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Worksave Mastertrust Annual Report

For the year ended 5 April 2017

WorkSave Mastertrust Annual Report

Registered Number: 00773690RX

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Contents

3 TRUSTEES AND ADVISERS

5 PARTICIPANT EMPLOYERS

10 CHAIRMAN'S REPORT

12 TRUSTEES' REPORT

18 INVESTMENT REPORT

27 CHAIR'S DC GOVERNANCE STATEMENT

56 INDEPENDENT AUDITORS' REPORT

58 FUND ACCOUNT FOR THE YEAR ENDED 5 APRIL 2017

60STATEMENT OF NET ASSETS (AVAILABLE FOR BENEFITS) AS AT 5 APRIL 2017

61 NOTES TO THE FINANCIAL STATEMENTS

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Trustees and advisers

TRUSTEES AND DIRECTORS

SCHEME ADVISERS

TRUSTEES DIRECTORS

Legal & General Trustees LimitedD Courtier, Chair (appointed 1 March 2017)

P Trickett, Chair (resigned 31 July 2016)

T Filbin

A Toutounchi (appointed 1 June 2016)

PTL Governance Limited

Represented by S Carrodus (Interim Chair 1 August 2016 – 28 February 2017)

D Archer

A Bostock

R Butcher

S Carrodus

D Hosford

K Nash

C Richardson

R Smith

BESTrustees plc

Represented by R Brougham

A Pickering, Chairman

CM Gilchrist, Deputy Chairman

G Wardle, Managing Director

R Tranter, Director

Z Fazal, Director

H Lewis, Director

H McGuire, Director

Secretary to the Trustees A Fairhurst, Legal & General Group Plc

Scheme Administrator Legal & General Assurance Society Limited

Independent Auditors PricewaterhouseCoopers LLP

Investment Manager Legal & General Assurance Society Limited

Independent Investment Adviser Dean Wetton Advisory Limited

Bankers Bank of Scotland

Enquiries Email: [email protected]

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SCHEME ADVISERS (continued)

The Trustees have written agreements in place with each of the advisers listed, as well as a written agreement with the Principal Employer, Legal & General Resources Limited (LGRL). In addition, the Trustees have a Service Level Agreement with their Administrator, Legal & General Assurance Society Limited (LGAS), which stipulates the contractual rights and obligations of each party, and sets out the required turnaround time for each administrative activity and transaction.

There were no changes in Scheme advisers during the year.

The Trustees commission legal advice on an ‘as required’ basis. Although they will consider firms on Legal & General Group Plc’s approved panel, the Trustees are not constrained from using others. During the accounting year, legal advice was commissioned predominantly from Pinsent Masons LLP of 30 Crown Place, Earl Street, London EC2A 4ES.

The Scheme Administrator, LGAS, is remunerated through the Annual Management Charges that are deducted from members’ pension pots, and/or fees paid directly by some participants. Fees payable by the Scheme to the Scheme’s advisers are paid by LGAS.

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Participant employers

THE PARTICIPANT EMPLOYERS, AS AT 5 APRIL 2017, WERE:

EMPLOYER JOINED

Industrial Latex Compounds Limited Jacques Products Limited

7 October 2011 1 February 2016

Liberty Mutual Direct Insurance Company Limited 1 November 2011

Marks & Spencer Group plc 1 July 2012

Marks & Spencer Outlet Limited 1 July 2012

Marks & Spencer Shared Services Limited 1 July 2012

Marks & Spencer Simply Foods Limited 1 July 2012

Marks & Spencer plc 1 July 2012

Ikea Limited – whose deed also incorporates: Ikea Properties Investments Limited Ikea Distribution Services Limited

1 December 2012

Liberty Information Technology Limited 1 January 2013

Carnival plc – whose deed also incorporates: Cunard Celtic Limited Fleet Maritime Services (Bermuda) Limited

1 April 2013

Vision Workforce Skills Limited – whose deed also incorporates: West Nottingham College

1 June 2013 1 August 2014

Vinci plc – whose deed also incorporates: Vinci Construction UK Limited Vinci Investments Limited Vinci Insurance Services Limited Conren Limited John Jones (Excavation) Limited Powertest Limited Faceo FM UK limited

1 June 2013

Ryman Limited London Graphic Centre Limited

1 August 2013 1 November 2017

Ashtead Group plc 1 August 2013

International Procurement and Logistics Limited – whose deed also incorporates: Westry Produce Limited

1 September 2013 1 January 2015

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6


EMPLOYER JOINED

Robert Dyas Holdings Limited 1 September 2013

UBM plc – whose deed also incorporates: UBM Information UK Limited PR Newswire Europe Limited UBMG Limited UBM Aviation Worldwide Limited CMP Media (UK) Limited UBM Property Services Limited UBM (UK) Limited OES Exhibitions Limited

1 October 2013 1 January 2015 16 December 2016

Cranswick plc – whose deed also incorporates: Cranswick Country Food plc Cranswick Gourmet Pastry Company Limited Cranswick Convenience Foods Limited Kingston Foods Limited The Sandwich Factory Holdings Limited Cranswick Country Foods (Ballymena)

1 November 2013

Encirc Limited 1 October 2013

Aventas Manufacturing Group Limited Aventas Manufacturing Group Services Limited

1 January 2014

Polycasa Limited 1 January 2014

Quinn Building Products Limited Quinn Concrete Limited

1 January 2014

Quinn Radiators 1 January 2014

Red Letter Days Limited 1 January 2014

Somerfield24 February 2014 (temporary participation)

Liberty Speciality Markets 1 July 2014

Farmcare Trading Limited 3 August 2014

Participant employers (continued)

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EMPLOYER JOINED

Newday Cards Limited 1 September 2014

Halyard Health UK Limited 1 November 2014

Gala Leisure Limited Coral Racing Limited

15 December 2014 (temporary participation)

Colart International Holdings Limited – whose deed also incorporates: Colart Fine Art & Graphics Limited Crown Artist Brush Limited

1 January 2015

PLSA – whose deed also incorporates: Pension Quality Mark Limited

1 January 2015

Flir Raymarine UK Limited 1 April 2015

Abbott Healthcare Products Limited 1 June 2015

Abbott Laboratories Limited 1 June 2015

Abbott Diabetes Care Limited 1 June 2015

Abbott International LLC 1 June 2015

AMO United Kingdom Limited 1 June 2015

Murex Biotech Limited 1 June 2015

Abbott Informatics Europe Limited 1 June 2015

Covestro UK Limited 1 July 2015

Knauf Insulation Limited 1 October 2015

Greggs Plc 1 October 2015

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8


EMPLOYER JOINED

Hazelwood Foods Limited – whose deed also incorporates: Greencore Food to Go Limited Greencore Foods Limited Greencore Grocery Limited Greencore Prepared Meals Limited The Sandwich Factory Holdings Limited

1 November 2015 23 July 2016

Hill & Smith Holdings Plc – whose deed also incorporates: Asset International Limited Barkers Engineering Limited Birtley Group Limited Hill & Smith Limited Joseph Ash Limited Lionweld Kennedy Flooring Limited Mallatite Limited Pipe Supports Limited Varley & Gulliver Limited Medway Galvanising Company Limited CA Traffic Limited

30 November 2015

Renishaw Plc – whose deed also incorporates: Wotton Travel Limited Renishaw Diagnostics Limited

31 December 2015

Robeco Institutional Asset Management B.V. 1 February 2016

Bridgewater Bros. Holdings Limited B.I.Crawshaw & Co. Limited Crown Memorials Limited Essex Flameproofing Limited Heirlooms Limited Mill Hill Quarries Limited Odlings Limited Odlings MCR Limited The UK Foodhall Limited

1 March 2016

Norcros Group (holding ) Limited 1 April 2016

Participant employers (continued)

9



EMPLOYER JOINED

WSP UK Limited – whose deed also incorporates: WSP Management Services Limited WSP CEL Limited WSP Remediation Limited

1 April 2016

Emtelle UK Limited 1 April 2016

Brush Electrical Machines Limited Brush Transformers Limited Hawker Siddeley Switchgear Limited

30 July 2016

Vascutek Limited 1 August 2016

DSM Food Specialities Limited DSM Nutritional Products (UK )M Limited DSM United Kingdom Limited

1 October 2016

Danfoss Limited Danfoss Power Solutions Limited Vacon Drives (UK) Limited

1 January 2017

Mainetti (UK) Limited Mainetti Hanger Group Management Services Limited

1 February 2017

Intergraph (UK) Limited Hostsure Northern Ireland Limited Alias Limited

1 February 2017

Nu-Swift International Limited – whose deed also incorporates: GC Fire Protection Limited Hoyles Fire and Safety Nu-Swift Engineering Limited EFS Property Holdings Limited ASCO Extinguishers Company Limited L W Safety Limited Pyrotec Fire Protection Limited TVF (UK) Limited

1 March 2017

10


Welcome to this fourth Annual Report of the Legal & General WorkSave Mastertrust (the ‘Scheme’ or the ‘Mastertrust’), covering the year 6 April 2016 to 5 April 2017. I am delighted to share our progress with you and detail the role that we carry out as Trustees of the Scheme.

The Legal & General WorkSave Mastertrust Scheme and its sister Scheme, the Legal & General WorkSave Mastertrust (RAS) Scheme (collectively, the ‘Schemes’), were established to provide a solution to help employers through their auto enrolment duties, and to deliver the best possible outcomes to members. The Schemes were made to be durable, flexible, well governed and to provide good value for members.

We are delighted that so many employers have shared our belief in the Schemes and our ambitions for them. This is witnessed by their impressive growth in such a short time frame. There are now over 600,000 members across our Mastertrusts, made up of 65 participating employers. Scale of this nature is vitally important. It ensures that members can continue to benefit from low charges, and that we can continue our efforts to secure the best services and advice possible to help with the efficient running of the Schemes.

The Schemes are governed by an independent board of Trustees with a wealth of pensions experience. We also have a number of dedicated sub-committees (see page 14) which meet regularly to monitor the controls and processes in place in connection with the Schemes’ investments, administration and member communication experience. More information on each Trustee’s experience can be found in the Chair’s Statement on DC Governance later in this report. We also have a full time Pension Scheme Manager who works on behalf of the Trustees to progress all day-to-day Trustee matters.

There have been some changes to the composition of the Trustee Board during this year. Paul Trickett stood down as the Chairman last summer. We are very grateful to Paul for his considerable efforts in representing members’ interests over the past three years.

I took on the role of Chairman as of 1 March 2017. I am very appreciative of the support that Steve Carrodus as Interim Chairman provided to the Trustee Board in the period between Paul’s departure and my appointment.

During the year we appointed Dr Ali Toutounchi as a Trustee and Chairman of the Investment Committee. Ali was formerly managing director of Global Index Funds at Legal & General Investment Management. Ali’s considerable investment management experience has already been of great benefit to the Scheme as we look in more detail at investments and investment costs surrounding the default funds and the range of self-select funds. Consideration is also being given to new funds (see investment matters on page 28) and whether they should be included on the platform for member use.

Chairman’s Report

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Demonstrating that the Schemes are well governed

During this year the Schemes achieved the master trust assurance framework accreditation (AAF 02/07). This framework was developed by The Pensions Regulator in partnership with the ICAEW (Institute of Chartered Accountants in England and Wales). It is designed to help trustees assess whether their scheme has adopted high standards of control and governance. The Mastertrust was also one of the first schemes to achieve the Pensions & Lifetime Savings Association (PLSA) Retirement Quality Mark, an accreditation that aims to assist consumers in understanding which retirement products are of a high standard.

The Trustees will be producing an abridged version of this report for our members, later this year. We will work with Legal & General to publicise this report and make it as accessible as possible for our members.

To help share more about what we do we will continue to provide updates via our website; www.landg.com/mastertrust

I hope you find this report helpful and we look forward to providing further updates in 2017.

Dermot Courtier Chairman of the Legal & General WorkSave Mastertrust

Date: 4 September 2017

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Trustees’ Report

The Trustees are pleased to present their annual report and financial statements for the year ended 5 April 2017.

CONSTITUTION OF THE SCHEME

The Scheme offers defined contribution benefits to:

• the current and former workforces of the Participant Employers (see list of Participant Employers on pages 5 to 9);

• members who have been transferred to the Scheme by the trustees of another pension scheme, and;

• members who have transferred directly from another scheme.

Membership criteria, such as eligibility conditions and contribution rates, are generally determined by each Participant Employer and set out in its Deed of Participation.

Each member’s pension pot is kept separate from every other member. Likewise, each Participant Employer’s membership demographic is kept separate from that of every other Participant Employer.

The Scheme is a Registered Pension Scheme under the Finance Act 2004 (Registered Pension Scheme number 00773690RX). It is governed by a Trust Deed and Rules dated 7 October 2011, the Deeds of Participation of each Participant Employer and by any amending documentation.

In addition to the information contained in this report, all Scheme members are entitled to see, or to obtain copies of, certain Scheme-related documents. For this purpose, ‘members’ includes active and prospective members, deferred members with a right to future benefits from the Scheme and the spouses and beneficiaries of people in all those groups.

The documents concerned are:

• the Trust Deed and Rules

• amendments or updates to the Trust Deed and Rules

• the Deed of Participation together with any amendments or updates

• the Statement of Investment Principles (SIP), and

• WorkSave Pension Trust (WPT) Policy.

Copies of these documents are available to members on request. Recognised trade unions are also entitled to see, or request copies of, the same documents.

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FINANCIAL REPORT

The financial statements on the following pages relate specifically to this Scheme (Registered Pension Scheme number 00773690RX), as required by law. There is a sister scheme (The Legal & General WorkSave Mastertrust)

which differs from this Scheme only in the way that members gain tax relief on the contributions they pay. We prefer to look at the two Mastertrust schemes as a single scheme.

The headline figures for this Scheme and its sister scheme, as at 5 April 2017, are as follows:

AT 5 APRIL 2017 AT 5 APRIL 2016

Total active members (members for whom contributions are being paid)

489,540 473,457

Total deferred members (members for whom no contributions are being paid)

149,090 66,696

Total assets under management (£000s) 3,681,709 2,056,234

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TRUSTEES

The Trustees are responsible for the administration and investment policy of the Scheme, and for the appointment of the Scheme’s advisers.

The current Trustees comprise three Corporate Trustees:

• Legal & General Trustees Limited (LGTL)

• PTL Governance Limited (Independent Professional Trustee), and

• BESTrustees plc (Independent Professional Trustee).

The Scheme Rules contain provisions for the appointment and removal of the Trustees by the Principal Employer, LGRL. The Rules also include a provision for an Independent Trustee to be appointed ‘at all practicable times’.

The structure of the Trustees is such that the balance of powers always lies with the Independent Trustees.

No provision has been made to appoint Member Nominated Trustees or Member Nominated Directors, recognising that issues of confidentiality or commercial sensitivity involving Participant Employers may arise from time to time.

There is no legal obligation to appoint Member Nominated Trustees or Member Nominated Directors.

However, we invite each Participant Employer to join our Mastertrust Employer Group, which is a formal group, meeting quarterly, where they can represent the interests of their own membership demographic and can contribute generally to the governance processes and other Scheme related matters. We also host an annual members’ forum.

The Trustees meet formally every two months, or more frequently as required.

During the year the following committees held additional meetings:

• the Investment Sub-Committee (ISC)

• the Mastertrust Communications Committee (MCC), and

• the Dispute Resolution and Discretionary Payments Sub-Committee (DRDP).

Trustees’ Report (continued)

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Each of the sub-committees comprises appropriately experienced and qualified personnel drawn from staff employed by LGAS, chaired by a Trustees’ representative to identify management actions that are either currently being taken, or that are believed should be taken, in order to mitigate the identified risks. The terms of reference for each of the sub-committees can be located on the Mastertrust website.

The Trustees have a delegation policy, including the delegation of certain decisions on discretionary benefit payments to the DRDP. The delegation policies are reviewed by the Trustees periodically, as are the terms of reference for each Sub-Committee.

RISK MANAGEMENT

The Trustees have overall responsibility for internal controls and risk management. They are committed to identifying, evaluating and managing risk and to implementing and maintaining control procedures to reduce significant risks to an acceptable level. In order to meet this responsibility, the Trustees have adopted a risk policy. The objective of this policy is to limit the exposure of the Trustees, and the assets that they are responsible for safeguarding, to business, financial, operational, compliance and other risks where possible.

The Trustees have established a risk register for this purpose, which is a standing agenda item at each Trustees’ meeting.

The purpose of the risk register is:

• to highlight the scope of risk to which the Scheme is exposed from the Trustees’ perspective

• to highlight the scope of risk to which the Scheme Administrator is exposed

• to rank those risks in terms of likelihood and impact, and

• to identify management actions that are either currently being taken, or that are believed should be taken, in order to mitigate the identified risks.

Additionally, the Trustees require the Scheme Administrator (LGAS) to maintain a separate risk register which covers additional items specific to their role and duties.

The Trustees engaged independent service practitioners to prepare their internal controls report for this Scheme and its sister scheme under the Master Trust Assurance Framework (MTAF) (the Master Trust Supplement TECH 07/14 to AAF 02/07). The MTAF was developed by The Pensions Regulator in partnership with the ICAEW (Institute of Chartered Accountants in England and Wales). It is designed to help trustees assess whether their scheme has adopted standards of governance and administration that meet the TPR’s DC code and DC regulatory guidance.

The Type 2 internal controls assessment commenced from 31 May 2017. It will be available to all members once complete, via the Mastertrust website: www.landg.com/mastertrust

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STATEMENT OF TRUSTEES’ RESPONSIBILITIES

Trustees’ responsibilities in respect of the financial statements:

The financial statements, which are prepared in accordance with UK Generally Accepted Accounting Practice, including the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102), are the responsibility of the Trustees. Pension scheme regulations require the Trustees to make available to Scheme members, beneficiaries and certain other parties, audited financial statements for each Scheme year which:

• show a true and fair view of the financial transactions of the Scheme during the Scheme year and of the amount and disposition at the end of the Scheme year of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the Scheme year

• state whether applicable United Kingdom Accounting Standards, including FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements, and

• contain the information specified in regulations 3 and 3a of Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996.

The Trustees are responsible for supervising the preparation of the financial statements and for agreeing suitable accounting policies, to be applied consistently, making any estimates and judgements on a prudent and reasonable basis.

The Trustees are also responsible for making available certain other information about the Scheme in the form of an annual report.

In addition the Trustees also have 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 Scheme and to prevent and detect fraud and other irregularities, including the maintenance of an appropriate system of internal control.

Furthermore the Trustees are also responsible for the maintenance and integrity of the Legal & General WorkSave Mastertrust website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

FINANCIAL DEVELOPMENT OF THE SCHEME

The financial statements on pages 56 to 72 have been prepared and audited in accordance with the regulations made under Section 41(1) and (6) of the Pensions Act 1995.

SCHEME MEMBERSHIP

The change in membership of the Scheme during the year is given on page 17.

MONITORING CONTRIBUTIONS

Each Participant Employer pays contributions to the Scheme in accordance with its Deed of Participation. These deeds describe the earnings components on which contributions are based, the different contribution rates payable both by the members and by their Employer (where applicable) and any salary sacrifice arrangements that may apply.

The Trustees are required to monitor that the contributions are paid in accordance with the Participant Employers’ Deeds of Participation, and have established a risk-based process in order to do this. They are also required to investigate late payments, and have an obligation to whistle blow to the Pensions Regulator if they believe a Participant Employer persistently makes late, inaccurate or insufficient payments.

Trustees’ Report (continued)

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Notes:Active members are members in respect of whom payroll contributions are being received, or where a member’s contributions have ceased temporarily but their Participant Employer anticipates their resumption.Deferred members are members who have left a participant’s employment, or who have opted out of active membership, and for whom the resumption of contributions is not anticipated by their Participant Employer.Deferred members with value represents members who were previously in active membership and now have deferred with a fund holding in the Scheme.All annuities on retirement are secured outside the Scheme by purchasing annuities in the names of the members from one or more annuity providers. The annuities secured are not assets of the Scheme.Members who have joined the Scheme through employment with more than one Participant Employer, or who have multiple periods of employment with one or more Participant Employer, may be recorded more than once.Joiners who opt out under the Auto Enrolment Regulations are not included in the membership figures.New joiners are treated as proposed members until a contribution is received for them. When such a contribution is received their implementation date is the start date of the billing period for the contribution received. This date may be before the start date of the report period, which means that they will show as active members at the start date of the report period instead of new joiners. Therefore, the number of active members showing at the start date of the reporting period can be greater than the number of active members shown at the end of the previous reporting period.Adjustments to the opening membership figures reflect, for active members, the late notification of new joiners. For deferred members, adjustments relate to late notification of member movements.

420,422ACTIVE MEMBERS NUMBER DEFERRED MEMBERS NUMBER

At 6 April 2016 97,350 At 6 April 2016 22,381

Adjustment 2,771 Adjustment 5,227

At start of year 100,121 At start of year 27,608

Add new members 29,051 Add new members 3,140

Add rejoiners 5 Less rejoiners (5)

Less deferred with value (15,803) Add deferred with value 15,803

Less death in service (58)Less death after leaving service

(22)

Less surrendered (28)Less surrendered after

leaving service(2,585)

Less retirement (37)Less retirement after

leaving service(1,130)

Less transferred out of the scheme

(421)Less transferred out after

leaving service(752)

At end of year 112,830 At end of year 42,057

MEMBERS AT 5 APRIL 2017 154,887

MEMBERS AT 6 APRIL 2016 119,731

MONITORING CONTRIBUTIONS (continued)

Following the consultation ‘Better Workplace Pensions: Reducing regulatory burdens…’, regulations were laid before Parliament (which took effect on 1 April 2016) and the 1996 Regulations

(SI 1996/1975) were amended. Consequently, it is no longer a requirement to obtain a specific auditors’ statement about contributions. The Scheme has, therefore, not prepared a summary of contributions receivable nor obtained an auditors’ statement about contributions.

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The Trustees are required by law to develop and to maintain a Statement of Investment Principles (SIP), which describes their investment philosophy. They use this to develop their tactical and strategic investment objectives. A copy of the SIP is included with this annual report.

The Scheme offers two options to Participant Employers. They may either delegate all governance responsibility to the Trustees (‘Sole Governance arrangement’), or they may choose to be involved in the initial and ongoing governance of their scheme (‘Shared Governance arrangement’).

SOLE GOVERNANCE ARRANGEMENTS

Under a Sole Governance arrangement, the Trustees select a range of suitable investment funds that members may then invest their pension pots in. The funds the Trustees choose are selected in accordance with their SIP. A ‘default investment’ option is selected for members who do not wish to make an active investment choice. A default investment is an investment option that members will automatically be invested in unless they choose to invest in a different fund. The default investment fund is explained in greater detail within the Governance Statement on page 27.

This range of funds and the default fund, in particular, are reviewed regularly by the Trustees and the Investment Sub-Committee. The Trustees also commission regular advice about the Sole Governance funds from their independent investment adviser, Dean Wetton Advisory.

SHARED GOVERNANCE ARRANGEMENTS

Participant Employers who have internal Governance Committees may choose to operate a Shared Governance arrangement, whereby the Participant Employers’ committee works in collaboration with the Trustees in respect of their membership demographic. Typically, Shared Governance arrangements obtain their own investment advice to provide bespoke investment options for their membership. They will then propose these ‘bespoke’ options to the Trustees, who then decide whether or not to agree to the proposal.

All Shared Governance clients also have a default fund, which may be different to the default fund under Sole Governance arrangements.

SCHEME INVESTMENTS

All of the Scheme contributions are invested in insured pension and life assurance funds, or Open Ended Investment Companies (OEICs). The underlying assets of the funds are the responsibility of the investment managers who appoint custodians of the assets underlying the pooled funds managed by them.

The types of funds that are currently available are as follows:

• internal funds – funds that are managed by Legal & General Investment Management Limited (LGIM)

• external funds – funds that invest in funds managed by a company other than the Legal & General Group of Companies

• blends – funds that invest or can invest, in a combination of internal and external funds.

Investment Report

19


The investment funds in which members’ pension pots are invested, their returns and benchmarks, are listed on pages 20 to 25.

All members’ investment returns vary depending on the specific investment funds they were invested in and the timing of their contributions.

The investment returns (net of fees) of each category of investment funds (annual or from inception to 5 April 2017) are set out in the respective tables on pages 20 to 25. The returns applicable to individual members are shown on their annual statements along with the returns of their specific investment funds. The performance of all funds available for members to invest in can be accessed from Legal & General’s online services.

The Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 require the Trustees to provide an overall investment return for the Scheme as a whole over the year to 5 April 2017 and over a longer period of between three and five years to the Scheme year end. The Scheme offers defined contribution benefits and is designed for members to select their choice of funds. As a consequence the Trustees consider it is the individual fund investment returns shown within this report that are relevant to the readers of this annual report.

RIGHTS ATTACHING TO INVESTMENTS

The Trustees recognise the importance of exercising shareholder rights (including voting rights) attached to investments. As the Scheme’s investments are in pooled investment vehicles, the rights attaching to the underlying investments in these vehicles are exercised by the respective managers of the funds who are expected, so far as is possible, to exercise those rights in accordance with their own corporate governance policy and in the best interests of the investors in these vehicles.

SOCIAL, ENVIRONMENTAL AND ETHICAL ISSUES

The Trustees’ policy regarding social, environmental and ethical considerations is taken into account as part of the day-to-day investment decisions delegated to the respective managers of the funds. It is expected that the respective managers of the funds understand that the Trustees’ primary responsibility is to act in the best financial interests of the members.

Where a Participant Employer opts to operate its own governance, the Trustees will expect that such governance also recognises the principle of best financial interest for its members.

EMPLOYER-RELATED INVESTMENTS

There is no employer related investment in relation to the Principal Employer. The funds which are made available by the Trustees for members of the Scheme to invest in may have underlying investments in securities of those participating employers which are quoted on relevant stock exchanges. Given the spread of funds available, the Trustees are of the view that any employer-related investment in these funds does not exceed the limit prescribed by legislation.

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INVESTMENT PERFORMANCE

The following tables set out the investment performance of the funds over the Scheme year.

INTERNAL FUNDS – PASSIVE

INVESTMENT FUND NAME

RETURN 1 YEAR %

PERFORMANCE DEVIATION

1 YEAR %

RETURN (PER ANNUM %)

3 YEARS

PERFORMANCE DEVIATION 3 YEARS %

L&G (PMC) AAA-AA-A Bond All Stocks Index Fund

8.89 0.12 7.58 0.07

L&G (PMC) AAA-AA-A Bonds Over 15 Year Index Fund

17.66 0.20 12.35 0.12

L&G (PMC) All Stocks Gilts Index Fund

7.19 0.01 7.94 0.02

L&G (PMC) All Stocks Index Linked Gilts Index Fund

22.26 0.01 13.92 0.03

L&G (PMC) Asia Pacific (ex Japan) Developed Index Fund

38.29 0.19 12.15 0.19

L&G (PMC) Asia Pacific ex Japan Index Fund

37.35 0.25 12.56 0.20

L&G (PMC) Consensus Index Fund

22.84 N/A 10.00 N/A

L&G (PMC) Diversified Fund

21.04 (5.49) 10.66 (1.65)

L&G (PMC) Ethical Global Equity Index Fund

32.19 0.10 15.64 0.04

L&G (PMC) Ethical UK Equity Index Fund

21.18 0.22 7.41 0.12

L&G (PMC) Europe (ex UK) Index Fund

28.21 0.00 9.07 0.13

L&G (PMC) Global Equity 50:50 Index Fund*

19.99 0.25 7.65 0.15

Investment report (continued)

A positive performance deviation indicates that the fund return is higher than the applicable benchmark or index, a negative performance deviation indicates that it is lower. Negative figures are displayed in brackets.

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RETURN 1 YEAR %

PERFORMANCE DEVIATION

1 YEAR %


3 YEARS

PERFORMANCE DEVIATION 3 YEARS %


26.13 0.33 10.25 0.16


25.97 0.35 9.51 0.17

L&G (PMC) Japan Equity Index Fund

36.20 0.04 17.49 (0.02)

L&G (PMC) Multi-Asset Fund****

20.25 0.34 10.82 0.27

L&G (PMC) North American Equity Index Fund

34.25 (0.01) 19.94 0.04

L&G (PMC) Over 15 Year Gilts Index Fund

13.77 0.01 14.36 0.02

L&G (PMC) Over 5 Year Index Linked Gilts Index Fund

24.63 0.01 15.77 0.03

L&G (PMC) Pre-Retirement Fund

12.53 0.08 10.97 0.07

L&G (PMC) UK Equity Index Fund

22.58 0.45 7.46 0.20

L&G (PMC) World (ex UK) Equity Index Fund

33.71 0.03 16.61 0.07

L&G (PMC) World Emerging Markets Equity Index Fund

38.50 0.19 12.70 0.15

Tracking deviations:All passive funds performed in line with their target tracking error during the annual reporting period.*These funds’ main objectives are to maintain asset allocation; hence they have a composite benchmark instead of a single benchmark with a tracking error target.**Please note that tracking deviation figures are loosely applied on these funds due to the fact that although the funds are passively managed they do not have specific tracking targets of traditional index tracking funds.*** Please note we show the fund’s performance against a comparator of the FTSE Developed World Index (50% hedged to GBP), because the long-term expected rate of return of the fund is broadly similar to that of a developed market equity fund. The diversified nature of the fund means that it is expected to have less exposure than a pure equity fund to adverse equity market conditions. However, the fund may perform less strongly than a pure equity fund in benign or positive market conditions.****The performance figure reflected for this fund within the investment report reflects the performance as at 05/04/17 and is on a deal:deal basis. This will differ to the performance shown within the Chair's DC governance statement on page 28 as the performance shown is as at 31/03/2017.N/A – Scheme has not held investment for more than one year. The full fund performance for one year is shown in this table for information purposes only.

Source: LGIM

INTERNAL FUNDS – PASSIVE (CONTINUED)

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INTERNAL FUNDS – ACTIVE

EXTERNAL FUNDS


RETURN 1 YEAR %

BENCHMARK 1 YEAR %

(ABI SECTOR)


3 YEARS

BENCHMARK 3 YEARS %

(ABI SECTOR)

L&G Property 3-Pen 4.43 0.36 9.35 6.73

L&G Cash 3-Pen 0.31 (0.18) 0.42 (0.09)


RETURN 1 YEAR %

BENCHMARK 1 YEAR %

(ABI SECTOR)


3 YEARS

BENCHMARK 3 YEARS %

(ABI SECTOR)

L&G Aberdeen Property Share 3-Pen

3.83 0.98 7.39 6.06

L&G Artemis Income 3-Pen

15.03 16.94 7.39 7.36

L&G Equity 3-Pen 23.61 17.98 6.46 6.01

L&G Henderson Preference & Bond 3-Pen

8.89 7.12 5.94 3.65

L&G HSBC Amanah Global Equity Index 3-Pen

28.86 27.97 16.83 12.29

L&G Index-Linked Gilt 3-Pen

22.86 21.64 14.90 13.61

L&G Investec Cautious Managed 3-Pen

17.19 12.96 5.52 5.90

L&G Managed Income 3-Pen

11.87 8.09 8.08 5.84

Source: Lipper

Investment report (continued)

Investment Report (continued)

23


EXTERNAL FUNDS (CONTINUED)


RETURN 1 YEAR %

BENCHMARK 1 YEAR %

(ABI SECTOR)


3 YEARS

BENCHMARK 3 YEARS %

(ABI SECTOR)

L&G Neptune Balanced 3-Pen

19.94 17.78 7.32 7.76

L&G Newton Global Income 3-Pen

22.26 27.97 16.02 12.29

L&G Newton Real Return 3-Pen

2.31 N/A 3.07 N/A

L&G Standard Life Global Absolute Return Strategies 3-Pen

0.64 N/A 1.63 N/A

L&G Stewart Investors Global Emerging Markets Leaders 3-Pen

28.04 N/A 12.62 N/A

Internal funds are either passive or active funds. Active funds, which include all external funds, are compared to their ABI Sector average.ABI sectors are a system for the classification of life and pension funds. Every sector sets clear criteria that must be followed by funds wishing to belong to that sector.

Source: Lipper

24


BLENDS

BLEND NAME COMMENCEMENT PRICING DATE

RETURN 12 MONTHS %

RETURN (PER ANNUM %) 3 YEARS

Retirement Saver Growth Phase

06/07/2015 16.67 N/A

Knauf Long-Term Growth Fund

29/10/2015 21.67 N/A

Index Linked Gilts 24/09/2012 21.70 15.39

Balanced Growth 2012 30/08/2012 24.92 13.26

Global Equity 30/08/2012 23.58 9.62

Emerging Markets 01/08/2012 40.04 12.91

Long Term Growth 2012 19/07/2012 28.60 13.42

Mixed Growth 2012 18/07/2012 21.23 12.95

Long Term Growth 17/07/2012 27.39 11.86

Balanced Growth 17/07/2012 26.90 12.96

Mixed Bonds 17/07/2012 14.03 12.53

Property 17/07/2012 8.98 12.46

Socially Responsible 17/07/2012 22.88 7.02

Corporate Bonds 17/07/2012 8.35 7.79

UBM Global Equity 26/12/2013 31.25 13.39


25


BLENDS (CONTINUED)

BLEND NAME COMMENCEMENT PRICING DATE

RETURN 12 MONTHS %

RETURN (PER ANNUM %) 3 YEARS

UBM Diversified 26/12/2013 20.19 10.71

UBM Pre-retirement 26/12/2013 11.60 10.61

L&G MT Short Dated Bond Index Fund

19/12/2016 N/A N/A

L&G MT Active Diversified Growth

18/12/2016 N/A N/A

L&G MT Global Dev Equity Index

15/12/2016 N/A N/A

L&G MT Emerging Markets Index Fund

15/12/2016 N/A N/A

L&G MT Smaller Companies Index Fund

15/12/2016 N/A N/A

Benchmarks and performance deviations are not supplied for blends as they represent multiple funds. The individual funds within these blends are shown separately above with the internal and external funds.N/A – Scheme has not held investment for more than one or three years.

Source: LGIM

26


The Trustees’ Report and Investment Report were approved by the Trustees and signed on their behalf by:

Name: Dermot Courtier Chairman of the Legal & General WorkSave Mastertrust


FURTHER INFORMATION

Requests for additional information about the Scheme generally, or relating to members’ benefits should be sent to the Trust Services at the address below:

Address: Trust Services Legal & General Assurance Society Limited Knox Court, 10 Fitzalan Place, Cardiff, CF24 0TL

Tel: 029 2043 2368

Email: [email protected]


27


Trustees are required in accordance with Regulation 23 of the Occupational Pension Schemes (Scheme Administration) Regulations 1996 to provide a governance statement within the Scheme’s annual report, setting out how the Trustees have met the governance standards that now apply to all occupational defined contribution schemes.

The Trustees are required to:

• design default arrangements in the best interests of the Scheme members and keep these under review;

• ensure that core financial transactions are processed in a timely and accurate manner, and;

• assess whether member-borne costs and charges represent good value.

To enable the above to be demonstrated the Trustees developed a statement of intent which confirms how we will assess whether the Scheme is delivering value for money to Scheme members.

This statement covers:

• price (charges) – this will cover any costs that relate to pension arrangements

• default investment strategies – default funds are the fund in which pension contributions are invested if a member does not wish to make a specific investment choice

• returns on investment – how investments perform

• flexibility – members should be able to access their pension savings in any way the regulations allow (subject to a minimum pension pot size)

• administration – this will test the level of customer service received and the speed and accuracy of financial transactions

• communications – these should be clear and available in a variety of ways

• feedback – In 2016 we committed to carry out an annual member survey, independently of Legal & General, to gain views on whether members believe that they are receiving value for money.

This report details the approach taken by the Trustees to assess the above and shares insight into the activity we have undertaken.

Each of the key attributes has been rated and you can see those ratings throughout this report. The scale on each graph ranges from – 3 to +3, where – 3 is of concern and +3 is delivering above the Trustees expectations. The methodology is not scientific, but should provide a ‘snapshot’ so that Scheme members can see how each area has performed in this period.

Chair’s DC governance statement

28


1. INVESTMENT MATTERS

1.1 INTRODUCTION

The Trustees invest in a policy of insurance through LGAS. This insurance policy allows participating companies, and their members, access to Legal & General’s WorkSave Investment Platform.

The investment managers and funds on the platform have been carefully selected and offer investment management and funds that are appropriate to the needs of our participating companies and their employees. The platform is kept under regular review by both Legal & General and the Trustees, with the expectation that funds will be added and removed from time to time.

There is a Statement of Investment Principles (SIP) in place that describes the principles governing investment decisions made by the Trustees of the Legal & General Mastertrust. A copy of this can be found in Appendix 1.

The Mastertrust offers two forms of investment governance: Sole Governance and Shared Governance. These options are explained below.

Sole Governance

• the Trustees select a range of funds in which members can invest their pension savings, which reflect the Trustees’ investment principles as set out in their SIP

• the Trustees, in conjunction with their independent investment adviser, Dean Wetton Advisory Limited, have designed a 'default' investment option in which members’ pension savings are invested should they choose not to select their own investment funds

• the investment range and default are regularly reviewed by Trustees, their Investment Sub-Committee and their Independent Investment Adviser

Shared Governance

• employers may choose to operate a Shared Governance arrangement

• the employer works in collaboration with the Trustees in respect of their membership demographic, obtaining their own investment advice to provide bespoke default and investment options for their membership

• any such proposal is then reviewed by the Trustees who may refuse a proposal if not deemed suitable or appropriate for the membership.

The Trustees’ investment committee, chaired by a Trustee and supported by their independent adviser and investment professionals at Legal & General, carries out work on behalf of the Trustees, monitoring performance and ongoing suitability of the Scheme’s investments, considering proposals and making recommendations in order to meet the Trustees’ strategic investment objectives. The committee meets monthly and also acts as the point of contact between Participating Employers and the Trustees on investment matters. It reports to the Trustee Board on a bi-monthly basis.

1.2 DEFAULT INVESTMENT STRATEGY

In April 2015, new pension legislation was introduced, which has become better known as pension freedoms. Pension scheme members now have much greater flexibility in how they can use their pension savings. Members can draw down a regular or occasional income from their pot, buy a guaranteed income (annuity) or withdraw it as one or more cash lump sums.

The Trustees reviewed their default investment arrangement ahead of the introduction of pension freedoms, with their independent investment adviser. The Trustees concluded that they required an investment strategy for these changing member

Chair’s DC governance statement (continued)

29


circumstances. Previous strategies were designed with the understanding that nearly all members would eventually buy a guaranteed income (annuity) from an insurance company. That investment design might still be suitable for some members but it’s no longer right for members who intend to use their pension pots flexibly – either by taking one or more cash payments or taking a regular income whilst leaving their remaining pot invested.

The default investment strategy uses the LGIM Multi-Asset Fund and does not automatically assume a particular retirement option will be chosen. To complement this, three additional solutions have been introduced for members to choose based on their benefit preferences.

These investment solutions do require members to make a choice so the Trustees ensure that members receive clear communications about their options. This year Legal & General have introduced further communications that ensure that members are ‘nudged’ at appropriate times where decisions need to be made.

A full review of the default investment options will take place in 2017. This will consider observed member behaviour following the introduction of pension freedoms.

ASSET ALLOCATION OF THE LGIM MULTI-ASSET FUND

* Exposure through shares in listed infrastructure and private equity companies and global Real Estate Investment Trusts (REITs).** Exposure through investing in funds that aim to provide a similar return to selected commodity indices. The underlying funds investin derivatives to provide the return of the specified indices.Asset allocations are subject to change.

Alternative Credit 15%

Emerging Sovereign Debt (USD)

High Yield Bonds

Emerging Sovereign Debt (Local)Investment

Grade Credit 15.5%

GBP Corporate BondsUSD Corporate BondsEUR Corporate Bonds

Government Bonds 12%

Conventional Gilts

Index-Linked Gilts

Euro Inflation-Protected Bonds

Euro Inflation-Protected Bonds

Developed (ex UK) Sovereign Debt

Equities 35.5%

UK Equity All Cap

North America Equity

Middle East/Africa Equity

Asia Pacific ex Japan Equity

Developed Small Cap

Europe ex UK Equity

Japan Equity

Emerging Market Equity

Alternatives 22%

Global Infrastructure*

Global Real Estate*

Commodities**

UK Physical Property

Global Private Equity*

30


The performance of the Multi-Asset Fund, against equities and the Retail Price Index (RPI) is shown below.

The fund manager of the LGIM Multi-Asset funds, Martin Dietz, provides an overview and performance summary in Appendix 2 of this statement.

* Returns for the LGIM Multi-Asset Fund are reported before the deduction of the annual management charge and based on the mid-price fund valuations. ** Developed Market Equities returns are 50% currency hedged to sterling. Returns are calculated using a basket of 50% FTSE AW Developed Index and 50% FTSE AW Developed (Hedged to GBP) Index.*** Daily values for RPI do not exist so this has been calculated for the period 31 March 2016 to 31 March 2017.Past performance is not a guide to future performance.

PERFORMANCE TO 31 MARCH 2017

LGIM MULTI-ASSET FUND*

DEVELOPED MARKET EQUITIES**

RETAIL PRICE INDEX (RPI)***

1 Year 19.76% 25.17% 1.39%

3 Year (per annum %) 11.01% 12.78% 1.28%

5 Year (per annum %) 9.66% 13.70% 1.91%

Total return since fund established

64.61% 104.80% 10.58%

Average yearly return since fund established

10.02% 14.72% 1.94%

-3 +3

-2 +2-1 +1

0

Default investment strategy value for money assessment


31


1.3 THE SOLE GOVERNANCE INVESTMENT RANGE CHANGES

As Trustees of the Mastertrust, it’s our responsibility to ensure that the funds available continue to meet the ongoing needs of our members. In 2016 we asked our investment adviser, Dean Wetton Advisory (DWA), to review the Sole Governance fund range and recommend changes to improve the range of investment options available to members.

DWA’s recommendations were presented to our Investment Sub-Committee for review, analysis and challenge. Consideration was given to the number of funds available, how schemes and their members would be impacted, member charges and likely transaction costs for switching. Once finalised the Investment Sub-Committee agreed a plan and timetable with Legal & General to communicate and implement the changes. In January 2017 we started communicating the changes to affected members and in March 2017 Legal & General implemented the changes the Trustees requested.

New investment options

As a result of the changes, five new funds have been made available to members:

• Legal & General Mastertrust Short Dated Bond Index Fund

• Legal & General Mastertrust Active Diversified Growth Fund

• Legal & General Mastertrust Smaller Companies Equity Index Fund

• Legal & General Mastertrust Emerging Markets Equity Index Fund, and

• Legal & General Mastertrust Global Developed Equity Index Fund.

Options that have been removed

We had concerns over the performance of two of the funds, so we requested Legal & General switch member investments out of these two funds

and into the Legal & General Mastertrust Active Diversified Growth Fund which invests in Newton Real Return Fund:

• Legal & General Investec Cautious Managed Fund

• Legal & General Neptune Balanced Fund.

We also decided members invested in the Legal & General (PMC) Consensus Index Fund, either directly or through the Consensus Index Lifestyle Profile, would be better served by switching their existing savings and any future contributions into the Legal & General (PMC) Multi-Asset Fund. The Legal & General (PMC) Multi-Asset Fund invests in a broader spread of investments and has a greater focus on managing the allocation of assets within the fund. However, because we don’t have any concerns about the performance of the Legal & General (PMC) Consensus Index Fund, members were allowed to opt out of this change if they wanted to.

Four other funds and two lifestyle profiles have been removed but members invested in these funds have retained their holdings:

• Legal & General (PMC) AAA-AA-A CB All Stocks Index Fund 3

• Legal & General (PMC) All Stocks Index Linked Gilts Index Fund 3

• Legal & General (PMC) Over 15 Year Gilts Index Fund 3

• Legal & General (PMC) Global Equity Fixed Weights 50:50 index Fund 3

• Multi-Asset Lifestyle Profile

• Global Equity 50:50 Lifestyle Profile.

We believe these changes will give members continued access to a range of funds that are equipped to meet their needs in a changing world.

The Sole Governance fund range is continually under review and we are committed to making further improvements where identified.

32


2. ADMINISTRATION (CORE FINANCIAL TRANSACTIONS)

The quality and timeliness of service that members receive is a key part of the assessment of ‘value for money’ and is documented in service level agreements (SLAs) between the Trustees and Legal & General. The Trustees review the time it takes for Legal & General to respond to member requests, the quality of Legal & General’s servicing and members’ views on the service received.

The management information on service performance supplied to the Trustees and Pensions Manager is of a high quality. The Trustees receive updates on service performance on a bi-monthly basis at their Board meetings and the Pensions Manager receives monthly information covering service performance, volumes, trend analysis and commentary against each process within the Mastertrust. You can find six-monthly performance updates on the Trustees’ website.

The Trustees were made aware of some service issues in in relation to the settlement of pension benefits and they have sought a commitment from Legal & General’s senior management to address this. The position is improving and the Trustees will continue to monitor these services.

One particular area of focus is drawdown, or flexible access to a regular income from your pension savings. Post pensions freedoms, the ability to offer an efficient drawdown service has become increasingly important. Whilst current demand is low in comparison to the overall membership, it is important that the Trustees monitor Legal & General’s ability to respond as demand grows. The Trustees are keen to see that full automation is fully in place as soon as possible in order that demand is met as volumes of drawdown requests increase.

In January 2017 the Trustees visited the Workplace Savings division at Legal & General’s Cardiff office. The Trustees received a number of presentations from the Leadership team and spent time listening to customer calls. The Trustees were very impressed with the professionalism and enthusiasm of the staff in the contact centres and their focus on providing good customer service.

Legal & General has provided the Trustees with the assurance that all transactions are processed in accordance with the contractual terms. However, where delays occur, Legal & General ensures that the member is left in a no-worse-off position than had the delay not occurred.

The Trustees receive updates from Legal & General’s Group Internal Audit function and is made aware of any concerns relating to the Trustees’ areas of oversight.

Administration value for money assessment

-3 +3

-2 +2-1 +1

0


33


3. MANAGEMENT CHARGES AND TRANSACTION COSTS

3.1 MANAGEMENT CHARGES

Two management charges are deducted from members’ pension pots. The first covers the cost of administering the pension scheme and is referred to as an annual management charge (AMC). The AMC is determined through agreement between the employer and Legal & General. The second is a fund management charge (FMC) and covers the cost of managing the investment. The size of the FMC depends on the investment funds the member has chosen to invest in.

The total management charge applying to a member’s fund choices can be understood by totalling the annual management charge (AMC) and the fund management charge (FMC).

As explained in last year’s report, auto enrolment makes it compulsory for employers to enrol their eligible employees into a pension scheme. Each scheme must have a default fund in which members’ pension pots are invested if they do not wish to make an active investment decision within the plan. Pension schemes that are used for this purpose have a charge cap applied to their default fund. The total charge (AMC plus FMC) for these default funds must not exceed 0.75% each year, that is, 75p for every £100 of savings each year. Details of the Mastertrust Sole Governance default fund are contained on pages 26 and 27.

The FMC for the Trustees’ Sole Governance default fund is 0.13%. For members invested in this fund the total charge, including the AMC, will not exceed 0.5%, which is 50p for every £100 of savings each year, which falls below the required charge cap.

The Trustees receive regular management information from Legal & General that allows us to track the charges that are applied to all participating employer sections of the Mastertrust.

The FMC for all funds available under the Scheme, for Sole and Shared Governance participants, ranges between 0.03% and 1.14% per annum, as shown in the table below. Not all funds are available to all participants, as employers are permitted to include or restrict options to members of their particular section of the Scheme. Information on the investment options available in a particular section of the Scheme can be found on an employer’s microsite.

The FMC itself is made up of an Investment Management Charge and Additional Expenses. Additional expenses include fund administration fees, custodian fees, auditing and accounting fees, and regulatory charges.

The table shows the upper and lower end of the range of FMCs and how they are made up.

INVESTMENT MANAGEMENT

CHARGE

ADDITIONAL EXPENSES

*FUND MANAGEMENT

CHARGE

Lower 0.03% 0.00% 0.03%

Upper 0.87% 0.27% 1.14%

*More details on fund management charges across the Sole Governance fund range can be found in Appendix 3.

34


3.2 TRANSACTION COSTS AND CHARGES

Transaction costs form part of the total costs of managing an investment fund, in addition to the FMC and AMC described above, and are incurred as a result of the buying and selling of assets. Some transaction costs are explicit, or more easily identified, and some are implicit, and not so easily identified.

• explicit costs may include taxes and levies (such as stamp duty reserve tax), broker commissions (fees which are charged in order to buy and sell investments such as equities), and the costs of borrowing or lending securities

• transaction costs incurred within a fund are likely to vary from one year to another. This is because they depend, to a large extent, on the level of buying and selling activity within the fund (referred to as fund turnover) and how easy it is to buy and sell in the market (the market liquidity) during the period under consideration; the higher the turnover and/or the lower the market liquidity the higher the transaction costs.

Trustees are required to assess transaction costs, although there is not yet a regulatory requirement on fund managers to disclose this information in a standard way across the industry. The regulatory requirement for fund managers to fully disclose transaction costs is anticipated to come into effect towards the end of 2017. The Financial Conduct Athority (FCA) is consulting on the draft definition and calculation approach for transaction costs and Legal & General has been working with the Trustees to provide information in advance of any regulations coming into force.

The concept of transaction costs is not simple but we will try to ensure that these costs and charges are fully available to members and are presented meaningfully.

The Trustees’ progress to date regarding transaction costs needs to be considered separately for funds that are managed by Legal & General and those which are managed by external managers.


35


A. LEGAL & GENERAL FUNDS

The Trustees have been kept updated on Legal & General’s project to develop its capability to collate information to meet the regulatory requirements on transaction costs. So far, Legal & General has been able to directly calculate explicit transaction costs but implicit transaction costs carry a degree of approximation. The Trustees are satisfied with Legal & General’s methodology for arriving at this approximation.

A summary of the information that Legal & General has provided to the Trustees to date is shown on the next page. We will publish the outputs from Legal & General’s disclosure project as and when they are available.

When members join the Scheme, any contributions that they and/or their employer make will be invested in the default investment option (as detailed on pages 26 and 27). The default investment option may be determined by the Trustees or chosen for them by their employer.

Members’ retirement savings may also have a default ‘lifestyle profile’ which means that as they approach their selected retirement date their savings will be gradually de-risked and moved to a less volatile asset portfolio.

The tables on pages 36 and 37 will help them to establish which default investment option and lifestyle profile applies to their retirement savings and, using 2016 as an example, the estimate of the transaction costs incurred in managing their investment.

36


a. Legal & General Funds

TRANSACTION CHARGES

Fund nameL&G Over 15 years Gilts Index Fund

No lifestyle

profile overlayTransaction costs 0.02%*

Administration and fund management charges

0.47%

TRANSACTION CHARGES

Fund name L&G Cash Fund

No lifestyle

profile overlayTransaction costs 0.001%*


0.48%

*Costs are estimated and provided on a best endeavours basis by LGIM based in part on their own methodology pending the finalisation of a market standard.

A range of costs (0.04% – 0.08%) has been provided for the Multi-Asset Fund as the calculations are sensitive to rapid growth in fund size in the year and the multi-layered aspect of the fund structure. In this table we have assumed a mid-point of this range (0.06%).

PRODUCT TYPE WORKSAVE MASTERTRUST

Default investment option Multi Asset Fund (Lifestyle) Multi Asset Fund

Lifestyle profile Ten year de-risking No lifestyle profile overlay

Lower volatility fund allocation for lifestyle profile

75% L&G Over 15 years Gilts Index Fund

25% L&G Cash FundN/A

TRANSACTION CHARGES

Fund name L&G Multi Asset Fund L&G Multi Asset Fund

Transaction costs 0.06%* 0.06%*


0.50% 0.50%


37


a. Legal & General Funds (continued)

Where the default investment option has a lifestyle profile we have provided details of the transaction costs that would apply to their retirement savings if they were 3, 5 or 7 years away from their selected retirement date, so that they can understand how these costs are impacted by the gradual movement to alternative funds.

TRANSACTION CHARGES – 7 YEARS FROM RETIREMENT

Blend allocation

69.2% L&G Multi Asset Fund

23.1% L&G Over 15 years Gilt Index Fund

7.7% L&G Cash Fund No lifestyle profile overlay

Transaction costs 0.05%*


0.49%


Blend allocation






0.49%


Blend allocation






0.48%

As an example, in the table above, with assumed transaction costs of 0.06%, the L&G Multi Asset Fund indicates that for every £1,000 of investment in this fund, transaction costs of 60p will be incurred, as a result of trading activities judged necessary by the fund manager to achieve fund objectives.

38


b. External Funds

Legal & General has commenced a project to obtain details of the transaction costs incurred on externally managed investment funds, on behalf of the Trustees.

Legal & General believe that it is unlikely that they will be able to obtain the necessary disclosure on transaction charges from external managers until the first quarter of 2018, once the FCA’s requirements have been formally published. The Trustees have asked that Legal & General continues to pursue this.

Charges value for money assessment

-3 +3

-2 +2-1 +1

0


39


4. VALUE FOR MONEY

The Trustees are required by law to monitor whether the Mastertrust provides good value for money for its members.

The Trustees believe that demonstrating value for money extends beyond the required assessment of member-borne costs and charges, reviewing the default investment strategy and administration performance. The Trustees’ Statement of Intent on value for money sets out a range of additional criteria that the Trustees use to assess the value that is being provided to members. The following sets out the Trustees’ progress made under each of these categories.

4.1 FLEXIBILITY

As explained in last year’s report, the Trustees believe that access to pension freedoms is a key indicator in delivering value for money. We want members to be able to access their pension savings in any way allowed by the regulations.

The Mastertrust offers the full range of flexibilities at retirement, although it should be noted that it does not offer flexible drawdown to those with pension pots of less than £30,000.

In addition to this the Mastertrust has been expanded to allow members whose own pension schemes do not allow some of the flexibilities to transfer to the Mastertrust to benefit from these. The same £30,000 limit applies for those wishing to draw down their benefits.

The Trustees offer a well-structured and appropriate default option, as this report explains, that offers flexibility as members approach retirement. This fund does not automatically assume a particular retirement option will be chosen. Instead, three investment solutions are made available so that members can target the outcome of their choosing, be that drawdown, an annuity or, a cash-based solution. The Trustees believe this has been designed with the best interests of members in mind.

As these investment solutions do require members to make a choice as they approach retirement, Legal & General notifies members that a choice needs to be made. Members are contacted at certain and appropriate times as they approach retirement to remind them of their options and the actions that they need to take. The Trustees are satisfied that these communications are clear and timely. Currently, these communications only exist in letter format and the Trustees would like to see such communications also delivered digitally.

The letters were introduced in August 2016 and the Trustees receive regular management information on the actions that are being generated following the issuing of these. It is too early to comment on the impact of these communications but they will continue to be monitored in 2017. Moreover, focus groups on Pension Freedoms have been held this year and this has been helpful in better understanding member behavior with regard to decisions about pension benefits. Further detail on the focus groups is included under the section titled Communications on page 40.

Flexibility value for money assessment

-3 +3

-2 +2-1 +1

0

40


4.2 COMMUNICATIONS

The Trustees stated last year that they had a desire for members to be able to access information and make changes to their pension arrangements using a means of communication of their choosing. The Trustees’ Communications Committee provides oversight of member communications and bespoke client communications. The Trustees have been very challenging in their desire for Legal & General to invest in communication which allows people to access their pension information from their smart phones and tablets, as well as through more traditional means.

In 2016, Legal & General applied mobile optimisation to their Manage Your Account website. This is the site where members can log on to manage their pension account. Analysis was provided to the Trustees on why Legal & General pursued mobile optimisation rather than an app. The Trustees are keen to conduct further research into mobile and tablet behaviour in 2017, specifically in relation to the management of financial education and services.

During 2016 Legal & General completed three major pieces of research with external research agencies. The Trustees were informed of each and attended some of the focus groups.

i. Online documents and member engagement

This project sought to understand the likely levels of engagement with online pension benefit statements.

This project specifically reviewed:

• the use of different communications channels, devices, mobile apps and websites when dealing with financial services and pensions

• current methods of engagement with pension communications

• communications preferences and willingness to engage with pensions digitally.

ii. Pension reform research

This research examined the experiences and behaviours of Legal & General workplace pension customers who have accessed their pension pot using the new pension freedoms.

iii. Customer journey user testing

This was a review of the communications the member receives from the point of joining a workplace scheme. The research tested the new member experience with Legal & General workplace pension customers and asked for feedback on:

• microsite content and navigation

• look and feel, length, tone of voice, signposting and clarity of key documents in the journey

• how well members identified with the stages of the journey

• areas for improvement.

Communications value for money assessment


-3 +3

-2 +2-1 +1

0

41


Research findings have been utilised in the design of Legal & General’s new member communications. In addition, Legal & General’s online pension benefit statement notifications have been re-written and re-designed to focus on key messages of simplicity, security and ease of use with more informal language. Legal & General are also working with a number of large employers with an objective to increase the number of members who use the online facilities.

The Trustees contribute to and monitor the progress of this activity, together with future development planned through the Communications Committee which meets quarterly.

4.3 ENVIRONMENTAL, SOCIAL AND CORPORATE GOVERNANCE

This year the Trustees have also considered Legal & General’s approach to environmental, social and corporate governance (ESG) issues in the companies in which their clients are invested through stocks and shares. The Trustees wanted to understand the steps that are taken to protect members’ money and what Legal & General does to engage and vote on poorly governed companies.

We learned about:

• Legal & General’s approach towards active governance

• how they attempt to raise market standards

• company engagement and voting activities

• addressing climate change

• views on executive remuneration, and

• Legal & General’s current engagement focus.

We also invited Legal & General to the Mastertrust Annual Members’ Forum to present on this subject, so that members could hear about and ask questions directly on these matters. Our annual forum is covered in more detail later in this report.

Legal & General undertakes extensive work on ESG issues and you can read more about their activities in their Active Ownership report.

Aside from holding companies to account for their ESG policies, Legal & General, during 2016, developed their Future World Fund.

This fund:

• addresses the investment risks associated with climate change by using an index which focuses on companies that are likely to benefit from the transition to a low-carbon economy

• aims to provide better risk-adjusted returns by incorporating a ‘tilt’ towards shares that have the potential to provide better returns than the index over the long term for a similar level of investment risk

• incorporates LGIM’s Climate Impact Pledge. This is a targeted engagement process where LGIM works directly with companies to bring about positive change, and excludes those who don’t meet the criteria

• does not invest in any companies if they make cluster bombs or landmines.

Environmental, social and corporate governance

-3 +3

-2 +2-1 +1

0

42


Following a review on this fund by the Trustees’ independent investment adviser, and following due consideration having been applied by the Investment Committee, the Trustees approved the Future World Fund as a self-select option within the Sole Governance range and as an available option to Shared Governance clients.

This review happened outside the period that this report covers, but we felt it is a subject our members would want to hear about, following the feedback that was provided at the Trustees' 2016 Annual Member Forum.

4.4 FEEDBACK (MEMBER REPRESENTATION)

The Trustees encourage the views of our members to be shared and we have put the following facilities in place:

• Mastertrust Employer Group – all our participating employers are invited to join our employer group, which is Trustee led and focuses on Scheme matters, forthcoming regulatory change and member communications and feedback. Input to the agenda is invited from participants and guest speakers regularly attend to cover topical matters. This forum represents the views of 62 participating employers and more than 658,000 members and the Trustees place great importance on the views we are able to gain from employer representatives across a range of differing sectors. The forum is held every three months.

• Annual Member Forum – in September 2016, the Trustees held their third Annual Member Forum. This session is organised and run by the Trustees independently of Legal & General.

Approximately 60 Scheme members attended, receiving updates from the Trustees on the progress that was being made on the Scheme and receiving presentations on topical issues such as environmental, social and corporate governance matters. The Trustees were delighted to be joined by Andrew Warwick-Thompson, Executive Director of The Pensions Regulator, who gave an independent update to our members on Master Trusts, and Nigel Wilson, Group Chief Executive at Legal & General, who covered the future of long-term savings.

The Trustees do appreciate that not all members can attend these events, so arranged for this year’s forum to be professionally recorded and the video can be viewed on the Trustees’ website; www.landg.com/mastertrust

Member feedback from this event was both positive and helpful and the Trustees would be delighted to hear from members with suggestions for topics for our 2017 event. If you do have any feedback please do email us at: [email protected]

The 2017 Annual Member Forum will be held on Monday 16 October. It will be held at Legal & General’s offices at One Coleman Street, London, EC2R 5AA.

• Member survey – last year we stated that we would carry out an independent survey in 2016. The Trustees believe it is very important that they have a mechanism to be able to understand what value for money means to members. As a Trustee board, we have a lot of experience in understanding pension matters but we need to be sure that the areas we are progressing are the ones that are important to members.

Feedback (member representation)

-3 +3

-2 +2-1 +1

0


43


We gained great insight into how our members think and we would like to thank all 500 who participated in this telephone-based survey.

Our members told us that communication is critical to their requirements, particularly younger members. Many members explained that they lack financial sophistication and therefore place extra demands on the communications and support they receive. This is very helpful to bring into the work and thinking that is undertaken by the Communications Committee.

When members were asked about the attributes that mattered most to them, they ranked the features as follows:

1. clear and simple information is provided about my work place pension

2. the efficiency of dealing with my enquiries and dealing with knowledgeable staff

3. ease of access to information about my pension through my preferred channel (i.e. phone, online, post)

4. being kept regularly informed

5. product performance

6. support and guidance based on needs and circumstances

7. reasonable level of fees and charges

8. range of suitable funds to invest in.

This information is very useful to the Trustees and was considered when agreeing the Trustees’ 2017 business plan.

The member survey is just one component that is considered when making an overall value for money assessment. It is important that the expertise and experience of the Trustees are also applied across all factors that impact the value for money that members receive.

There is room for improvement in overall member satisfaction scores and we will work with Legal & General to address areas that did not score as highly as others. In terms of overall value for money of the Mastertrust, the results were positive. We would like to work with Legal & General and the representatives of the employers to better understand how pension communications can be made more engaging and to consider other methods that can be used to raise awareness.

• Member website – our member website can be found at www.landg.com/mastertrust and on this you can find regular updates on our progress, Trustee profiles, details of the governance structure and details of forthcoming events. Members can also use the ‘contact us’ facility to make direct contact with the Trustees.

4.5 ACCREDITATION

The Mastertrust has achieved the Mastertrust Assurance Framework accreditation. This framework is designed to help trustees independently assess whether their scheme has adopted standards of governance, administration and internal control that meet the Pension Regulator’s DC code of practice and DC regulatory guidance.

The Mastertrust also holds the Pensions Quality Mark Ready accreditation and the Retirement Quality Mark from the Pension & Lifetime Savings Association (PLSA).

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5. OVERALL VALUE FOR MONEY ASSESSMENT

Taking all of the above into consideration the Trustees believe that the Mastertrust does offer good value for members. We work with Legal & General to continually improve all

of the areas that we discuss above. This will enable us to offer more and better services and communications, and ensure the Mastertrust remains a highly governed and good value pension scheme.

Mastertrust overall value for money assessment

-3 +3

-2 +2-1 +1

0


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6. TRUSTEE KNOWLEDGE AND UNDERSTANDING

The Trustees are required to have sufficient expertise, experience and independence to act in the interests of Scheme members. This is assessed annually through an independent evaluation. Training is provided and monitored. The most recent evaluation was completed in December 2016. This evaluation focused on the Trustee Board’s composition, an assessment of how the Trustees view their independence and the independence of each member of the Trustee Board and gave consideration as to the diversity of the Trustee Board’s membership, performance, skills and effectiveness.

The combined knowledge and skills of the Trustees, together with the advice available to the Trustees through their appointed legal advisers (Pinsent Masons) and their independent investment adviser (Dean Wetton Advisory Limited), enables them to fully exercise their responsibilities as Trustees.

The Trustees’ profiles can be found in Appendix 4 of this statement.

7. NON-AFFILIATION OF TRUSTEES AND MEMBER REPRESENTATION

For all master trusts the law requires that a majority of the Trustees must be non-affiliated to the provider. This requirement has been met during the Scheme year. No Trustee is affiliated with any company that provides advisory, administration, investment or other services to the Scheme.

The Trustees are also members of the Legal & General Independent Governance Committee (IGC). Individuals who sit on IGCs can still be considered non-affiliated, as is set out within the Pensions Regulator's Code of Practice on Defined Contribution Schemes.

The Trustees operate an open and transparent recruitment process. This is managed by the Secretary to the Trustees who prepares the candidate profile in conjunction with the Chairman of the Trustees. An Executive search agency is appointed to identify suitable candidates.

Dermot CourtierChairman of the Legal & General WorkSave Mastertrust


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The Trustees of the Legal & General WorkSave Mastertrust and the Legal & General WorkSave Mastertrust (RAS).

This Statement, prepared in terms of the Pensions Act 1995, as amended by the Pensions Act 2004, and having regard to the Occupational Pension Scheme (Investment) Regulations 2005, describes the principles governing decisions by the Trustees of the Legal & General WorkSave Mastertrust and the Legal & General WorkSave Mastertrust RAS ('the Trustees’) about the investments of the Legal & General WorkSave Mastertrust and the Legal & General WorkSave Mastertrust RAS (‘the Mastertrusts’).

Investment Advice

Before preparing this Statement, the Trustees have considered written advice from its Investment Committee (IC) comprising officers, employees and investment committees of Legal & General Assurance Society Limited and Legal & General (Portfolio Management Services) Limited supported, as appropriate, by independent research conducted by Old Broad Street Research Limited, and by independent investment advice commissioned by the Trustees.

The Trustees will continue to receive advice from the IC on a regular basis in accordance with the Terms of Reference and will from time to time commission independent external advisers to provide such advice as is deemed necessary.

The Trustees will review this Statement at least every three years or without delay after any significant change in investment policy. No change will be made without first consulting the affected participating employers and without due consideration of the written advice of the IC or such other advisers as are commissioned for this purpose. However, the ultimate power and responsibility for determining the investment policy lies solely with the Trustees.

STRUCTURE OF THE MASTERTRUST

Members

Each Member of each participating section has an individual Pension Account derived from the accumulated contributions from their employer and (where applicable) from themselves and (where applicable) from one or more transfers-in from other Registered Pension Schemes. The Pension Account is used to secure such benefits as are permitted by law and prescribed by the rules pertaining to that participating company. Different constituent parts of each member’s Pension Account can be invested in any of the different investment funds made available to them.

Participating Employers

The structure of the Mastertrust is designed to accommodate two categories of participating employer.

First is where participating employers wish to delegate the entirety of the fiduciary and governance responsibilities to the Trustees. This is referred to below as ‘sole governance’.

Second is where the participating employer operates a Governance Committee and will be actively involved in the governance of their membership demographic, including the investment strategy. This is referred to below as ‘shared governance’. Scheme leavers from a shared governance section may, at the participating employer’s request, and with the agreement of the Trustees, be moved directly into a sole governance section.

This structure gives rise to two distinct sets of general investment objective. These are dealt with separately below.

Appendix 1: Statement of investment principles


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CHOOSING INVESTMENTS (GENERAL)

The Trustees invest in a policy of insurance through Legal & General Assurance Society Limited. This insurance policy allows participating companies, and their members, access to Legal & General’s WorkSave Investment Platform, which comprises approximately 170 funds. The investment manager and funds on the platform have been selected following formal procedures and reflect the mainstream of investment management and funds that are most appropriate to the needs of corporate customers and their workforces. The platform is intentionally dynamic, with the flexibility and expectation that there will be fund additions and fund deletions.

All day-to-day investment matters are delegated to each of the respective fund managers.

High level overview:

• currently, there are 29 different investment managers on the platform

• over 50 funds are offered by Legal & General Investment Management Limited (LGIM) and over 100 from external Investment Managers

• 30 passive funds exist within the range, the rest being actively managed

• all the main assets classes are represented.

CHOOSING INVESTMENTS

Under the first category (‘sole governance’), the Trustees aim:

To provide members with access to a diverse universe of investment funds to suit different age demographics, different risk appetites and different retirement income strategies.

Under the second category (‘shared governance’) the Trustees aim:

To enable participant companies to commission and implement such investment advice as they consider appropriate or necessary for their membership demographic, subject to the Trustees’ agreement.

Where they are solely responsible for governance (sole governance), the Trustees will design a default investment option that aims to:

1. To target a positive real return net of fees with lower risk than that of equities

2. Support flexibility in how and when members take their benefits

3. Avoid overly conservative de-risking

4. Combine well with other de-risking options available to members; and

5. Select a range of funds from the platform that satisfy the objective described above.

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The Trustees will apply the following principles to fund selection:

1. Simplicity – members should not face complex investment choices that hinder engagement.

2. There should be sufficient choices to cover all investment risk appetites and tolerances.

3. The options should cover all major asset classes.

4. We should avoid funds with high charges whose value add cannot be readily identified.

5. There should be a single fund multi-asset option.

6. A number of pre-retirement de-risking options should be available.

7. Regard should be paid to investment manager pedigree and their responsible investment and stewardship capabilities.

8. There should be a continuous internal governance procedure.

9. Wherever practicable, funds should be drawn from the governed fund range.

10. There should be an ethical choice or choices.

11. There should be a sharia-compliant fund.

12. There should be at least one fund managed by an external investment manager available for each major asset class.

13. A (number of) post-retirement/drawdown option(s) should be available.

Based on these criteria, the recommendations of the IC, as accepted by the Trustees, are shown at Appendix 1. This range of funds can be expected to change from time to time.

Shared Governance participants can, with due regard given to the above principles, choose a range of funds from all of the funds available on the fund platform for their scheme. With the prior approval of the Trustees, via a recommendation from the Investment Committee, such participating companies may add a new blend or new fund: such additions may be added to the WorkSave investment platform to be made available to other participants, or they may be isolated for that particular participant’s scheme.

Default investments should:

• reflect the likely needs of the employees who will be auto-enrolled into it

• have a clearly stated high level objective in line with the above

• have an appropriate balance between risk and return

• manage risk through diversification.

The Trustees retain ultimate fiduciary responsibility for all investments under the Mastertrusts and must therefore monitor the performance and/or relevance of the funds requested by all employers who choose their own investment options.

Appendix 1: Statement of investment principles (continued)

Chair's DC governance statement (continued)

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Rights attaching to investments

The Trustees recognise the importance of exercising rights (including voting rights) attaching to investments. For reasons of practicality, the Trustees delegate responsibility for the exercising of such rights to the relevant fund managers who are expected, so far as is possible, to exercise these rights in the best interests of the Trustees.

Social, environmental and ethical issues

The Trustees’ policy regarding social, environmental or ethical considerations is that the extent to which such issues are taken into account in making day-to-day investment decisions is delegated to the investment manager groups. It is expected that each investment manager understands that the Trustees’ primary responsibility is to act in the best financial interests of the members.

The Trustees expect that shared governance participants recognise the principle of best financial interest for their members, even where they choose a number of socially responsible, ethical and/or belief-based funds.

Performance measurement

Performance measurement will be undertaken on a regular basis by the IC or other appropriate body or persons using various data and reports. The IC will report quarterly or more frequently to alert the Trustees to any corporate or performance issues or to any concerns raised by or actions proposed by other of Legal & General’s investment committees.

The Trustees will obtain independent advice, from time to time, on the Sole Governance fund range and default structure, and may obtain independent advice in respect of any Shared Governance proposals before granting approval.

Information for members

Detailed information on funds available to members is made available on Legal & General’s website and/or on an intranet site of a participant company.

Realisation of investments

The assets of each Member’s Personal Account are held in unitised investment funds that are generally readily realisable. Some funds (for example property funds) are less liquid in nature and therefore contain risk warnings describing the potential for realisation delays.

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Provided by Martin Dietz, Fund Manager, LGIM Multi-Asset Fund

The Multi-Asset Fund aims to achieve long-term investment growth through exposure to a diversified range of asset classes. The asset allocation of the fund is designed to be robust for a range of possible market outcomes by focusing on long-term asset allocation and extensive asset-class diversification. The fund predominantly uses LGIM’s index funds as its underlying constituents, which are a transparent and cost-effective way to gain broad market exposure.

The past twelve months have been particularly buoyant for risky assets. Global economic activity has improved markedly and we have seen a stabilisation and subsequent increase in commodity prices which has been reflected in rising consumer price inflation in the major developed economies. While the recovery has been broad-based, it has been most noticeable in the US where growth accelerated during the second half of 2016, led by consumer demand.

Global equities have performed strongly and returns from international markets were substantially enhanced for UK-based investors as sterling plunged to a 31-year low against the US dollar in the aftermath of the UK referendum result. US stocks outperformed other major overseas markets (returning 32.5% in sterling terms), particularly following the presidential election as investor expectations increased for more government spending and pro-business policies. The Multi-Asset Fund generated returns (before fees) of 19.8%, underperforming global equities that returned 25.2%. The broadly diversified nature of the fund means that we would not expect to capture the full upside from equities in the short term but equally would not suffer to the same extent as equities in market falls.

All asset classes held by the fund were positive and the key contributors to the fund’s performance included its developed market and emerging market equity exposure. For any UK investor, currency movements can affect the value of overseas investments. As such, we hedge around 50% of the fund’s overseas exposure to reduce the impact of currency volatility on returns. Sterling weakness during 2016, driven by pre- and post-Brexit concerns, meant that the value of non-sterling assets increased for UK investors.

Appendix 2:

LGIM Multi-Asset fund performance (6 April 2016–5 April 2017)

50.0%

40.0%

20.0%

10.0%

-10.0%

-20.0%

0.0%1.1% 2.1% 0.7% 2.1% 1.5% 0.5%1.3% 0.9%2.1% 1.2%1.2% 1.0%1.4% 0.9%1.8% 0.3% 0.3% 0.0%

-0.3%

0.1% 0.1%0.2%

30.0%

Co

ntr

ibu

tio

n to

ret

urn

(%)

APA

C (e

x Ja

pn

Equi

tie

EM E

qui

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Pri

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Eq

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s

Nor

th A

mer

ica

Equi

ties

Jap

an E

qui

ties

Glo

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Sm

all C

ap

Euro

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(ex

UK

) Eq

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UK

IL S

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Bon

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EM D

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S

Infr

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REI

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Glo

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Hig

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ield

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Cre

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UK

Sov

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Sov

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ond

s

Cur

ren

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UK

Eq

uitie

s

20.3%

Source: LGIM


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The table below sets out all charges and costs, as currently made available to the Trustees, for the Sole Governance range.

Appendix 3:

Charges and costs for the sole governance range

FUND NAME INVESTMENT MANAGEMENT

CHARGE

ADDITIONAL EXPENSES

FUND MANAGEMENT

CHARGE

FULL SPREAD TO 2 MAY 2017

L&G MT Emerging Markets Index Fund

0.25% 0.00% 0.25% 0.54%

Legal & General HSBC Amanah Global Equity Index Fund 3

0.55% 0.00% 0.55% N/A

Legal & General (PMC) Ethical Global Equity Index Fund 3

0.30% 0.00% 0.30% 0.16%

L&G MT Global Developed Equity Index Fund

0.10% 0.00% 0.10% 0.19%

Legal & General (PMC) World (Ex-UK) Equity Index Fund 3

0.12% 0.00% 0.12% 0.18%

L&G MT Smaller Companies Index Fund

0.22% 0.00% 0.22% 0.17%

Legal & General Threadneedle Managed Equity Fund 3

0.79% 0.18% 0.97% N/A

Legal & General (PMC) UK Equity Index Fund 3

0.10% 0.00% 0.10% 0.78%

L&G MT Active Diversified Growth Fund

0.80% 0.04% 0.84% N/A

Legal & General (PMC) Multi-Asset Fund 3

0.13% 0.00% 0.13% 0.49% 2

Legal & General Property Fund 3

0.30% 0.59% 0.89% 1.05% 1

Legal & General Henderson Preference & Bond Fund 3

0.68% 0.04% 0.72% N/A

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Funds that were in the Sole Governance Range but are no longer available for selection (as described in section 1.1):


CHARGE

ADDITIONAL EXPENSES

FUND MANAGEMENT

CHARGE


L&G (PMC) AAA-AA-A Corporate Bond All-Stocks Index Fund 3

0.12% 0.00% 0.12% 0.82%

L&G (PMC) All Stocks Index Linked Gilts Index Fund 3

0.08% 0.00% 0.08% 0.14%

L&G (PMC) Over 15 Year Gilts Index Fund 3

0.08% 0.00% 0.08% 0.14%

L&G (PMC) Consensus Index Fund 3

0.10% 0.00% 0.10% N/A

L&G (PMC) Global Equity Fixed Weights 50:50 Index Fund 3

0.10% 0.00% 0.10% 0.49%


CHARGE

ADDITIONAL EXPENSES

FUND MANAGEMENT

CHARGE


Legal & General (PMC) Retirement Income Multi-Asset Fund 3

0.28% 0.02% 0.30% 0.5% 2

Legal & General (PMC) Pre-Retirement Fund 3

0.12% 0.00% 0.12% 0.84%

L&G MT Short Dated Bond Index Fund

0.12% 0.00% 0.12% 0.36%

Legal & General Cash Fund 3

0.09% 0.01% 0.10% 0% 1

* The full spread is the difference between the cost of buying more assets for the fund and the price that the fund’s assets could be sold for. The fund will generally be valued at the higher, or offer basis when the fund is growing in size, and valued at the lower, or bid basis when the fund is shrinking.1 Calculated at 2 February 20172 Calculated to 3 April 2017

Appendix 3: Charges and costs for the sole governance range (continued)


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The Board of Trustees has been established to ensure it has sufficient expertise, experience and independence to act in members' interests. This will continue to be assessed through an annual evaluation, the next one taking place in December 2017. This evaluation covers the Board’s composition, an assessment of how the Board views its independence and the independence of each of its members and gives consideration to the diversity of its membership, performance, skills and effectiveness.

TRUSTEE PROFILES

Appendix 4: Trustees of the Legal & General Mastertrust

Dermot Courtier, Chairman

Dermot was appointed Chairman of the Legal & General Mastertrust with effect from 1 March 2017. Dermot also acts as Chairman of the Legal & General Independent Governance Committee.

Dermot is Head of Group Pensions at Kingfisher plc. as well as Secretary to Kingfisher Pension Trustee Limited (KPTL), which oversees the governance and the running of the Kingfisher Pension scheme (KPS). Since 2007, Dermot in his executive capacity, has overseen KPS’s de-risking programme and the enhancement of DC benefit structures and investment funds. KPS has won numerous awards, in particular for its pioneering financial education programme for DC members.

Dermot has held senior pension roles at Hachette Livre Group, Towers Perrin HR Services (now Willis Towers Watson) and Royal Mail Group. He is a member of the PLSA DC Council.

Rachel Brougham, Trustee

Rachel is a trustee executive at BESTrustees Limited. Rachel is a qualified actuary and has worked in the pensions industry since 1988. Rachel’s experience includes advising both defined benefit (DB) and defined contribution (DC) trustee boards and the governance committees of various contract-based DC arrangements through which she has built up a detailed knowledge of the regulatory environment. With Rachel’s previous employer, the global consultant Mercer, she led a number of national initiatives including pension fund governance (both DB and DC) and pensions automatic enrolment.

Having joined BESTrustees in 2014, Rachel’s appointments include two master trust trustee boards and membership of two independent governance committees, as well as two large defined benefit schemes.

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TRUSTEE PROFILES

Appendix 4: Trustees of the Legal & General Mastertrust (continued)

Steve Carrodus, Trustee

Steve is a director of PTL Governance Limited. Steve has worked in corporate pensions and employee benefits since 1973 and has worked for a number of major pension consulting firms including Willis, Sedgwick, Godwins and SBJ. He’s been involved in trusteeship work since 1991.

For much of his career Steve has been advising medium-sized pension funds on all areas relating to the setting up and running of pension schemes and in some cases in their closure. More recently Steve has been involved with a number of Master Trusts and another IGC. Steve has a good understanding of investment issues and uses his experience to ensure that the scheme’s advisers are challenged and their advice is fully understood by all trustees.

Steve served for four years on the council of the Pensions Management Institute and has spoken at a number of technical seminars for clients and on trustee training courses.

Tony Filbin, Trustee

Tony Filbin studied law at Hull University and joined Legal & General in 1979 where he held a number of senior positions, rising to Managing Director Workplace Savings.

In Tony’s various roles he was responsible for Legal & General’s suite of retail pension and annuity products including the development and implementation of their award-winning auto-enrolment proposition. Since leaving Legal & General in 2014, Tony has taken up a number of pension trustee board positions and non-executive director roles.

Tony is a regular speaker at pension conferences and has held committee positions with the Institute of Actuaries and the Pensions Management Institute. In 2013 Tony was named by Financial News as one of the Top 10 Most Influential People in Pensions.

Ali Toutounchi, Trustee

Ali has over 30 years of experience in investments. He was formerly Managing Director of Legal & General Investment Management’s Global Index Funds, overseeing the management of over £275 billion of assets on behalf of pension funds, institutional and retail investors.

Ali joined Legal & General in 1995 from NatWest Securities. Ali has held senior roles at UBS Asset Management and Wood Mackenzie Stockbrokers. Ali has a first class honours degree in economics and statistics from University College, London, and a PhD in actuarial mathematics from Heriot-Watt University, Edinburgh.


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MASTERTRUST SUPPORT SERVICES

Richard Atkins, Mastertrust Pension Scheme Manager

Richard Atkins was appointed Pension Scheme Manager to the Mastertrust and Legal & General’s Independent Governance Committee in August 2015.

Richard's role requires him to assist the Trustees with the smooth running of the Mastertrust Pension Scheme, acting as an interface between the Trustees, the participants (employers) and the service provider (Legal & General).

Richard reports to the independent Chairman of the Trustees and he also has an independent non-operational reporting line to the Legal & General Investment Management Risk & Compliance department.

Richard has worked in the pensions industry since 2000 where he has held a variety of senior management roles in both the defined benefit and defined contribution environments.

Andrew Fairhurst, Secretary to the Mastertrust

Andrew Fairhurst worked on the launch of the Mastertrust and has been Secretary to the Trustees since its inception in 2011. Andrew’s role is to ensure the Board of Trustee operates efficiently and effectively to the highest governance standards and Trustees both embrace and are at the forefront of changing governance practice.

Andrew reports through to the independent Chairman of the Trustees and he also has an independent non-operational reporting line to Legal & General’s Legal & Governance function.

Andrew has held a number of senior company secretarial roles within Legal & General Group and is a Fellow of the Institute of Chartered Secretaries.

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REPORT ON THE FINANCIAL STATEMENTS

Our opinion

In our opinion, the Legal & General WorkSave Mastertrust financial statements:

• show a true and fair view of the financial transactions of the Scheme during the year ended 5 April 2017, and of the amount and disposition at that date of its assets and liabilities, other than 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 Regulations 3 and 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.

What we have audited

Legal & General WorkSave Mastertrust financial statements comprise:

• the statement of net assets available for benefits as at 5 April 2017;

• the fund account for the year then ended, and;

• the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and United Kingdom

Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’.

In applying the financial reporting framework, the Trustees have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events.

RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT

Our responsibilities and those of the Trustees

As explained more fully in the statement of Trustees’ responsibilities, the Trustees are responsible for the preparation of the financial statements and being satisfied that they show a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinion, has been prepared for and only for the Trustees as a body in accordance with Section 41 of the Pensions Act 1995 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Independent Auditors’ Report to the Trustees of the Legal & General WorkSave Mastertrust

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What an audit of financial statements involves

We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.

This includes an assessment of:

• whether the accounting policies are appropriate to the Scheme’s circumstances and have been consistently applied and adequately disclosed;

• the reasonableness of significant accounting estimates made by the Trustees, and;

• the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the Trustees’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

PricewaterhouseCoopers LLPChartered Accountants and Statutory Auditors London


58


Fund account for the year ended 5 April 2017

2017 2016

Note £000s £000s

Employer contributions 4 180,631 122,772

Member contributions (including member’s tax relief at source)

4 25,299 20,030

Total contributions 205,930 142,802

Transfers from other schemes

5 324,213 249,045

Other income 6 2,950 2,155

533,093 394,002

Benefits 7 (23,131) (15,810)

Payments to and on account of leavers

8 (3,233) (4,241)

Transfers to other schemes

9 (27,159) (13,657)

Administrative expenses 10 (1,568) (672)

(55,091) (34,380)

NET ADDITIONS FROM DEALINGS WITH MEMBERS

478,002 359,622

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NET RETURNS ON INVESTMENTS

Change in market value of investments

11 290,355 5,369

NET ASSETS OF THE SCHEME

As at the start of the year

1,029,735 664,744

As at the end of the year

1,798,092 1,029,735

NET INCREASE IN THE FUND DURING THE YEAR

768,357 364,991

The notes on pages 61 to 72 form an integral part of these financial statements.

2017 2016

60


Statement of net assets (available for benefits) as at 5 April 2017

NOTE 2017 2016

£000s £000s

Investment assets Pooled investment vehicles

11 1,793,318 1,025,456

Current assets 14 5,137 4,301

Current liabilities 15 (363) (22)

NET ASSETS AVAILABLE FOR BENEFITS

1,798,092

1,029,735

The financial statements summarise the transactions of the Scheme and deal with the net assets at the disposal of the Trustees. They do not take account of obligations to pay pensions and benefits which fall due after the end of the Scheme year.

The notes on pages 61 to 72 form an integral part of these financial statements.

These financial statements were approved by the Trustees and signed on their behalf by:

Name: Dermot Courtier Chairman of the Legal & General WorkSave Mastertrust


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Notes to the financial statements

1. GENERAL INFORMATION

The Scheme is a Registered Pension Scheme under the Finance Act 2004 (Registered Pension Scheme number 00784167RL). It is governed by a Trust Deed and Rules dated 22 August 2012, by the Deeds of Participation of each Participant Employer, and by any amending documentation.

The Scheme offers defined contribution benefits to:

• the current and former workforces of the Participant Employers

• members who have been transferred to the Scheme by the trustees of another pension scheme, and

• members who have transferred directly from another scheme.

The Scheme is registered for Relief at Source on members’ contributions.

2. STATEMENT OF COMPLIANCE

The individual financial statements of the Scheme 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 (FRS) 102 – the Financial Reporting Standard applicable in the UK and Republic of Ireland issued by the Financial Reporting Council (‘FRS 102’) and the guidance set out in the Statement of Recommended Practice ‘Financial Reports of Pension Schemes’ (revised November 2014) (‘the SORP’).

In adopting FRS 102, the Trustees have been early to adopt the provisions of ‘Amendments to FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland – Fair value hierarchy disclosures (March 2016)’.

3. ACCOUNTING POLICIES

The following accounting policies have been adopted consistently:

Currency

The Scheme’s functional currency and presentational currency is pounds sterling (GBP).

Pension contributions

Employer and member contributions remitted by the participant employers are accounted for on an accruals basis based on the pay period to which they relate.

Investment of pension contributions

Pension contributions are invested on the next available valuation date after receipt, except for contributions received and held in cash within a member’s automatic enrolment opt out window.

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Member benefits

Benefits payable to members are accounted for on an accruals basis from the date they are claimed or notified to the Trustees. Refunds for members who opt out of the Scheme are accounted for in the period that the member gives notification of their intention to opt out.

Transfers to and from other schemes

Transfer values represent the capital sums either receivable in respect of members from other pension schemes of previous employers or, payable to the pension schemes of new employers for members who have left the Scheme. They are accounted for on an accruals basis on the date the trustees of the receiving scheme accept the liability. The liability normally transfers when a payment is made, unless the trustees of the receiving scheme have agreed to accept the liability in advance of receiving the funds.

Group transfers, where the Trustees have agreed to accept the liability prior to the receipt, are accounted for in accordance with the agreement.

Charges

Administrative charges are accounted for on a period end basis and represent the amount deducted by the period end date.

Fund management charges are included in the unit price and vary from fund to fund.

Valuation of investments

Investment assets and liabilities are included in the financial statements at fair value. Investments are included in the net assets statement based on the unit price at the period end date, as provided by LGAS. All funds are single priced.

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 and unrealised changes in market value. In the case of pooled investment vehicles which are accumulation funds, where income is reinvested within the fund without issue of further units, change in market value also includes such income.

Transaction costs are included in the cost of purchases and sale proceeds. Transaction costs include costs charged directly to the Scheme such as fees, commissions, stamp duty and other fees. Other investment management expenses are accounted for on an accruals basis and shown separately within investment returns.

Notes to the financial statements (continued)

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4. CONTRIBUTIONS

2017 2016

£000s £000s

Employers – normal 180,631 122,772

Members – normal 25,299 20,030

Total 205,930 142,802

In the accounting period 2016/17 transfers into the Scheme of £216.6m were received as cash value and £107.6m as in-specietransfers (2015/16 transfers into the Scheme of £190.1m were received as cash value and £68.9m as in-specie tranfers).

5. TRANSFERS FROM OTHER SCHEMES

2017 2016

£000s £000s

Individual transfers in from other schemes 33,500 4,404

Group transfers in from other schemes 290,713 244,641

Total 324,213 249,045

6. OTHER INCOME

2017 2016

£000s £000s

Claims from life assurance 2,950 2,155

Total 2,950 2,155

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7. BENEFITS

2017 2016

£000s £000s

Lump sum death benefits 921 460

Purchase of annuities 2,201 1,334

Life assurance benefits 2,950 2,155

Income drawdown payments 7,686 3,755

Partial uncrystallised funds pension lump sums

1,247 662

Cash lump sums paid to members 7,517 6,985

Triviality payments 609 459

Total 23,131 15,810

8. PAYMENTS TO AND ON ACCOUNT OF LEAVERS

2017 2016

£000s £000s

Short service refunds on leaving service 3,233 4,241

Total 3,233 4,241


Life assurance benefits are the value of benefits received from a Group Life Policy for members and for life assurance only members.

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9. TRANSFERS TO OTHER SCHEMES

2017 2016

£000s £000s

Individual transfers to other schemes 27,159 13,657

Total 27,159 13,657

10. ADMINISTRATIVE EXPENSES

2017 2016

£000s £000s

Administrative charges 1,568 672

Total 1,568 672

Administrative expenses, which vary between Participant Employers, are charged by LGAS, against the value of each pension pot and are payable by the member. Charges are deducted from members’ pension pots by the encashment of units. These are calculated daily and deducted on the monthly anniversary of each member’s pension pot. The charges shown here are those that have been deducted from members’ pension pots. Some Participant Employers may choose to reduce the annual management charge by paying fees direct to LGAS which are not included above.

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The movements in investments during the year were:

11. INVESTMENT ASSETS

Investments purchased by the Scheme are allocated to provide benefits to the members on whose behalf the corresponding contributions were paid. Accordingly, the assets identified as designated to members do not form a common pool of assets available for members generally. All investments are provided by the WorkSave Pension Trust Insurance Policy (the 'Policy') by LGAS and are held as pooled investments.

The crediting of units to the Policy operates only as a means of calculating benefits.

All units under the Policy are owned by LGAS. Members each receive an annual statement confirming the contributions paid on their behalf and the value of their money purchase rights.

Purchases represent the cash value of contributions received, and sales represent the cash value of units disinvested. Sales and purchases of units in funds which relate to switching when members change their fund strategy are not included in these figures.

All of the above assets are designated to members.

2017 2016

£000s £000s

Market value at the start of the year 1,025,456 661,209

Purchases at cost 532,620 393,551

Sales proceeds (55,113) (34,673)

Change in market value of investments 290,355 5,369

Market value at the end of the year 1,793,318 1,025,456


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11. INVESTMENT ASSETS (CONTINUED)

The market value of investments (pooled investment vehicles) by type can be analysed as follows:

Funds representing more than 5% of the Scheme net assets

2017 2016

£000s £000s

Equities 473,528 224,295

Bonds 81,858 56,200

Property 9,055 6,600

Diversified Growth 1,180,929 710,086

Cash 47,948 28,275

Total 1,793,318 1,025,456

INVESTMENT FUND NAME 2017 % OF NET ASSETS 2016 % OF NET ASSETS

L&G (PMC) Multi-Asset 3-Pen 39.1 34.7

Long Term Growth 2012 16.4 19.4

L&G (PMC) Global Equity Fixed Weights 50:50 Index 3-Pen

13.7 13.2

L&G (PMC) Consensus Index 3-Pen Less than 5% 5.6

L&G (PMC) Global Equity Fixed Weights 60:40 Index 3-Pen

6.8 Less than 5%

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12. FAIR VALUE OF INVESTMENTS

The fair value of financial instruments has been determined 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 (i.e. developed using market data) for the asset or liability, either directly or indirectly.

• Level 3 – Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

LEVEL

Investment assets1

£000s2

£000s3

£000s2017 Total

£000s

Pooled investment vehicles – 1,793,318 – 1,793,318

Total – 1,793,318 – 1,793,318

LEVEL

Investment assets1

£000s2

£000s3

£000s2016 Total

£000s

Pooled investment vehicles – 1,025,456 – 1,025,456

Total – 1,025,456 – 1,025,456


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13. INVESTMENT RISKS

FRS 102 requires the disclosure of information in relation to certain investment risks.

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 factors affecting all similar financial instruments traded in the market.

Under a Sole Governance arrangement, the Trustees select a range of suitable investment funds from the LGAS investment platform that members may then invest their pension pots in including a default investment option for members who do not wish to make a deliberate investment choice. The Trustees also work with governance committees of those participant employers under a Shared Governance arrangement, on the range of bespoke investment options for the members of that employer.

The Scheme has exposure to these risks because of the funds it makes available to and are invested in by the members of the Scheme.

Further information on the Trustees’ approach to risk management, credit and market risk is set out below.

Investment strategy

The Trustees’ objective is to make available to members of the Scheme an appropriate range of investment options designed to generate income and capital growth, which together with new contributions from members and their employer, will provide a retirement amount with which the member can purchase a pension annuity (or other type of retirement product). The SIP outlines the investment objectives and strategy for the Scheme.

The investment funds offered to members are as follows:

• Internal funds – funds that are managed by LGIM

• External funds – funds that invest in funds managed by a company other than the Legal & General group of companies

• Blends – funds that invest in a combination of internal and external funds.

An analysis by type of underlying investments is found in note 11.

The Trustees have an investment management agreement in place with LGAS that sets out guidelines for the underlying investments held by the funds. The day-to-day management of the underlying investments of the funds is the responsibility of LGAS, including the direct management of credit and market risks.

The Trustees monitor the underlying risks by quarterly investment reviews with LGAS.

The risks disclosed here relate to the Scheme’s investments as a whole. Members are able to choose their own investments from the range of funds offered by the Trustees and, therefore, may face a different profile of risks from their individual choices compared with the Scheme as a whole.

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13. INVESTMENT RISKS (CONTINUED)

Credit risk

The Scheme is subject to direct credit risk in relation to LGAS through its holding in unit linked insurance funds provided by LGAS. These funds are credit unrated.

LGAS is regulated by the Financial Conduct Authority and maintains separate funds for its policyholders. The Trustees monitor the creditworthiness of LGAS by reviewing published credit ratings.

In the event of default by LGAS, the Trustees on behalf of members may be entitled to full compensation from the Financial Services Compensation Scheme.

The Scheme is also subject to indirect credit and market risk arising from the underlying investments held in the pooled funds. Member level risk exposures will be dependent on the funds invested in by members.

At the year-end the Bond, Cash and Diversified Growth funds totalling £1,310,735,000 (2016: £794,561,000) were exposed to underlying credit risk. The Trustees only invest in funds where the financial instruments and all counterparties used are at least investment grade rated.

Market risk

The Scheme is subject to indirect foreign exchange, interest rate and other price risk arising from the underlying financial instruments held in the funds managed and/or made available by LGAS.

2017 £000s

2016 £000s

CURRENCY RISK

INTEREST RATE RISK

OTHER PRICE RISK

Equities 473,528 224,295 ✓ ✗ ✓

Bonds 81,858 56,200 ✓ ✓ ✗

Property 9,055 6,600 ✗ ✗ ✓

Diversified Growth

1,180,929 710,086 ✓ ✓ ✓

Cash 47,948 28,275 ✗ ✓ ✗

Market value at the end of the year

1,793,318 1,025,456


The following table summarises the extent to which the various classes of investments are affected by market risks (all of which are indirect):

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14. CURRENT ASSETS

15. CURRENT LIABILITIES

All contributions due to the Scheme relate to the month of March 2017 and were paid in full to the Scheme within the timescale required by the payment schedules currently in force.All of the above are designated to members, other than £56,552 which is bank interest (2016: £54,124).

Tax is owed to HMRC in respect of Short Service Refunds to members. All of the above balances are designated to members.

5 APRIL 2017 5 APRIL 2016

£000s £000s

Contributions due in respect of members: Employers Members

3,644 925

3,128 707

Cash at bank 568 466

Total 5,137 4,301

5 APRIL 2017 5 APRIL 2016

£000s £000s

Life assurance 348 –

Refunds on members leaving service 6 21

Income drawdown payments 8 -

Tax 1 1

Total 363 22

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16. TRUSTEE REMUNERATION

LGTL comprises Independent and Non-Independent Directors. Independent Directors are directors who otherwise have no business connection with the Legal & General Group. Non-Independent Directors may carry out a variety of other remunerated work for the Legal & General Group. In the period to 5 April 2017, the Independent Directors of LGTL were remunerated by fees; Non-Independent Directors were salaried employees of the Legal & General Group. PTL Governance Limited and BESTrustees plc are paid by a combination of retainer and time cost fees.

During the year, fees and expenses for all of the scheme advisers, LGTL directors, PTL Governance Limited and BESTrustees plc were paid by LGAS.

In the Scheme year this amounted to £257,000 (2016: £218,000) for this Scheme and its sister scheme. None of these costs and expenses are reflected in these financial statements.

17. RELATED PARTIES

LGRL is the Principal Employer. It does not participate in the Scheme and derives no income or other financial (or non-financial) benefit from it. It is responsible for appointing the Trustees but is otherwise not involved in any of the Scheme’s commercial undertakings or appointments.

LGAS is the Scheme Administrator. It provides the administration services, including collecting and investing contributions, and paying benefits as and when members leave or retire. It provides a suite of communications materials, including member booklets and investment guides, and delivers an on-line portal for each Participant Employer and their members. LGAS also provides the insurance policy that provides access to the investment platform of LGIM, with whom the Trustees have no direct relationship.

LGAS is remunerated for its services through charges (Annual Management Charge (AMC) and Fund Management Charge (FMC)) deducted from members’ pension pots and fee income from those participant employers who choose to reduce the AMC by paying fees direct to LGAS.

LGAS pays all the Scheme expenses on behalf of the Trustees, including fees, expenses and other disbursements of the Trustees’ advisers. The Trustees are responsible for the appointment of all parties.

LGTL is a wholly owned subsidiary of LGAS. It is an independently chaired company.

18. CONTINGENCIES AND COMMITMENTS

In the opinion of the Trustees, the Scheme had no contingent assets, liabilities or contractual commitments as at 5 April 2017 (2016: Nil).

19. SUBSEQUENT EVENTS

There were no subsequent events requiring disclosure in the financial statements.

20. EMPLOYER-RELATED INVESTMENTS

There is no employer-related investment in relation to the principal employer. The funds which are made available by the Trustees for members of the Scheme to invest in may have underlying investments in securities of those participating employers which are quoted on relevant stock exchanges. Given the spread of funds available, the Trustees are of the view that any employer-related investment in these funds does not exceed the limit prescribed by legislation.


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QGI13383 09/17

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