B of I's 'mission statement'
The €2.85bn Bank of Ireland Staff Pensions Fund (BSPF) is the main fund for the Bank of Ireland Group, covering 75% of the employees of the Bank of Ireland Group. Its 13,500 members, of which just under 10,000 are active members, include employees in the Republic of Ireland and the UK
Over the last year an ongoing evaluation of the fund’s investment strategy produced the fund’s first comprehensive Mission Statement, which reinforces the relationship between the sponsor, the fund and its members and has proved to be an invaluable exercise in pension fund governance.
Following the last valuation of the scheme in March 2001 and approved by the trustees in November of the same year, the fund showed a healthy surplus allowing the continuation of a contributions holiday for the employer. While traditional practice at the end of the fund valuation would have been a review of investment strategy involving actuarial inputs and the traditional ALM study, for the current strategy review, the Bank of Ireland group pensions department, who are the fund administrators, proposed to the trustees that a detailed audit of existing policies, practices and processes should be carried out to assess against best practice the manner in which the fund was governed, invested and administered.
This process was carried out in-house and a number of recommendations were approved. The prime recommendation was to clearly articulate the purpose and objectives of the fund by means of the Mission Statement and a set of measures as to how the mission would be achieved under the headings of Governance, Investment and Administration. Before approval, the Mission Statement was submitted to the fund’s legal adviser and actuary for consideration and was confirmed as both appropriate and in keeping with best practice.
The first stage in the strategy review was the selection of investment consultants. The fund invited three consultants to submit RFPs. Significantly, the scheme didn’t invite the consultants to come in and carry out presentations, preferring instead in depth interviews of the candidates.
The next step was a consultation process between the employer, the appointed investment consultant, the scheme actuary and the investment committee.
The actuary and investment consultant modelled a number of scenarios for the consultation process and examined the impact of potential investment strategies on the fund’s ongoing funding level; employer contribution rate; discontinuance funding level; and FRS17 costs and funding level. A broad consensus was then agreed between the employers’ representatives and the investment strategy committee (ISC). This led to the establishment of a ‘baseline’ strategy for working purposes.
The ISC, with the support of the investment consultants, then carried out an extensive risk budgeting exercise. This commenced with a workshop for the ISC on risk budgeting followed by a detailed review of the suitability of a range of asset types to the BSPF’s needs. On completion of the strategy review, the ISC will be in a position to propose a detailed strategy for trustee approval.
This will establish a baseline strategy that meets the BSPF investment needs for the immediate future and is fine tuned through the asset allocation process to reduce volatility and enhance returns.
The strategy will also be compatible with the sponsoring employers risk appetite and put into practice the investment objectives of the BSPF Mission Statement, while remaining congruent with the governance objectives of the trustees.
In summary, the fund has implemented a worthwhile strategic model for leading occupational pension funds, which provides the fund with clear identifiable objectives and operating principles and a continuation of the exceptional returns experienced over a long period.
In turn, trustee confidence has been bolstered by the fact that the BSPF investment strategy has been determined through a robust and state of the art process. Furthermore, enhanced communication with members facilitates greater understanding of the BSPF objectives and operating practices, resulting in an appreciation by members of the trustees governance of their pension fund and the favourable pension benefits provided by their employers.