Pension Fund Annual Review

A Closer Look at our Investments

The Trustee aims to invest the assets of the Fund carefully to make sure that the benefits promised to members are provided.

The long-term aim of the Fund is to be fully funded with assets having a low return target of gilts plus 0.5%, with liabilities fully hedged for inflation and interest rate risk. The Trustee believes this is best achieved by having both an investment strategy, and a journey (or de-risking) plan, that gradually reduces risk and increases the hedging.

Investment objectives and strategy

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The financial position of the Fund can be assessed on three different bases.

  • The ‘Technical Provisions’ or ‘ongoing’ basis assumes that Nationwide will continue to support the Fund. Certain assumptions are made by the Actuary about future economic and financial conditions and the Fund’s membership. While the assumptions cannot be guaranteed as being accurate, they are agreed by the Trustee and Nationwide as being suitable.
  • The ‘Low-Dependency’ basis also assumes Nationwide will continue to support the Fund, however it assumes the only contributions paid to the Fund are in respect of future benefit accrual for Active members.
  • The ‘Buy-out’ or ‘Solvency’ basis assumes that the Fund is ended (wound up) on the Valuation date and looks at whether there’s enough money to buy individual pensions for every member.

The Trustee monitors the funding level of the Fund on both a Technical Provisions basis and a Low Dependency basis. While there’s a strong (but not perfect) link between the Technical Provisions, Low Dependency and Buy-out funding levels, the Trustee recognises that over time, the relationship between these three measurements of liabilities will change.

The overall plan is that the Fund will de-risk towards full funding on a Low Dependency basis. The intention is that at the end of the de-risking process the resulting investment portfolio largely matches the characteristics of the Fund’s liabilities with an allowance to cover risk factors.

The Trustee has a process for monitoring and implementing the Fund’s de-risking strategy and regularly consults with the Society on any proposed de-risking. This is outlined in the Fund’s Statement of De-Risking Protocols.

The Fund’s investment strategy is reviewed from time to time to make sure that it’s appropriate for the current circumstances and objectives of the Fund.

The Trustee monitors the asset allocation versus the target weighting and the ranges. The current asset allocation of the Nationwide Section as at 31 March 2020, is set out in the table below.

Asset Class Target Weighting % Range %
Matching Assets 50-60 45-65
Government and Supranational Bonds 40-50 30-50
Alternative Matching Assets (AMA) 5-10 5-10
 Long Lease Property - 0-5
 Ground Rent Property - 0-5
 Other AMAs - 0-3
Return Seeking Assets 45 40-50
Equities 12 10-15
 Physical 8.5 6.5-10.5
 Synthetic 4 3-5
Credit 10 7.5-12.5
 Alternative credit 2.5 2-4
Illiquid portfolio – private markets 22.5 17.5-27.5
Capital Appreciation   10-15
Income Yielding   5-10
Private Credit   2-3
Cash 1 0-2
Hedging Liabilities Targets Target (as % of liabilities) Range (as % of assets)
Inflation Hedging 95 90-100
Interest Rate Hedging 95 90-100

The Cheshire & Derbyshire Section's strategic asset allocation is:

Asset Class Target Weighting %
Global equities 5-10
Matching Portfolio 90-95
Cash 0-2

Each Section has its own Statement of Investment Principles (SIP) which details the respective investment strategy.  These meet the requirements of section 35 of the Pensions Act 1995 and section 244 of the Pensions Act 2004.  The latest Nationwide Section SIP and Cheshire & Derbyshire Section SIP were approved by the Trustee Board on 11 April 2019 taking account of changes agreed over the year and the planned future investment strategies. 

Review of investment performance

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The Fund’s combined investment assets as at 31 March 2020 were £6,534.3 million. The Fund is split into two Sections and their performance is as follows:

Nationwide Section Performance Analysis

One Year

Three Year

Actual %

Benchmark %

Actual %

Benchmark %

Core Matching Assets2





Alternative Matching Assets















Private Markets3





Total Return





Note that five-year analysis is not provided as the portfolio and its benchmark were so significantly different that the returns are not comparable.

Core Matching Assets comprises bonds, including Government bonds, corporate bonds and index linked securities.

Private Markets comprises real estate, private equity, infrastructure and private and real estate debt.

Cheshire & Derbyshire Section performance analysis

One Year

Three Year

Actual %

Benchmark %

Actual %

Benchmark %

Core Matching Assets4









Total Return





Core matching assets during the year comprised bonds, including Government bonds and corporate bonds.

Investment Allocation - Nationwide Section

The following chart shows the current total gross allocation of £7,577.3 million (excluding AVCs)

Gilts - 53.16%

Corporate bonds - 9.30%

Alternative Matching Assets - 6.63%

Equities - 10.48%

Private Markets - 18.78%

Cash and other (including Derivatives) - 1.65%

Total gross assets includes Repurchase Agreements (Repo) – the total net assets in the accounts is less Repo.

What are Repurchase Agreements (Repo)?

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In simple terms it's like a secured loan. The Fund entered into Repurchase Agreements using its UK Government index-linked gilts as the underlying security. The Fund retains the entitlement to receive income accruing on these securities and has a contractual agreement to repurchase the securities at a specified future date.

Investment allocation – Cheshire & Derbyshire Section

The following chart shows the current total gross allocation of £358.6 million, which is entirely place within funds managed by Legal & General.

Bonds - 94.3%

Equities - 5.7%