the Plan Actuary on 24 October 2018.

Scope of work on Statement about Contributions

Our examination involves obtaining evidence sufficient to give reasonable assurance that contributions

reported on page 73 have in all material respects been paid at least in accordance with the Schedule of

contributions. This includes an examination, on a test basis, of evidence relevant to the amounts of

contributions payable to the Plan and the timing of those payments under the Schedule of Contributions.

Respective responsibilities of Trustee and the Auditor

As explained more fully on pages 23 and 24 in the Statement of Trustee’s responsibilities, the Plan’s Trustee

is responsible for ensuring that there is prepared, maintained and from time to time revised a Schedule of

Contributions showing the rates and due dates of certain contributions payable towards the Plan by or on

behalf of the employer and the active members of the Plan. The Trustee is also responsible for keeping

records in respect of contributions received in respect of active members of the Plan and for monitoring

whether contributions are made to the Plan by the employer in accordance with the Schedule of

Contributions.

It is our responsibility to provide a statement about contributions paid under the Schedule of Contributions

and to report our opinion to you.




3595094

of

138

Independent Auditor’s Statement about Contributions to the Trustee of the Telefónica UK Pension Plan continued

Use of our statement

This statement is made solely to the Plan’s Trustee as a body, in accordance with the Pensions Act 1995.

Our audit work has been undertaken so that we might state to the Plan’s Trustee those matters we are

required to state to them in an auditor’s statement and for no other purpose. To the fullest extent permitted

by law, we do not accept or assume responsibility to anyone other than the Plan and the Plan’s Trustee as a

body, for our audit work, for this statement, or for the opinions we have formed.

RSM UK Audit LLP

Statutory Auditor

Chartered Accountants

Portland

25 High Street

Crawley

West Sussex

RH10 1BG

Date:

sdd3

Karen Tasker RSM signature

sdd3

Typewritten Text

11 March 2021

sdd3

Typewritten Text




3595094

of

138

Summary of Contributions payable during the year ended 30 September 2020

During the year, the contributions payable to the Plan were as follows:

DB

£’000

DC

£’000

Total

£’000

Contributions payable under the Schedule of Contributions:

Employer:

Deficit Funding 25,000 - 25,000

Employer normal - 41,269 41,269

25,000 41,269 66,269

Members normal contributions - 672 672

Total contributions payable under the Schedule

of contributions

25,000 41,941 66,941

Other contributions

Members’ additional voluntary contributions - 50 50

Total contributions included in note 5 of the

financial statements

25,000 41,991 66,991

Signed for and on behalf of the Trustee:

11 March 2021

Date:





3595094

of

138

Appendix A - Certification of Schedule of Contributions




3595094

of

138

Appendix B - DC Governance statement from 1 October 2019 to 30 September 2020

Telefónica UK Pension Plan (the “Plan”)

Annual Chair’s Statement for the Plan Year

This statement has been prepared by the Trustee of the Telefónica UK Pension Plan (“the

Trustee”) in accordance with legal requirements. It explains how the Trustee has met its legal

obligations in relation to the management of the defined contribution sections of the Plan over

the period 1 October 2019 to 30 September 2020 (“the Plan Year”).

During the Plan Year, Telefónica (“the Company”) undertook a review of the pensions market.

The review concluded after the Plan Year end, when the Company decided to build up future

pension savings for employees in a Master Trust arrangement. As a result, from 1 December

2020, no new DC Section contributions have been made to the Plan. The impact on existing DC

Section benefits that had already built up in the Plan is currently being worked through with the

Trustee, and will be explained in more detail within the Annual Chair’s Statement for the period

ending 30 September 2021.

1. The Default Arrangements

i) Statement of Investment Principles

The Statement of Investment Principles (“SIP”) covering the Plan Year is attached to

this statement.1 It explains the decisions made by the Trustee about investments. It

covers the Trustee’s policies on risk, return and Environmental, Social and

Governance (“ESG”) considerations, its aims, objectives and policies for the Plan’s

default arrangements and how those default arrangements are intended to ensure

that assets are invested in the best interests of the members. The default

arrangement is the investment structure that members will be placed into, should

they not make their own choice when they join the Plan. A number of other funds

are classified as default arrangements for some members following historic mapping

processes where members’ funds have been transferred without them expressing a

choice.

ii) Review of the default arrangements

The Trustee reviews the appropriateness of the default arrangements on an ongoing

basis and formally at least every three years (or sooner, if there is any significant

change in investment policy or member demographics), to ensure that the return on

investments is consistent with the Trustee’s aims, objectives and policies.




3595094

of

138

Appendix B - DC Governance statement from 1 October 2019 to 30 September 2020 continued

A formal review of the strategy of the Plan’s default arrangements took place on 16

July 2018, on the back of which a new default arrangement was implemented in

February 2019. Members who were invested in the previous default, who were

more than 5 years from retirement automatically switched to the new default which

is more suitable for supporting flexible retirement choices. Members who were

invested in the previous default, who were less than 5 years from retirement

remained in the previous default, which is more suitable for members wishing to

purchase an annuity at retirement.

A further review of the default investment strategy was considered by the Trustee

on 20 November 2019, focusing on the growth phase (the period from joining the

Plan up to five years prior to the member’s selected retirement date) of the lifestyle

options. Based on this review, the Trustee has decided to make changes to the

underlying investments within the growth phase, introducing an explicit investment

in equities, incorporating ESG considerations and factor-based investment. The

Trustee decision on the growth phase changes were communicated to the

membership in December 2019. The changes are being implemented in a phased

approach and started in January 2020.

The next formal review of the default arrangements is due to take place in 2021.

In addition to the strategy review, the Trustee undertakes a review of the

performance of the default arrangements against their aims, objectives and policies

on a quarterly basis. This review includes analysis of both fund performance and

member experience/activity to assess whether the risk and return levels are in line

with expected levels for the strategy design across the growth and pre-retirement

phases. The reviews that took place during the Plan Year led the Trustee to conclude

that the investments were performing in line with expectations.




3595094

of

138


iii) Aims, objectives and policies relating to the Plan’s main default arrangement

From 1 February 2019, members who do not make an active decision regarding their

investment upon joining the Plan are placed into the “Getting ready for flexible

retirement” lifestyle strategy. Details are set out in the attached SIP document, with

key points noted below. 1

During the growth phase the member is invested in a diversified growth fund which

has a long-term target to exceed price inflation and general salary growth, which is

represented by the benchmark of the Consumer Price Index + 2% p.a. As a member

approaches their selected retirement date the default arrangement transfers a

portion of member’s savings into a bond fund and a cash fund, whilst retaining a

portion in the diversified growth fund. This mix of assets is designed to reduce risk

whilst still offering the expectation of real rates of growth over the long term and is

considered to be an appropriate mix regardless of the type(s) of benefit a member

chooses at retirement.

Three additional lifestyle investment options are available for members to select if

they have a specific retirement target. These invest in the same funds as the main

default arrangement in the growth phase but then invest in different funds in the

pre-retirement phase appropriate for the benefits being targeted, as follows:

• ‘Annuity Lifestyle’: the majority of the members’ assets remain in the same

fund as in the growth phase of the “Getting ready for flexible retirement”

lifestyle strategy. In the pre-retirement phase instead of investing in assets

which target a flexible retirement, members begin switching 75% of their

assets into long dated bonds and 25% into cash over the 5 years before the

selected retirement date. The aim is to track annuity rates and protect cash,

to help reduce volatility for those members intending to purchase an

annuity and take their tax-free cash at retirement.

1 The attached SIP was adopted during the Plan Year and reflects both the changes made to the pre retirement phase of the Plan’s main

default arrangement in February 2019 and also the changes to the growth phase which will be implemented in a phased approach from January 2020 .




3595094

of

138


• ‘Drawdown Lifestyle’: the majority of the members’ assets remain in the

same fund as in the growth phase of the “Getting ready for flexible

retirement” lifestyle strategy. In the pre-retirement phase instead of

investing in assets which target a flexible retirement, members retain 75% of

their assets in the SL Mobile Diversified Growth Pension Fund and 25% is

switched into cash over the 5 years before the selected retirement date. The

aim is to strike a balance between investing in return seeking assets and

protecting the value of members’ savings, to help prepare them to draw

down their savings in retirement.

• ‘Cash Lifestyle’: the majority of the members’ assets remain in the same

fund as in the growth phase of the “Getting ready for flexible retirement”

lifestyle strategy. In the pre-retirement phase instead of investing in assets

which target a flexible retirement, member’s assets are automatically

switched into a cash fund over the 5 years before the selected retirement

date, which aims to protect the savings of those members intending to take

their entire savings as cash.

iv) Aims, objectives and policies relating to the Plan’s other default arrangements

In addition to the three additional lifestyle structures, the Plan also offers a range of

investment options. These are alternative options for individuals who may wish to

create their own investment portfolio with no lifestyle profile.

The following are ‘freestyle’ funds available in the Plan, but are also classed as

“default arrangements” for the purposes of legislation:

SL Mobile Diversified Growth Pension Fund

At the start of the Plan Year, this fund invested in diversified growth funds,

consisting of the SL BlackRock Diversified Growth Pension Fund (70%) and the SL ASI

Dynamic Multi Asset Growth Pension Fund (30%). These invest in a diversified

portfolio of equities, bonds, alternative assets and cash, targeting a similar return to

equities, but with less risk of significant falls in value in the short term. Changes are

being made to this fund on a phased basis, with a final target asset allocation of 80%

diversified growth funds and 20% equities.




3595094

of

138


SL Mobile Flexible Retirement Pension Fund

Invests in the SL BlackRock Diversified Growth Fund (21%), the SL ASI Dynamic Multi

Asset Growth Pension Fund (9%), the SL iShares Corporate Bond Index Fund (45%)

and the Standard Life Deposit & Treasury Pension Fund (25%). The fund is designed

to provide members with a mix of investments which could be considered suitable

irrespective of their retirement objective. This fund was added to the investment

options during the Plan Year.

SL BlackRock UK Focus Pension Fund / SL iShares UK Equity Index Pension Fund

Invest in UK company shares. The returns will be more volatile and less secure than

from UK government bonds. To compensate for extra risk, investors expect higher

investment returns from this asset class.

SL BlackRock Managed (50:50) Global Equity Pension Fund

Invests in company shares from around the world. Investing in shares of overseas

companies often entails currency risk. Broader geographical diversification is

expected to reduce risk.

SL BlackRock Aquila Connect Over 15 Year Corporate Bond Pension Fund

Aims to perform broadly in-line with annuity prices although returns are expected to

be lower than for equities over the long term.

SL iShares Index Linked Gilt Index Pension Fund

Returns are linked to the rate of Retail Prices Inflation (RPI) but are expected to be

lower than equities and corporate bonds over the long term.

SL Deposit & Treasury Pension Fund

Provides short-term capital protection but may not keep pace with price and salary

inflation.

SL HSBC Islamic Global Equity Index Pension Fund

Invests in the largest 100 companies engaged in Shariah-compliant activities

globally.




3595094

of

138


I) The Plan also offers the option of investing in the SL Veritas Global Focus

Pension Fund (which is not a “default arrangement”). The fund is designed for long term

investors who wish to build capital over a number of years through investment in a

focused portfolio of global companies.

2. Financial Transactions

i) Service Level Agreements

During the Plan Year the Trustee, as part of ongoing monitoring, has reviewed the

existing service provided by its third party administrator. The administration

agreement contains service levels setting out the required turnaround times of all

core financial transactions. The Company reviews Plan level statistics and analysis

against those agreed service levels on a monthly basis and reports their findings to

the Trustee. Throughout the Plan Year there were no reportable issues, from a

service level perspective relating to the application of payments to member records,

record-keeping functions, normal retirement member events and the application of

contributions to the investments specified. The Trustee regularly monitors the

administrator’s compliance with the required service levels (set out in the

administration agreement) in respect of core financial transactions. These include

the investment of contributions, fund switches, and transfers into and out of the

Plan.

The Trustee reviewed the administrator’s performance and processes in more detail

from March 2020 in light of the impact of the COVID-19 pandemic and guidance

published by the Pensions Regulator. The Trustee reviewed monthly management

information containing performance levels against their respective benchmarks for

turnaround of core administration tasks, monthly contribution uploads, and the

waiting times for callers to the contact centre. The Trustee also reviewed the

number of members using the additional methods of communication and

engagement with the administrator namely, website log in, app log in and secure

messaging to the administration team.




3595094

of

138


During the Plan Year, the Trustee ensured that such core financial transactions were

processed promptly and accurately by:

• monitoring administrator service levels outlined in quarterly reports from

the Plan’s administrator against those required by its service level

agreement;

• monitoring the end to end process for the investment of monthly

contribution payments;

• carrying out an external audit of financial statements including sampling of

transactions.

The Trustee is therefore satisfied that the administrator was operating appropriate

procedures and controls, and operating within the agreed Plan administration

service level agreement.

ii) Accuracy of record keeping and data security

The Trustee reviews the accuracy of record keeping on an ongoing basis but more

formally at least every three years. The Trustee worked closely with the Company to

undertake a data review in the Plan Year including address tracing for deferred

members. Further work was also carried out by Standard Life and the Company. Any

areas of improvement have been identified, risks have been documented in the risk

register and processes agreed for ongoing data monitoring, reporting and dealing with

errors.

The Trustee recognises the importance of systems and processes to the effective

operation of the Plan and the fact that many of these are provided by the Plan

administrator. There were no significant internal control recommendations for the DC

sections of the Plan identified by the Plan auditors, RSM, during their statutory audit of

the financial statements for the 2018/19 Plan year.

It was identified that Standard Life Assurance Limited did not hold ISO accreditations for

data security and the Trustee had challenged them to seek this externally recognised

standard as best practice. Standard Life Assurance Limited initially planned to undertake

this but was deferred given the transition to Phoenix Group. It is understood that the IT

systems in place with the Phoenix Group have received ISO accreditation for data

security.




3595094

of

138


From 25 May 2018, new legislation was introduced, EU General Data Protection

Regulation (“GDPR”). The Trustee, in conjunction with its legal advisors, Plan

administrator and the Company, reviews their compliance with GDPR, in relation to data

protection, ownership of data and data privacy, on an ongoing basis and captures any

risks and further reviews in the Trustee’s business plan and/ or risk register.

(iii) Administrator update

The Plan administrator for the Plan Year was Standard Life Assurance Limited. On 3

September 2018, Standard Life Aberdeen, sold Standard Life Assurance Limited to

Phoenix Group. Since the deal was completed, the Trustee has not seen a material

change to the Plan’s member experience and the administrator’s service

performance. The Trustee will continue to monitor this during the plan year ending

30 September 2021..

Charges and Transaction costs

i) Charges borne by the members

The Trustee calculated the charges (as Total Expense Ratios (“TER”)) and, as far as they

were able to do so, the transaction costs, borne by members during the Plan Year. (For

these purposes, the Trustee has agreed that the “charges year” for the purpose of

assessment shall be the same as the Plan Year).

The member borne charges for the Plan’s default arrangements complied with the

statutory charges cap during the Plan Year.

The Plan’s main default arrangement

During the Plan Year the charges that applied to the Plan’s main default arrangement

from 1 February 2019, called “Getting ready for flexible retirement” were:

o a total of 0.66% per annum in the period prior to 5 years before the member’s

selected retirement date

o ranged from 0.66% to 0.40% per annum over the de-risking period for the 5

years before the member’s selected retirement date.




3595094

of

138


During the Plan Year the charges that applied to the ‘Getting ready to purchase annuity’

were:





During the Plan Year the charges that applied to the ‘Drawdown Lifestyle’ were:





During the Plan Year the charges that applied to the ‘Cash Lifestyle’ were:








3595094

of

138


The Plan’s other default arrangements

During the Plan Year the charges and transaction costs that applied to the Plan’s other

default arrangements were as follows:

Fund Total Expense

Ratio (% p.a)

2019/20 Transaction

Cost (% p.a)

2018/19 Transaction

cost (% p.a)

Average Transaction

costs (% p.a)


0.66 0.54 0.37 0.46

SL Mobile Flexible Retirement Pension Fund

0.40 0.43 0.49 0.46

SL BlackRock UK Focus Pension Fund*

1.37 0.19 0.13 0.16

SL iShares UK Equity Index Pension Fund

0.25 0.27 0.10 0.18

SL BlackRock Managed (50:50) Global Equity Pension Fund

0.25 0.54 0.05 0.30

SL iShares Index Linked Gilt Index Pension Fund

0.25 0.02 0.04 0.03

SL BlackRock Aquila Connect Over 15 Year Corporate Bond Pension Fund

0.25 -0.04 -0.23 -0.14

Standard Life Deposit and Treasury Pension Fund

0.30 0.07 0.08 0.07

SL HSBC Islamic Global Equity Index Pension Fund

0.54 0.04 0.06 0.05

*Although this fund is classed as a “default arrangement”, the charge cap does

not apply for legal reasons. Before 30 September 2015 members who invested

in the fund consented to remain and pay the higher TER rather than be moved

to an alternative lower charging fund.




3595094

of

138


The Total Expense Ratio (“TER”) measures the total cost of a fund and cost of

administration to an investor. Minor variations in TER will occur from year to year as

the funds incur some fixed costs which vary as a percentage of assets as the asset value

changes. Where the fund was available, figures above are within 0.01% of the last Plan

Year.

The Plan’s other investments which are not default arrangements

During the Plan Year the charges that applied to the SL Veritas Global Focus Pension

Fund were 1.28% on a TER basis and average transaction costs were 0.13%.

Members invested in the AVC arrangement provided for the Plan’s DB sections have

access to the same funds as the Plan’s DC sections. Where such AVC members are

invested in those funds the same charges and Trustee governance applies.

There is also one member in the Plan’s DB sections who previously held AVCs with

Equitable Life. During the Plan Year, these have been transferred to Utmost Life &

Pensions (“Utmost”) following a transfer of Equitable Life’s business to Utmost. The

Trustee reviewed the appropriateness of this arrangement following the transfer and

concluded that it was in the member’s best interest to consolidate their benefits in

Utmost with their existing DC pot with Standard Life. This transfer was completed in

April 2020.

ii) Transaction costs

With effect from 3 January 2018, firms that manage money on behalf of DC workplace

pension schemes were required, on request, to provide information about

administration charges and transaction costs. In addition to this, new measures require

the disclosure of costs, charges and investments in occupational DC schemes.

The Trustee has requested, via its advisers, transaction costs information, covering each

of the past five Plan Years, for every fund in the Plan’s fund range, from the Plan’s

administrator and investment platform provider Standard Life Assurance Limited.

However, there have been some difficulties within the industry in obtaining

comprehensive historic information about transaction costs, and these have affected the

Plan.




3595094

of

138


The transaction costs information which Standard Life Assurance Limited provided to the

Trustee is based solely on the last two Plan Years, shown in section 3. and does not

extend to the past five Plan Years. This is due to Standard Life Assurance Limited

reporting transaction costs on an annualised basis and the data not being available for

previous Plan Years due to the regulations requiring these disclosures only being in place

from 3 January 2018. The Trustee expects that in future years, the Plan administrator

should be able to comply more fully with providing more long-term transaction costs.

Without meaningful consistent transaction costs disclosures from all asset managers, it

is very difficult for the Trustee to form a judgement on the extent to which any

transaction costs could be considered excessive. As the market develops and better

disclosure becomes available, the Trustee will look carefully at the extent to which these

costs represent value for members.

Illustrations of the effect of costs and charges on members’ retirement outcomes

In order to achieve greater transparency about costs, regulations came into force on 6

April 2018 which require the Trustee to provide members with additional information in

relation to investment charges and core transaction costs. These must be set out as

example member illustrations, that have been prepared with regard to the relevant

statutory guidance: Reporting of costs, charges and other information: guidance for

trustees and managers of relevant occupational schemes.

The illustrations for Plan members are set out and explained on pages 14-21 of this

Chair’s Statement (pages 93 to 101 of this report).

iii) Value for members assessment

The Trustee, with the support of their advisers, undertook a review which began in

December 2020 and concluded in February 2021 in respect of the Plan Year to assess

whether the Plan represents good value for its members. The Trustee has concluded

that the Plan’s overall benefits do represent good value for the costs and charges

deducted from member’s accounts, for the following reasons:




3595094

of

138


• The Company continues to provide a contribution structure which provides

contribution levels over and above the automatic enrolment minima;

• The Company also provides a more generous contribution structure that all

members can access for those who choose to save more for their

retirement;

• Member borne costs remain below the charge cap and the Trustee is

focused on improving the member experience (as demonstrated by the

outcome of the investment strategy review, and the changes made to the

pre retirement phase and the changes to the growth phase within the Plan’s

main default arrangement);

• Increased flexibility is being offered via the changes to the default

arrangement, whereby members target a flexible approach to retirement, or

can choose from other lifestyles for annuity, drawdown and cash;

• The quality of communications provided on a regular basis continues to raise

standards in this area and provides members with a good understanding of

their pensions’ benefits and options throughout the pensions lifecycle;

• Members have access to some of the new retirement flexibilities on a basis

in keeping with those available from other similar schemes.

During the Plan Year the Trustee also made the following improvements:

• The Trustee investigated and challenged asset managers on their

disclosure of transaction costs. Further detail is available in the costs and

charges section.

• The Trustee has finalised a comprehensive risk register and Business

Plan which they continue to review and update this throughout the Plan

Year;

• The Trustee conducted an effectiveness review in respect of their role

during the Plan Year;

• The Trustee is using the data and statistics provided by the administrator

to better understand the membership and how they can further

improve value for members, in particular by regularly monitoring

members’ choices at retirement;




3595094

of

138


• The Trustee closely monitored administration performance and

processes in line with the Pensions Regulator’s guidance, in particular

during the COVID-19 pandemic. The Trustee communicated quickly and

clearly to members to inform members of the impact of COVID-19 on

the investment market and the impact to Standard Life’s administration

processes. The communication also signposted members to further

support.

• The Trustee has regularly reviewed communications, in particular

communications in relation to investment changes;

• The Trustee has improved their knowledge and understanding on

retirement options and the support provided to members by the

administrator.

The Value for Member assessment was undertaken by the DC subcommittee, in

conjunction with their advisors, Isio, on behalf of the Trustee. It measured seven

key elements of a DC scheme aligned to the TPR’s DC Code of Practice and

guidance on DC schemes. It included the use of a detailed scoring mechanism to

determine the outcomes, which were documented and benchmarked against

the progress made from previous Plan Years, with any areas for improvement

captured in the Trustee’s remit for the year ahead. The assessment process and

weightings are re-considered each year following discussions amongst the

Trustee and their advisers, Isio and no material changes were made to the

weightings for the assessment. As a result, it can be shown that there has been

an improvement in value provided to members from the previous Plan Year.

Please note that Value for Members assessments for subsequent plan years are

likely to look different which means it may be harder to draw comparisons with

the assessment in respect of the Plan Year. There are two reasons for this. The

first is expected changes to legislation which are due to come into force. The

second reason is the Company’s decision to provide pension benefits from the

Master Trust (mentioned above) which means that that the Plan’s DC Section is

likely to be significantly smaller in the future. These two reasons mean that the

criteria for assessing value for members are likely be different for future Plan

Years.




3595094

of

138


iv) Trustee knowledge and Understanding (TKU)

i) Trustee training

During the Plan Year, the Trustee took ongoing action to maintain and develop the

knowledge and understanding of the Trustee. Each of the Trustee directors

maintains their own personal training record, which is also passed to the Plan

Secretary to be held centrally.

In addition to regular informal training slots during Trustee board and sub-

committee meetings, the Trustee directors also took part in an annual Trustee

training day in November 2019. The training day focused on the evolving DC and

workplace savings market, business planning for the Plan Year, Trustee effectiveness

review, legislative updates and current key themes in the pensions industry, changes

to the Pension Regulator and the Regulator’s powers. A further training day was also

completed in October 2020 which focused on the wider strategy of the Plan, ESG

policy and training on climate change.

The Trustee approach to meeting the TKU requirements during the Plan Year

included:

• Regular training sessions within the quarterly Trustee meetings, which

included the opportunity for discussion with advisers, to enable the Trustee

directors to learn about and discuss current legislative and regulatory

requirements relating to pensions law and trusts, and principles relating to

funding and investment, and in particular ESG investing;

• Considering and applying the Plan’s trust deed and rules, SIP and policies,

where appropriate to Trustee decisions;

• Attendance at external seminars and accredited training sessions;

• Circulating to each Trustee director on a quarterly basis hot topics and

general update papers from its advisers about matters relevant to the Plan;

• Considering their training needs and planning a formal Trustee training day

(created by the Plan’s advisers following consultation with the Trustee)

In the light of TKU requirements, the Trustee regularly reviews personal training needs

throughout the Plan Year and reports any individual training undertaken to the Plan

Secretary for record keeping.




3595094

of

138


ii) Evaluation of the Trustee

Following the Pensions Regulator discussion paper on 21st Century Trustees, the

Trustee decided to undertake an evaluation of the effectiveness of the Trustee, its

sub-committees and support team. The main aspect of the effectiveness review was

to assess the knowledge, behavioural and team dynamic amongst the existing

Trustee group. The Trustee completed a self assessment questionnaire and results

from this, together with insight from the advisors fed into an agreed actions list.

These follow up actions were captured in the Business Plan for the Plan Year which

was reviewed throughout the Plan Year. It was agreed that the Trustee is continuing

to perform effectively and retains the high level of skills, as documented below,

required to govern the Plan.

Trustee experience and skills

During the Plan Year the Trustee Board included individuals with a varied skillset,

some of whom were not employees of the Company, which provided valuable

insight from different perspectives, separate to that of the Company. Each member

of the Board has different skills and expertise which provide for an overall diverse

and strong composition, enabling the Trustee to address the following areas:

• Legal: understanding of legal obligations and also entitlements as

regards the Trustee, its trust law duties and contractual commitments,

enabling the Trustee to challenge third parties (including the Company

and advisers);

• Legislation: considerable experience in reviewing and debating new

legislation, understanding the impact on the membership, enabling the

Trustee to comply with its legal obligations and to challenge the

Company, advisers and Plan administrators on the application of new

legislation released by formal bodies;

• Information and Data Security: practical experience and understanding

of IT and security issues of the Company (including outside the Trustee

role), enabling the Trustee to question third party suppliers about how

they operate adequate security controls in order to protect Plan data

and members’ personal information;




3595094

of

138


• Strategy and restructuring: experience of adopting a methodical

approach to business strategy (including outside the Trustee role),

enabling the Trustee to set appropriate business plans and consider how

to monitor and develop the Trustee’s relationship with the Company

and third parties such as the Plan administrator;

• Funding and transactions: experience (including outside the Trustee

role) of liaising with investment managers and advisers on expectations

and actual experience of changes to funding, covenant and asset values

including understanding the impact for members, the Company and

Trustee;

• Customer and Transformation: experience of dealing with the customer

viewpoint, encouraging the Trustee to consider service standards and

the member experience in terms of what members value and how they

receive Trustee communications, and to challenge all third parties on

continuous improvement and development of supporting materials and

protocols;

• Member insights: looking at all Trustee decisions from a member

perspective, enabling the Trustee to consider the impact of their

decision on members and to challenge existing processes, procedures

and communication channels to meet member needs.

In addition, the Trustee receives advice on investment, legal and other matters

from a number of advisers including:

- Isio – investment and benefit consultancy advice. Isio was formed following

the sale of KPMG UK’s Pension Practice to a private equity firm in March

2020. All employees were taken across to Isio. The quality of service has

been maintained

- LCP – actuarial advice

- Sacker & Partners LLP – legal advice

- RSM – audit advice

It is usual for Isio, LCP and Sacker & Partners LLP to be present at each Trustee

board meeting and relevant sub-committee meeting in order to provide

appropriate advice and support, as and when it is needed.

For these reasons, the Trustee believes that its combined knowledge and

understanding, together with the advice which is available to the Trustee,

enables it to properly exercise its functions as the Trustee of the Plan.




3595094

of

138


Illustrations of the effect of costs and charges

Background The next few pages contain illustrations about the cumulative effect of costs and charges on member savings within the Plan over a period of time. The illustrations have been prepared having regard to statutory guidance. As each member has a different amount of savings within the Plan and the amount of any future investment returns and future costs and charges cannot be known in advance, the Trustee has had to make a number of assumptions about what these might be. The assumptions are explained in the Notes section below the illustrations. Members should be aware that such assumptions may or may not hold true, so the illustrations do not promise what could happen in the future. This means that the information contained in this Chair’s Statement is not a substitute for the individual and personalised illustrations which are provided to members each year by the Plan. Members seeking current projections which are more specific to their individual circumstances, may also wish to use the Pension Planner at http://telefonicapensions.com/pension-planner. Key points to note Each of the charts below illustrates the potential impact that costs and charges might have on different investment options provided by the Plan. The Trustee has chosen a number of illustrations which they believe will provide an appropriate representative sample of the different investment choices that members can make. Please note that as a result of the closure of the Plan for future contributions with effect from 30 November 2020, this year’s illustrations no longer allow for the payment of future contributions and therefore this year’s illustrations will show a smaller projected pot than those seen in last year’s Chair’s Statement. Future contributions have been paid into the Master Trust from 1 December 2020. In each of the illustrations, the “Before charges” column gives the hypothetical value of the investments if members were able to invest in funds at no cost. However, there will always be some cost to investing. This is because the organisations which manage the funds charge fees for their services, and also because buying and selling the stocks and shares which drive the funds’ performance also has a cost. The “After all costs and charges deducted” column reflects the performance of the funds after these costs have been deducted.

http://telefonicapensions.com/pension-planner




3595094

of

138


A. Auto-enrolment members

The table above will be relevant to a large number of Plan members. It shows the projected pot size up to age 65 in today’s money for auto-enrolled members investing in the Plan’s current default investment arrangement (Getting ready for flexible retirement lifestyle strategy). The projections in the table assume that the member starts with a pot value equal to the median for that age group.

Age 20 on

30/09/2020 Age 30 on

30/09/2020 Age 40 on

30/09/2020 Age 50 on

30/09/2020 Age 60 on

30/09/2020

Starting pot value of:

£1,906 Starting pot value of:




£9,949

Years from 30/09/2020

Before Charges

After all costs and charges

deducted

Before Charges


deducted

Before Charges


deducted

Before Charges


deducted

Before Charges


deducted

1 1,935 1,914 6,219 6,151 8,025 7,937 8,592 8,498 10,097 9,986

3 1,993 1,928 6,406 6,198 8,267 7,997 8,851 8,562 10,293 9,971

5 2,053 1,943 6,599 6,245 8,516 8,058 9,117 8,627 10,345 9,836

10 2,211 1,980 7,107 6,364 9,171 8,212 9,819 8,792 - -

15 2,381 2,018 7,654 6,485 9,877 8,369 10,210 8,692 - -

20 2,564 2,056 8,243 6,609 10,637 8,529 - - - -

25 2,762 2,095 8,878 6,735 11,061 8,432 - - - -

30 2,974 2,135 9,561 6,864 - - - - - -

35 3,203 2,176 9,942 6,786 - - - - - -

40 3,450 2,218 - - - - - - - -

45 3,587 2,193 - - - - - - - -




3595094

of

138


II) Notes on member illustrations in Table A

1. The starting pot size for each age group is the median pot size on 30 September

2020 for that group

2. Projected pension pot values are shown in today’s terms, and do not need to be

reduced further for the effect of future inflation

3. Inflation is assumed to be 2.5% each year

4. All of the illustrations assume that no further contributions are made from 30

September 2020

5. Values shown are estimates and are not guaranteed

6. Transaction costs are based on the data provided by Standard Life Assurance Limited

(further information on what data has been provided is detailed in section 3)

7. The projected growth rates (net of inflation) for each fund are shown in the table

below:

Fund Isio return

assumption (% p.a.)

SL Mobile Diversified Growth Pension Fund 1.49

SL Mobile Flexible Retirement Pension Fund -0.28

Standard Life Deposit and Treasury Pension Fund -2.01




3595094

of

138


B. Member aged 20 on 30 September 2020

The tables below give the projected pot size up to 65 in today’s money for each fund used by

members. It assumes a starting pot size of £1,293, which is the median pot size for members

aged 20-29. It assumes the member doesn’t pay anything more into their pot. See the Notes

section below for further details.

SL Mobile Diversified

Growth Pension Fund

SL Mobile Flexible

Retirement

Pension Fund

SL BlackRock UK Focus

Pension Fund

SL iShares UK Equity

Index Pension Fund

SL BlackRock

Managed (50:50)

Global Equity

Pension Fund

Years from

30/09/2020

Before Charges

(£)

After all

costs and charges

deducted (£)

Before Charges

(£)

After all

costs and

charges deducted

(£)

Before Charges

(£)

After all

costs and

charges deducte

d (£)

Before Charges

(£)

After all

costs and charges

deducted (£)

Before

Charg

es (£)

After all

costs and charges

deducted (£)

1 1,313 1,298 1,290 1,279 1,325 1,306 1,319 1,313 1,319 1,312

3 1,352 1,308 1,283 1,250 1,392 1,331 1,372 1,355 1,372 1,350

5 1,393 1,318 1,275 1,222 1,463 1,357 1,427 1,397 1,427 1,390

10 1,500 1,343 1,258 1,154 1,654 1,424 1,576 1,510 1,576 1,493

15 1,615 1,368 1,241 1,090 1,871 1,494 1,739 1,632 1,739 1,604

20 1,740 1,394 1,224 1,029 2,117 1,568 1,919 1,763 1,919 1,724

25 1,874 1,421 1,207 972 2,394 1,645 2,119 1,905 2,119 1,853

30 2,018 1,448 1,190 918 2,708 1,726 2,338 2,058 2,338 1,991

35 2,173 1,476 1,174 867 3,063 1,811 2,581 2,224 2,581 2,139

40 2,340 1,504 1,158 819 3,464 1,900 2,849 2,403 2,849 2,298

45 2,521 1,532 1,142 774 3,918 1,994 3,144 2,597 3,144 2,470




3595094

of

138


SL iShares Index

Linked Gilt Index

Pension Fund

SL BlackRock Aquila

Connect Over 15

Year Corporate

Bond Pension Fund

Standard Life

Deposit and

Treasury Pension

Fund

SL HSBC Islamic

Global Equity Index

Pension Fund

SL Veritas Global

Focus Pension

Fund

Years from

30/09/2020

Before Charges

(£)

After all

costs and charges

deducted (£)

Before Charges

(£)

After all

costs and

charges deducted

(£)

Before Charges

(£)

After all

costs and

charges deducted

(£)

Before Charges

(£)

After all

costs and charges deducte

d

(£)

Before Charges

(£)

After all

costs and charges deducte

d (£)

1 1,267 1,264 1,282 1,280 1,267 1,262 1,319 1,311 1,325 1,307

3 1,217 1,207 1,258 1,254 1,217 1,203 1,372 1,348 1,392 1,336

5 1,169 1,152 1,236 1,229 1,169 1,147 1,427 1,387 1,463 1,365

10 1,056 1,026 1,181 1,167 1,056 1,017 1,576 1,487 1,654 1,440

15 954 914 1,128 1,109 954 901 1,739 1,594 1,871 1,519

20 862 814 1,078 1,053 862 799 1,919 1,709 2,117 1,603

25 779 725 1,030 1,001 779 708 2,119 1,833 2,394 1,692

30 704 646 984 951 704 628 2,338 1,965 2,708 1,785

35 636 576 940 903 636 557 2,581 2,107 3,063 1,884

40 575 513 899 858 575 494 2,849 2,259 3,464 1,988

45 520 457 859 815 520 438 3,144 2,422 3,918 2,098




3595094

of

138


C. Member aged 30 on 30 September 2020

The tables below give the projected pot size up to age 65 in today’s money for each fund used by





SL Mobile Flexible Retirement Pension

Fund

SL BlackRock UK Focus Pension Fund


SL BlackRock Managed (50:50)

Global Equity Pension Fund


Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

1 6,913 6,837 6,792 6,734 6,981 6,877 6,947 6,917 6,947 6,910

3 7,121 6,888 6,755 6,582 7,333 7,010 7,227 7,135 7,227 7,111

5 7,335 6,941 6,717 6,433 7,704 7,146 7,518 7,360 7,518 7,319

10 7,900 7,073 6,625 6,076 8,713 7,499 8,298 7,952 8,298 7,864

15 8,508 7,207 6,534 5,739 9,856 7,868 9,159 8,593 9,159 8,450

20 9,163 7,344 6,444 5,421 11,147 8,256 10,109 9,285 10,109 9,080

25 9,868 7,484 6,355 5,120 12,609 8,662 11,158 10,033 11,158 9,757

30 10,627 7,626 6,268 4,836 14,261 9,089 12,315 10,841 12,315 10,484

35 11,445 7,771 6,182 4,568 16,131 9,537 13,593 11,714 13,593 11,265

SL iShares Index Linked Gilt Index

Pension Fund

SL BlackRock Aquila Connect Over 15

Year Corporate Bond Pension Fund

Standard Life Deposit and Treasury Pension

Fund

SL HSBC Islamic Global Equity Index

Pension Fund

SL Veritas Global Focus Pension Fund


Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

1 6,674 6,655 6,749 6,741 6,674 6,649 6,947 6,907 6,981 6,885

3 6,409 6,354 6,628 6,605 6,409 6,336 7,227 7,102 7,333 7,034

5 6,155 6,067 6,508 6,471 6,155 6,039 7,518 7,303 7,704 7,187

10 5,562 5,404 6,218 6,147 5,562 5,354 8,298 7,830 8,713 7,584

15 5,026 4,814 5,942 5,840 5,026 4,746 9,159 8,395 9,856 8,002

20 4,541 4,288 5,677 5,548 4,541 4,208 10,109 9,001 11,147 8,444

25 4,104 3,820 5,425 5,271 4,104 3,731 11,158 9,651 12,609 8,911

30 3,708 3,403 5,184 5,008 3,708 3,308 12,315 10,348 14,261 9,402

35 3,351 3,031 4,953 4,757 3,351 2,933 13,593 11,095 16,131 9,922




3595094

of

138


D. Member aged 40 on 30 September 2020





SL Mobile

Diversified Growth Pension Fund


Fund






Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

1 24,819 24,546 24,386 24,177 25,064 24,690 24,942 24,836 24,942 24,808

3 25,567 24,732 24,252 23,631 26,330 25,170 25,946 25,617 25,946 25,532

5 26,336 24,919 24,118 23,098 27,659 25,659 26,991 26,424 26,991 26,277

10 28,363 25,393 23,786 21,816 31,285 26,923 29,792 28,552 29,792 28,235

15 30,546 25,877 23,459 20,606 35,386 28,249 32,883 30,852 32,883 30,339

20 32,897 26,369 23,136 19,463 40,024 29,641 36,295 33,336 36,295 32,600

25 35,429 26,871 22,818 18,384 45,270 31,101 40,060 36,022 40,060 35,030


Pension Fund

SL BlackRock Aquila Connect Over 15 Year Corporate

Bond Pension Fund

Standard Life Deposit and

Treasury Pension Fund


Pension Fund



Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

1 23,963 23,895 24,232 24,205 23,963 23,872 24,942 24,797 25,064 24,718

3 23,012 22,815 23,795 23,713 23,012 22,750 25,946 25,499 26,330 25,255

5 22,098 21,783 23,366 23,232 22,098 21,681 26,991 26,220 27,659 25,804

10 19,968 19,404 22,327 22,071 19,968 19,222 29,792 28,112 31,285 27,229

15 18,044 17,284 21,333 20,968 18,044 17,042 32,883 30,142 35,386 28,732

20 16,306 15,397 20,384 19,921 16,306 15,109 36,295 32,318 40,024 30,318

25 14,735 13,715 19,478 18,925 14,735 13,396 40,060 34,652 45,270 31,992




3595094

of

138


E. Member aged 50 on 30 September 2020




section for further details.



Fund






Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

1 44,958 44,463 44,173 43,793 45,401 44,724 45,179 44,987 45,179 44,937

3 46,311 44,800 43,929 42,805 47,693 45,592 46,999 46,403 46,999 46,248

5 47,705 45,139 43,687 41,839 50,102 46,478 48,892 47,864 48,892 47,597

10 51,377 45,997 43,086 39,518 56,669 48,768 53,965 51,719 53,965 51,144

15 55,331 46,872 42,493 37,326 64,097 51,170 59,564 55,884 59,564 54,956


Pension Fund

SL BlackRock Aquila Connect Over 15 Year

Corporate Bond Pension Fund


Fund


Pension Fund



Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

1 43,407 43,283 43,894 43,844 43,407 43,242 45,179 44,918 45,401 44,774

3 41,683 41,326 43,103 42,954 41,683 41,209 46,999 46,188 47,693 45,747

5 40,028 39,458 42,325 42,082 40,028 39,272 48,892 47,494 50,102 46,741

10 36,171 35,148 40,442 39,980 36,171 34,818 53,965 50,923 56,669 49,322

15 32,685 31,309 38,643 37,982 32,685 30,869 59,564 54,599 64,097 52,045




3595094

of

138


F. Member aged 60 on 30 September 2020







Fund






Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

1 41,423 40,967 40,700 40,350 41,831 41,208 41,627 41,451 41,627 41,404

3 42,670 41,277 40,476 39,440 43,944 42,008 43,304 42,755 43,304 42,612

5 43,955 41,590 40,252 38,550 46,163 42,824 45,048 44,101 45,048 43,855


Pension Fund

SL BlackRock Aquila Connect Over 15 Year

Corporate Bond Pension Fund


Fund


Pension Fund



Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

Before Charges

(£)


deducted (£)

1 39,995 39,880 40,444 40,397 39,995 39,842 41,627 41,386 41,831 41,254

3 38,406 38,077 39,714 39,577 38,406 37,970 43,304 42,557 43,944 42,151

5 36,881 36,356 38,998 38,774 36,881 36,185 45,048 43,760 46,163 43,067




3595094

of

138


Notes on member illustrations in Table B, C, D, E and F

1. Projected pension pot values are shown in today’s terms, and do not need to be

reduced further for the effect of future inflation

2. Inflation is assumed to be 2.5% each year

3. All of the illustrations assume that no further contributions are made from 30

September 2020

4. Values shown are estimates and are not guaranteed

5. The projected growth rates (net of inflation) for each fund are shown in the table

below:

Fund Isio return assumption

(% p.a.)

SL Mobile Diversified Growth Pension Fund 1.49

SL Mobile Flexible Retirement Pension Fund -0.28

SL BlackRock UK Focus Pension Fund 2.49

SL iShares UK Equity Index Pension Fund 1.99

SL BlackRock Managed (50:50) Global Equity Pension Fund 1.99

SL iShares Index Linked Gilt Index Pension Fund -2.01

SL BlackRock Aquila Connect Over 15 Year Corporate Bond Pension

Fund -0.91

Standard Life Deposit and Treasury Pension Fund -2.01

SL HSBC Islamic Global Equity Index Pension Fund 1.99

SL Veritas Global Focus Pension Fund 2.49

11 March 2021

Date:





3595094

of

138



Statement of Investment Principles

Introduction

Under the Pensions Act 1995 (as updated by the Pensions Act 2004), the Telefónica UK Pension

Trustee (“the Trustee”) is required to prepare a statement of the principles governing investment decisions. This document contains that statement and describes the investment principles pursued

by the Trustee of the Telefónica UK Pension Plan (“the Plan”).

This Statement of Investment Principles (“the SIP”) covers both the Defined Benefit and the

Defined Contribution sections of the Plan. Details of the implementation of the Plan’s investment

principles along with the Trustee’s governance policy, are set out in a separate document, the Investment Implementation Document (“IID”).

The Trustee has consulted the principal sponsoring employer, Telefónica UK Limited (“the

Sponsor”), on the principles set out in this statement and will consult the Sponsor on any changes to it. However, the ultimate power and responsibility for deciding investment policy lies solely

with the Trustee.

Before drafting this statement, the Trustee has obtained and considered written advice from the

Plan's Investment Advisor (Isio Group Ltd) and also considered advice from the Plan Actuary (Lane

Clark & Peacock LLP), the Legal Advisor (Sacker & Partners LLP) and the Covenant Advisor

(Penfida Limited).

Investment mandates

While the Trustee retains strategic management of the Plan’s assets, a number of professional

Investment Managers have been appointed for day-to-day management of the assets, as detailed in

the Plan’s Investment Implementation Document.

All of the Investment Managers are authorised and regulated by the Financial Conduct Authority

under the Financial Services and Markets Act 2000 as amended by the Financial Services Act 2012

and/or by the US Securities and Exchange Commission.

The Trustee has ensured that all advisors and third party service providers are suitably qualified and

experienced and that suitable liability and compensation clauses are included in all contracts for professional services received.




3595094

of

138


Statement of Investment Principles continued

Sponsor-Related Investments

Regarding Sponsor-related investments as defined in the Pensions Act 1995 and the Occupational

Pension Schemes (Investment) Regulations 2005, other than to the extent that pooled funds are

invested in securities issued by Telefónica S.A. (or any other related group company), the Plan’s Investment Managers are not permitted to invest in such securities without the Trustee’s prior

consent. The Investment Managers should have regard to publically available information about

potential changes in the ownership of Telefónica S.A. (or any other related group company) and avoid investing in a way which could cause the Plan, should any such change in ownership occur,

to be invested in Sponsor-related investments.

Where the Plan invests in pooled vehicles that may hold sponsor-related investments the total

exposure to sponsor-related investments is not expected to exceed 5% of the Plan’s value. The Trustee monitors its Sponsor-related investments on an annual basis (as at 30 September).

Financially material considerations

The Trustee has considered all financially material considerations over the appropriate time horizon

of the investments. This includes how those considerations are taken into account in the selection, retention and realisation of investments. The Trustee has also considered how to exercise the rights

(including voting rights) attaching to the investments, and how to undertake engagement activities

in respect of the investments (i.e. stewardship).

The Trustee has decided that there are no non-financial matters which fund managers need to be

instructed to take into account in the selection, retention and realisation of investments.

Details of how risks and financially material considerations have been addressed and managed by

the Trustee are outlined in more detail in the respective DB and DC sections of this document

All decisions about the day-to-day management of the assets, including the above considerations, have been delegated to the investment managers via a written agreement. The Trustee Board and

Governance Committee takes investment managers’ policies in the above respects into account

when selecting and monitoring managers. The investment managers are expected to exercise their powers of investment with a view to giving effect to the principles contained within this statement,

so far as reasonably practicable.

The Trustee has also considered specifically how Environmental, Social and Governance (“ESG”)

risks are managed in the Plan. As part of this review, the Trustee has agreed on an ESG policy

which details the investment beliefs of the Trustee, how ESG risks are viewed by the Trustee and

how these risks are managed in the Plan. In summary, the Trustee believes that taking an active approach to include ESG factors in investment decisions reduces overall risks whilst generating

sustainable returns. The ESG policy is included within the Appendix.




3595094

of

138



Voting and Engagement

The Trustee delegates the exercise of the rights (including voting rights) attaching to the

investments to the individual investment managers. Investment managers are expected to:

• exercise the voting rights attached to individual investments; and

• engage with key stakeholders which may include corporate management, regulators and

governance bodies, relating to their investments in order to improve corporate behaviours,improve performance and mitigate financial risks in accordance with their own house

policy.

Direct investments

Direct investments, as distinguished by the Pensions Act 1995, are products purchased without

delegation to an Investment Manager through a written contract. When selecting and reviewing any direct investments, it is the Trustee’s policy to obtain appropriate written advice from their

Investment Advisors.




3595094

of

138



Investment manager arrangements

The Trustee have the following policies in relation to the investment management arrangements for

the DB and DC Sections of the Scheme:

How the investment managers are

incentivised to align their

investment strategy and decisions

with the Trustee policies.

• Where the Trustee have segregatedarrangements with the investment managers

(DB Section), thereby allowing investment

managers to align their strategy with the

Trustee policies2, this is reviewed on anongoing basis. Where the Trustee considers

that an investment manager’s strategy

(including in relation to voting andengagement) is not sufficiently aligned with

the Trustee policies, the Trustee will engage

with the manager to discuss how alignmentmay be improved.

• Where the Scheme is invested in pooled funds

(DB and DC Section), there is not scope for

these funds to tailor their strategy and

decisions in line with the Trustee policies.However, when the Trustee selects the relevant

pooled fund they look to align it to the strategic

objectives. The Trustee will also review on anongoing basis the alignment of the pooled fund

manager’s strategy in relation to voting and

engagement with the Trustee policies.

• The Scheme’s mandates for investment gradecorporate bonds and private market credit

(illiquid) in the DB Section are subject to

performance related fees.

2 This includes the Trustee’s Environmental Social and Governance Policy Statement set out in Appendix




3595094

of

138



How the investment managers are

incentivised to make decisions

based on assessments of medium to

long-term financial and non-

financial performance of an issuer

of debt or equity and to engage

with them to improve performance

in the medium to long-term.

• The Trustee review the investment managers’

performance relative to medium and long-term

objectives as documented in the investment management agreements.

• The Trustee monitors the investment

managers’ engagement and voting activity on

an annual basis as part of their ESG monitoring process.

• The Trustee do not incentivise the investment

managers to make decisions based on non-

financial performance.

How the method (and time

horizon) of the evaluation of

investment managers’

performance and the remuneration

for their services are in line with

the Trustee policies.

• The Trustee review the performance of all of

the Scheme’s investments on a net of cost basis to ensure a true measurement of performance

versus investment objectives.

• The Trustee evaluate performance over the

time period stated in the investment managers’ performance objective, which is typically 3 to

5 years.

• Investment manager fees are reviewed

frequently to make sure the correct amounts

have been charged and that they remain competitive.

The method for monitoring

portfolio turnover costs incurred

by investment managers and how

they define and monitor targeted

portfolio turnover or turnover

range.

• The Trustee do not directly monitor turnover

costs in the DB Section. However, the

investment managers are incentivised to minimise costs as they are measured on a net

of cost basis.

• The same is true for the DC Section but in

addition investment managers are required to

provide transaction cost information on an annual basis, on the slippage cost

methodology, for disclosure to members.




3595094

of

138



The duration of the Scheme’s

arrangements with the investment

managers

• The duration of the arrangements is considered

in the context of the type of fund the Scheme

invests in.o For closed ended funds or funds with a

lock-in period the Trustee ensure the

timeframe of the investment or lock-in

is in line with the Trustee objectivesand Scheme’s liquidity requirements.

o For open ended funds, the duration is

flexible and the Trustee will from time-to-time consider the appropriateness of

these investments and whether they

should continue to be held.

Compliance

This Statement has been prepared in compliance with the Pensions Act 1995, the Pensions Act 2004, and the Occupational Pension Schemes (Investment) Regulations 2005. Before preparing or

subsequently revising this SIP, the Trustee consulted the Sponsor and took appropriate written

advice. The Statement is reviewed at least every three years, and without delay after any significant change to relevant aspects of the Plan (e.g. Sponsor covenant, attitude to risk etc).

Signed Anthony Soothill Date: 25 September 2020

For and on behalf of Telefónica UK Pension Trustee Limited (the Trustee of the Telefónica

UK Pension Plan)




3595094

of

138



Defined Benefit (“DB”) Section

Investment objectives

The Plan is closed to new entrants and future benefit accrual so the overall objective is to provide pension and lump sum benefits for the current members (and their dependants) on a defined benefit

basis.

The Trustee’s investment objective is to achieve the Statutory Funding Objective, which targets full

funding on the Technical Provisions basis. The method adopted for the 2017 valuation is to reach

and maintain a funding position such that all members’ benefits can be met with very little

investment risk and/or reliance on the Sponsor’s covenant, termed “self-sufficient”, by 30 September 2029. The assumptions allow for the Plan’s investments to be substantially derisked with

effect from that date. The Technical Provisions will be reviewed to be consistent with the Sponsor’s

covenant and the Trustee’s risk tolerance.

The Trustee reviews an estimate of the Plan’s funding position (on various bases) at least quarterly

to assess the position and whether the investment policy remains appropriate to the Plan’s circumstances.

Integrated risk management

The Trustee applies an integrated approach to risk management, as per the Pension Regulators

guidance, including an ongoing review of the risks associated with the:

• Sponsor’s covenant

• Investment strategy

• Plan funding

The Trustee’s management of the risks identified does not eliminate them. Rather the management

endeavours to balance them to achieve the Plan’s objectives. To do this the Trustee receives advice

from the Covenant Advisor, Investment Advisor and Plan Actuary, and holds discussions with the Sponsor.

For the purposes of this SIP the investment risks have been set out below, but it is important to note that the Trustee considers them alongside and in the context of the Plan’s other risks. For example

no more risk will be taken than can be supported by the Sponsor’s covenant and the Trustee’s risk

appetite.




3595094

of

138



• Asset and liability mismatch risk: The relative value of the assets and liabilities will be

more volatile over the short term than if investment risk had not been taken;

• Market risk: The assets might not achieve the excess return relative to the liabilities

anticipated over the short or longer term;

• Liquidity risk: The assets may not be liquidated to meet liabilities (e.g. benefit payments,collateral requirements etc) as quickly or cost effectively as anticipated;

• Concentration risk: The assets could be more volatile than anticipated due to an

idiosyncratic event (e.g. a corporate default);

• Operational risk: The risk of fraud, poor advice or acts of negligence;

• Investment manager risk: An investment manager may not achieve their objectives;

• Political risk: The legislative and tax environment could change from the environment in

which the investment strategy was designed; and

• Investment cost risk: The cost of suitable advice or day-to-day management of the assetsexceeds the anticipated cost.

• Trustee governance risk – Failure to have suitable resources / controls in place or an

inappropriate governance structure.

• Reporting risk – Failure to reconcile investment transactions or maintain accurate

Statement of Investment Principles.

• Investment strategy risk – Failure to adjust the investment strategy following changes tothe Plan's funding progression.

• Environmental, Social and Governance risk: Management of the Plan’s assets with

regard to Environmental, Social and Governance factors, including but not limited to

climate change which can impact the performance of the Plan’s investments.

Investment strategy

The Trustee has opted to follow a “spread-value investing” approach, which is designed to help

close the deficit with a relatively high degree of certainty, alongside any other funding. It is expected that this approach will exhibit much less volatility than an equity-based investment strategy. The

Trustee considers this a long-term strategy that is expected to remain in place until the Plan achieves

its objective of becoming self-sufficient – i.e. this approach is strategic in nature, rather than

opportunistic / tactical.




3595094

of

138



Spread-value investing involves taking advantage of the legal protections (such as seniority in the

case of liquidation) and contractual obligations (such as fixed temporal constraints regarding contractual lifetime and payments) of credit assets, which the Trustee believes are well suited to

meeting the Plan’s objectives with greater certainty than a strategy which utilises subordinate non-

contractual income assets (e.g. equities). Credit assets have a:

• Defined term to maturity and pay-out profile - equities, for example, don’t have either;

• Zero probability of delivering more than their yield to maturity if held to term – the Plan

does not need the unlimited upside of equities to achieve its objectives;

• Very high probability of delivering returns very close to their yield to maturity – equities

cannot offer this predictability; and

• Very low probability of delivering equity like downside – this downside is likely to requireadditional funding for the Plan to achieve its objectives.

Importantly, unlike the uncertain future returns from equities (accepting the returns may be above

or below expectations), the spread available on bond assets is observable and provides a platform for a more robust engineering approach to the investment strategy. Admittedly, prudently allowing

for losses from credit events introduces some subjectivity but not on the same scale as that

associated with expected equity returns. The Trustee has selected the following diversified mix of credit assets:

Asset

Exposure

(% of total

assets)

Net spread(1)

(above LIBOR)

Investment grade corporate bonds 20.0% 1.3%

Liquid credit 15.0% 2.3% Semi-liquid credit 10.0% 3.5%

Private market credit (illiquid) 25.0% 3.7%

Credit Default Swaps (CDS) overlay 30.0% 1.3%

Liability Driven Investing (LDI) overlay(2) N/A N/A Collateral for CDS and LDI 30.0% 0.0%

Cash fund(3) N/A N/A

Total 130.0% 2.3%

Note: (1) Estimated spread as at 31 December 2016, net of expected default losses and investmentmanagement costs.(2) With a target hedge ratio (IE01 and PV01) of the funded economic liabilities. This is

75% as at 30 June 2019 but will change over time.(3) Cash fund is a vehicle to facilitate investment into the M&G private market illiquid

mandate.




3595094

of

138



The net spreads assume the underlying credit assets are held to maturity and the assets may exhibit considerable mark-to-market volatility in the period until maturity. As a long-term investor the

Trustee expects to hold the majority of credit assets to maturity and so any short term mark-to-

market volatility is tolerated. Instead, the Trustee focuses on the risk of permanent losses that may arise from credit events (e.g. defaults). This risk is managed by diversifying across many issuers

and employing active credit analysis for the majority of the assets, which is completed by

professional Investment Managers.

Liability Driven Investing (LDI) is used to manage the re-investment and inflation risk of the credit

assets – most credit assets have much shorter maturities than the Plan’s liabilities and so must be

re-invested when they mature. This significantly reduces the asset and liability mismatch risk.

The private market credit and the semi-liquid credit assets have been selected as the Trustee believes

they offer an illiquidity and/or a complexity return premium which more than compensates for the loss of liquidity. However, the Trustee has limited the allocation to such assets to manage the

potential liquidity risk.




3595094

of

138



Defined Contribution (“DC”) Section

Investment objective

The Trustee’s objective is to make suitable investment arrangements available to members to

provide a retirement fund from which members can buy a pension, take a cash lump sum and/or

transfer to another arrangement to drawdown income. They have taken into account their understanding of members' circumstances, in particular members' attitudes to risk and term to

crystallising their pension savings.

There are four lifestyle strategies offered by the Plan which gradually de-risk over time and a range of investment options for members who want to create a bespoke portfolio. If a member does not

want to select an investment option themselves their investments will be directed into a default

arrangement.

Risk

The Trustee recognises specific investment risks that can be managed through the choice of

investment options provided to members. The different risks will have different levels of

importance for members at different stages in their membership and the Trustee has considered this when deciding on the default option and the range of funds to be made available. The Trustee’s

policy in respect of risk measurement methods and risk management processes is set out below:

• Expectations: Risk of not meeting the reasonable expectations of members, bearing in

mind members’ contributions and fund choices;

• Loss aversion: Risk of loss to a member’s pension savings from period to period and thesubsequent impact on their behaviour;

• Diverse membership: Risk of the default fund being unsuitable for the requirements of

some members;

• Inflation: Risk that the growth in members’ pension savings does not keep pace with

inflation over the long term;

• Capital risk: Risk that short term falls in fund values impact on members’ pension savings;

• Annuity conversion risk: Risk that poor investment performance impacts on the level of

annuity that a member can purchase at retirement;

• Liquidity risk: Risk that members’ pension savings may not be liquidated in line withreasonable expectations;

• Fund manager risk: The risk a fund manager may not achieve their objectives;

• Operational risk: The risk of fraud, poor advice or acts of negligence;

• Political risk: The legislative and tax environment could change from the environment in

which the investment strategy was designed; and

• Cost risk: The costs of administering and investing the assets exceeds the anticipated cost.

• Environmental, Social and Governance risk: Management of the Plan’s assets with

regard to Environmental, Social and Governance factors, including but not limited toclimate change which can impact the performance of the Plan’s investments.




3595094

of

138



Due to the complex and interrelated nature of these risks, the Trustee considers these risks in a qualitative and a quantitative manner.

• The Trustee’s policy is to regularly qualitatively review the range of funds offered and the

suitability of the default arrangements; and

• The Trustee also measures risk in terms of the performance of the assets compared to therespective benchmarks on a quarterly basis (including the drawdowns in daily

performance).

Default arrangements

New members are auto-enrolled into the Plan so a default investment option is required in the event

that members do not specify a preferred investment choice themselves. The aims and objectives of the core default option are:

• to offer investment funds to members that will provide an opportunity to generate growth

above the rate of inflation in the accumulation phase;

• to reduce risk as the member approaches their chosen retirement age;

• to ensure the asset allocation at retirement is appropriately aligned so as to be broadly

suitable regardless of the type(s) of benefit a member chooses to take. This reflects theTrustee’s belief that, as members retire in the future the majority are more likely to take

advantage of the full range of benefit options available to them, for example, income

drawdown, annuity, a cash lump sum or a combination of these.




3595094

of

138



The Trustee’s policies in respect of the investments in the default option are:

• The Trustee expects the long-term return of the growth phase of the core default option (i.e.the diversified growth assets) to exceed price inflation and general salary growth. The

Trustee believes it is important to manage the magnitude of drawdowns (peak to trough

losses) in this phase as behavioural studies have shown members to be ‘loss adverse’. Thismeans they are prone to react to drawdowns more negatively than the equivalent gains. In

some cases members may actually cease contributions. A diversified growth approach has

been selected due to its ability to manage drawdowns.

• As a member approaches their pension savings crystallisation point the default arrangement

transfers a portion of member’s savings into a bond fund and a cash fund, whilst retaining

a portion in the diversified growth fund. This mix of assets is designed to reduce risk whilst

still offering the expectation of real rates of growth over the long term, and is consideredto be an appropriate mix regardless of the type(s) of benefit a member chooses at retirement.

The default option is intended to ensure that assets are invested in the best interests of members and beneficiaries because it has been designed for those least likely to engage with investment decision

making, based on demographic analysis carried out by investment advisors in collaboration with

the Company. It provides a balance of investment risk and return which is managed through an automated “lifestyling” arrangement, so that members who do not choose to actively manage their

own investments are not unduly exposed to inflation risk, annuity conversion risk or capital risk at

the most inappropriate times in their lives.

A number of other funds are classified as default arrangements for some members following historic

mapping processes where members’ funds have been transferred without them expressing a choice.

The Trustee’s expectations in relation to these investments are:

• Diversified growth fund – as described for the core default option above

• Equity funds – to exceed price inflation and general salary growth

• Corporate bond fund - to perform broadly in-line with annuity prices although returns are

expected to be lower than for equities over the long term

• Index-linked bond fund - returns are linked to the rate of Retail Price Inflation (RPI) but

are expected to be lower than equities and corporate bonds over the long term

• Cash fund – to provide protection against changes in short-term capital values




3595094

of

138



Other Lifestyle arrangements

The three alternative lifestyle strategies also invest in diversified growth assets in the growth stage.

From that point:

• One then transitions into a bond fund and a cash fund. The bond fund is expected to broadlymatch the real prices of annuities, giving some protection in the amount of secured income

for members who purchase an annuity, whilst the cash fund provides protection against

changes in short-term capital values. This Lifestyle strategy is also classified as a defaultarrangement for some members.

• One then transitions into cash with the aim of preparing members to take their entire

pension savings as a cash lump sum.

• The other transitions only a quarter into cash leaving the remainder in diversified growthassets in expectation that this will be transferred to a draw-down arrangement.

Policy on kinds of investments: balance and expected return

The Trustee’s policy on the kinds of investments to be held, the balance between the different kinds

of investments and the expected return on them is set for each fund that is offered to members on the basis of the overall objective for that fund that is chosen in line with the criteria set out above.

Realisation of investments

The investment managers have discretion over the timing of realisation of underlying investments

within the funds that they manage and the liquidity of the underlying assets is considered when the

Trustee decides which funds to offer to members. The Trustee chooses funds that offer frequent dealing to enable members to access their benefits and change their investment selections.




3595094

of

138



Appendix: Environmental Social and Governance Policy Statement

1. Introduction

This Environmental Social and Governance (“ESG”) Policy Statement (“the Policy”) has been

prepared by Telefonica UK Pension Trustee Limited (“the Trustee”) to set out its views on ESG

factors. It considers how they are addressed whilst meeting the overall objectives of the Trustee inrespect to both the Defined Benefit (“DB”) and Defined Contribution (“DC”) Pension sections.

The Trustee defines responsible investment as an approach to investing that aims to incorporate ESG factors into investment decisions, to better manage risk and generate long-term, sustainable

returns.

The purpose of the Policy is to sit alongside the Plan’s Statement of Investment Principles

(“SIP”), formalising the Trustee beliefs on ESG factors as discussed with the Plan’s investment

advisor. The Policy provides a reference point for the Trustee for incorporating ESG factors into

investment decision making.

2. Rationale for the Policy

The Plan is a large institutional investor, on behalf of Plan members. As part of its fiduciary duty, which includes a comprehensive approach to risk management, the Trustee recognises the need

for the Plan to be a long-term responsible stakeholder.

The Trustee believes that taking an active approach to include ESG factors in investment

decisions reduces overall investment risks whist generating sustainable returns.

3. The Trustee’s ESG beliefs

The Trustee has considered and discussed ESG to establish its ESG beliefs to help underpin

Trustee decision making.

The following areas represent a consensus of ESG beliefs held by the Trustee (these have been

grouped into the main areas of ESG focus by the Trustee):

Risk Framework

1. ESG factors are important for risk management and can be financially material. Managing

these risks forms part of the fiduciary duty of the Trustee.

2. The Trustee believes that ESG integration leads to better risk-adjusted outcomes and want

a positive ESG tilt to the investment strategy.




3595094

of

138



Investment Approach / Framework

1. The Trustee wants to understand how asset managers integrate ESG within the investment

process.

2. The Trustee believes that sectors aiming for positive social and environmental impacts

may outperform as countries transition to more sustainable economies. The Trustee will

allocate to these sectors where possible.

3. The Trustee will consider the ESG values and priority areas of the Plan’s stakeholders

and use these to set ESG targets.

Voting & Engagement

4. ESG factors are relevant to all asset classes and, whether equity or debt investments,

managers have a responsibility to engage with management on ESG factors.

5. The Trustee believes that engaging with managers is more effective to initiating change

than divesting and so will seek to communicate key ESG actions to the managers in the

first instance.

6. The Trustee wants to understand the impact of voting and engagement activity within

their investment mandates.

Reporting

7. ESG factors are dynamic and continually evolving, therefore the Trustee receives training

as required to develop its knowledge.

8. The Trustees will monitor key ESG metrics within their investment portfolio to

understand the impact of their investments.

Collaboration

9. Asset managers should be actively engaging and collaborating with other market

participants to raise ESG investment standards and facilitate best practices as well as sign

up and comply with common codes such as UNPRI and TCFD.

10. The Trustees should sign up to a recognised ESG framework to collaborate with other

investors on key issues.

4. Impact of the Policy on investment decision making

The Trustee decides the Plan’s investment strategy and asset allocation. This includes which asset

classes should be invested in. In making any portfolio construction decisions, the Trustee has

regard for the Policy.

Within each asset class, the Trustee delegates the day-to-day investment decision making to the

asset managers – e.g. holding a bond issued by a particular company or exposure to a particular

sector. In appointing and reviewing the Plan’s asset managers, the Trustee, with the assistance of its advisor, considers their expertise, track record and stated policy on ESG.




3595094

of

138



5. Implementing the Policy

The Trustee implements the policy through the following steps:i. The Trustee continues to develop their understanding of ESG factors through training and

experience.

ii. ESG beliefs are formally reviewed triennially or more frequently if required by the

Trusteeiii. The Trustee consults the Company on ESG issues.

iv. The Trustee will take into account ESG when making any investment strategy related

decisions.v. The Trustee monitors the ESG integration of the Plan’s asset managers annually and asks

its advisor to incorporate ESG factors in any asset manager selection exercises.

vi. The Trustee will include ESG as part of its ongoing monitoring of the Plan’s assetmanagers.

6. Monitoring and reviewing the Policy

The Trustee monitors the Plan’s assets against this Policy on an ongoing basis, with the assistanceof its investment advisor. The development of the Policy is viewed as an ongoing process, with

the Trustee reviewing the Policy periodically in line with the SIP. When reviewing the Policy, the

Trustee takes account of any significant developments in the market.




3595094

of

138

Appendix C – Implementation Statement




3595094

of

138

Appendix C – Implementation Statement continued

Anthony Soothill

11 March 2021




3595094

of

138

Appendix C – Implementation Statement continued

3595094 Telefónica UK Pension Plan

Documents

Transcript of 3595094 Telefónica UK Pension Plan