The Prudential Staff Pension Scheme (the ‘Scheme’) recently published its ‘Report and Financial Statements for the year ended 5 April 2025’. The document details changes in investment strategy, manager appointments, and other key financial information for both its Defined Benefit (DB) and Defined Contribution (DC) Sections.
DB Section Longevity Swap Valuation Methodology Revised
For the fiscal year ended 5 April 2025, the DB Section changed its valuation technique for the longevity swap contract. Previously, the valuation was based on the collateral value from the collateral mechanism closest to the balance sheet date, plus any outstanding expense payments. The new methodology, implemented for the year ended 5 April 2025, reflects a ‘Fair Value’ valuation. The Scheme actuary, Willis Towers Watson, now prepares the valuation based on best estimate mortality assumptions plus a current risk fee on the floating leg. The fair value of the longevity swap contract is derived from expected future cash flows, including fees, discounted using market interest rates and accounting for the inherent risk premium. This involves valuing the floating leg based on prevailing market best-estimate mortality and current risk fee, minus the fixed leg payments and outstanding payments required from the Scheme. The fair value of the longevity swap contract was reported as (£77.7) million as of 5 April 2025, compared to (£17.3) million in the prior year. (Source: Report and Financial Statements for the year ended 5 April 2025, page 55)
DB Section Strategic Asset Allocation Targets Updated
During the fiscal year ended 5 April 2025, the Trustee reviewed the target return and risk profile for the DB Section following the results of the 2023 actuarial valuation. New strategic target ranges were agreed upon to better reflect the nature of the investment strategy. The strategic allocation was amended to incorporate a target allocation range for each relevant fund and/or asset class. The updated benchmark asset allocation is as follows: Growth assets 2-6%, Distressed Credit 0-2%, Illiquid Credit 0-1%, Multi-Strategy Credit 2-4%, and Liability Matching assets 94-98%. Liability matching assets consist of secure income assets, fixed interest gilts, index-linked gilts, corporate bonds, asset-backed securities, cash, and swaps. (Source: Report and Financial Statements for the year ended 5 April 2025, page 18, 90)
New DC Section Self-Select Fund Introduced
For the fiscal year ended 5 April 2025, the DC Section introduced a new self-select fund, the PSPS Sustainable Total Return Bond – active Fund. This addition aims to provide members with further investment choice, specifically a sustainably managed bond fund. (Source: Report and Financial Statements for the year ended 5 April 2025, page 103)
DB Section Manager Appointments and Reviews
During the fiscal year ended 5 April 2025, the Trustee met with M&G Investment Management to address performance concerns regarding the Debt Opportunities funds (DOF III and IV) and the indicative timeline for the winding down of assets. While concerns were expressed, it was agreed that no changes should be made to the portfolio at that time. The Trustee also met with BlackRock. Annually, the Trustee receives reports from the Investment Consultant detailing each investment manager’s policies and implementation, and following the review for the past year, no changes were deemed necessary for the Scheme’s investment managers. (Source: Report and Financial Statements for the year ended 5 April 2025, page 93, 97)
DC Section Lifestyle Options Closed to New Entrants
Effective 10 May 2023, two alternative lifestyle options in the DC Section, the PSPS Active Lifestyle – Annuity at Retirement and the PSPS Passive Lifestyle – Annuity at Retirement, were closed to new entrants. Only members already invested in these strategies at that date can continue to use them. (Source: Report and Financial Statements for the year ended 5 April 2025, page 23, 78, 100)
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