Investment Structure

The Scheme’s current investment objectives are to achieve investment returns that, together with the contributions paid by the Company and by members in the future, ensures the assets of the Scheme are sufficient to meet the benefits due to each member as they fall due over time.

Statement of Investment Principles

The Scheme’s strategy and objectives, together with full details of the investment process are set out in the Statement of Investment Principles. This document is updated regularly and a copy is available to members from Invensys Pensions.

Investment strategy

The Trustee aims to secure members’ future benefits by reducing risk and delivering consistent, reliable investment performance.

The Invensys Pension Scheme is a mature scheme. On 31 March 2015, the Scheme closed to future accrual. All active members became deferred members, and the Scheme stopped receiving ongoing contributions from the active membership. The Scheme is a substantial net payer of benefits. This therefore erodes its asset base naturally every year. We can measure the extent of its maturity in the net payments made each year: approximately £280m (5%) of its current asset base was paid out in the 2016-2017 financial year.

Scheme investment strategy

The Scheme’s investment objective is to achieve investment returns that ensure the assets of the Scheme are sufficient to meet each member’s benefits and the Scheme’s expenses as they fall due over time.

The Scheme’s Technical Provisions imply a required return on investments equivalent to UK Government gilt yields +1.0% per annum. The Trustee sets a Strategic Target, which is to deliver this return over the long term. The Trustee’s investment policy for the Scheme’s Defined Benefit section is designed to achieve the Strategic Target. In order to deliver gilts +1.0%, the Trustee has to invest in assets that have an element of risk associated with them. The risks, and the framework for managing them, are described in detail in the notes to the financial statements.

This Strategic Target is primarily driven by:

  • the Scheme’s profile:
    • the nature of the liabilities
    • the structure of the membership base


  • the Trustee’s overall risk tolerance 
  • the Trustee’s evaluation and perception of the covenant provided to the Scheme.

From the Strategic Target, the Trustee derives a Strategic Asset Allocation. This is designed to deliver asset returns of gilts +1.0% per annum over the long term, and therefore to perform in line with the liabilities measured on a Technical Provisions basis.

At the investment level, the Trustee sets specific performance targets for each underlying investment manager. These specific targets naturally have shorter time horizons than the Strategic Target. The aggregation of these targets determines the Scheme’s Investment Manager Target (IMT).

Year on year, the IMT might be above or below the Strategic Target. The Trustee is responsible for:

  • long-term monitoring of the performance of the assets against the Strategic Target, equivalent to the Technical Provisions (as above).
  • ongoing monitoring of the performance of the assets against the IMT (see investment managers’ performance section).

The Strategic Target corresponded to a return of 1.6% in the year to 31 March 2018. Its value is lower than previous years and reflects the fact that gilt yield and inflation expectations are broadly unchanged relative to their levels as at 31 March 2017. The IMT corresponded to a return of 1.4% and was similar to the Strategic Target.

The Trustee determines the investment strategy after taking advice from a professional investment adviser. The investment strategy and objectives, together with full details of the investment process, are set out in the Statement of Investment Principles. This document is updated regularly. A copy is available to members of IPS.

Strategic asset allocation

To a large extent, the Trustee has invested in assets with a profile that closely matches the liabilities by using bonds or ‘bond-like’ assets. This helps the assets to match the valuation movements in the liabilities, thereby reducing the volatility of the Scheme’s funding position.

The Trustee is not able to match fully the liabilities of the Scheme with its assets. This is mainly because of the requirements agreed with the Company, which means the assets of the Scheme need to target a performance return equal to the discount rate used for the valuation of the liabilities on a Technical Provisions basis, currently gilt yield +1.0% per annum.

The Scheme’s investments are classified in two categories:

1.  A Liability Matching Fund (LMF). This is used to mitigate the Scheme’s interest rate and inflation risks. The LMF is composed exclusively of assets perceived to have a relatively low risk:

  • UK Government gilts
  • Network Rail bonds
  • cash
  • cash equivalent instruments

BlackRock, the asset manager managing this portfolio, is also permitted to use derivative instruments, such as interest and inflation swaps, and gilt repurchase agreements. The LMF currently represents 59% of the assets, which are held directly via the Scheme’s custodian platform with BNY Mellon.

2.  An Investment Portfolio. This aims to access the risk premium of a diversified portfolio of return-seeking assets. It also seeks to benefit from the additional performance available from active management, where considered appropriate. The total Investment Portfolio currently represents 39% of the assets.

Mandates using primarily investment grade bonds make up 25% of the assets and were managed by:

  • AXA
  • M&G
  • Amundi

The remaining 14% comprise:

  • a Fixed Income Global Alpha (FIGA) Fund (Hedge Funds: BlackRock)
  • two Dynamic Asset Allocation mandates (DAA: Barings and BlackRock)
  • two broad bond portfolios (AllianceBernstein, Amundi)
  • a listed equity portfolio (LGIM)
  • a loans mandate (M&G)
  • a fund investing in bank capital release transactions (AXA PCS)

Around 2% of the Scheme’s assets were allocated to DC and AVC plans or were held in cash to satisfy the Scheme’s short-term payment obligations.

Socially responsible investment

The Trustee believes Environmental, Social and Governance (ESG) factors can have an impact on the performance of its investments and the consideration of ESG factors can enhance the risk and return profile of its investments. The Trustee therefore expects its investment managers, when exercising discretion in the mandates that they manage for the scheme, to integrate all relevant and material financial factors, including ESG factors, into the investment decision-making process.

The Trustee considers how potential new investment managers incorporate ESG factors into their investment process before selecting a manager. As part of its regular monitoring process the Trustee requests that managers demonstrate their approach to incorporating ESG factors when exercising discretion in the mandates they manage for the Scheme.

In order to act in the best financial interests of members the Trustee believes it must act as a responsible asset owner. The Trustee has delegated the exercising of voting and engagement rights to its investment managers. The Trustee expects its investment managers to exercise voting and engagement rights so as to protect and enhance the value of the Scheme’s investments. The Trustee monitors the actions taken by the investment managers on a regular basis.