YORKSHIRE BUILDING SOCIETY PENSION SCHEME - Chair's Governance Statement for the year ended 31 December 2020
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YORKSHIRE BUILDING SOCIETY PENSION SCHEME Chair’s Governance Statement for the year ended 31 December 2020 Scheme Registration No: 10101681
YORKSHIRE BUILDING SOCIETY PENSION SCHEME
GOVERNANCE STATEMENT
FOR THE DEFINED CONTRIBUTION SECTION OF THE YORKSHIRE BUILDING SOCIETY PENSION
SCHEME
This Chairman’s Governance Statement has been produced for the Yorkshire Building Society Pension Scheme (the
“Scheme”) and its corporate trustee, YBS Pension Trustees Limited (“Trustee”), in accordance with regulation 23
of the Occupational Pension Schemes (Scheme Administration) Regulations 1996. It describes the role of the
Trustee and how the Trustee, acting through its directors (“Trustee Directors”), has met its statutory governance
standards in relation to the Defined Contribution (“DC”) arrangements during the Scheme year ended 31
December 2020 (the “Scheme Year”) in the following areas:
• the requirement for Trustee knowledge and understanding;
• the default investment arrangement;
• assessment of charges and transaction costs;
• assessment of value for members; and
• requirements for processing core financial transactions.
As in previous years, this Governance Statement covers both the Defined Benefit (“DB”) and the DC sections of
the Scheme.
The Trustee, Yorkshire Building Society (the “Society”) and the Scheme’s advisers have worked hard over the past
year to ensure that the Scheme is well governed, well-funded and in the right place to provide its members with
good value and retirement outcomes.
During 2020 the Trustee focus has been on:
• Managing Scheme risks arising from the COVID-19 outbreak.
• Improving member communications, particularly for the DC section.
• Launching our first Scheme website for both DB and DC members, thereby providing an online facility for
member communication and information.
• Reviewing the DC investment strategy to ensure it remains appropriate for the membership (this is
ongoing at the time of preparing this Statement).
• Formally documenting the Trustee’s DC investment beliefs.
• Developing a Trustee succession plan.
• Continuing to ensure the financial security of the DB section.
• Reviewing features within the DC section, to ensure that the Scheme responds to evolving member needs,
incorporates Environmental, Social and Governance (“ESG”) factors and continues to offer good value for
money.
• Progressing analysis and assessment of the Guaranteed Minimum Pension (“GMP”) benefits held by some
DB section members to facilitate reconciliation of the Scheme’s records against those held by HMRC.
For 2021 the focus will be on:
• Further improvements to member communications.
• Completion of the DC investment review and implementation of any agreed changes.
• Continuing to manage Scheme risks arising from the COVID-19 pandemic.
• Reviewing the support available to members at retirement.
• Continuing to ensure the DB section provides a high level of benefit security.
• Commence a further review of DB members’ GMP benefits to ensure that GMPs are ‘equalised’ for male
and female members in due course.
• Compliance with the new 2021 Pension Schemes Act including the secondary regulations which will be
finalised during 2021.
• Ensuring that diversity and inclusion are taken into account by the Trustee in its decision-making, as
appropriate.
• Evolving the Trustee’s subcommittee structure to ensure that sufficient time and resource is devoted
across all scheme projects and governance.
• Maintenance of cyber security arrangements including protection against potential scams.
Page 1YORKSHIRE BUILDING SOCIETY PENSION SCHEME
• Completion of the new DC investment strategy implementation.
• Completion of the GMP reconciliation and resulting rectification project.
• Completion of the administration tasks associated with the 2018 Buy-In policy with Pension Insurance
Corporation.
Role of the Trustee
The Trustee is accountable to the Scheme’s members of both the DB and DC sections, for the overall management of
the Scheme and acting in the best interests of the members. To enable it to carry out its duties, the Trustee ensures the
following are in place:
• suitably qualified and competent Trustee Directors;
• competent and prudent day to day management;
• adequate systems of internal control;
• adequate accounting and other records;
• compliance with statutory and regulatory obligations;
• effective risk management;
• processes to deliver value to members; and
• management of potential conflicts of interest by Trustee Directors.
David Paige, current Chair of the Trustee will retire in June and will be replaced by Mike Boag. Mike is an independent
Trustee Director who has been a Scheme Trustee since March 2015, has significant experience of working with other
trustee boards and is an accredited Pension Scheme Trustee.
The Trustee welcomed a new Society nominated Trustee, Alasdair Lenman, in January 2020. Alasdair is a member of the
Society’s Board, as Chief Financial Officer, and brings with him significant finance and audit expertise. The Trustee Board
is currently comprised of four Society nominated Trustee Directors, including Mike Boag as independent Trustee
Director, and two member nominated Trustee Directors.
The Trustee Board has a broad range of skills and experience in both financial services and in the management of
pension schemes. The Trustee has a detailed succession plan in place for Directors, which considers the need to maintain
a wide range of experience and skills on the Board as well as the need to consider diversity in any decision to appoint a
new Trustee. The Board undertakes regular evaluations of the skills and experience of Trustee Directors to identify gaps
and makes plans to ensure that any such gaps are filled. The next skills and experience review will be undertaken during
2021.
The Scheme has in place a conflicts of interest policy. Trustee Directors record potential conflicts of interest at each
Trustee meeting and take appropriate steps to manage these.
Scheme Governance
The Trustee Board meets at least quarterly with additional meetings as required. In 2020 the Board met on two
additional occasions to progress strategic reviews of both the DB and DC sections of the scheme.
The Board delegates certain activities to Working Parties and subcommittees. In 2020 the following subcommittees or
groups met:
- GMP Working Party
- Investment Governance subcommittee
- Communications Working Party
- Employer Covenant Review Group - two Trustee Directors meet with the Society on a monthly basis following
the commencement of the COVID-19 pandemic, to facilitate in depth monitoring of the Society’s financial
strength and other associated developments.
During 2020 and into the early part of 2021 the Trustee Board has taken a number of steps to strengthen its approach
to effective governance of the Scheme. These steps include:
Page 2YORKSHIRE BUILDING SOCIETY PENSION SCHEME
▪ Revisions to the operation and management of the Investment Subcommittee, including an updated Integrated
Risk Management report. This report sets out a number of specific Covenant, Investment and Funding risks
aligned to an assessment against current performance indicators.
▪ The introduction of a new Governance & Operational Risk Committee focusing on the performance of the
Scheme against regulatory requirements, administrative performance and member engagement objectives.
▪ The development and introduction of a new Communications Committee that will establish updated objectives
for member communications and engagement. Performance against these objectives will be regularly
monitored and member feedback sought to develop further the Scheme’s communication practices.
▪ The Trustee have commenced a triennial review of the DC section against The Pension Regulator’s DC Code of
Practice, which will conclude in the first half of 2021.
▪ Reviewing our approach to pension scams and fraud to ensure that the policies, systems and processes
we have in place meet The Pension Regulator’s requirements as a minimum and to work with our
administrators to mitigate the risk of scams and fraud to our members.
Trustee Knowledge and Understanding (“TKU”)
The Scheme’s Trustee Directors are required to maintain appropriate levels of knowledge and understanding to run the
Scheme effectively. Each Trustee Director must have, to the degree that is appropriate for the purposes of enabling the
individual properly to exercise his or her functions as Trustee Director, knowledge and understanding of the law relating
to pensions and trusts and the principles relating to the investment of the assets of occupational pension schemes.
The Trustee has an established TKU process in place, which, together with the advice available to the Trustee from the
Scheme’s actuaries, investment advisers, lawyers and auditors, enables the Trustee Directors to properly exercise their
functions as Trustee Directors of the Scheme.
Relevant training undertaken by Trustee Directors is recorded in the Trustee Training Log. This Log is reviewed and
updated regularly by all Trustee Directors.
The Trustee Directors are satisfied that they have met their TKU duties during the Scheme Year by:
• Receiving training sessions from the Trustee's advisers during Trustee meetings to ensure the Trustee
maintains an appropriate level of knowledge and understanding of current and general issues affecting
pension provision, including training and technical updates on:
- DC investment beliefs and investment strategy, including target date funds.
- Cyber security and the prevention of cybercrime.
- Sustainable Investments.
- Changes in pensions laws including the changes to be implemented due to the 2021 Pension Schemes Act.
- Member communications.
- DB funding objectives.
- DB De-Risking analysis.
- COVID-19 and stress testing analysis.
• Arranging bespoke training events, for either individual Trustee Directors or for the wider Trustee.
• Circulating to each individual Trustee Director hot topics and general updates from its advisers about
matters relevant to the Scheme.
• Requiring all individual Trustee Directors to confirm in writing annually that they have completed the
relevant modules of tPR’s Trustee Toolkit and ensuring that new Directors have completed this Toolkit
within six months of their appointment.
• Attending external events and webinars and provide feedback to the Trustee at Trustee meetings.
As part of its commitment to maintaining an effective and engaged Trustee Board, the Trustee takes part in a self-
evaluation exercise every three years to review the current level of TKU around pensions administration, investment
and legislation. The previous results indicated a good level of knowledge across the whole Trustee Board. The TKU
survey results were used to develop a Trustee Training programme to address areas where the Trustee Directors
considered that they needed to or would like to develop their knowledge further, for example long term funding targets,
managing risk, investment strategy and DC scheme market developments including DC decumulation. The Trustee has
just completed its latest Trustee Board effectiveness evaluation and is considering any gaps identified where further
training may be required.
Page 3YORKSHIRE BUILDING SOCIETY PENSION SCHEME
Trustee Directors are required to have a good working knowledge of the Scheme’s governing documents. All Scheme
documents are available on a dedicated and secure Trustee website. At Trustee meetings, key Scheme documents are
referred to and reviewed if required to ensure they are being adhered to correctly when making decisions. The Trustee
Directors are conversant with the Scheme’s Statement of Investment Principles (“SIP”), Trust Deed and Rules and
various documents setting out the Trustee’s policies and procedures. The Trustee also believes, on the basis of the
knowledge and experience of the Trustee Directors and the training undertaken by them, that it has sufficient
knowledge of the law relating to pensions and trusts and the relevant principles relating to the funding and investment
of occupational DB and DC pension schemes. Where appropriate, specific advice is provided by the Scheme’s legal
advisor, actuarial adviser or investment adviser.
The Trustee Board refers to the Trust Deed and Rules as part of considering and deciding to make any changes to the
Scheme and, where relevant, deciding individual member cases, and the SIP is formally reviewed at least every three
years and when making any change to the Scheme’s investments.
The Trustee Directors use their combined knowledge and understanding to:
• Manage the Scheme effectively, in line with its governing documents.
• Ensure that Scheme specific policies and procedures continue to be appropriate.
• Operate an approach to member communication that positively supports member education and
retirement planning.
• Identify where specialist advice is needed to assist the Trustee in its decision-making and management of
the Scheme.
• Play an active part in the Trustee’s meetings by reviewing the reports and other documents provided in
advance of the meeting and making appropriate contributions and raising questions during the meeting.
The Trustee Directors have also taken advice from specialist pensions, investment and actuarial advisers (Willis Towers
Watson and Lane Clark & Peacock), legal advisers (DLA Piper) and communications advisers (Gallagher), to help them
to achieve their objectives and requirements and use their knowledge and understanding to challenge that advice where
appropriate. Adviser appointments are reviewed periodically by the Trustee.
The Trustee Directors are satisfied that their combined knowledge and understanding, coupled with advice from
specialist pensions, legal and communications advisers, has enabled them to carry out their functions as trustees of the
Scheme properly, and to achieve their goals effectively for the year.
Defined Contribution section (also known as the YBS Group Retirement Savings Plan)
All new and existing Society colleagues are invited to join this section, to make and receive pension contributions to
build a retirement savings fund linked to their employment with the Society. The DC section forms part of the overall
YBS Pension Scheme overseen by the Trustee and is administered by Fidelity, a third-party provider. The DC section is a
qualifying scheme for the purposes of the Society’s automatic enrolment obligations.
Investment strategy
Members who join the Scheme and who do not subsequently choose an investment option are placed into the default
investment strategy. The Scheme’s DC investment strategy is set out in the Scheme’s SIP which governs its decisions
about investments including its aims, objectives and policies for the Scheme’s default arrangement, prepared in
accordance with Regulation 2 of the Occupational Pension Schemes (Investment) Regulations 2005. A copy of the
current SIP, last revised in July 2020, is attached to this document. The changes made to the SIP in July 2020
introduced new policies regarding the Trustee’s arrangements with the investment managers, which cover how
the Trustee Directors monitor investment manager performance, the exercise of voting rights and Environmental
Social and Governance (ESG) considerations.
For the Scheme’s DC section, the Trustee policy is to seek to provide members with a range of lifestyle strategies
and self-select funds to support individual preferences and their retirement planning. The Trustee recognises that
the returns on equities, while expected to be greater over the long term than those on bonds, cash and other
investment classes, are likely to be more volatile. For those members who are willing to accept a greater level of
Page 4YORKSHIRE BUILDING SOCIETY PENSION SCHEME
volatility in pursuit of achieving a higher value of their investment account, a limited number of all-equity self-
select funds are available.
For the DC section, the investment objectives are:
a. To offer a suitable, limited range of options including a default lifestyle strategy, an additional lifestyle strategy
and a range of self-select funds.
b. To recognise and limit the risk of a member’s account failing to satisfy the member’s reasonable expectations
over the long term.
c. To optimise the long-term benefits from the Scheme by allowing members to benefit from long-term growth
on their assets whilst having regard to the objectives shown under the previous paragraph.
d. To monitor the value for money received by members in the DC section from their membership of the Scheme
and commission Willis Towers Watson (“WTW”) to undertake an annual review and make recommendations
for improvements. The Trustee aims to ensure that the members receive good value for money but recognise
that this does not necessarily equate to paying lower fees or costs for services.
The DC section’s default arrangement is a “lifestyle strategy” which means members invest in different funds
depending on their age and the time remaining to the members’ chosen, or the default, target retirement age.
The default lifestyle strategy aims to achieve a balance between delivering investment returns whilst managing
risk throughout a member’s working life and is predominantly focused on annuity purchase at retirement.
An alternative drawdown lifestyle strategy is available to members. This alternative lifestyle strategy is geared to
those members that seek an alternative to annuity purchase at retirement, with the expectation that the member
will drawdown their retirement savings over a period of time.
The Trustee believes, following advice received from the Scheme’s investment adviser, that the range of funds
offered within these alternative strategies provides suitable diversification and has been appropriate for the DC
section. The Trustee is currently reviewing the investment strategy (see below) and will consider during the course
of 2021 whether any modifications are deemed to be appropriate.
Socially responsible investing – the Trustee recognises that long-term sustainability issues have a material impact
on risk and outcomes, both financial and non-financial. The Trustee’s policy is that the extent to which ESG or
ethical considerations may have a beneficial financial impact on the Scheme and its members will be considered
when selecting appropriate funds for inclusion in the options available to members in the DC section. The Trustee
views its primary responsibility as being to act in the best financial interests of Scheme members. Further details
of the Trustee’s ESG position can be found in the current SIP.
In the first half of 2020, in response to the COVID-19 outbreak and the consequent equity market falls the Trustee
undertook an urgent review of the DC investment strategy. It was agreed that no immediate action was required
by the Scheme in respect of member investment options.
DC Investment strategy review
The Trustee periodically, and on no less than a three-yearly cycle, reviews the appropriateness of the default
arrangement. It will undertake an earlier review if there are any significant changes in legislation, investment policy
or member demographics. The previous review took place in 2018.
The Trustee began a full DC investment strategy review in July 2020, with support from the Trustee's investment
adviser, WTW. A review of the Trustee’s beliefs was carried out in advance of the investment strategy review,
resulting in the Trustee setting and documenting its DC investment beliefs. A membership analysis was then
carried out in order to better understand the membership’s risk tolerance and retirement objectives. This analysis
suggested that the expected outcome for DC members eligible for retirement was likely to shift over time from
Page 5YORKSHIRE BUILDING SOCIETY PENSION SCHEME
the current annuity objective to either an income drawdown or cash lump sum objective. Subsequently, the
Scheme’s lifestyle strategy designs were reviewed to ensure they could meet the varying objectives of the
membership at retirement.
The Trustee has agreed to change the design of the existing lifestyle strategies to cater more specifically for a
wider range of member objectives and expand the number of available lifestyle strategy options from two to four.
This change will result in:
▪ a “Flexible” lifestyle targeted at those who wish to maintain flexibility in their retirement choices
▪ a Cash lump sum lifestyle
▪ an Annuity lifestyle
▪ a Drawdown lifestyle
The continued suitability of the self-select fund range has also been reviewed.
The Trustee is currently working with Fidelity and WTW on the communication of these changes to members and
implementation in the second half of 2021. As this exercise is ongoing at the time of writing this statement with
any agreed changes implemented during 2021, an update on the project will be given in the 2021 governance
statement.
Investment performance
The Trustee undertakes regular reviews of the performance of the funds underlying the default arrangement and
the self-select funds available under the wider fund range, with support from the Trustee's investment adviser,
WTW.
Funds will be placed ‘on watch’ where there are concerns regarding performance and/or where WTW highlight any
specific concerns with the investment manager. Persistent under performance or investment manager concerns may
lead to a fund being replaced. During the Scheme Year all funds performed broadly in line with their respective
benchmarks and remained well rated. The Trustee also meets with the Scheme’s investment managers annually as part
of ongoing due diligence. The 2020 meetings were completed in February 2021. No serious concerns were raised during
the course of these meetings despite the ongoing challenges of the global pandemic. This exercise has helped to ensure
that the performance of the funds remain consistent with the aims and objectives of the Scheme’s SIP.
Details of investment performance for the 12 months to 31 December 2020 can be found in the Investment Report
section of the Trustee Report and Accounts. DC Members can find more detailed investment performance history on
the fund fact sheets, which can be accessed by logging into a member’s account with Fidelity via
www.planviewer.fidelity.co.uk
No changes were made to the investment strategy or funds during 2020, as they were still deemed to be
appropriate and performing in line with the stated objectives although the Trustee Directors have decided to
revise the DC investment strategy in 2021 as described above, to ensure it remains appropriate and in response
to members’ needs.
DC Section investment charges and transaction costs
The Trustee has agreed that the charges year for the purposes of the Occupational Pension Schemes (Charges and
Governance) Regulations 2015 shall be the same as the Scheme year. Charges are negotiated by the Trustee with
advice from the Scheme’s investment adviser.
The Department for Work and Pensions has introduced legislation on the disclosure of charges and transaction
costs to members of trust-based pension schemes that provide money purchase benefits. In light of this
development, the Trustee has included a DC Costs and Charges illustration in the appendix, which sets out the
cumulative effect over time of the charges and transaction costs on the value of a range of realistic and broadly
representative funds (within the default arrangement), fund sizes and contribution rates. As each member has a
different amount of savings within the Scheme and the amount of any future investment returns and future costs
and charges cannot be known in advance, the Trustee has had to make several assumptions about what these
might be.
Page 6YORKSHIRE BUILDING SOCIETY PENSION SCHEME
The link below includes cost and charges information for the full range of available funds within the DC section of
the Scheme. These illustrations have taken account of the statutory guidance on disclosure charges and are
updated quarterly: www.fidelitypensions.co.uk/costs-charges/YORK.
The default lifestyle strategy automatically switches the funds where members are invested as they approach their
target (or the default) retirement age, meaning the level of charges and transaction costs will vary depending on
how close members are to this age. The charges applied to the default arrangement, which constitutes the
Scheme’s current default lifestyle strategy, are equivalent to a maximum of 0.45% per annum. The alternative
drawdown lifestyle strategy also has charges equivalent to a maximum of 0.45% per annum.
The Total Expense Ratio applied to all other funds (non-default arrangements) used by Scheme members ranged
from a total of 0.35% to 0.65% per annum.
Towards the end of 2020 the Trustee secured a further reduction in the total charge applied to the International
Equity Investment Fund. This reduction is set out in the table below.
A full list of the funds available and the charges is shown below:
Fund name TER Total Expense Ratio Transaction costs Total annual charge
(TER)
International Equity Investment Fund* - up 0.411% 0.003% 0.414%
to 30 November 2020
International Equity Investment Fund* - 0.376% 0.003% 0.379%
from 1 December 2020
Diversified Investment Fund* 0.45% 0.00% 0.45%
Pre-retirement Fund* 0.38% 0.00% 0.38%
Cash Fund* 0.38% 0.00% 0.38%
Emerging Markets Fund 0.40% 0.00% 0.40%
Shariah Equity Fund 0.65% 0.02% 0.67%
Over 5 Year Index-Linked Gilts Fund 0.35% 0.13% 0.48%
Source: Fidelity
* The Default lifestyle invests in these four funds.
The Total Expense Ratio is the ongoing charge borne by members and is reflected in the unit price of the funds. It
is made up of:
• the Annual Management Charge – which is the fee applied to a member’s pension account each year to pay
for the administration and investment management services that Fidelity provide; and
• other expenses which the investment managers may incur which are not fixed.
In addition to the charges referred to above, the Trustee is required to disclose the transaction costs that are
borne by members. In the context of this statement, the transaction costs shown are those incurred by the fund
managers as result of buying, selling, lending or borrowing investments.
DC Section value for members
The Trustee is committed to ensuring that members receive value for their membership of the Scheme (i.e. the
costs and charges deducted from members’ funds and contributions paid provide good value in relation to the
Page 7YORKSHIRE BUILDING SOCIETY PENSION SCHEME
benefits and services provided by or on behalf of the Scheme, when compared to the market as evidenced by
the findings of the annual Value For Members (VFM) report).
In line with the requirements of the Pensions Regulator’s DC Code of Practice No.13 (Governance and
administration of occupational trust-based schemes providing money purchase benefits - published in July
2016), the VFM assessment considers the extent to which services paid for by members offer good value relative
to those costs. It also considers more generally the range and quality of services and benefits associated with
Scheme membership, including those benefits provided by the Society. The Trustee notes that it is difficult to
give a precise legal definition of ‘good value’.
To support its assessment of member value the Trustee requests its investment adviser WTW to undertake a VFM
assessment of the Scheme’s DC section each year. A copy of their latest report can be found on the pension scheme
website www.ybspensionscheme.co.uk.
In forming its conclusion on the value provided to members the Trustee considered matters including the report
from WTW, Scheme’s management and governance, administration, investment governance and communications
and also, the general characteristics of the Scheme’s membership. In particular the following are highlighted:
• Charges for the Scheme’s default arrangement are below the charge cap of 0.75% p.a. which applies to
default arrangements for all DC schemes used by employers for automatic enrolment of employees and
also compare favourably with other comparable schemes based on industry data and surveys.
• Members have access to various asset classes and lifestyle strategies, all of which have competitive fund
management charges.
• The Trustee engages with Fidelity to ensure member borne charges remain competitive. They are
reviewed annually in line with regulations as part of WTW’s VFM assessment. During 2020 the Trustee
negotiated a reduction in the total annual charge for the International Equity Investment Fund from
0.414% pa to 0.379% pa.
• Members have access to a range of services through the Scheme (such as access to Fidelity’s ‘at
retirement’ support).
• Costs of running the DC Scheme (other than Fidelity’s charges explained above) are paid for by the Society
and, are in the region of £400k pa. These include professional adviser fees, secretarial costs and Trustee
services and expenses. These costs are not recharged to members and are equivalent to 26bps.
• For the latest assessment the Trustee and WTW have agreed that communications is a ‘significant
strength’ when assessing the broader value delivered to members. During the review year a bespoke
Scheme website was launched, along with the Fidelity pensions app, greatly improving the digital
engagement with members. The Trustee continues to welcome member feedback on Scheme
communications and has provided various facilities to enable feedback to be given quickly and easily.
• Value for money does not necessarily mean the lowest fee, and the overall quality of the service received
is also considered during the Trustee’s assessment. Fidelity has consistently performed strongly against
all agreed service levels. In addition, the Trustee has worked with WTW to benchmark Fidelity’s position
in the provider market. Overall, the provider comparison rated Fidelity as market leading when looking at
the combined scores in the key service areas of Business, Administration, Investment and Communication.
Having regard to these factors the Trustee Directors have concluded that the Scheme provides:
• ‘good value’ when looking at what members pay for directly.
• ‘excellent value’ when looking at the wider services offered and paid for by the Society.
• consistently high standards of administration.
• high standards of member communications and support to members.
• competitive charges, both in absolute terms (i.e. when compared to typical levels of charges in the
pensions market) and in relative terms (i.e. when considered in the context of the range and quality of
services and benefits associated with membership of the Scheme which are provided by the Society and
for which the member does not bear the cost).
Defined Benefit Section
The DB section is closed to new employees and closed to all future benefit accrual with effect from 1 January 2016.
Page 8YORKSHIRE BUILDING SOCIETY PENSION SCHEME
The Trustee has established governance processes within the DB section of the Scheme across six key areas:
• Risk management;
• Funding and investment;
• Sponsor’s (YBS Group) covenant;
• Administration and data processing;
• Member communications; and
• Conflicts, relationships and responsibilities.
WTW previously facilitated an evaluation of the Scheme’s governance structure and practices. In particular, this
evaluation focused on how the key risks around the Society’s covenant, funding and investment are managed whilst
also considering overall governance and operational efficiency. This evaluation revealed that relative to other schemes
the Scheme demonstrated strong governance in many areas but also highlighted areas for improvement in respect of
risk management, administration and member communication.
In 2019 the Society undertook an Internal audit review which identified some areas of improvement for the pension
scheme which have since been implemented. The Trustee intends to undertake a further Scheme Governance review
in the next 12 months to identify further areas for improvement, to ensure that good governance and oversight are at
the core of the DB section’s management. In particular, the Trustee will consider: 1) the requirements of the new
Pension Schemes Act 2021, 2) the new governance requirements in the Pensions Regulator’s proposed Single Code of
Practice and 3) the Regulator’s revised Code of Practice on funding for DB schemes, which should be published in draft
by the end of 2021.
Governance:
The Trustee regularly monitors its level of governance and oversight in respect of the DB section and is committed
to achieving and retaining the high standards which members would expect.
Risk management:
The Trustee regularly monitors key risks at Trustee meetings and Committee level, taking into account the
Pensions Regulator’s guidance on Integrated Risk Management. Comprehensive risk reports covering Sponsor
covenant, investment risk, funding risk and operational risk are considered at the Investment and Governance and
Operational (“Risk”) Committees and any action taken as required. The Chairman of the Risk committees provides
an update on a regular basis to the Trustee Board. The Integrated Risk Management Report is reviewed on an
ongoing basis to ensure that the key risks and the risk mitigation plan reflect evolving requirements.
Long Term Funding Target:
Under the Pension Schemes Act 2021 the Trustee will be required to set a Long-Term Funding Target for the
Scheme. The Trustee has set a Long Term Funding Target of achieving full funding on a buy-out basis by 2029 . The
Trustee is exploring some de-risking activity in conjunction with the Society that will maintain this target whilst
reducing risk from of the asset portfolio and funding volatility.
Administration:
The Trustee continues to work with the third-party administrators on developing administrative practices,
member services and improving member data. Current and recent initiatives include:
▪ Completion of the annual member existence and tracing exercise.
▪ The GMP reconciliation exercise is ongoing, and the process of rectifying (where necessary) for the results of
the reconciliation exercise is underway.
▪ Following the guidance “A Guide to Good Practice” published by the Pensions Administration Standards
Association (PASA), the Scheme will continue to monitor and refine current processes for efficient processing
of DB transfer requests and improved communications for members considering a transfer.
Guaranteed Minimum Pension (GMP):
Following a high court judgement known as the "Lloyds Bank" case a further review of member GMP benefits will
be undertaken to ensure that GMPs are ‘equalised’ for male and female members, in due course. At this time, the
Trustee has not identified whether any members’ benefits will be affected but members should be aware that
completion of this exercise, which will extend beyond 2021, may not lead to a change in benefits payable. The
Scheme is now providing equalised transfer value quotations (ie from the beginning of 2021).
Page 9YORKSHIRE BUILDING SOCIETY PENSION SCHEME
COVID-19:
The Trustee has considered the impact of the COVID-19 crisis on the Scheme, including investment strategy and
strength of the Society’s covenant. As part of this analysis, the Trustee considered the impact stressed scenarios
on the Scheme’s assets and extreme risks to the strategy. Given the heightened level of uncertainty the Trustee
agreed to retain a lower level of risk in the investment strategy and to continue to monitor any developments.
The Scheme’s administrators are currently working as normal and are continuing to support members.
Member Communication:
The Trustee has worked with XPS and the Society to improve the standard of Scheme wide communications. A
new Scheme website was launched towards the end of 2020 and can be accessed via
www.ybspensionscheme.co.uk. Further activity will be progressed in 2021, with a focus towards a more
‘member action-oriented’ approach. Members are now also able to access the Scheme’s SIP and other Scheme
documents online.
Pension Insurance Corporation:
In November 2018, the Trustee entered into an arrangement with Pension Insurance Corporation whereby a portion of
the benefits for current pensioners are covered by an insurance contract (known as a “buy-in”). This arrangement helps
the Trustee increase the security of members’ benefits, whilst also helping manage the risks within the Scheme. Under
the buy-in contract, the responsibility for the pension benefits remains with the Scheme.
Page 10YORKSHIRE BUILDING SOCIETY PENSION SCHEME
Triennial Actuarial Valuation:
The Scheme’s most recent actuarial valuation was carried out with an effective date of 31 December 2019, and revealed
that the funding shortfall had been fully removed, and there was a surplus of assets of £22.4 million (on the Technical
Provisions basis).
Following the completion of the 2019 triennial actuarial valuation, the Trustee has progressed with the review of the
Scheme’s DB investments, with the support of its investment adviser, in order to more closely match the Scheme’s
liabilities and assets, and to protect the recent improvements in the Scheme’s funding position. The Trustee considered
the appropriateness of carrying out a further buy-in during the review period and concluded that this was not the right
time to do so. This will be considered again periodically.
The Trustee concluded that the existing investment strategy remains appropriate although it continues to review the
strategy on an ongoing basis. Alongside this, the Trustee also regularly monitors the performance of the funds in which
the Scheme is invested. With support from the Trustee’s investment adviser, WTW, the Investment Committee meets
the Scheme’s investment managers on an annual basis as part of ongoing due diligence. During 2020 the Trustee met
with all of the Investment Managers and received updates, given the uncertainty of the COVID-19 pandemic. There were
no concerns identified or raised and the Trustee remain comfortable with the current investment manager
arrangements.
DB Member Additional Voluntary Contributions (“AVCs”)
Most unit-linked AVC assets are invested in a separate Fidelity arrangement which mirrors the funds, terms and
conditions of the Scheme’s DC Section. The Scheme also has a small amount of AVC assets with a number of legacy
providers, now mostly holding savings invested in with-profits funds. The Trustee has not been made aware of any
significant issues to affect the continuing legacy AVC providers during the review period.
All AVC arrangements are closed to future contributions with relatively few remaining members. There are limited
financial transactions associated with the AVCs. The Trustee nevertheless ensures that such transactions are
properly monitored through periodic reviews.
The Trustee has concluded that the AVC arrangements represent value for members, particularly given the lower
charges available from Fidelity and the ability to use AVCs as the first port of call for the Pension Commencement
Lump Sum.
DB and DC Sections - Scheme Processing of core financial transactions
Scheme administration in respect of the DC section, including the processing of financial transactions, is
undertaken by Fidelity. Processes adopted by Fidelity to help meet the agreed service levels include:
• Full integration between their administration platform and dealing system.
• Electronic checking of financial transactions.
• Straight through processing for the majority of administrative functions.
• “Second set of eyes” checking for manual tasks.
Scheme administration in respect of the DB section including the preparation of the overall Scheme’s annual
report and financial statements is undertaken by XPS. The Trustee is comfortable with the quality and efficiency
of these administration processes.
The Trustee ensured that core financial transactions have been processed promptly and accurately during the
Scheme year by requiring the Scheme's administrator to comply with a service level agreement (“SLA”). SLAs have
been agreed with both outsourced providers which cover the accuracy and timeliness of all core financial
transactions and the Trustee receives quarterly Management reports from Fidelity and XPS outlining performance
against these service standards.
The Trustee regularly monitors the core financial transactions of the Scheme against the agreed SLAs. These include
the investment of contributions, transfers of assets into and out of the Scheme, fund switches and payments out
of the Scheme in respect of members. The Trustee has identified one instance during the Scheme year when a core
financial transaction (relating to a payment of DC benefits) was not completed promptly due to a human error. The
Page 11YORKSHIRE BUILDING SOCIETY PENSION SCHEME
Trustee is satisfied with the resolution of the error, including the compensation provided for affected members and are
satisfied that the processes in place remain appropriate.
The Trustee, having considered the reports received from Fidelity and XPS on a regular basis throughout the year, has
concluded that there has been no material administration errors in relation to processing core financial transactions
(including investment of contributions, transfers in/out, investment switches and payments out of the Scheme) and that
they have been processed promptly and accurately during the Scheme Year. Assurance has been obtained from Fidelity
and XPS that adequate internal controls are in place. The Society undertakes regular internal audits which include the
pension scheme in their remit and the Trustee works closely with the Society to implement any recommendations for
change.
Signed by the Chairman on behalf of the Trustee of the Yorkshire Building Society Pension Scheme
DAVID PAIGE (signature removed for security)
David Paige
Date: …7 July 2021………….
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