NatWest Group Pension Fund (formerly known as The Royal ...

NatWest Group Pension Fund (formerly known as The Royal Bank of Scotland Group Pension Fund)

Annual Report and Financial Statements for the year ended 31 December 2020

Scheme Registration Number: 100140634

NATWEST GROUP PENSION FUND – YEAR ENDED 31 DECEMBER 2020 TRUSTEE’S REPORT

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Contents Trustee’s Report .................................................................................................................................. 3

Contacting us ....................................................................................................................................... 3

Governance .......................................................................................................................................... 4

Tax status and ownership .................................................................................................................... 7

Developments during the year ............................................................................................................ 8

Going Concern ...................................................................................................................................... 9

Financial Review ................................................................................................................................. 10

Membership ....................................................................................................................................... 10

Pension increases ............................................................................................................................... 12

Actuarial report on the liabilities and funding ................................................................................... 13

Investment report .............................................................................................................................. 16

Climate related disclosures and Trustee Implementation Statement ............................................... 27

Controlling interests in subsidiaries ................................................................................................... 30

Statement of Trustee responsibilities ................................................................................................ 32

Summary of Contributions ................................................................................................................ 34

Independent Auditor’s Report on Contributions ............................................................................. 35

Independent Auditor’s Report on the Audit of the Financial Statements ...................................... 36

Financial Statements ......................................................................................................................... 39

Fund account...................................................................................................................................... 39

Statement of net assets ..................................................................................................................... 40

Notes to the financial statements ..................................................................................................... 42

Appendix 1 – Management and Advisors ........................................................................................ 78

Appendix 2 – Actuarial Certification of the Schedule of Contributions .......................................... 81


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Trustee’s Report

Contacting us Members can contact us in a number of ways:

Website – Members can find out more about their pension by using the dedicated member website https://natwestgrouppensionfund.co.uk

Email - Members can also contact the Fund administrator, Willis Towers Watson, by email at [email protected]

Post - Members can also write to the Fund administrator, Willis Towers Watson, at: NatWest Group Pension Fund PO Box 545 Redhill RH1 1YX The Pension Tracing Service - All the relevant details of the Fund and the Trustee Directors have been passed to the Pension Tracing Service, which may be able to help anyone trying to trace pension rights under a previous pension scheme. The Pension Tracing Service can be contacted by mail at: The Pension Service 9 Mail Handling Site A Wolverhampton, WV98 1LU Website www.gov.uk/find-pension-contact-details Phone at 0800 731 0193 or from outside the UK on +44 (0) 191 215 4491

https://natwestgrouppensionfund.co.uk/member-homepage

mailto:[email protected]

http://www.gov.uk/find-pension-contact-details


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Governance Constitution and Management of the Fund

The Fund is governed by a corporate Trustee, NatWest Pension Trustee Limited. The principal employer, National Westminster Bank plc (“the Bank”), has the power to appoint or remove the Trustee of the Fund. Directors of the Trustee are appointed in accordance with the Articles of Association of NatWest Pension Trustee Limited which provide that ten directors are appointed; six directors by the bank and four directors from the membership of the Fund. In August 2020, the Fund changed its name from The Royal Bank of Scotland Group Pension Fund to NatWest Group Pension Fund. At the same time, the corporate trustee changed its name from RBS Pension Trustee Limited to NatWest Pension Trustee Limited. These changes were consistent with the bank’s rebranding in 2020 from RBS to NatWest. Also in 2020, the Trustee carried out a review of its committee structure resulting in some changes being made. More details about the current committees can be found in “Committee Structure” later in this report. Until 31 March 2020, the Trustee had five standing committees:

Administration and Benefits Committee (“ABC”)

Funding and Monitoring Committee (“FMC”)

Investment Committee (“IC”)

Risk and Audit Committee (“RAC”)

Treating Sections Fairly Committee (“TSF”) From 1 April 2020, the committees are:

Member Experience Committee (“MEXCO”)

Asset and Liability Committee (“ALCO”)

Risk and Audit Committee (“RAC”) Directors On 26 March 2020 Ian Purves and James Rowney stepped down as member nominated directors and were replaced by Clare Castell and Doug Heron. On 30 September 2020, George Graham stepped down as a bank nominated director and was replaced by Capital Cranfield Pension Trustees Limited, represented by Joanna Matthews.


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Listed in the table below are all the directors of NatWest Pension Trustee Limited for part or all of the year covered by this Annual Report.

Committee membership until 31/3/2020

Committee Membership from 1/4/2020

Ronnie Bowie (Chair) B, P FMC (Ch), RAC, TSF (Ch) ALCO (Ch from 1/10/2020), RAC

Clare Castell From 27/03/2020

M n/a MEXCO

Capital Cranfield Pension Trustees Limited represented by Nicki Mortimer

B, P ABC (Ch), RAC MEXCO (Ch), RAC

Capital Cranfield Pension Trustees Limited represented by Joanna Matthews

From 30/09/2020

B, P n/a ALCO, MEXCO

David England M ABC, TSF

ALCO

Susan Fouquier B n/a MEXCO

George Graham Until 30/9/2020

B IC (Ch), RAC ALCO (Ch till 30/9/2020), RAC

Douglas Heron From 27/03/2020

M n/a ALCO, RAC (from 1/10/2020)

Victoria North B RAC (Ch) ALCO, RAC (Ch)

Ian Purves Until 26/03/2020

M IC, TSF, FMC n/a

Nathalie Robertson-Nugent

B TSF, IC ALCO

James Rowney Until 26/03/2020

M ABC n/a

Peter Walker M ABC, RAC MEXCO, RAC

*B = Bank nominated trustee, M = member nominated trustee, P = professional trustee, Ch - Chair The Secretary to the Trustee is Wendy Tavendale.

Committee structure As stated earlier in the report, the Trustee made some changes to its committee structure.

ABC/MEXCO

Up to 31 March 2020, the Administration and Benefits Committee was responsible for monitoring the administration of the Fund and communication to members. Other responsibilities included exercising the Trustee's discretion in connection with the payment of benefits. The Committee was supported by its legal advisers, CMS Cameron McKenna Nabarro Olswang LLP. The Committee held one scheduled meeting until 31 March 2020 as well as ad hoc meetings and calls to consider member cases.


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From 1 April 2020, the ABC was replaced by MEXCO. As well as the responsibilities which previously sat with ABC, MEXCO supports the trustee member strategy as regards delivering a high-quality service to all members and their representatives, using supportive member experience journeys and simple technology, supporting members to take actions and make better decisions and ensure that service performance standards are met, understood, achieved and reported. Like the ABC before it, MEXCO is supported by its legal advisers, CMS Cameron McKenna Nabarro Olswang LLP and held three scheduled meetings in 2020 as well as ad hoc meetings and calls to consider member cases.

FMC/IC/TSF/ALCO Until 31 March 2020, the IC recommended to the Board the Fund's strategic investment objective and oversaw the management and performance of the assets. The IC was supported by RBS Investment Executive Limited ("RIEL") and Aon. The Committee held one scheduled meeting until 31 March 2020. The FMC was responsible for funding including the formal actuarial valuation and was supported by the Scheme Actuary from Aon as advisers on actuarial matters. The Committee did not meet in 2020. The TSF Committee was responsible for ensuring that the members of all sections of the Fund are treated fairly as a result of certain Trustee decisions. The Committee did not meet in 2020 but approved two matters by email circulation. The Funding and Monitoring Committee and Investment Committee were merged from 1 April 2020 and the merged committee was renamed as the ‘Asset and Liability Committee’ to reflect its broader remit.

ALCO supports the Trustee investment and funding strategy to achieve the strategic investment objective agreed by the Board within the agreed risk appetite; manage the integrated framework of investment, funding and risk; manage all aspects of funding including in relation to actuarial valuations and setting factors and monitoring all aspects of investment and funding progress on an ongoing basis.

The assets of the Fund are sectionalised and each section has its own strategic benchmark and the assets are held separately. The Main Section is able to run a more diversified range of growth assets and investment managers due to its larger size compared to the AA Section, NWM Section and RBSI Section.

Like its predecessors the IC and FMC, ALCO is supported by Aon as investment advisors and on actuarial matters. In 2020, ALCO held three meetings.

RAC The Risk and Audit Committee remains unchanged; with its over-riding responsibility being for risk management, covenant monitoring, financial and governance oversight, audit and assurance. Penfida Limited is the adviser on the employer covenant and Deloitte LLP is the external auditor. The Committee met five times during the year.

The TSF was also disbanded on 31 March 2020 and its responsibilities allocated to the other committees.

All three of the Trustee Board’s committees are committed to ensuring that members of all sections are treated fairly in any decisions and recommendations they make. In addition to the above committees, there is also a RIEL (RBS Investment Executive Limited) Remuneration Committee, or “RIEL Remco” which comprises of the Chair and an Independent Trustee. RIEL Remco’s purpose is to approve the RIEL remuneration policy and remuneration for the RIEL team


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and make recommendations to bank RemCo in respect of remuneration proposals for the RIEL CEO/CIO and Co CIO.

Trustee training

During the year, training sessions were held for Trustee Directors covering a number of areas including cyber risk, member journeys and pension increases. These training sessions were facilitated by the Trustee's external and internal advisers. The Trustee Board also held a day-long session in September 2020 when it looked at the resilience of the Fund to deal with an external ‘stress’ such as experienced in 2020.

Additional Pension Contributions

Active members have the option to secure additional benefits on a money purchase basis by making additional contributions, known as Additional Pension Contributions ('APeCs'), through the RBSelect benefits programme. The Trustee has direct responsibility for managing these investments which it delegates to the Investment Committee and the RBS Investment Executive Limited team.

Tax status and ownership

Prior to 6 April 2006 the Fund was approved by the Commissioners of the Inland Revenue as a retirement benefits scheme for the purposes of Chapter I, Part XIV, of the Income and Corporation Taxes Act 1988 and was treated as an "exempt approved scheme" for the purposes of the Act. Since 6 April 2006 the Fund has been a registered pension scheme under the Finance Act 2004 (registered number 00411432RZ). The Fund also has tax authorisation in certain other tax jurisdictions.

The members of the Fund were contracted out of the State Second Pension (S2P) until its abolishment on 5 April 2016, and prior to April 1999 were contracted-out of the State Earnings Related Pension Scheme (SERPS). From 6 April 1997 this contracting-out was on the “Reference Scheme Test” basis for most Fund members.

The Principal Employer, National Westminster Bank plc, is a wholly owned subsidiary of NatWest Holdings Limited, which is in turn wholly owned by NatWest Group plc. As at 31 December 2020, HM Treasury owns 61.9% (2019: 62.1%) of the ordinary shares of NatWest Group plc. Employer related investments

There were no material employer related investments in the current year or prior year. The Fund holds no direct investment in NatWest Group plc, although indirect holdings are possible through the pooled investment vehicles. These holdings are less than 5% of the Fund's assets.

The Fund operates certain interest rate swaps, inflation swaps, credit derivatives, cross currency swaps and forward exchange rate agreements where National Westminster Bank plc and NatWest Markets plc are counterparties. These transactions are on commercial terms and carried out on an arms-length basis.

Responsible investment

The Trustee's Responsible Ownership Policy provides a framework for its interaction with companies it invests in and articulates the Trustee's principles in relation to environmental, social and governance factors in the Fund's portfolio. The Responsible Ownership Policy can be accessed here responsible-ownership-policy.pdf (natwestgrouppensionfund.co.uk). The Trustee also prepares an annual report on the implementation of its Responsible Ownership Policy which can be accessed here Annual-report-on-ROP-signed.pdf (natwestgrouppensionfund.co.uk).

https://natwestgrouppensionfund.co.uk/assets/uploads/Documents/responsible-ownership-policy.pdf


https://natwestgrouppensionfund.co.uk/assets/uploads/Documents/Annual-report-on-ROP-signed.pdf



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Modern Slavery Act

The Trustee is against any activity which constitutes modern slavery or human trafficking under the United Kingdom's Modern Slavery Act 2015. The Trustee monitors its suppliers and the actions they are taking to combat slavery and human trafficking. The Trustee will consider all incidents of slavery and human trafficking reported to it by its suppliers and take any action it considers appropriate to manage or mitigate such incidents.

Investments and Custodians

The Trustee is responsible for setting the investment policy and managing the assets. ALCO oversees the investment arrangements. Day-to-day investment decisions are delegated to the investment managers under formal legal agreements between the Trustee and each investment manager.

In accordance with the Pensions Act 1995, subsequently amended by the Pensions Act 2004, the Trustee maintains a Statement of Investment Principles that describes the Fund's investment policy.

The majority of the Fund's assets are held in custody by The Bank of New York Mellon. The investments are held in the name of The Bank of New York (Nominees) Limited. The remaining assets are held externally but are registered in the name of the Trustee.

Developments during the year GMP equalisation

A judgement was reached by the High Court in October 2018 in the Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank Plc Guaranteed Minimum Pension (GMP) equalisation case. The judgement concluded that pension schemes must equalise pension benefits for men and women for the effects of GMPs accrued between May 1990 and April 1997. The judgement applies on an industry-wide basis - it therefore affects the Fund and any other pension scheme that was contracted out between May 1990 and April 1997 and provides GMPs. In a following hearing, in November 2020, the High Court ruled that pension schemes will also need to revisit individual transfer payments made since 17 May 1990 to check if any additional value is due as a result of GMP equalisation.

As a result of these judgements some members and former-members will be entitled to back-payments plus interest. For many members GMP is a small part of their overall pension entitlement and, accordingly, the back-payments are expected to be small for a majority of those who are affected.

A project has been set up to deliver GMP equalisation with input from the administrator, actuary and legal advisor, however, given its complexity and scale the project will run into 2022. From an initial review by the Trustee, it is not believed that the back-payment liability will be material to the Fund and therefore no provision has been made in these financial statements. The additional liability from GMP equalisation will be considered further as part of the 2020 actuarial valuation. Anti-franking

Anti-franking is a principle which protects the value of the GMP part of a member’s pension. The anti-franking rules prevent the offset of GMP revaluation against benefits in excess of the GMP. The Trustee has identified that the historic administrative practices have not fully complied with the rules in relation to anti-franking. As a result, some members will be entitled to back-payments plus interest. The Trustee has set up a programme of work alongside the GMP equalisation project to amend administration practices to comply with anti-franking. From an initial review by the Trustee, it is not believed that the back-payment liability will be material to the Fund and therefore no provision has been made in these financial statements. The additional liability from anti-franking will be considered further as part of the 2020 actuarial valuation.


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Impact of Covid-19

Covid-19 continues to disrupt various aspects of the health system, the economy and our day to day lives. The Trustee and its suppliers have put in place working practices which allow the Fund to continue to function with minimal disruption. The Fund’s investments have so far been resilient to the economic strain brought about by Covid-19. In certain circumstances the investment managers have agreed measures with property tenants or borrowers, whilst ensuring that value is protected for the Fund and its members. The Trustee monitored the covenant on a regular basis throughout the year. The Main Section is entitled to additional contributions of up to £1.5 billion based on the Fund receiving an amount equal to any shareholder distributions, such as dividends, subject to a cap of £500 million in any one year. On 19 March 2021 the Bank announced that it had completed an off-market purchase of shares from Her Majesty's Treasury, referred to as a “directed share buyback”. The directed share buyback triggered a £500 million payment to the Main Section. This payment will be completed by the end of March, reducing the amount outstanding under the agreement from £1.5 billion to £1.0 billion. The Bank has also announced plans to recommence paying dividends to shareholders in 2021 but these will not trigger additional payments to the Main Section in 2021 on the basis that the Main Section will have already received payments up to the £500 million annual cap in the year.

Transfers between sections

The Fund is split into four sections and active members are included in the section that corresponds to the part of the bank they work for (National Westminster Bank, NatWest Markets or RBS International). When an active member changes employment to another part of the bank the member has the option to transfer the past benefits which have already been accrued at the same time. When members transfer between sections there is an asset transfer, based on the value of the liabilities as calculated by the actuary. During 2020 only a small number of individual members transferred between sections. However, during 2020 the bank also undertook restructuring within the NatWest Markets business which involved moving a group of employees to National Westminster Bank which is aligned with the Main Section. As a result of these employment changes, 17 members from the NWM Section (c. 7% of total) chose to transfer their accrued benefits to the Main Section. A corresponding asset transfer has been calculated by the Fund actuary based on the liabilities which have transferred to the Main Section.

Going Concern

The financial statements have been prepared on the going concern basis. In making this assessment, the Trustee has assessed the ability of the Fund to meet its future obligations to pay member benefits as they fall due and, with input from its covenant advisor, has assessed the ability of the sponsoring employers to continue to meet their obligations to the Fund. The Trustee believes that the Fund remains well positioned to manage its risks successfully and expects that the Fund will continue in operational existence for the foreseeable future. Accordingly, it continues to adopt the going concern basis in preparing the financial statements.


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Financial Review

The Financial Statements for the year ended 31 December 2020 are set out on pages 40 to 78 and provide an overview of the income, expenditure and net assets of the Fund. The Financial Statements have been prepared and audited in accordance with the regulations made under sections 41(1) and (6) of the Pensions Act 1995.

During the year under review the net assets of the Fund increased from £48.4 billion to £53.2 billion. The Fund received contributions of £0.3 billion (2019: £0.3 billion), paid benefits to members and leavers of £2.0 billion (2019: £1.9 billion), incurred administrative expenses of £22.3 million (2019: £16.1 million) and achieved a net gain on investments of £6.5 billion (2019: £4.5 billion).

Membership

Membership statistics

As at 31 December 2020 the Fund had 199,354 members:

Active members

Deferred members

Pensioners Total

Main Section 11,199 107,846 77,577 196,622

AA Section 3 1,460 930 2,393

NWM Section 108 108 9 225

RBSI Section 95 17 2 114

Total 11,405 109,431 78,518 199,354

(6%) (55%) (39%) (100%)

Active members are employees accruing benefits. Deferred pensioners are those who have left the Fund with preserved pensions. Pensioner members are all those (including dependants) in receipt of a pension.

The changes in membership during the year are as follows:

Main Section

Active members

Deferred members

Pensioners Total

At 1 January 2020 12,374 111,809 75,662 199,845

Adjustments to prior period 14 98 10 122

New beneficiaries – – 750 750

Members retiring (272) (3,008) 3,280 –

Members leaving prior to pensionable age (957) 957 – –

Deaths (19) (147) (1,529) (1,695)

Cessation of dependent pensions – (6) (488) (494)

Transfers out – (1,799) – (1,799)

Trivial commutations – (58) (108) (166)

Transferred from NWM Section 17 – – 17

Transferred to RBSI Section (1) – – (1)

Transferees with new active record [1] 43 – – 43

At 31 December 2020 11,199 107,846 77,577 196,622 [1] These members transferred from the NWM Section or RBSI Section but left their accrued benefits in

the previous section, a new active record was created in the Main Section as a result.


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AA Section

Active members

Deferred members

Pensioners Total

At 1 January 2020 3 1,553 903 2,459

Adjustments to prior period 1 1 – 2

New beneficiaries – – 6 6

Members retiring – (40) 40 –


Deaths – (1) (15) (16)

Cessation of dependent pensions – – (4) (4)

Transfers out – (51) – (51)

Trivial commutations – (3) – (3)

At 31 December 2020 3 1,460 930 2,393

NWM Section

Active members

Deferred members

Pensioners Total

At 1 January 2020 208 35 6 249

Adjustments to prior period – 1 (1) –

Members retiring (4) – 4 –



Transferred to/from Main Section (17) – – (17)

At 31 December 2020 108 108 9 225

RBSI Section

Active members

Deferred members

Pensioners Total

At 1 January 2020 99 15 1 115

New active records 2 – – 2

Members retiring – (1) 1 –



Transferred to/from Main Section 1 – – 1

At 31 December 2020 95 17 2 114


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Pension increases Pensions in payment in excess of the Guaranteed Minimum Pension (GMP) are subject to annual increases in line with the Rules of the Fund. RPI inflation was 2.7% for the twelve months to 31 January 2020 (2019: 2.5%). Increases to pensions in payment were awarded as follows:

Approach 2020 pension increase

2019 pension increase

Group Schedule members who joined on or after 1 July 2005

Lower of 2.5% pa and RPI inflation to 31 January

2.5% 2.5%

Group Schedule members who joined prior to 1 July 2005

Lower of 5% pa and RPI inflation to 31 January

2.7% 2.5%

Former members of the National Westminster Bank Pension Fund


2.7% 2.5%

Former members of the Royal Bank of Scotland Staff Pension Scheme


2.7% 2.5%

Members of the AA Section Lower of 5% pa and RPI inflation to 31 January

2.7% 2.5%

Lower of 5% pa and RPI inflation to 30 September

2.4% 3.3%

While the increases in the table above apply to most members, there are other legacy schedules within the Fund where members may have different pension increase entitlements. Pension increases were applied in line with the Rules for these members.

There is also a legal requirement to increase GMPs earned as a consequence of being contracted out of the State Second Pension between 6 April 1988 and 5 April 1997. Increases were awarded as follows:

Approach 2020 pension increase

2019 pension increase

GMP earned between 6 April 1988 and 5 April 1997

Lesser of 3% pa and CPI inflation to 30 September

1.7% 2.4%

There were no discretionary increases to pensions awarded during 2020. There were no discretionary revaluation increases awarded to deferred pensions.


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Actuarial report on the liabilities and funding

Paying the promised benefits to members is the key objective for the Trustee. Under Section 222 of the Pensions Act 2004, every scheme is subject to the Statutory Funding Objective, which is to have sufficient and appropriate assets to cover its 'technical provisions' as calculated by the Scheme Actuary. The technical provisions represent the value of the benefits members are entitled to, based on pensionable service to the valuation date. In simpler terms this means that the Fund must hold sufficient assets to pay the benefits promised to members based on a prudent set of assumptions for future investment returns, life expectancies and other variables which affect the liabilities.

Actuarial Valuation

The Trustee works closely with the Bank to ensure that your benefits are well governed.

A formal actuarial valuation is usually carried out every three years by the Fund Actuary. The Trustee is in the process of undertaking an actuarial valuation as at 31 December 2020 and this is expected to be completed later in the year. The results of the last completed actuarial valuation for all four sections are summarised below:

Main Section AA Section NWM Section RBSI Section

Valuation date 31 December 2017

31 December 2017

31 December 2018

31 December 2018

Technical provisions liabilities (£M)

46,549 1,062.8 219.5 65.6

Assets (£M) 44,751 1,161.3 199.5 73.6

(Deficit)/Surplus (£M) (1,798) 98.5 (20.0) 8.0

Funding ratio 96% before deficit contributions

109% 91% before deficit contributions

112%

The funding packages for each section were as follows:

Main Section - The Bank paid a £2.0 billion deficit contribution to the Main Section in 2018. The Main Section is also entitled to additional contributions of up to £1.5 billion payable, based on the Fund receiving an amount equal to any shareholder distributions, such as dividends, subject to a cap of £0.5 billion in any one year. The Bank did not pay a dividend in 2020 meaning that the additional contribution payments have not yet commenced.

AA Section - There was no shortfall at the valuation date so a Recovery Plan with deficit contributions was not needed.

NWM Section - The Bank paid a £52.7 million deficit contribution to the NWM Section in 2019.

RBSI Section - There was no shortfall at the valuation date so a Recovery Plan with deficit contributions was not needed.


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Ongoing contributions for accruing benefits

Each section receives contributions from the Bank for active members who are accruing benefits in the Fund. The contribution rates are agreed between the Trustee and the Bank as part of the actuarial valuation based on advice from the actuary. The Bank contribution rates, before deducting any member contributions payable in force as at 31 December 2020 were as follows:


Members with a normal retirement age of 65

41.5% 65.2% 36.8% 39.8%

All other members 48.5% 73.7% 36.8% 39.8%

Basis for contributions

% of Contribution

Salary

% of Pensionable

Salary

% of Contribution

Salary

% of Contribution

Salary

In addition, the Bank pays contributions for each section in respect of running expenses, levies and any benefit augmentations paid to individual members at the Bank's request.

Solvency position

It is a requirement under law to calculate the funding position on a ‘solvency basis’. The solvency basis is an estimate of the cost of winding up the Fund and securing the benefits with an insurer. Please note that there are no plans to wind up the Fund and this information is provided solely to meet the disclosure requirements.

Main Section- At the date of the 31 December 2017 valuation the solvency funding level was 70% with a shortfall of £19,512 million (2015: 51% funding level and a shortfall of £29,557 million). The solvency funding level stated here does not incorporate the £2.0 billion deficit contribution paid into the Fund by the Bank in October 2018.

AA Section- At the date of the 31 December 2017 valuation the solvency funding level was 83% with a shortfall of £246.2 million (2015: 66% funding level and a shortfall of £462 million).

NWM Section- At the date of the 31 December 2018 valuation the solvency funding level was 60% with a shortfall of £130.4 million. The solvency funding level shown here does not incorporate the £52.7 million deficit contribution paid into the Fund by the Bank in January 2019.

RBSI Section- At the date of the 31 December 2018 valuation the solvency funding level was 76% with a shortfall of £22.8 million.

Refunds and the Pension Regulator's role

There have been no payments from the Fund to the Bank over the year.

In certain circumstances the Pensions Regulator has powers to intervene by changing the future accrual of benefits, setting the level of the funding target, setting the terms of the recovery plan and/or imposing a schedule of contributions. The Pensions Regulator has not used any of these powers in relation to any Section.

Transfer values

Members can request transfer values and find other information about their retirement options via the Fund website www.natwestgrouppensionfund.co.uk. Transfer values made during the year were calculated on the basis agreed by the Trustee having taken advice from the Fund Actuary. In certain circumstances (normally linked to a weak funding level) Trustees can reduce transfer values if they decide that is necessary. The Trustee confirms no such reduction was applied for transfer values during

http://www.natwestgrouppensionfund.co.uk/


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the last year. There is no allowance for future discretionary increases built into the Fund's transfer value calculations. Significant actuarial assumptions

The most recent full actuarial valuation of the Main Section and AA Section was carried out as at 31 December 2017 and for NWM Section and RBSI Section as at 31 December 2018. The technical provisions are assessed by the Fund Actuary using assumptions which are agreed between the Trustee and the Bank and are set out in the Statement of Funding Principles. Key actuarial assumptions used in the valuation are shown below:


Calculation method Projected Unit Method with a control period of 10 years

Discount rate Hedging Discount Curve

plus a fixed spread of 0.58%

p.a. (broadly equivalent to swaps+0.8%

p.a.)

Nominal gilt yield curve plus a

fixed spread of 0.4% p.a.





RPI Inflation Hedging Inflation Curve (a blend of gilt and swap inflation based on the hedging

portfolio)

Breakeven RPI gilt yield curve



CPI inflation RPI inflation minus 1.1%

Capped pension increases

RPI or CPI inflation curve adjusted for inflation caps and floors

Salary increases (pensionable/basic)

1.8% p.a.

Post-retirement mortality - base mortality

SP2A Light mortality tables adjusted for average scaling factors determined using the Aon Hewitt Longevity Model based on the member's date of birth,

sex and socio-economic information inferred from their postcode and membership category.

Post-retirement mortality - future improvements

CMI 2017 Core Projections Model with smoothing parameter Sk = 8.0. Long term rate to the improvements of 1.5% p.a. for males and females.

All other assumptions

As set out in the Statement of Funding Principles which is available online at www.natwestgrouppensionfund.co.uk/documents/funding-and-investment

Next valuation

The next actuarial valuation of all four sections is now underway with an effective date of 31 December 2020. The valuation process is expected to be completed by the end of 2021.

More information

More information including the valuation report and the Statement of Funding Principles for the sections are available online at www.natwestgrouppensionfund.co.uk/documents.

http://www.natwestgrouppensionfund.co.uk/documents/funding-and-investment

http://www.natwestgrouppensionfund.co.uk/documents


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Investment report

Investment Activity - Main Section

In previous years the Main Section has benefitted from switching capital from liquid to illiquid asset categories where there has been an additional premium to be earned. The market volatility in the early part of the year associated with COVID-19 provided opportunities to deploy capital in liquid asset categories. The allocation to growth assets increased to £17.3bn (£16.0bn at 31/12/2019).

Additional allocations were made to Investment Grade credit where there was an increase in the extra yield versus government bonds during the period of the initial market concerns around COVID-19. Allocations to investment grade credit benefit from the ability to lock into higher yields for the life of these long maturity assets. This increased the total allocation to credit assets to £9.3bn (£8.4bn at 31/12/2019). Equity put options were sold to take advantage of market concerns around higher volatility; this strategy is akin to writing insurance to protect other investors against a fall in the level of equity markets. The strategy sells protection over 2 and 3 year periods in exchange for earning a premium. In total the Main Section has written £325m of options as at 31 December 2020 (2019: Nil).

Sales of government bonds were made in order to fund the purchases of the growth assets. However, the Main Section’s interest rate and inflation exposure were maintained by entering into additional collateralised interest rate and inflation swaps positions. The amount of assets that are used to hedge the liabilities and provide liquidity to meet payments increased from £30.6bn to £34.4bn due to the fall in bond yields.

The exposure to catastrophe insurance was reduced. During the year the prospective return increased for other asset classes reducing the relative risk adjusted returns on capital for catastrophe insurance. The property portfolio has little exposure to UK retail property and benefited from the exposure to US residential housing which offset falls in values in UK property assets. Overall, the property portfolio generated a return of +2.2%.

Investment Activity - AA Section

The AA Section has a strong funding position which has allowed the Trustee to maintain a low level of investment risk with growth asset investments of £516m (£506m at 31/12/2019) mainly in credit instruments).

The Trustee continued its policy of hedging a very high proportion of the section's interest rate and inflation risk. The amount of assets that are used to hedge the liabilities and provide liquidity to meet payments increased from £589m to £644m due to the fall in bond yields.

Investment Activity - NWM Section

The Trustee has maintained a low level of investment risk for the NWM Section with growth asset investments of £162m (£124m at 31/12/2019) mainly in credit instruments. Additional allocations were made to investment grade credit. The amount of assets that are used to hedge the liabilities and provide liquidity to meet payments reduced from £159m to £148m in part caused by a number of members who transferred to the Main Section. The Trustee continued its policy of hedging a very high proportion of the section's interest rate and inflation risk.


- 17 -

Investment Activity - RBSI Section

The Trustee has maintained a low level of investment risk for the RBSI Section with growth asset investments of £46m (£36m at 31/12/2019) mainly in credit instruments

The Trustee continued its policy of hedging a very high proportion of the section's interest rate and inflation risk. The amount of assets that are used to hedge the liabilities and provide liquidity to meet payments increased from £44m to £49m due to the fall in bond yields. There has been no departure from the investment strategy stated in the Statement of Investment Principles.

Investment Activity - Additional Pension Contributions

The market volatility in the early part of the year associated with COVID-19 provided the opportunity to switch 4% from low risk credit into quoted equities for the Diversified Growth Fund. This fund also has an allocation to UK property. Steps were taken to ensure the Diversified Growth Fund could remain open to members despite the fact that cashflows were prohibited by the manager into or out of the property component of the Diversified Growth Fund. The Property Fund was gated in March 2020 along with other unitised UK property fund as valuers placed a Material Uncertainty Clause on valuations. Gating is the practice of temporarily blocking withdrawals from an investment fund; it is not a common occurrence but can be necessary when market conditions make it difficult to trade the assets held by the fund. Communications were sent to members informing them that, unless otherwise instructed, contributions into the Property Fund would be placed in an Interim Cash Account and would be invested into the Property Fund once it re-opened. Further communications were made at the beginning of October 2020 informing members of the re-opening of the Property Fund. The benchmark for the Cash Fund was changed to the Sterling Overnight Interest Average (Sonia) with effect 30th September 2020. Previously the fund’s benchmark was based on the London Interbank Bid Rate (Libid) which will be withdrawn as part of the cessation of Libor benchmarks at the end of 2021.

There were no changes to any of the other funds available for members’ additional pension contributions (APeCs).


- 18 -

Investment performance - Main Section

The Main Section under-performed the strategic benchmark return by approximately £0.1 billion. The

strategic benchmark for the Main Section for 2020 is based on 0.6% p.a. in excess of the self-sufficiency

liability performance, in line with the objective set by the Trustee. The strategic benchmark is used to

determine whether the Fund is performing in line with the Trustee’s objective. Prior to 2019 the strategic

benchmark was set using a different approach, combining the performance of a target asset portfolio

and a hedging benchmark.

At 31 December 2020 the Main Section’s investments (excluding APeC and AVC investments) totalled £51.3 billion. Growth assets generated a return of £0.9 billion; liability-matching assets generated a return of £5.5 billion. Adjusting for the contributions into and payments from the Fund, the net assets increased by £4.7 billion.

Main Section - Performance to 31 December 2020

13.9%

7.1%

11.2%

14.0%

5.5%

8.8%

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

1Year to 31 Dec 2020 3 Years to 31 Dec 2020 5 Years to 31 Dec 2020

Per

form

ance

, % p

er a

nn

um

Fund Benchmark

£6.4bn

£10.0bn

£23.2bn

£6.5bn£8.0bn

£17.9bn

£0.0bn

£5.0bn

£10.0bn

£15.0bn

£20.0bn

£25.0bn

1Year to 31 Dec 2020 3 Years to 31 Dec2020

5 Years to 31 Dec2020

Ab

solu

te P

erfo

rman

ce

Fund Benchmark


- 19 -

Investment Fees

Investment management fees are monitored closely, including fees deducted at source, to determine whether the Trustee is getting value for money from its investment managers. Estimates are used where necessary. The Trustee monitors fees in absolute terms as well as comparing fees to the value added over the benchmark i.e. outperformance. Investment management fees are compared to performance versus benchmark (including commissions, taxes, exchange and broker fees but excluding transaction costs, administration and other ancillary costs) in the chart below.

Performance versus Benchmark and Fees (Main Section), 2010-2020

* In 2015, Alternatives were split into Alternative Equity and Credit while Hedge Funds were removed.

-£600m

-£400m

-£200m

£0m

£200m

£400m

£600m

£800m

£1,000m

£1,200m

£1,400m

QuotedEquity

PrivateEquity

AlternativeEquity*

Credit* Property Insurance Hedgefunds* Alternatives*

Liabilityhedging

Gross value added over the benchmark

Investment management fees deducted at source

Investment management fees invoiced directly to the Fund


- 20 -

The Trustee monitors the proportion of the value retained and investment management fees versus individual managers' performance benchmarks. The chart below shows this data for each component of the strategic benchmark and includes all current and previous investment managers.

Value Retained and Fees as a percentage of Gross Value Added (Main Section), 2010-2020

* Benchmark against value added over GBP Cash + 3%. In 2015, Alternatives were split into Alternative Equity and Credit while Hedge Funds were removed.

The fees shown in the chart above include both fees deducted at source and fees invoiced to the Fund. The fees detailed in note 12 of the accounts exclude fees deducted at source (including performance fees and carried interest).


- 21 -

Investment management fees (invoiced fees and fees deducted at source including performance fees and carried interest) are shown as a percentage of the assets in the chart below.

Fees as a Percentage of Assets (Main Section), 2010-2020

Strategic Benchmark and Asset Allocation

The Trustee continues to pursue a diversified investment strategy seeking asset classes and managers which lower the overall correlation with existing asset classes and with those economic factors which drive the health of the Bank as sponsor of the Fund. The Fund was within the limits of the strategic benchmark across the four sections. The only exception to that was the insurance asset class within the AA Section, which was allowed to exceed the strategic benchmark limit and was restored to compliance when the Statement of Investment Principles was updated in September 2020.

The Fund's strategic benchmark is shown in the Statement of Investment Principles which is available from the link below.

https://www.natwestgrouppensionfund.co.uk/documents/funding-and-investment

0.53% 0.54%

0.48%0.50%

0.37%

0.31%

0.27% 0.27%

0.23%

0.19%0.16%

0.0%.

0.1%.

0.2%.

0.3%.

0.4%.

0.5%.

0.6%.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

To

tal in

ve

stm

en

t m

an

ag

em

en

t fe

es

as

%

of

as

se

t v

alu

e

https://www.natwestgrouppensionfund.co.uk/documents/funding-and-investment


- 22 -

Asset Allocation 31 December 2020

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Main AA NWM RBSI

Global property

Litigation finance

European property

Shipping

Reinsurance - Non-life

Distressed debt

Life settlements

Special situations credit

Annuities

Timber and forestry

Regulated utilities

Reinsurance - Life

Real estate debt

US residential property

Emerging markets credit

Syndicated loans

Private equity

Infrastructure debt

Infrastructure equity

UK property

Quoted equity

Global investment grade credit

Gilts, Swaps, Cash and Liquidity Funds


- 23 -

AA SECTION

Investment Performance

At 31 December 2020 the AA Section's investments (excluding APeC and AVC investments) totalled £1,160.6 million. Growth assets generated a return of £8.0 million and liability-matching assets generated a return of £109.6 million. Including the contributions into and payments from the Fund, the net assets increased by £74.3 million.

The AA Section under-performed the strategic benchmark return by approximately £12.9 million. The

strategic benchmark for the AA Section for 2020 is based on 0.4% p.a. in excess of the self-sufficiency


determine whether the Fund is performing in line with the Trustee’s objective. Prior to 2019 the strategic

benchmark was set using a different approach, combining the performance of a target asset portfolio

and a hedging benchmark.

AA Section Performance to 31 December 2020

11.0%

5.5%

10.2%

12.2%

4.3%

8.6%

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

1Year to 31 Dec 2020 3 Years to 31 Dec 2020 5 Years to 31 Dec 2020

Per

form

ance

, % p

er a

nn

um

Fund Benchmark

£117.5m

£179.7m

£516.6m

£130.5m £141.8m

£430.9m

£0.0m

£100.0m

£200.0m

£300.0m

£400.0m

£500.0m

£600.0m

1Year to 31 Dec 2020 3 Years to 31 Dec2020

5 Years to 31 Dec2020

Abso

lute

Per

form

ance

Fund Benchmark


- 24 -

NWM SECTION


At 31 December 2020 the NWM Section's investments (excluding APeC and AVC investments) totalled £310.3 million. Growth assets generated a return of £9.3 million and liability-matching assets generated a return of £31.5 million. Including the contributions into and payments from the Fund, the net assets increased by £15.5 million.

The NWM Section under-performed the strategic benchmark return by approximately £10.5 million. The

strategic benchmark for the NWM Section for 2020 is based on 0.4% p.a. in excess of the self-sufficiency


determine whether the Fund is performing in line with the Trustee’s objective.

NWM Section Performance to 31 December 2020

Note that the NWM Section was established in 2018 and therefore 3 and 5 year performance information is not available.

14.8%

13.2%

18.5%

15.4%

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

1Year to 31 Dec 2020 2 Years to 31 Dec 2020

Perf

orm

ance

, % p

er a

nnum

Fund Benchmark

£40.7m

£68.7m

£51.3m

£81.3m

£0.0m

£20.0m

£40.0m

£60.0m

£80.0m

£100.0m


Ab

solu

te P

erfo

rman

ce

Fund Benchmark


- 25 -

RBSI SECTION


At 31 December 2020 the RBSI Section's investments (excluding APeC and AVC investments) totalled £95.0 million. Growth assets generated a return of £2.7 million and liability-matching assets generated a return of £9.7 million. Including the contributions into and payments from the Fund, the net assets increased by £11.7 million.

The RBSI Section under-performed the strategic benchmark return by approximately £1.5 million. The

strategic benchmark for the RBSI Section for 2020 is based on 0.4% p.a. in excess of the self-sufficiency


determine whether the Fund is performing in line with the Trustee’s objective.

RBSI Section Performance to 31 December 2020

Note that the RBSI Section was established in 2018 and therefore 3 and 5 year performance information is not available.

15.1%

13.0%

17.0%

14.3%

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%


Perf

orm

ance

, % p

er a

nnum

Fund Benchmark

£12.5m

£20.2m

£14.0m

£22.2m

£5.0m

£10.0m

£15.0m

£20.0m

£25.0m


Ab

solu

te P

erfo

rman

ce

Fund Benchmark


- 26 -

Additional Pension Contributions - Investment Performance (Net of Fees) and Member Charges

Investment fund and benchmark 1 year performance

(% pa) to 31.12.2020

3 year performance

(% pa) to 31.12.2020

5 year performance

(% pa) to 31.12.2020

Diversified Growth Fund 7.8 5.9 9.3

Composite benchmark 8.1 6.6 9.4

UK Equity Tracker Fund -9.6 -0.5 5.2

FTSE All-Share Index (Mid-day priced) -9.5 -0.6 5.2

International Equity Tracker Fund 14.2 11.0 15.1

FTSE All-World Developed ex-UK Index 14.3 11.0 15.1

Emerging Markets Equity Tracker Fund 11.3 5.9 14.1

FTSE All-World Emerging Markets Index 11.7 6.0 14.4

Annuity Pre-Retirement Fund 13.9 8.4 9.6


UK Gilts Over 15 Year Tracker Fund 14.3 8.4 9.3


Index-Linked Gilt Fund 12.3 5.9 9.2

FTSE UK Gilts Index-Linked Over 5 Year Index 12.4 5.9 9.2

Corporate Bond Fund 12.2 7.9 9.5

BAML Euro-Sterling over 10 Year Index 13.0 8.1 9.0

Property Fund -8.3 0.2 3.3

Property benchmark -3.6 2.5 4.9

Cash Fund 0.1 0.4 0.3

Libid 7 day Index 0.1 0.4 0.3

Each of the investment funds has a charge (called the "ongoing charge") paid by the members. The ongoing charge is shown as a percentage per year of each member's savings invested in that fund. This covers the cost of investment services provided to members by the fund managers and can include performance fees, transaction costs, custody fees and fund accounting fees.

The ongoing charge is made up of each investment fund's annual management charge plus any other Fund Administration charges (but excluding transaction costs). These other Fund Administration charges cover, for example, the costs of auditing the investment fund and can change from time to time. This means that the ongoing charge can also change over time.

The components of the current ongoing charge for each of the investment funds as at 31 December 2020 are shown in the table below.

Ongoing charges (note numbers may not sum due to rounding)

Annual Management

Charge* (%pa)

+ Other Fund

Administration (%pa)

= On-going Charge (TER) (%pa)

Diversified Growth Fund 0.23 0.02 0.26

UK Equity Tracker Fund 0.11 0.00 0.11

International Equity Tracker Fund 0.11 0.00 0.11

Emerging Market Fund 0.35 0.00 0.35

Property Fund 0.47 0.01 0.48

Over 15 Year Fund 0.10 0.00 0.10

Index-Linked Fund 0.10 0.00 0.10

Corporate Bond Fund 0.37 0.08 0.45

Annuity Pre-retirement Fund 0.26 0.05 0.31

Cash Fund 0.12 0.00 0.12 *The Annual Management Charge includes Fidelity's platform fee of 7 basis points (0.07%).


- 27 -

Climate related disclosures and Trustee Implementation Statement Climate-Related Financial Disclosures

The Trustee has prepared climate-related disclosures based on recommendations of the Taskforce on Climate-related Financial Disclosures. These disclosures are contained in the Trustee’s Responsible Ownership Report for 2020 (Annual-report-on-ROP-signed.pdf (natwestgrouppensionfund.co.uk). Implementation Statement Trustees of defined benefit schemes are required to set out how, and the extent to which, in the opinion of the trustees, their policy in relation to (i) the exercise of the rights (including voting rights) attaching to investments; and (ii) undertaking engagement activities in respect of investments (including the methods by which, and the circumstances under which, trustees would monitor and engage with relevant persons about relevant matters) has been followed during the year. Trustees are also required to describe the voting behaviour by, or on behalf of, trustees (including the most significant votes cast by trustees or on their behalf) during the year and state any use of the services of a proxy voter during that year. The Trustee’s voting and engagement activity is governed by its Responsible Ownership Policy (responsible-ownership-policy.pdf (natwestgrouppensionfund.co.uk)) which was last updated in February 2020. The Trustee’s approach to voting and engagement is summarised in the Statement of Investment Principles as follows: It is the Trustee’s policy to exercise voting rights attaching to its equity and credit assets in all practical cases (the Trustee is not able to exercise voting rights of assets held in pooled funds). The Trustee has appointed EOS at Federated Hermes (“EOS”) to assist it in exercising its voting rights. EOS will vote at company general meetings in accordance with the corporate governance and voting principles it has agreed with the Trustee, using appropriate discretion to vote differently where, after dialogue with the company or interpretation of its disclosures this seems likely to better support the achievement of engagement objectives and long term value creation by the company. The Trustee’s engagement activity is also facilitated by EOS and follows the principles of the UK Stewardship Code, UN Global Compact and mutually agreed priorities of other EOS clients. Voting It is the Trustee’s opinion that its policy on voting has been properly implemented and followed during the reporting period. EOS has carried out its mandated voting role in accordance with the Trustee’s expectations and provided appropriate evidence through reporting and meetings with the Trustee and/or its representatives. Voting of all listed securities (debt and equity) is delegated to EOS. In consultation with its clients, EOS has established principles which guide its voting recommendations and are agreed by the Trustee. The EOS Global Voting Principles were last updated in September 2020 and, at a high level, state that EOS will seek to cast a vote and only abstain in exceptional circumstances, generally vote in support of management unless there is a good reason not to, take a consistent position and to engage prior to voting where possible for certain high priority issues. This approach is subject to voting policies, global or regional governance standards and the need to protect long-term shareholder interests. Voting activity is reported to NWPTL on a quarterly and annual basis by EOS. Voting activity is reviewed by the Trustee annually and that review is included in the Trustee’s Responsible Ownership Report. The Responsible Ownership Report was approved by the Trustee’s ALCO in November 2020. The Trustee’s listed equity portfolio is now a relatively small part of its asset allocation and being actively managed it is also more concentrated. Voting activity for credit assets is very limited (as a function of the rights attaching to those assets).




- 28 -

In the reporting period, statistics for votes cast by EOS on behalf of the Trustee are as follows:

Quarter Number of meetings

Number of Resolutions

Number of Votes Against Management or Abstentions

Q1 13 143 21

Q2 115 1,661 265

Q3 26 316 13

Q4 16 106 16

Details of the most significant votes cast in the Trustee’s opinion during the reporting period are set out below. The companies concerned are relatively large holdings in the Trustee’s listed equities portfolio and, as large employers with a global reach, environmental, social and governance issues in these firms impact a large number of stakeholders. Through EOS the Trustee votes in support of initiatives to improve the climate credentials of companies it holds. At the Barclays Plc shareholder meeting, the Trustee voted in favour of all resolutions, including the board’s own climate-related resolution. The Trustee also voted in favour of the ShareAction requisitioned resolution which encourages the timely phase-out of financing to entities that are not aligned to the Paris Agreement goals. The voting policy agreed with EOS focusses on appropriate executive compensation as an indicator of good governance. In line with this policy, the Trustee will vote against inappropriate compensation structures. At the Heineken NV shareholder meeting, the Trustee voted against the remuneration report due to a lack of disclosure around the incentive scheme target and the excessively high total pay opportunities. At Heineken, variable pay opportunities exceed six times salary. At the Nike, Inc shareholder meeting the Trustee voted against the say-on-pay proposal as a result of the large discretionary payments made to senior management. The normal awards failed to pay out because of the pandemic, and there was a large payment to the incoming CEO, without a commensurate increase in the minimum shareholding requirement expected of him. The social impact of companies is also a concern to EOS and the Trustee and at the Amazon, Inc shareholder meeting, the Trustee voted against the chair of the governance committee as a result of widespread concerns about labour and human rights, including health and safety, product quality and provenance, corporate culture and certain consequences of the company’s business model. Also, as the company has no policy prohibiting the pledging of shares and no policy requiring senior executives to own a minimum number of shares, the Trustee voted against the say-on-pay proposal and the chair of the compensation committee. Additional pension contributions (APeCs) Members are able to contribute further funds to the Fund as additional contributions which are invested by the Trustee through an insurance policy with FIL Life Ltd. As a policyholder, the Trustee cannot influence the fund managers of the underlying funds on how they invest or direct how the underlying funds vote on their shareholdings. The fund managers of the underlying funds will be subject to Shareholder Rights Directive II requirements as implemented in the UK with policies setting out how the fund manager integrates shareholder engagement into its investment strategy and monitors the investee companies including: conducting dialogue with investee companies; exercising voting rights and any other rights attached to the shares; co-operating with shareholders; communicating with relevant stakeholders of the investee companies; and managing actual and potential conflicts of interests in relation to their engagement. As at 31 December 2020 the value of these policies was approximately £246m compared to total assets of approximately £50bn in the Fund. Engagement It is the Trustee’s opinion that its policy on engagement has been properly implemented and followed


- 29 -

during the reporting period. EOS has carried out its mandated engagement role in accordance with the Trustee’s expectations and provided appropriate evidence through reporting and meetings with the Trustee and/or its representatives. Engagement is a fundamental part of the service provided by EOS to NWPTL. NWPTL has been a client of EOS since 2012 and can demonstrate several engagement successes at companies held in the NWGPF portfolio over time. The enduring nature of the EOS relationship is indicative of the effectiveness of collective engagement and the ability of EOS to adapt and improve its service over time. More recently, EOS have developed a method for measuring and reporting on the progress of its engagements. This has helped inform NWPTL’s policy of avoiding issuers that are persistently in breach of UN Global Compact Principles, a process which involves a semi-annual review by EOS at meetings of the RIEL ESG sub-committee. NWPTL views engagement as an effective activity for managing agency risk. It will continue to be a key part of NWPTL’s approach to responsible ownership. EOS represents a global client base of institutional investors who believe that effective stewardship needs substantial resource and expertise. EOS advises on its clients’ listed equity and corporate bond assets of approximately $1.1tn. Clients are asked for feedback on their engagement priority areas and process as part of the annual refresh of the Engagement Plan. EOS activity undertaken on behalf of NWPTL is set out in the EOS Annual Report. NWPTL’s policy is to participate in collaborative engagement where possible. There are no cases in which NWGPF holds such a significant number of listed securities of an individual issuer that it might hold influence over that company’s board. This is true of most pension funds. Greater impact is achieved through the partnership with EOS and its other clients and by supporting initiatives such as Climate Action 100+. NWPTL is better able to apply its policies consistently across all its listed securities by working with EOS. EOS has a clear framework for engagement, including identifying when its interactions are proving successful and when they are unlikely to reach a favourable conclusion. It may take a considerable period of time before management is willing to hear and adapt to investor concerns. Decisions about allocation of resource and the nature of engagement activity are a matter for the EOS business which is best able to judge what path is likely to lead to success. NWPTL is involved in shaping the engagement plan annually, but typically does not otherwise seek to influence the conduct of the EOS engagement process which is carried out on behalf of a number of clients. EOS is also a key partner in the Climate Action 100+ programme which directs some of its engagement work. In the reporting period, statistics for engagement activity carried out by EOS on behalf of the Trustee are as follows:

Quarter Number of companies Number of Issues

Q1 121 420

Q2 170 504

Q3 93 282

Q4 130 415

The Trustee invests in a number of private assets. Voting and engagement in relation to these assets is carried out by the relevant investment managers directly and not by EOS. The Trustee votes at all shareholder meetings for its private assets and is often represented at board level by a director or observer. The Trustee’s agreements with investment managers and co-shareholders typically require significant management issues to be escalated to the Trustee for a decision as shareholder. These decisions are made by RIEL on behalf of the Trustee. RIEL monitors these assets on an ongoing basis and will engage with asset holding companies via the Trustee’s investment managers. This engagement will include management of environmental, social and governance issues. The Trustee has much greater influence over its directly held private assets than its holdings of listed equity and debt securities. Examples of the Trustee’s engagement activity can be found in the Responsible Ownership Report for 2020.


- 30 -

Controlling interests in subsidiaries

The Fund invests in various entities in which it holds controlling interests as at 31 December 2020.

1. West Granite Homes Inc invests in residential property in the US and is 99.9% owned by the Fund although the Fund has 100% of the voting rights.

2. Albemarle Shipping Ltd invests in shipping assets and is 100% owned by the Fund.

3. Phoenix Natural Gas is a Northern Irish Natural Gas Distributor and is 50% owned as part of a joint venture.

4. Ventus Investments Ltd invests in onshore wind generation assets and is 100% owned by the Fund.

5. AD Aggregator Platform Ltd is a holding company for the Fund's investments in anaerobic digestion facilities in the UK and is 100% owned by the Fund.

6. German Biogas Holdco Ltd invests in anaerobic digestion facilities in Germany and is 100% owned by the Fund.

7. Simple Power Holdco Ltd invests in onshore wind turbines in Northern Ireland and is 100% owned by the Fund.

8. Geronta Funding is a trust that invests in life assurance policies and is 100% owned by the Fund.

9. Habitus Funding is a trust that invests in life assurance policies and is 100% owned by the Fund.

10. Cronus Catastrophe Fund Ltd is a company that invests in catastrophe insurance products and is 84% owned by the Fund.

11. Shasta Cascade Timberlands Limited Partnership (“LP”) is a partnership that invests in US forestry assets and is 50% owned by the Fund.

12. Brickell Key Investments LP is a partnership that invests in litigation finance arrangements and is 100% owned by the Fund.

13. The Rock (SBR Continental Europe LLC) is a company that invests in European property and is 100% owned by the Fund.

14. Bybrook Capital Burton Partnership LP is a partnership that invests in credit assets and is 100% owned by the Fund.

15. SL Capital 2016 Co-investment LP is a partnership that invests in private equity assets and is 100% owned by the Fund.

16. Hermes GPE Direct Co-Invest V LP is a partnership that invests in private equity assets and is 100% owned by the Fund.

17. Hermes GPE Direct Co-Invest IV LP is a partnership that invests in private equity assets and is 100% owned by the Fund.

18. Fund of Funds I, LP is a partnership that invests in private equity assets and is 100% owned by the Fund.


- 31 -

19. Fund of Funds II, LP is a partnership that invests in private equity assets and is 100% owned by the Fund.

20. Fund of Funds III, LP is a partnership that invests in private equity assets and is 100% owned

by the Fund.

21. Roehampton Partners II LLC is a company that invests in credit assets and is 100% owned by the Fund.


- 32 -

Statement of Trustee responsibilities Statement of Trustee’s responsibilities

The financial statements, which are prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including the Financial Reporting Standard applicable in the UK (FRS 102), are the responsibility of the Trustee. Pension Scheme regulations require, and the Trustee is responsible for ensuring, that those financial statements:

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

contain the information specified in the Regulation 3A of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, including making a statement whether the financial statements have been prepared in accordance with the relevant financial reporting framework applicable to occupational pension schemes.

In discharging the above responsibilities, the Trustee is responsible for selecting suitable accounting policies, to be applied consistently, making any estimates and judgements on a prudent and reasonable basis, and for the preparing of the financial statements on a going concern basis unless the Trustee decides that the Fund should not be treated as a going concern, for example due to circumstances which mean it is likely to be wound up in the foreseeable future (either voluntarily or involuntarily).

The Trustee is also responsible for making available certain other information about the Fund in the form of an annual report.

The Trustee also has 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 Fund and to prevent and detect fraud and other irregularities, including the maintenance of an appropriate system of internal control.

The Trustee is responsible for the maintenance and integrity of the corporate and financial information included on the Fund's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Trustee Responsibilities in Respect of Contributions

The Trustee is responsible under pensions legislation for preparing, maintaining and, from time to time reviewing and if necessary revising a Schedule of Contributions showing the rates of contributions payable towards the Fund by or on behalf of the employer and the active members of the Fund and the dates on or before which such contributions are to be paid.

The Trustee is also responsible for keeping records of contributions received in respect of any active member of the Fund and for adopting risk-based processes to monitor whether contributions are made to the Fund by the employer in accordance with the Schedule of Contributions. Where breaches of the Schedule of Contributions occur, the Trustee is required by the Pensions Acts 1995 and 2004 to consider making reports to The Pensions Regulator and the members.


- 33 -

Approved by the Directors of NatWest Pension Trustee Limited and signed on behalf of NatWest Pension Trustee Limited by:

Ronald Bowie Victoria North

Chair – NatWest Pension Trustee Limited Director - NatWest Pension Trustee Limited Date:

Ronald Bowie (Mar 25, 2021 16:12 GMT)Ronald Bowie

VCMNorth (Mar 25, 2021 18:01 GMT)VCMNorth

25/03/2021

https://rbs-eu.eu1.adobesign.com/verifier?tx=CBJCHBCAABAA5bWa3K2SktqfZPlJ00P_FoQOtTJ1aM9h



- 34 -

Summary of Contributions During the year ended 31 December 2020 the contributions payable to the Fund by the employers under the Schedules of Contributions were as follows:

Main Section AA Section

NWM and RBSI

Sections Total £m £m £m £m Contributions required by the Schedules of Contributions as reported on by the Fund Auditor

Employers Normal contributions 182.4 0.1 8.5 191.0 Augmentation contributions 7.6 – 0.2 7.8 Additional contributions 33.2 1.3 0.6 35.1

Employees Employee 2% Charge 8.6 – 0.5 9.1 --------------------------- ------------------ ----------------------- ---------------------------

231.8 1.4 9.8 243.0

Other contributions not reported on by the Fund Auditor

Employers Overpaid employer normal contributions 1.9 – – 1.9

Employees Additional pension contributions 7.3 – 0.3 7.6 --------------------------- ------------------ ----------------------- ---------------------------

Contributions included in the Financial Statements 241.0 1.4 10.1 252.5 =========================== ================== ======================= ===========================

An estimate was made in the prior year for overpaid employer normal contributions covering the period October 2018 to December 2019. That provision has now been finalised and extended to January 2020 after which time the contributions were paid at the correct level. Following the finalisation of the estimate, an additional £1.87m of contributions have been recognised in the current year.

Employers’ additional contributions include the reimbursement of expenses.

Approved by the directors of NatWest Pension Trustee Limited and signed on behalf of NatWest Pension Trustee Limited by:

Ronald Bowie Victoria North Chair - NatWest Pension Trustee Limited Director - NatWest Pension Trustee Limited Date:

Ronald Bowie (Mar 25, 2021 16:12 GMT)Ronald Bowie VCMNorth (Mar 25, 2021 18:01 GMT)

VCMNorth

25/03/2021




- 35 -

Independent Auditor’s Report on Contributions We have examined the summary of contributions to NatWest Group Pension Fund for the Fund year ended 31 December 2020 to which this statement is attached.

In our opinion contributions for the Fund year ended 31 December 2020 as reported in the summary of contributions and payable under the schedules of contributions have in all material respects been paid at least in accordance with the schedules of contributions certified by the Fund Actuary as follows:

Main Section - Schedule of Contributions certified by the Fund Actuary on 9 October 2018.

AA Section - Schedule of Contributions certified by the Fund Actuary on 1 August 2018.

NWM Section - Schedule of Contributions certified by the Fund Actuary on 1 October 2019.

RBSI Section - Schedule of Contributions certified by the Fund Actuary on 1 October 2019.

Scope of work on statement about contributions

Our examination involves obtaining evidence sufficient to give reasonable assurance that contributions reported in the attached summary of contributions have in all material respects been paid at least in accordance with the schedules of contributions. This includes an examination, on a test basis, of evidence relevant to the amounts of contributions payable to the Fund and the timing of those payments under the schedules of contributions.

Respective responsibilities of the Trustee and the auditor

As explained more fully in the Statement of Trustee’s Responsibilities, the Fund’s Trustee is responsible for preparing, and from time to time reviewing and if necessary revising, a schedule of contributions and for monitoring whether contributions are made to the Fund by the employer in accordance with the schedule of contributions.

It is our responsibility to provide a statement about contributions paid under the schedules of contributions and to report our opinion to you.

Use of our report

This statement is made solely to the Trustee, as a body, in accordance with Regulation 4 of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 made under the Pensions Act 1995. Our work has been undertaken so that we might state to the Trustee those matters we are required to state to them in an auditor's statement about contributions and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trustee as a body for our work, for this statement, or for the opinion we have formed. Deloitte LLP Statutory Auditor Reading United Kingdom Date:

Deloitte LLP (Mar 25, 2021 18:25 GMT)Deloitte LLP

25/03/2021

https://rbs-eu.eu1.adobesign.com/verifier?tx=CBJCHBCAABAAO4GwHz9r9L342gJWvmPEYypUCwp8e5la


- 36 -

Independent Auditor’s Report to the Trustee of the NatWest Group Pension Fund (“the

Fund”)

Report on the Audit of the Financial Statements

Opinion

In our opinion the financial statements of the Fund:

show a true and fair view of the financial transactions of the Fund during the year ended 31 December 2020 and of the amount and disposition at that date of its assets and liabilities, other than the 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 including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”; and

contain the information specified in Regulation 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.

We have audited the financial statements of the Fund which comprise: the fund account; the statement of net assets; and the related notes 1 to 33.

The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs(UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report.

We are independent of the Fund in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council’s (the “FRC's”) Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the Trustee's use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Fund's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the Trustee with respect to going concern are described in the relevant sections of this report.


- 37 -

Other information

The other information comprises the information included in the Trustee report, other than the financial statements and our auditor's report thereon. The Trustee is responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Responsibilities of the Trustee

As explained more fully in the Statement of Trustee’s Responsibilities, the Trustee is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Trustee determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Trustee is responsible for assessing the Fund's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Trustee either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

We considered the nature of the Fund's industry and its control environment, and reviewed the Fund's documentation of their policies and procedures relating to fraud and compliance with laws and regulations. We also enquired of the Trustee about their own identification and assessment of the risks of irregularities.

We obtained an understanding of the legal and regulatory framework that the Fund operates in, and identified the key laws and regulations that:

http://www.frc.org.uk/auditorsresponsibilities


- 38 -

had a direct effect on the determination of material amounts and disclosures in the financial statements. These included the Pension Act 1995, the Pensions Act 2004, the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 and the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013; and

do not have a direct effect on the financial statements but compliance with which may be fundamental to the Fund's ability to operate or to avoid a material penalty. These included the Fund's regulatory requirements.

We discussed among the audit engagement team, including relevant internal specialists such as financial instruments, pensions actuarial, corporate finance and real estate industry specialists, regarding the opportunities and incentives that may exist within the organisation for fraud and how and where fraud might occur in the financial statements.

In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override. In addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. In addition to the above, our procedures to respond to the risks identified included the following:

reviewing financial statement disclosures by testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements;

performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;

enquiring of the Trustee concerning actual and potential litigation and claims, and instances of non-compliance with laws and regulations; and

reading minutes of Trustee and subcommittee meetings, reviewing internal audit reports and reviewing correspondence with the Pensions Regulator.

Use of our report

This report is made solely to the Trustee, as a body, in accordance with regulation 3 of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 made under the Pensions Act 1995. Our audit work has been undertaken so that we might state to the Trustee those matters we are required to state to it in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trustee as a body, for our audit work, for this report, or for the opinions we have formed.

Deloitte LLP Statutory Auditor Reading United Kingdom Date:

Deloitte LLP (Mar 25, 2021 18:25 GMT)Deloitte LLP

25/03/2021

https://rbs-eu.eu1.adobesign.com/verifier?tx=CBJCHBCAABAAO4GwHz9r9L342gJWvmPEYypUCwp8e5la

NATWEST GROUP PENSION FUND – YEAR ENDED 31 DECEMBER 2020 FINANCIAL STATEMENTS

The notes on pages 42 to 77 form part of these financial statements.

- 39 -

Financial Statements

Fund account


NWM and RBSI

Sections* Total Total 2020 2020 2020 2020 2019

Note £m £m £m £m £m Contributions and benefits Employer contributions 225.1 1.4 9.3 235.8 297.3 Employee contributions 15.9 - 0.8 16.7 17.5 --------------------------- ------------------ ----------------------- --------------------------- -------------------------------------

Total contributions 5 241.0 1.4 10.1 252.5 314.8 --------------------------- ------------------ ----------------------- --------------------------- -------------------------------------

Benefits paid or payable 6 (968.1) (17.1) (0.7) (985.9) (971.6) Payments to and on account of leavers 7 (933.5) (27.0) (14.2) (974.7) (881.0) Administrative expenses 8 (21.2) (0.7) (0.4) (22.3) (16.1) ------------------------------------- ----------------------- ------------------ ------------------------------------- -------------------------------------

(1,922.8) (44.8) (15.3) (1,982.9) (1,868.7) ------------------------------------- ----------------------- ----------------------- ------------------------------------- -------------------------------------

Net withdrawals from dealings with members (1,681.8) (43.4) (5.2) (1,730.4) (1,553.9)

Returns on investments Investment income 9 723.0 19.6 0.9 743.5 1,054.9 Change in market value of investments 10 5,715.1 99.8 52.3 5,867.2 3,590.6 Investment management expenses 12 (75.8) (1.7) (1.0) (78.5) (102.7) Taxation 13 (1.3) - - (1.3) (1.9) ------------------------------------- ----------------------- ----------------------- ------------------------------------- -------------------------------------

Net return on investments 6,361.0 117.7 52.2 6,530.9 4,540.9 ------------------------------------- ----------------------- ----------------------- ------------------------------------- ---------------------------

Net increase in the Fund during the year 4,679.2 74.3 47.0 4,800.5 2,987.0

Transfers between sections 14 19.8 - (19.8) – –

Net assets of the Fund At 1 January 46,923.9 1,101.1 371.9 48,396.9 45,409.9 ----------------------------------------- ------------------------------------- --------------------------- ----------------------------------------- -----------------------------------------

At 31 December 51,622.9 1,175.4 399.1 53,197.4 48,396.9 ========================================= ===================================== =========================== ========================================= =========================================

* Note 32 provides further analysis of the fund account for the NWM and RBSI Sections.



- 40 -

Statement of net assets


NWM and RBSI

Sections* Total Total 2020 2020 2020 2020 2019

Note £m £m £m £m £m

Note £m £m £m £m £m Investment assets 10 Equities 3,204.0 23.8 - 3,227.8 2,969.6 Bonds 37,049.1 842.2 136.0 38,027.3 35,315.7 Property 15 1,257.1 - - 1,257.1 1,424.8 Pooled investment vehicles 16 2,266.9 97.4 246.9 2,611.2 2,638.5 Derivatives 17 13,142.7 193.2 6.6 13,342.5 8,537.2 Cash instruments 18 3,101.2 99.4 21.4 3,222.0 3,731.4 Other investments 19 11.3 - - 11.3 10.5 APeCs and AVC investments 20 236.9 14.1 7.9 258.9 263.4 Cash 21 390.7 28.5 - 419.2 168.5 Other investment balances 22 98.5 3.3 0.2 102.0 123.2 ----------------------------------------- ------------------------------------- --------------------------- ----------------------------------------- -----------------------------------------

60,758.4 1,301.9 419.0 62,479.3 55,182.8

Investment liabilities 10 Derivatives 17 (7,986.0) (126.0) (3.4) (8,115.4) (4,674.8) Cash 21 (73.0) (1.2) (2.4) (76.6) (254.4) Cash instruments 18 (1,163.1) - - (1,163.1) (1,923.5) ------------------------------------- ----------------------- -------------- ------------------------------------- -------------------------------------

(9,222.1) (127.2) (5.8) (9,355.1) (6,852.7) ----------------------------------------- ------------------------------------- --------------------------- ----------------------------------------- -----------------------------------------

Total net investments 51,536.3 1,174.7 413.2 53,124.2 48,330.1

Current assets 27 157.4 1.7 3.3 162.4 138.4

Current liabilities 28 (70.8) (1.0) (17.4) (89.2) (71.6) ----------------------------------------- ------------------------------------- --------------------------- ----------------------------------------- -----------------------------------------

Net assets of the Fund at 31 December 51,622.9 1,175.4 399.1 53,197.4 48,396.9 ========================================= ===================================== =========================== ========================================= =========================================

* Note 32 provides further analysis of the statement of net assets for the NWM and RBSI Sections.



- 41 -

The Financial Statements summarise the transactions of the Fund during the year and deal with the net assets at the disposal of NatWest Pension Trustee Limited as at 31 December 2020. They do not take account of obligations to pay pensions and benefits which fall due after the end of the Fund year. The actuarial position of the Fund, which does take account of such obligations, is dealt with in the Trustee’s Report and the Actuarial Certificates in appendix 2 and these Financial Statements should be read in conjunction with them.

These Financial Statements were approved by the Directors of NatWest Pension Trustee Limited and signed on behalf of NatWest Pension Trustee Limited by:

Ronald Bowie Victoria North Chair – NatWest Pension Trustee Limited Director - NatWest Pension Trustee Limited Date

Ronald Bowie (Mar 25, 2021 16:12 GMT)Ronald Bowie

VCMNorth (Mar 25, 2021 18:01 GMT)VCMNorth

25/03/2021



NATWEST GROUP PENSION FUND – YEAR ENDED 31 DECEMBER 2020 NOTES TO THE FINANCIAL STATEMENTS

- 42 -

Notes to the financial statements

1. General information

The Fund is established as a trust under English law. The Fund is a registered pension scheme under the Finance Act 2004 and also has tax authorisation in certain other tax jurisdictions. The address for enquiries to the Fund is included in the Trustee's report.

2. Basis of preparation

The financial statements have been prepared in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations, Financial Reporting Standard 102 - The financial reporting standard applicable in the UK and Republic of Ireland issued by the Financial Reporting Council (FRC) and the guidance set out in the Statement of Recommended Practice (Revised November 2018).


- 43 -

3. Comparative fund account and statement of net assets available for benefits

Fund account


NWM and RBSI

Sections Total 2019 2019 2019 2019

Note £m £m £m £m Contributions and benefits

Employer contributions 231.5 1.4 64.4 297.3 Employee contributions 16.4 – 1.1 17.5 ----------------------- -------------- ------------------- -----------------------

Total contributions 5 247.9 1.4 65.5 314.8 ----------------------- -------------- ------------------- -----------------------

Benefits paid or payable 6 (953.7) (17.3) (0.6) (971.6) Payments to and on account of leavers 7 (841.4) (33.3) (6.3) (881.0) Administrative expenses 8 (15.4) (0.3) (0.4) (16.1) --------------------------------- ------------------- -------------- ---------------------------------

(1,810.5) (50.9) (7.3) (1,868.7) --------------------------------- ------------------- ------------------- ---------------------------------

Net withdrawals from dealings with members (1,562.6) (49.5) 58.2 (1,553.9)

Returns on investments Investment income 9 1,028.5 26.1 0.3 1,054.9 Change in market value of investments 10 3,490.9 63.1 36.6 3,590.6 Investment management expenses 12 (100.7) (2.0) – (102.7) Taxation 13 (1.9) – – (1.9) --------------------------------- ------------------- ------------------- ---------------------------------

Net return on investments 4,416.8 87.2 36.9 4,540.9 --------------------------------- ------------------- ------------------- ---------------------------------

Net increase in the Fund during the year 2,854.2 37.7 95.1 2,987.0

Transfers between sections 14 3.2 (0.3) (2.9) –

Net assets of the Fund At 1 January 44,066.5 1,063.7 279.7 45,409.9 ------------------------------------- --------------------------------- ----------------------- -------------------------------------

At 31 December 46,923.9 1,101.1 371.9 48,396.9 ===================================== ================================= ======================= =====================================


- 44 -

Statement of net assets (available for benefits)


NWM and RBSI

Sections Total 2019 2019 2019 2019

Note £m £m £m £m Investment assets 10 Equities 2,943.3 26.3 – 2,969.6 Bonds 34,508.2 807.5 – 35,315.7 Property 15 1,424.8 – – 1,424.8 Pooled investment vehicles 16 2,188.8 101.9 347.8 2,638.5 Derivatives 17 8,433.3 103.9 – 8,537.2 Cash instruments 18 3,622.7 92.4 16.3 3,731.4 Other investments 19 10.5 – – 10.5 APeCs and AVC investments 20 242.6 12.8 8.0 263.4 Cash 21 157.3 11.2 – 168.5 Other investment balances 22 119.6 3.6 – 123.2 ------------------------------------- --------------------------------- ----------------------- -------------------------------------

53,651.1 1,159.6 372.1 55,182.8

Investment liabilities 10 Derivatives 17 (4,618.8) (56.0) – (4,674.8) Cash 21 (252.6) (1.8) – (254.4) Cash instruments 18 (1,923.5) – – (1,923.5) --------------------------------- ------------------- -------------- ---------------------------------

(6,794.9) (57.8) – (6,852.7)

------------------------------------- --------------------------------- ----------------------- -------------------------------------

Total net investments 46,856.2 1,101.8 372.1 48,330.1

Current assets 27 133.5 1.0 3.9 138.4

Current liabilities 28 (65.8) (1.7) (4.1) (71.6)

------------------------------------- --------------------------------- ----------------------- -------------------------------------

Net assets of the Fund at 31 December 46,923.9 1,101.1 371.9 48,396.9 ===================================== ================================= ======================= =====================================

4. Accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Currency

The Fund’s functional currency and presentational currency is Sterling (GBP). Transactions in foreign currencies are translated into sterling at the rate ruling at the date of the transactions. Investments, current assets and liabilities denominated in foreign currencies are translated into their sterling equivalent at the rates ruling at the Fund’s year-end. Differences arising are dealt with in change in market value within the Fund Account.


- 45 -

Contributions

Normal contributions from the employer have been made at the rate set out in the Schedules of Contributions in force for the Fund year. Normal contributions relating to wages and salaries earned in the Fund year have been recognised in the Financial Statements. Members pay contributions via salary sacrifice arrangements; these contributions are accounted for as Employer Normal Contributions. Members of certain sections also pay a 2% salary charge which is accounted for as Employee Contributions.

Additional contributions from the employer and Additional Pension Contributions (APeCs) from members are accounted for on an accruals basis. Augmentations from the employer are accounted for when paid. Dividend-linked additional contributions are recognised when received.

Employer deficit funding contributions are accounted for on the due dates on which they are payable under the Schedule of Contributions or on receipt if earlier.

Contributions paid in excess of those required by the Schedule of Contributions are accounted for when received.

Transfers from and to other plans

Individual transfer values are accounted for at the time of receipt or payment.

Group transfers are accounted for in accordance with the terms of the transfer agreement.

Benefits

Pensions in payment are accounted for on an accruals basis.

Benefits are accounted for in the period in which the member notifies the Trustee of their decision on the type or amount of benefit to be taken, or if there is no member choice, on the date of retiring or leaving.

Administrative, investment management and other expenses

All Administrative, Investment Management and other expenses are accounted for on an accruals basis.

Investment income

Investment income is accounted for on an accruals basis. Receipts from annuity policies are accounted for as investment income. Interest income related to the Special Purpose Vehicle, held within Other Investments, is accounted for as sales proceeds. All investment income is stated inclusive of any related recoverable taxation but net of any irrecoverable tax, including overseas withholding taxes and the costs of collection. Accrued income includes outstanding dividend entitlements, accrued interest income and recoverable withholding tax.


- 46 -

Valuation of investments

Investments are included in the Statement of Net assets at their fair value.

Bonds are stated at their clean prices - i.e. market value excluding any accrued interest at the year-end date. Accrued income is accounted for as investment income receivable, and bond purchases and sales are also reported on a clean basis.

Quoted securities are valued at fair value using the closing bid price as notified by the relevant stock exchange or closing prices if these are not available.

Unquoted securities can consist of a range of different investment types. The valuation methods used in relation to these investments are set out below:

Investments in private equities are valued at fair value by the Fund’s investment managers in accordance with International Private Equity and Venture Capital (IPEVC) guidelines based on the latest information from investment managers adjusted for any cash flows in the period between the valuation date and the year-end.

Corporate loans are carried at fair value using the latest available price in the market. Certain other unlisted loans, where there is no available price in the market, are valued using a discounted cash-flow methodology adjusted for impairment, as a proxy for fair value.

Unitised pooled investment vehicles have been valued at the latest available bid price or single price provided by the pooled investment manager. Shares in other pooled arrangements have been valued at the latest available net asset value (NAV), determined in accordance with fair value principles, provided by the pooled investment manager.

Direct properties are valued at fair value on the basis of open market value by an independent valuer.

Open future contracts are included in the net asset statement at fair market value, which is the unrealised profit or loss at the current bid or offer market quoted price of the contract.

The fair value of swaps is calculated using pricing models where inputs are based on market data at the year-end.

Options (exchange traded) are recognised at the fair value as determined by the exchange price for closing the option as at year-end.

Forward foreign exchange contracts outstanding at the year-end are stated at fair value which is determined as the gain or loss that would arise if the outstanding contract was matched at the year-end with an equal and opposite contract.


- 47 -

Valuation of investments (continued)

The fair value of Special Purpose Vehicles is calculated as the current value of future cash flows arising from the agreements in place, determined by discounted cash flow models.

Annuity policies are shown at nil value in the Statement of Net Assets. This is a departure from the SORP as they are not held at the amount of the related obligation, determined using the most recent funding valuation assumptions and methodology. The Trustee does not consider the difference in accounting treatment to materially impact these Financial Statements.

Accrued interest is excluded from the market value of fixed income securities and is included in accrued income receivable.

Subsidiaries and joint ventures

Subsidiaries are entities of which the Fund has the power to govern the financial and operating policies of that entity. These powers generally accompany an interest in an entity of over 50%. Joint ventures are subsidiaries where the power to govern is shared jointly with other partners in an undertaking. The Trustee considers the Fund’s Subsidiary and Joint Venture holdings to be held as part of the Fund’s investment portfolio in the bonds and equities asset classes. As such these holdings have been shown in the Fund’s Financial Statements at fair value.

5. Contributions

2020


NWM and RBSI

Sections Total £m £m £m £m

Employer contributions Normal 184.3 0.1 8.5 192.9 Augmentation 7.6 - 0.2 7.8 Additional contributions 33.2 1.3 0.6 35.1 Deficit funding - - - - --------------------------- ------------------ ----------------------- ---------------------------

225.1 1.4 9.3 235.8 --------------------------- ------------------ ----------------------- ---------------------------

Employee contributions Additional pension contributions 7.3 - 0.3 7.6 Employee 2% Charge 8.6 - 0.5 9.1 --------------------------- ------------------ ----------------------- ---------------------------

15.9 - 0.8 16.7 --------------------------- ------------------ ----------------------- ---------------------------

--------------------------- ------------------ ----------------------- ---------------------------

241.0 1.4 10.1 252.5 =========================== ================== ======================= ===========================


- 48 -

2019


NWM and RBSI

Sections Reanalysed Total

£m £m £m £m Employer contributions

Normal 192.1 0.2 10.5 202.8 Augmentation 7.0 – 0.2 7.2 Additional contributions 32.4 1.2 1.0 34.6 Deficit funding – – 52.7 52.7 ----------------------- -------------- ------------------- -----------------------

231.5 1.4 64.4 297.3 ----------------------- -------------- ------------------- -----------------------

Employee contributions Additional pension contributions 6.9 – 0.5 7.4 Employee 2% charge 9.5 – 0.6 10.1 ----------------------- -------------- ------------------- -----------------------

16.4 – 1.1 17.5 ----------------------- -------------- ------------------- -----------------------

----------------------- -------------- ------------------- -----------------------

247.9 1.4 65.5 314.8 ======================= ============== =================== =======================

Employers’ additional contributions include the reimbursement of expenses. Employer normal contributions include employee salary sacrifice contributions. The Fund will receive up to £1.5 billion of deficit contributions, based on the Fund receiving an amount equal to any dividends or other shareholders distributions the Bank pays (subject to a cap of £0.5 billion in any one year). These will be accounted for when paid. The 2019 employee contributions of £0.6 million received into the NWM and RBSI Sections has been reanalysed in these financial statements to reflect that these contributions should have been classified as ‘Employee 2% charge’ rather than Employee normal contributions in the prior year.


- 49 -

6. Benefits paid or payable

2020


NWM and RBSI

Sections Total £m £m £m £m Pensions 832.2 15.7 0.3 848.2 Commutations and lump sum on retirement 130.5 1.4 0.3 132.2 Purchase of annuities 0.1 - - 0.1 Lump sum death benefits 4.2 - - 4.2 Lifetime allowance charge 1.1 - 0.1 1.2 --------------------------- ----------------------- ------------------ ---------------------------

968.1 17.1 0.7 985.9 =========================== ======================= ================== ===========================

2019


NWM and RBSI

Sections Total £m £m £m £m Pensions 807.4 14.7 0.1 822.2 Commutations and lump sum on retirement 140.0 2.6 0.5 143.1 Purchase of annuities 0.7 – – 0.7 Lump sum death benefits 5.1 – – 5.1 Lifetime allowance charge 0.5 – – 0.5 ----------------------- ------------------- -------------- -----------------------

953.7 17.3 0.6 971.6 =========================== ======================= ============== ===========================

7. Payments to and on account of leavers

2020


NWM and RBSI

Sections Total £m £m £m £m Individual transfers to other schemes 933.5 27.0 14.2 974.7 Payments for members joining the state scheme - - - - --------------------------- ----------------------- ------------------ ---------------------------

933.5 27.0 14.2 974.7 =========================== ======================= ================== ===========================


- 50 -

2019


NWM and RBSI

Sections Total £m £m £m £m Individual transfers to other schemes 840.6 33.3 6.3 880.2 Payments for members joining the state scheme 0.8 – – 0.8 ------------------------------------- ----------------------- ------------------ -------------------------------------

841.4 33.3 6.3 881.0 ===================================== ======================= ================== =====================================

8. Administrative expenses

2020


NWM and RBSI

Sections Total £m £m £m £m Administration and professional fees including irrecoverable VAT 19.6 0.7 0.4 20.7 Trustee Directors' fees (see below)* 0.3 - - 0.3 Pension Protection Fund Levy* 1.3 - - 1.3 ----------------------- ------------------ ------------------ -----------------------

21.2 0.7 0.4 22.3 ======================= ================== ================== =======================

2019


NWM and RBSI

Sections Total £m £m £m £m Administration and professional fees including irrecoverable VAT 13.7 0.3 0.4 14.4 Trustee Directors’ fees (see below)* 0.4 – – 0.4 Pension Protection Fund Levy* 1.3 – – 1.3 ----------------------- ------------------ ------------------ -----------------------

15.4 0.3 0.4 16.1 ======================= ================== ================== =======================

Included within administration and professional fees are audit fees of £140k (2019: £163k).

Included within Employer contributions remitted to the Fund are amounts used to offset administrative costs. The Trustee has agreed that the Fund will reimburse the NatWest Group plc for its administration costs incurred by People Services and RBS Investment Executive Limited. For the year ended 31 December 2020 this amounted to £2.3 million (31 December 2019: £2.1 million).

*Trustee Directors’ fees and Pension Protection Fund levies are paid from all four sections.


- 51 -

Trustee Directors who are not current employees of the Bank are paid a fee to compensate them for their time. In addition, Trustee Directors are reimbursed for expenses they incur on Trustee business such as the cost of travelling to and from meetings. The Fund also meets the cost of employer's National Insurance Contributions, where applicable.

The total of the fees paid plus expenses reimbursed at cost and any applicable employer National Insurance Contributions are detailed below.

Year ended 31 December 2020

Year ended 31 December 2019

Trustee Director £ £ Capital Cranfield (Independent Trustees)* 94,053 76,114 David England 15,000 17,376 Douglas Heron 7,923 – George Graham 8,739 18,000 Ian Purves 5,068 18,073 Peter Walker 15,895 17,781 Ronald Bowie (Independent Trustee) 116,573 121,395 Victoria North 16,709 – --------------------------------- ---------------------------------

279,960 268,739 ================================= =================================

* Note, in 2019 Capital Cranfield was represented by Nicki Mortimer but during 2020 Joanna Matthews also joined.

9. Investment income

2020


NWM and RBSI

Sections Total £m £m £m £m Net income from properties 56.9 0.5 - 57.4 Income from bonds 579.2 16.5 0.8 596.5 Dividends from equities 69.9 1.2 - 71.1 Income from pooled investment vehicles 84.2 0.1 0.2 84.5 (Expense)/Income from derivatives (79.4) 0.2 (0.1) (79.3) Annuity income - 0.9 - 0.9 Interest on cash deposits 12.2 0.2 - 12.4 ------------------------------------- ----------------------- ------------------ -------------------------------------

723.0 19.6 0.9 743.5 ===================================== ======================= ================== =====================================


- 52 -

2019


NWM and RBSI

Sections Total £m £m £m £m Net income from properties 43.5 0.2 – 43.7 Income from bonds 692.9 18.8 – 711.7 Dividends from equities 94.3 1.2 – 95.5 Income from pooled investment vehicles 94.8 0.7 0.3 95.8 Income/(expense) from derivatives 66.3 3.8 – 70.1 Annuity income – 1.0 – 1.0 Interest on cash deposits 36.7 0.4 – 37.1 --------------------------------- ------------------- -------------- ---------------------------------

1,028.5 26.1 0.3 1,054.9 ===================================== ======================= ============== =====================================

Property income is net of expenses.

10. Reconciliation of investments

Main Section

Value at 1 January

2020

Purchases at cost and

derivative payments

Sales proceeds

and derivative

receipts

Change in market

value

Value at 31 December

2020 £m £m £m £m £m Equities 2,943.3 867.7 (802.0) 195.0 3,204.0 Bonds 34,508.2 9,634.8 (11,786.3) 4,692.4 37,049.1 Property 1,424.8 6.2 (97.8) (76.1) 1,257.1 Pooled investment vehicles 2,188.8 308.5 (315.6) 85.2 2,266.9 Derivatives 3,814.5 2,529.3 (1,953.8) 766.7 5,156.7 Cash instruments 1,699.2 31,436.7 (31,201.8) 4.0 1,938.1 Other investments 10.5 - (0.7) 1.5 11.3 APeCs and AVC investments 242.6 26.8 (45.5) 13.0 236.9 ----------------------------------------- ----------------------------------------- ----------------------------------------- ------------------------------------- -----------------------------------------

46,831.9 44,810.0 (46,203.5) 5,681.7 51,120.1 ========================================= =========================================

Cash (95.3) (31.1) 317.7 Other investment balances 119.6 64.5 98.5 ----------------------------------------- ------------------------------------- -----------------------------------------

46,856.2 5,715.1 51,536.3 ========================================= ===================================== =========================================

Included in the above are unconsolidated subsidiaries of the Fund. As at 31 December 2020 the aggregate net asset value of the subsidiaries amounted to £3,153 million (2019: £3,159 million). The 2019 valuation of these unconsolidated subsidiaries has been updated to reflect the expanded list of controlling interests as disclosed in note 29.

The change in market value of investments during the year includes 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 during the year.

The change in market value for cash and near cash assets is mainly due to foreign exchange gains and losses.


- 53 -

AA Section

Value at 1 January

2020


derivative payments

Sales proceeds

and derivative

receipts

Change in market

value


2020 £m £m £m £m £m Equities 26.3 3.5 (3.5) (2.5) 23.8 Bonds 807.5 253.7 (306.1) 87.1 842.2 Pooled investment vehicles 101.9 5.2 (9.4) (0.3) 97.4 Derivatives 47.9 66.0 (54.6) 7.9 67.2 Cash instruments 92.4 410.1 (406.3) 3.2 99.4 APeCs and AVC investments 12.8 2.1 (1.8) 1.0 14.1 ------------------------------------- --------------------------- --------------------------- ----------------------- -------------------------------------

1,088.8 740.6 (781.7) 96.4 1,144.1 =========================== ===========================

Cash 9.4 3.4 27.3 Other investment balances 3.6 - 3.3 ------------------------------------- ----------------------- -------------------------------------

1,101.8 99.8 1,174.7 ===================================== ======================= =====================================


The change in market value for cash and near cash assets is mainly due to foreign exchange gains and losses.

NWM and RBSI Sections

Value at 1 January

2020


derivative payments

Sales proceeds

and derivative

receipts

Change in market

value


2020 £m £m £m £m £m Bonds - 153.2 (43.3) 26.1 136.0 Pooled investment vehicles 347.8 146.4 (265.4) 18.1 246.9 Derivatives - 2.7 (6.3) 6.8 3.2 Cash instruments 16.3 257.7 (253.9) 1.3 21.4 APeCs and AVC investments 8.0 0.5 (0.6) - 7.9 ------------------------------------- --------------------------- --------------------------- ----------------------- -------------------------------------

372.1 560.5 (569.5) 52.3 415.4 =========================== ===========================

Cash - - (2.4) Other investment balances - - 0.2 ------------------------------------- ----------------------- -------------------------------------

372.1 52.3 413.2 ===================================== ======================= =====================================



- 54 -

11. Transaction costs

Transaction costs are included in the cost of purchases and deducted from sale proceeds. Direct transaction costs include costs charged to the Scheme such as fees, commissions and stamp duty. Transaction costs are included in the cost of purchases and deducted from the sales proceeds disclosed in the reconciliation in note 10. Direct transaction costs incurred are analysed as follows:

Transaction costs analysed by main asset class and type of cost are as follows:

2020 2019 Fees Commission Taxes Total Total £m £m £m £m £m Equities 0.3 0.6 - 0.9 0.9 Bonds - - - - 0.2 Other* - 0.4 - 0.4 0.2 ------------------ ------------------ -------------- ------------------

Total 2020 0.3 1.0 - 1.3 ================== ================== ============== ==================

------------------

Total 2019 0.3 0.7 - 1.0 ================== ================== ============== ==================

* Other includes Pooled investment vehicles, Cash Instruments and Fixed Interest Investments.

In addition to the transaction costs disclosed above, indirect costs are incurred through the bid-offer spread on investments within pooled investment vehicles and charges made within those vehicles. Transaction costs disclosed above cover commissions, fees and taxes paid for quoted equity and credit segregated mandates.

Transaction costs do not include costs for assets not held by the Fund’s custodian. In addition to the direct transaction costs disclosed, indirect transaction costs are incurred through the bid-offer spread of certain pooled investment vehicles. The Fund is compliant with the CTI templates for total transaction costs that cover direct and indirect costs. The Trustee monitors all fees as described on page 20 and Note 12.

12. Investment management expenses

2020


NWM and RBSI

Sections Total £m £m £m £m Investment managers fees 71.5 1.4 0.8 73.7 Custody fees 1.3 0.2 - 1.5 Other investment fees 3.0 0.1 0.2 3.3 --------------------------- ------------------ -------------- ---------------------------

75.8 1.7 1.0 78.5 =========================== ================== ============== ===========================


- 55 -

2019


NWM and RBSI

Sections Total £m £m £m £m Investment managers fees 96.7 1.6 – 98.3 Custody fees 1.3 0.2 – 1.5 Other investment fees 2.7 0.2 – 2.9 ----------------------- -------------- -------------- -----------------------

100.7 2.0 – 102.7 =========================== ================== ================== ===========================

13. Taxation

NatWest Group Pension Fund is a registered pension scheme for tax purposes under the Finance Act 2004. The Fund is therefore exempt from taxation except for certain withholding taxes relating to overseas investment income. The Fund also has tax authorisation in certain other jurisdictions and so benefits from tax exempt status in those other jurisdictions. Tax charges are accrued on the same basis as the investment income to which they relate.

14. Transfers between sections

2020


NWM and RBSI

Sections Total £m £m £m £m Transfers between sections 19.8 - (19.8) - ================== ================== ================== ==============

2019


NWM and RBSI

Sections Total £m £m £m £m Transfers between sections 3.2 (0.3) (2.9) – =========================== ======================= =========================== ==============

Transfers between sections ordinarily represents the movement of funds for individual members transferring between sections, but in addition can include larger bulk movements.


- 56 -

15. Property

2020


NWM and RBSI

Sections Total £m £m £m £m UK 1,083.1 - - 1,083.1 Overseas 174.0 - - 174.0 ------------------------------------- -------------- -------------- -------------------------------------

1,257.1 - - 1,257.1 ===================================== ============== ============== =====================================

2019


NWM and RBSI

Sections Total £m £m £m £m UK 1,117.9 – – 1,117.9 Overseas 306.9 – – 306.9 --------------------------------- -------------- -------------- ---------------------------------

1,424.8 – – 1,424.8 ===================================== ============== ============== =====================================

16. Pooled investment vehicles

The Fund's investments in pooled investment vehicles (excluding APeCs and AVCs) at the year-end comprised:

2020


NWM and RBSI

Sections Total £m £m £m £m Credit 253.2 14.8 189.7 457.7 Alternative equity 328.0 12.8 - 340.8 Property 412.7 22.3 9.6 444.6 Private equity 741.0 - - 741.0 Insurance 532.0 47.5 - 579.5 Hedging assets - - 47.6 47.6 ------------------------------------- --------------------------- --------------------------- -------------------------------------

2,266.9 97.4 246.9 2,611.2 ===================================== =========================== =========================== =====================================

2019


NWM and RBSI

Sections Total £m £m £m £m Credit 170.8 15.5 145.5 331.8 Alternative equity 293.9 10.9 – 304.8 Property 439.9 24.7 9.8 474.4 Private equity 699.4 – – 699.4 Insurance 584.8 50.8 – 635.6 Hedging assets – – 192.5 192.5 --------------------------------- ----------------------- ----------------------- ---------------------------------

2,188.8 101.9 347.8 2,638.5 ===================================== ======================= =========================== =====================================


- 57 -

The Main Section of the Fund invests in a number of pooled investment vehicles in which it is the sole investor, the aggregated investment position of these sole investor funds is summarised below:

2020

Reanalysed 2019

£m £m Credit 253.2 170.9 Private equity 542.9 489.2 Insurance 128.4 136.3 --------------------------------- -----------------------

924.5 796.4 ======================= ================================

The 2019 disclosures have been reanalysed to correctly reflect sole investor funds held; it was determined that a pooled investment vehicle in which the Fund was previously considered sole investor in fact had another investor.

17. Derivatives

The Trustee has authorised the use of derivatives by their investment managers as part of their investment strategy for the Fund as explained in the Trustee's report. At the year-end the Fund had the following derivatives:

2020


NWM and RBSI


Derivative assets Futures 1.1 0.3 - 1.4 Options 169.6 - - 169.6 Swaps 12,638.4 181.3 6.6 12,826.3 Forward FX contracts 333.6 11.6 - 345.2 ------------------------------------- --------------------------- -------------- -------------------------------------

13,142.7 193.2 6.6 13,342.5 ===================================== =========================== ============== =====================================

Derivative liabilities Futures (5.6) (0.1) - (5.7) Options (19.8) - - (19.8) Swaps (7,922.2) (125.4) (3.4) (8,051.0) Forward FX contracts (38.4) (0.5) - (38.9) ------------------------------------- ----------------------- -------------- -------------------------------------

(7,986.0) (126.0) (3.4) (8,115.4) ===================================== ======================= ============== =====================================

------------------------------------- ----------------------- -------------- -------------------------------------

5,156.7 67.2 3.2 5,227.1 ===================================== ======================= ============== =====================================


- 58 -

2019


NWM and RBSI


Derivative assets Futures 5.2 1.3 – 6.5 Options 122.8 – – 122.8 Swaps 8,090.6 96.0 – 8,186.6 Forward FX contracts 214.7 6.6 – 221.3 --------------------------------- ----------------------- -------------- ---------------------------------

8,433.3 103.9 – 8,537.2 ================================= ======================= ============== =================================

Derivative liabilities Futures (3.1) (0.1) – (3.2) Options (0.9) – – (0.9) Swaps (4,577.9) (54.9) – (4,632.8) Forward FX contracts (36.9) (1.0) – (37.9) --------------------------------- ------------------- -------------- ---------------------------------

(4,618.8) (56.0) – (4,674.8) ================================= =================== ============== =================================

--------------------------------- ------------------- -------------- ---------------------------------

3,814.5 47.9 – 3,862.4 ================================= =================== ============== =================================

Futures The Fund had outstanding exchange traded futures at the year-end as follows:

Nature No. of

contracts Economic exposure Expires

Asset value

Liability value

£m £m £m Overseas bonds 7604 924.2 08/03/2021 1.4 (0.8) Overseas equities 264 4.6 20/01/2021 - (1.5) Overseas interest rates 811 159.9 15/03/2021 - - UK interest rates 741 100.4 29/03/2021 - (1.0) UK bonds 2913 187.0 19/03/2021 - (2.4) UK equity 58 7.2 17/03/2021 - - ------------------------------------- ----------------------- ------------------

Total 2020 1,383.3 1.4 (5.7) ------------------------------------- ----------------------- -----------------------

Total 2019 1,438.0 6.5 (3.2) ===================================== ======================= =======================

Futures are used to manage exposures efficiently and for hedging.


- 59 -

Options

No. of Expiration Underlying

Notional amount of

outstanding contract Asset Liability

contracts Dates Investment Millions £m £m

16

20/01/2021 - 20/03/2023

Equity Market Volatility (ET) 0 1.3 (19.5)

4

20/01/2021 – 17/02/2021

Interest Rate Swaps (OTC) 1,600 EUR 0.3 (0.2)

5

10/01/2023 – 01/04/2043

Interest Rate Swaps (OTC) 502 GBP 167.8 -

4

20/01/2021 – 17/02/2021

Interest Rate Swaps (OTC) 1,773 USD 0.2 (0.1)

----------------------- --------------

Total 2020 169.6 (19.8) ----------------------- --------------

Total 2019 122.8 (0.9) ======================= ==============

Options allow the Fund to benefit from potentially greater returns or reduced risk through efficiently increasing or reducing exposure to bond and equity markets.

ET – Exchange traded OTC – Over the counter

Swaps The Fund had outstanding derivative swap contracts at the year-end as follows:

Nature No. of

contracts Notional amounts Expires

Asset value

Liability value

£m £m £m Credit default swaps

12 1,276.7 17/03/2021 – 17/02/20151 1.0 (0.8)

Currency swaps 17 1,668.4

04/05/2021 – 30/09/2030 59.3 (9.9)

Inflation swaps 348 18,344.4

15/09/2021 – 15/09/2070 1,418.7 (1,761.0)

Interest rate swaps 922 72,971.4

02/02/2021 – 16/06/2070 11,347.3 (6,278.7)

Total return swaps 4 44.7

17/02/2021 – 15/01/2022 - (0.6)

----------------------------------------- ------------------------------------- -------------------------------------

Total 2020 94,305.6 12,826.3 (8,051.0) ----------------------------------------- ------------------------------------- -------------------------------------

Total 2019 79,798.1 8,186.6 (4,632.8) ========================================= ===================================== =====================================

Swaps are used to offset the sensitivity of the Fund’s actuarial liability to changes in interest rates, inflation rates and currency exchange rates.


- 60 -

Forward FX contracts The Fund had open forward foreign exchange contracts at the year-end as follows:

Settlement date No. of

contracts Currency

bought Currency

sold Asset value

Liability value

£m £m 13/01/2021-17/09/2021 38 262.2 EUR 238.5 GBP 0.6 (4.0) 15/01/2021-31/03/2021 27 524.7 GBP 948.0 AUD - (10.5) 13/01/2021-17/09/2021 86 2,052.2 GBP 2,268.6 EUR 21.5 (1.6) 04/01/2021-10/02/2021 14 57.9 GBP 582.5 HKD 2.9 - 04/01/2021-10/02/2021 11 71.6 GBP 9,782.0 JPY 2.3 - 08/01/2021-30/06/2023 228 7,607.2 GBP 9,973.9 USD 316.2 (3.7) 08/01/2021-02/02/2021 9 265.2 USD 221.4 EUR - (4.2) 08/01/2021-18/02/2021 49 486.7 USD 370.2 GBP 0.5 (14.7) Various contracts with values of less than £1m 25 1.2 (0.2)

--------------------------- -----------------------

Total 2020 345.2 (38.9) --------------------------- ---------------------------

Total 2019 221.3 (37.9) =========================== ===========================

The Fund uses forward currency contracts to manage the currency risk which arises from holding investments which are not denominated in Sterling.

Collateral

Under the OTC contracts, the Main section has posted collateral of £1,949 million (2019: £1,520 million); in the form of bonds. The Main section has received collateral of £5,283 million (2019: £3,780 million) in the form of £2,535 million in cash and £2,748 million in bonds. The net total collateral is £3,334 million (2019: £2,260 million).

Under the OTC contracts, the AA section has posted collateral of £30.8 million (2019: £31.5 million) in the form of bonds. The AA section has received collateral of £85.5 million (2019: £55.4 million); £45.0 million in cash and £40.5 million in bonds. The net total collateral is £54.7 million (2019: £23.9 million).

Under the OTC contracts, the NWM section has posted collateral of £12.2 million (2019: NIL); in the form of bonds.

18. Cash instruments

2020


NWM and RBSI

Sections Total £m £m £m £m Treasury bills 773.2 - - 773.2 Liquidity funds 2,328.0 99.4 21.4 2,448.8 Other cash and cash equivalents (1,163.1) - - (1,163.1) ------------------------------------- ----------------------- ----------------------- -------------------------------------

1,938.1 99.4 21.4 2,058.9 ===================================== ======================= ======================= =====================================


- 61 -

2019


NWM and RBSI

Sections Total £m £m £m £m Treasury bills 502.3 – – 502.3 Liquidity funds 1,928.7 92.4 16.3 2,037.4 Other cash and cash equivalents (731.8) – – (731.8) --------------------------------- ------------------- ------------------- ---------------------------------

1,699.2 92.4 16.3 1,807.9 ===================================== ======================= ======================= =====================================

Treasury bills represent UK Government securities held. Liquidity funds invest in a range of securities and bonds with high credit ratings for short-term investments.

19. Other investments

2020 Main Section AA Section Total £m £m £m Special purpose vehicles 11.3 - 11.3 ================== ============== ==================

2019 Main Section AA Section Total £m £m £m Special purpose vehicles 10.5 – 10.5 ============== ============== ==============

The special purpose vehicle consists of a loan book. The Trustee does not consider there to be a ready market for this investment which is therefore considered to be illiquid.


- 62 -

20. APeCs and AVC investments

2020


NWM and RBSI

Sections Total £m £m £m £m Fidelity Investments Life Assurance Limited* 225.5 12.5 7.9 245.9 Standard Life Assurance Limited* 7.3 0.1 - 7.4 Scottish Widows’ Fund and Life Assurance Society 3.5 - - 3.5 Utmost Life and Pensions Limited - 1.5 - 1.5 Clerical Medical Investment Group Limited* - - - - Aviva Insurance Limited (formerly Norwich)* 0.6 - - 0.6 --------------------------- ----------------------- ------------------ ---------------------------

236.9 14.1 7.9 258.9 =========================== ======================= ================== ===========================

2019


NWM and RBSI

Sections Total £m £m £m £m Fidelity Investments Life Assurance Limited* 229.1 10.5 8.0 247.6 Standard Life Assurance Limited* 7.9 0.2 – 8.1 Scottish Widows’ Fund and Life Assurance Society 4.0 – – 4.0 Utmost Life and Pensions Limited 0.6 2.1 – 2.7 Clerical Medical Investment Group Limited* 0.4 – – 0.4 Aviva Insurance Limited (formerly Norwich)* 0.6 – – 0.6 ----------------------- ------------------- -------------- -----------------------

242.6 12.8 8.0 263.4 =========================== ======================= ================== ===========================

* These managers hold assets derived from APeCs and/or AVCs.

The Trustee holds APeCs and AVC assets invested separately from the Fund’s defined benefit assets. Members participating in this arrangement each receive an annual statement confirming the amounts held in their account and the movements in the year.


- 63 -

21. Cash

2020


NWM and RBSI


Cash assets Cash with investment managers 215.2 6.2 - 221.4 Variation margins with brokers 140.3 22.0 - 162.3 Cash in transit 35.2 0.3 - 35.5 --------------------------- ----------------------- -------------- ---------------------------

390.7 28.5 - 419.2 =========================== ======================= ============== ===========================

Cash liabilities Variation margins with brokers (1.0) (1.2) (2.4) (4.6) Cash in transit (72.0) - - (72.0) --------------------------- ------------------ -------------- ---------------------------

(73.0) (1.2) (2.4) (76.6) =========================== ================== ============== ===========================

----------------------- ------------------ -------------- -----------------------

317.7 27.3 (2.4) 342.6 ======================= ================== ============== =======================

2019


NWM and RBSI


Cash assets Cash with investment managers 87.0 0.9 – 87.9 Variation margins with brokers 17.3 10.3 – 27.6 Cash in transit 53.0 – – 53.0 ----------------------- ------------------- -------------- -----------------------

157.3 11.2 – 168.5 ======================= =================== ============== =======================

Cash liabilities Variation margins with brokers (163.7) (1.8) – (165.5) Cash in transit (88.9) – – (88.9) ----------------------- -------------- -------------- -----------------------

(252.6) (1.8) – (254.4) ======================= ============== ============== =======================

------------------- -------------- -------------- -------------------

(95.3) 9.4 – (85.9) =================== ============== ============== ===================

22. Other investment balances

2020


NWM and RBSI


Other investment balances assets Accrued income 98.5 3.3 0.2 102.0 =========================== ================== ============== ===========================


- 64 -

2019


NWM and RBSI


Other investment balances assets Accrued income 119.6 3.6 – 123.2 =========================== ================== ============== ===========================

23. Fair value determination

The fair value of investments is determined using valuation techniques that utilise various inputs and these inputs have been categorised as set out below:

Level 1 – the unadjusted quoted price in an active market for identical assets.

Level 2 – inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data).

Level 3 – inputs are unobservable (i.e. for which market data is unavailable).

The Fund’s investment assets and liabilities have been fair valued using the above hierarchy categories as follows:

At 31 December 2020 Level 1 Level 2 Level 3 Total

£m £m £m £m Main Section

Equities 2,262.8 - 941.2 3,204.0 Bonds 306.7 30,839.9 5,902.5 37,049.1 Property - - 1,257.1 1,257.1 Pooled investment vehicles 32.8 - 2,234.1 2,266.9 Derivatives (4.5) 5,161.2 - 5,156.7 Cash instruments 21.5 1,879.4 37.2 1,938.1 Other investments - - 11.3 11.3 APeCs and AVC investments - 223.5 13.4 236.9 Cash 317.7 - - 317.7 Other investment balances 98.5 - - 98.5 ------------------------------------- ----------------------------------------- ------------------------------------- -----------------------------------------

3,035.5 38,104.0 10,396.8 51,536.3

AA Section Equities 23.8 - - 23.8 Bonds - 619.7 222.5 842.2 Pooled investment vehicles - - 97.4 97.4 Derivatives 0.2 67.0 - 67.2 Cash instruments 79.6 (11.2) 31.0 99.4 APeCs and AVC investments - 11.8 2.3 14.1 Cash 27.3 - - 27.3 Other investment balances 3.3 - - 3.3 --------------------------- --------------------------- --------------------------- -------------------------------------

134.2 687.3 353.2 1,174.7


- 65 -

NWM and RBSI Sections Bonds - 136.0 - 136.0 Pooled investment vehicles - - 246.9 246.9 Derivatives 3.2 - - 3.2 Cash instruments 17.4 (5.9) 9.9 21.4 APeCs and AVC investments - 7.9 - 7.9 Cash (2.4) - - (2.4) Other investment balances 0.2 - - 0.2 -------------- --------------------------- ------------------ ---------------------------

18.4 138.0 256.8 413.2

------------------------------------- ----------------------------------------- ------------------------------------- -----------------------------------------

3,188.1 38,929.3 11,006.8 53,124.2 ===================================== ========================================= ===================================== =========================================

At 31 December 2019 Level 1 Level 2 Level 3 Total

£m £m £m £m Main Section

Equities 1,815.5 – 1,127.8 2,943.3 Bonds 84.2 32,380.9 2,043.1 34,508.2 Property – – 1,424.8 1,424.8 Pooled investment vehicles 15.3 – 2,173.5 2,188.8 Derivatives 2.1 3,812.4 – 3,814.5 Cash instruments 7.4 1,646.2 45.6 1,699.2 Other investments – – 10.5 10.5 APeCs and AVC investments – 229.1 13.5 242.6 Cash (95.3) – – (95.3) Other investment balances 119.6 – – 119.6 --------------------------------- ------------------------------------- ------------------------------------- -------------------------------------

1,948.8 38,068.6 6,838.8 46,856.2

AA Section Equities 26.3 – – 26.3 Bonds – 767.5 40.0 807.5 Pooled investment vehicles – – 101.9 101.9 Derivatives 1.2 46.7 – 47.9 Cash instruments 70.3 – 22.1 92.4 APeCs and AVC investments – 10.4 2.4 12.8 Cash 9.4 – – 9.4 Other investment balances 3.6 – – 3.6 ----------------------- ----------------------- ----------------------- ---------------------------------

110.8 824.6 166.4 1,101.8

NWM and RBSI Sections Pooled investment vehicles – 337.9 9.9 347.8 Cash instruments – 16.3 – 16.3 APeCs and AVC investments – 8.0 – 8.0 -------------- --------------------------- ------------------ ---------------------------

– 362.2 9.9 372.1

------------------------------------- ----------------------------------------- ------------------------------------- -----------------------------------------

2,059.6 39,255.4 7,015.1 48,330.1 ===================================== ========================================= ===================================== =========================================


- 66 -

24. Investment risk disclosures

Investment risks

FRS 102 requires the disclosure of information in relation to certain investment risks. These risks are set out by FRS 102 as follows:

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.

The Fund has exposure to these risks because of the investments it makes to implement its investment strategy described in the Trustee’s Report. The Trustee manages investment risks, including credit risk and market risk, in line with a strategic benchmark. The strategic benchmark is set taking into account the Fund’s risk appetite and strategic investment objectives. These investment objectives are implemented through the investment management agreements in place with the Fund’s investment managers. The performance of investment managers is monitored by the Trustee and its advisers with regular reviews of the investment portfolios.

Further information on the Trustee’s approach to risk management and the Fund’s exposures to credit and market risks are set out below. This does not include AVC investments whose value is not material in relation to the overall investments of the Fund.

Credit risk

The Fund is subject to credit risk through its bonds, derivatives and cash balances. The Fund also invests in pooled investment vehicles and is therefore indirectly exposed to credit risks arising on the financial instruments held by the pooled investment vehicles.

A summary of pooled investment vehicles by type of arrangement at market value is included on the following page.


- 67 -

2020 Main

Section AA Section NWM and

RBSI Sections

Total

£m £m £m £m Exempted Investment Company 273.4 14.3 - 287.7 Insurance Linked Investments 130.3 33.3 - 163.6 Limited Partnership 1,136.7 18.3 - 1,155.0 Litigation Fund 128.4 - - 128.4 Property Unit Trust 385.0 18.7 9.6 413.3 Trust Company 213.1 12.8 - 225.9 Unit Linked Insurance Policies - - 237.3 237.3 --------------------------------- ------------------- ----------------------- ---------------------------------

2,266.9 97.4 246.9 2,611.2 ================================= =================== ======================= =================================

2019 Main

Section AA Section NWM and

RBSI Sections

Total

£m £m £m £m Exempted Investment Company 352.7 18.1 - 370.8 Insurance Linked Investments 100.1 32.7 - 132.8 Limited Partnership 1,009.4 20.0 - 1,029.4 Litigation Fund 136.3 - - 136.3 Property Unit Trust 408.2 20.2 9.8 438.2 Trust Company 182.1 10.9 - 193.0 Unit Linked Insurance Policies - - 338.0 338.0 --------------------------------- ----------------------- ----------------------- ---------------------------------

2,188.8 101.9 347.8 2,638.5 ================================= =================== ======================= =================================

A summary of the exposures to credit risk is given in the following table using market value, the notes below explain how this risk is managed and mitigated for the different classes of investment:

Main Section

AA Section NWM and RBSI

Sections

Total as at 31

December 2020

Total as at 31

December 2019

£m £m £m £m £m Bonds 37,049.1 842.2 136.0 38,027.3 35,315.7 Pooled investment vehicles - direct risk only 2,266.9 97.4 246.9 2,611.2 2,638.5 Derivatives - assets 13,142.7 193.2 6.6 13,342.5 8,537.2 - liabilities (7,986.0) (126.0) (3.4) (8,115.4) (4,674.8) Other investments 11.3 - - 11.3 10.5 Cash instruments 1,938.1 99.4 21.4 2,058.9 1,807.9 Cash & trading accounts with managers

- assets 484.8 31.8 0.2 516.8 227.0 - liabilities (73.0) (1.2) (2.4) (76.6) (309.4) ------------------------------------- -------------------------------- ----------------------- ------------------------------------- -------------------------------------

46,833.9 1,136.8 405.3 48,376.0 43,552.6 ===================================== ================================ ======================= ===================================== =====================================

The Fund is exposed to credit risk which can take the form of an adverse change in credit spreads which reduces the market value of the bonds or higher than expected defaults on bonds the Fund holds.


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The exposure to credit spreads is illustrated in the sensitivity analysis below:

Scenario

Main Section Change in

Assets £m

AA Section Change in

Assets £m

NWM Section Change in

Assets £m

RBSI Section Change in

Assets £m

0.10% increase in credit spreads excluding sovereign bonds

(55.3) (2.4) (0.8) (0.2)

0.10% increase in credit spreads and spreads on sovereign bonds

(877.0) (18.0) (0.8) (0.2)

The credit ratings of the segregated bonds (excluding bonds in pooled investment vehicles) held by the Fund at market value are analysed below:

Credit rating Main Section as at 31 December 2020

Main Section as at 31 December 2019

£m % £m % Investment grade 35,837.4 96.7 33,096.8 97.1 Non-investment grade 1,080.1 2.9 825.6 2.4 Unrated 131.6 0.4 139.9 0.5 37,049.1 100.0 34,062.3 100.0

Credit rating AA Section as at 31 December 2020

AA Section as at 31 December 2019

£m % £m % Investment grade 841.6 99.9 807.0 99.9 Unrated 0.6 0.1 0.7 0.1 842.2 100.0 807.7 100.0

Credit rating NWM Section as at 31 December 2020

NWM Section as at 31 December 2019

£m % £m % Investment grade 136.0 100.0 – –

The RBS International Section did not hold any segregated bond holdings during the year or as at 31 December 2020.

‘Investment grade’ bonds are those which rank in the higher tiers of credit quality by either Moody’s

(Aaa - Baa3) or S&P (AAA - BBB-). ‘Non-investment grade’ bonds are those which either Moody’s or S&P have classified in the lower tiers of credit quality but which may still provide a good investment opportunity on a risk-adjusted basis. ‘Unrated bonds’ may be deemed to be of equivalent credit quality to investment grade by the investment manager.

Credit risk is mitigated by employing investment managers who have a high level of expertise in

managing such investments and applying restrictions to the agreements with investment managers which require the portfolios to be highly diversified, thereby avoiding inappropriate risk concentrations.


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Direct credit risk arising from pooled investment vehicles (the risk that a loss arises from a failure of the vehicle or structure, rather than loss arising from the underlying assets) is mitigated by the underlying assets of the pooled arrangements being ring-fenced from the pooled manager, the regulatory environments in which the pooled managers operate and diversification of investments amongst a number of pooled arrangements. Due diligence checks are carried out on the appointment of new pooled investment managers with on-going monitoring thereafter.

Credit risk arising on derivatives depends on a number of factors including whether the derivative is traded on or cleared through an exchange or, alternatively, over the counter (OTC) on a bilateral basis between the Fund and a counterparty. OTC derivative contracts are not guaranteed by any regulated exchange and therefore the Fund is subject to risk of loss in the event of failure of the counterparty; however, this credit risk is reduced to very low levels by collateral arrangements. Credit risk also arises on forward foreign currency contracts. There are no collateral arrangements for these contracts but the contracts tend to be short term and the counterparties are selected carefully by the investment managers based on assessments of creditworthiness.

Cash and cash instruments are held either directly with institutions which have a high degree of creditworthiness or are invested in pooled liquidity funds which hold a diversified portfolio of cash and short-term debt instruments secured against companies with strong credit ratings.

Currency risk

The Fund is subject to currency risk because some of the Fund’s investments are denominated in currencies other than GBP (Pounds Sterling).

The Fund’s total asset exposure by major currency at the year-end (excluding currency hedges) was as follows:

Main Section AA Section Total as at 31 December

2020

Total as at 31 December

2019 £m £m £m £m

USD 8,646.0 273.6 8,919.6 8,060.4 EUR 2,621.9 53.3 2,675.2 2,239.0 Other 1,185.1 23.3 1,208.4 1,202.6 ------------------------------------- ----------------------- ------------------------------------- -------------------------------------

12,453.0 350.2 12,803.2 11,502.0 ===================================== ======================= ===================================== =====================================

The NatWest Markets Section and RBS International Section were not exposed to any currency risk during the year or as at 31 December 2020.

For the Main and AA sections, currency risk is managed with a currency hedging programme: Global equities: 50% hedge on all major developed market currencies through global equities.

Emerging market currencies are not hedged Private equity: partially hedged Alternative equity: 100% hedged Credit: 100% hedged Property: 100% hedged Insurance: 100% hedged


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Interest rate risk

The Fund is subject to interest rate risk because the value of the Fund’s liabilities and some of the Fund’s investments are sensitive to interest rates. The table below shows the market value of instruments used for managing interest rate risk, not sensitivity to interest rates.

Main Section


Sections

Total as at 31

December 2020

Total as at 31

December 2019

£m £m £m £m £m Bonds 37,049.1 842.2 136.0 38,027.3 35,315.7 Derivatives - assets 12,808.0 181.3 6.6 12,995.9 8,309.4 - liabilities (7,942.0) (125.4) (3.4) (8,070.8) (4,633.7) Other investments 11.3 - - 11.3 10.5 Cash instruments 1,938.1 99.4 21.4 2,058.9 1,807.9 Cash & trading accounts with managers

- assets 484.8 31.8 0.2 516.8 227.0 - liabilities (73.0) (1.2) (2.4) (76.6) (309.4) ------------------------------------- ----------------------- ------------------ ------------------------------------- -------------------------------------

44,276.3 1,028.1 158.4 45,462.8 40,727.4 ===================================== ======================= ================== ===================================== =====================================

Interest rate and inflation risk are managed as part of the Fund’s liability hedging programme.

The Trustee has a policy of hedging interest rate and inflation risk on each of the four sections.

Other price risk

Other price risk arises principally in relation to the Fund’s growth asset portfolio which includes listed equities, private equity, credit (corporate bonds), property and alternative investments held in pooled investment vehicles.

The Fund manages this exposure to other price risk by constructing a diverse portfolio of investments across various markets.

The summary below shows the market value of investment assets subject to other price risk:

Main Section


Sections

Total as at 31

December 2020

Total as at 31

December 2019

£m £m £m £m £m Equities 3,204.0 23.8 - 3,227.8 2,969.6 Bonds 37,049.1 842.2 136.0 38,027.3 35,315.7 Property 1,257.1 - - 1,257.1 1,424.8 Pooled investment vehicles 1,734.9 49.9 199.3 1,984.1 1,810.4 ------------------------------------- ----------------------- ----------------------- ------------------------------------- -------------------------------------

43,245.1 915.9 335.3 44,496.3 41,520.5 ===================================== ======================= ======================= ===================================== =====================================


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25. Stock lending

Certain investment managers of the Fund are authorised to use certain fund assets for sale and re-purchase transactions (Repo) with third parties.

The Trustee has agreed terms for a securities lending programme for equity and debt securities which began in 2018. At the year-end there were £346.0 million of assets on repo or on loan (2019: £338.4 million), including £163.6 million of corporate bonds (2019: £99.2 million) and £182.4 million of equities (2019: £239.2 million).

In addition, stock lending may be undertaken within pooled investment vehicles at the discretion of Investment Managers as part of normal investment activities.

26. Employer related investments

There were no material employer related investments in the current year or prior year. The Fund holds no direct investment in the NatWest Group plc, although indirect holdings are possible through the pooled investment vehicles. These holdings are less than 5% of the Fund's assets.

The Fund operates certain interest rate swaps, inflation swaps, credit derivatives, cross currency swaps and forward exchange rate agreements where National Westminster Bank plc and NatWest Markets plc acts as counterparty; these contracts total £2,648.7 million as at 31 December 2020 (2019: £1,569.6 million). These transactions are on commercial terms and carried out on an arms-length basis.

27. Current assets

2020


NWM and RBSI


Contributions due in respect of: Employers 2.8 - - 2.8

Other debtors and prepayments 2.9 - - 2.9 Due between sections 13.0 - - 13.0 Cash balances 138.7 1.7 3.3 143.7 --------------------------- ------------------ ------------------ ---------------------------

157.4 1.7 3.3 162.4 =========================== ================== ================== ===========================

2019


NWM and RBSI


Contributions due in respect of: Employers 17.5 – 0.6 18.1

Other debtors and prepayments 7.8 – – 7.8 Due between sections – 0.1 – 0.1 Cash balances 108.2 0.9 3.3 112.4 ----------------------- -------------- -------------- -----------------------

133.5 1.0 3.9 138.4 =========================== ================== ================== ===========================

Contributions were paid in accordance with the Schedules of Contributions.


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28. Current liabilities

2020


NWM and RBSI

Sections Total £m £m £m £m Unpaid benefits 7.2 - - 7.2 Due between sections - - 13.0 13.0 Accrued expenses 20.3 0.7 0.3 21.3 Sundry creditors 14.5 0.3 - 14.8 Employer contributions received in advance 28.8 - 4.1 32.9 ----------------------- ------------------ ------------------ -----------------------

70.8 1.0 17.4 89.2 ======================= ================== ================== =======================

2019


NWM and RBSI

Sections Total £m £m £m £m Unpaid benefits 3.2 – – 3.2 Due between sections 0.1 – – 0.1 Accrued expenses 18.4 1.4 – 19.8 Sundry creditors 13.4 0.3 – 13.7 Employer contributions received in advance 30.7 – 4.1 34.8 ------------------- -------------- -------------- -------------------

65.8 1.7 4.1 71.6 ======================= ================== ================== =======================

Employer contributions received in advance relate to overpaid employer normal contributions in the period October 2018 to January 2020. The employer has agreed to offset these against future additional contributions which become due when distributions are paid to shareholders for the Main Section and against future employer normal contributions for the NWM and RBSI Sections.


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29. Related party transactions

The following information is provided in accordance with FRS 102 Section 33, "Related Party Disclosures":

Certain Directors of NatWest Pension Trustee Limited are members of the Fund. Contributions received and pensions paid in respect of these Trustee Directors are made in accordance with the Schedules of Contributions and Trust Deed and Rules.

Directors and Executives of NatWest Group plc and senior managers within areas of the Bank responsible for pensions administration, policy and Trustee support were active members of the Fund during the year.

The cost of the services of NatWest Pension Trustee Limited has been charged directly to the Fund. The fees and expenses payable to the Directors for the year ended 31 December 2020 are disclosed in note 8.

Certain costs of administering the Fund were borne directly by NatWest Group plc during the year.

The Fund operates Bank accounts held with the NatWest Group plc. At 31 December 2020 these balances amounted to £143.7 million (2019: £112.4 million).

The Fund operates certain interest rate swaps, inflation swaps, credit derivatives, cross currency swaps and forward exchange rate agreements where NatWest Group plc or its

subsidiaries act as counterparties. These transactions are on commercial terms and carried out on an arms-length basis.

On 1 December 2008, the UK Government through HM Treasury became the ultimate controlling party of The Royal Bank of Scotland Group plc, now NatWest Group Plc. The UK

Government’s shareholding is managed by UK Government Investments Limited, a company wholly owned by the UK Government. As a result, the UK Government and UK Government controlled bodies became related parties of the Fund. The Fund had transactions with UK Government bodies on an arm's length basis and investments in government securities (either held directly or as part of a pooled fund) during the year, and are included in note 12. The volume and diversity of such transactions in the Fund is such that disclosure of their amounts in the year ended 31 December 2020 is impractical.

The Fund invests in various entities in which it holds controlling interests as at 31 December 2020.

1. West Granite Homes Inc invests in residential property in the US and is 99.9% owned by the Fund although the Fund has 100% of the voting rights.

2. Albemarle Shipping Ltd invests in shipping assets and is 100% owned by the Fund.

3. Phoenix Natural Gas is a Northern Irish Natural Gas Distributor and is 50% owned as part of a joint venture.

4. Ventus Investments Ltd invests in onshore wind generation assets and is 100% owned by the Fund.

5. AD Aggregator Platform Ltd is a holding company for the Fund's investments in anaerobic digestion facilities in the UK and is 100% owned by the Fund.

6. German Biogas Holdco Ltd invests in anaerobic digestion facilities in Germany and is 100% owned by the Fund.


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7. Simple Power Holdco Ltd invests in onshore wind turbines in Northern Ireland and is 100% owned by the Fund.

8. Geronta Funding is a trust that invests in life assurance policies and is 100% owned by the Fund.

9. Habitus Funding is a trust that invests in life assurance policies and is 100% owned by the Fund.

10. Cronus Catastrophe Fund Ltd is a company that invests in catastrophe insurance products and is 84% owned by the Fund.

11. Shasta Cascade Timberlands Limited Partnership (“LP”) is a partnership that invests in US forestry assets and is 50% owned by the Fund.

12. Brickell Key Investments LP is a partnership that invests in litigation finance arrangements and is 100% owned by the Fund.

13. The Rock (SBR Continental Europe LLC) is a company that invests in European property and is 100% owned by the Fund.

14. Bybrook Capital Burton Partnership LP is a partnership that invests in credit assets and is 100% owned by the Fund.

15. SL Capital 2016 Co-investment LP is a partnership that invests in private equity assets and is 100% owned by the Fund.

16. Hermes GPE Direct Co-Invest V LP is a partnership that invests in private equity assets and is 100% owned by the Fund.

17. Hermes GPE Direct Co-Invest IV LP is a partnership that invests in private equity assets and is 100% owned by the Fund.

18. Fund of Funds I, LP is a partnership that invests in private equity assets and is 100% owned by the Fund.

19. Fund of Funds II, LP is a partnership that invests in private equity assets and is 100% owned by the Fund.

20. Fund of Funds III, LP is a partnership that invests in private equity assets and is 100% owned by the Fund.

21. Roehampton Partners II LLC is a company that invests in credit assets and is 100% owned by the Fund

All of these entities are considered by the Trustee to be held as part of the Fund's investment portfolio so have been incorporated into the Financial Statements at fair value on an equity accounting basis and not consolidated with the Fund's Financial Statements.


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30. Capital commitments and contingencies

The following capital commitments outstanding at the year-end are in relation to the Fund’s investments in Private Equity Funds and Property Funds. These assets are disclosed under pooled investment vehicles in note 10.

As at 31 December

2020

As at 31 December

2019 £m £m

SL Capital 2016 Co-investment LLP 27.9 89.2 New Forest Property Funds* 16.1 27.9 Hermes Private Equity 9.0 35.0 Pathway Private Equity* 21.9 25.0 Orion European Real Estate Fund III C.V* 8.9 8.6 JP Morgan Private Equity* 2.9 3.0 Brockton Capital Fund II L.P 0.3 1.1 Partners Group Real Estate Secondary 2009 (Euro) S.C.A. 2.2 2.1 Brookfield Asset Management, Inc.* 0.8 0.9 ------------------- -----------------------

90.0 192.8 ======================= =======================

* Commitments denominated in overseas currencies which have been converted into Sterling at an exchange rate as of 31st December for each year end.

31. GMP Equalisation and Anti-Franking

A judgement was reached by the High Court in October 2018 in the Lloyds Banking Group Pensions

Trustees Limited v Lloyds Bank Plc Guaranteed Minimum Pension (GMP) equalisation case. The

judgement concluded that pension schemes must equalise pension benefits for men and women

for the effects of GMPs accrued between May 1990 and April 1997. The judgement applies on an

industry-wide basis - it therefore affects the Fund and any other pension scheme that was

contracted out between May 1990 and April 1997 and provides GMPs. In a following hearing, in

November 2020, the High Court ruled that pension schemes will also need to revisit individual

transfer payments made since 17 May 1990 to check if any additional value is due as a result of

GMP equalisation.

As a result of these judgements some members and former-members will be entitled to back-

payments plus interest. For many members GMP is a small part of their overall pension entitlement

and, accordingly, the back-payments are expected to be small for a majority of those who are

affected.

A project has been set up to deliver GMP equalisation with input from the administrator, actuary

and legal advisor, however, given its complexity and scale the project will run into 2022. From an

initial review by the Trustee, it is not believed that the back-payment liability will be material to the

Fund and therefore no provision has been made in these financial statements. The additional

liability from GMP equalisation will be considered further as part of the 2020 actuarial valuation.

Anti-franking is a principle which protects the value of the GMP part of a member’s pension. The

anti-franking rules prevent the offset of GMP revaluation against benefits in excess of the GMP.


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The Trustee has identified that the historic administrative practices have not fully complied with the

rules in relation to anti-franking. As a result, some members will be entitled to back-payments plus

interest. The Trustee has set up a programme of work alongside the GMP equalisation project to

amend administration practices to comply with anti-franking. From an initial review by the Trustee,

it is not believed that the back-payment liability will be material to the Fund and therefore no

provision has been made in these financial statements. The additional liability from anti-franking

will be considered further as part of the 2020 actuarial valuation.

32. NWM and RBSI Sections

Fund Account

NatWest Markets Section

RBS International

Section

NWM and RBSI

Sections Total

NWM and RBSI

Sections Total

2020 2020 2020 2019 £m £m £m £m Contributions and benefits Employer contributions 7.2 2.1 9.3 64.4 Employee contributions 0.7 0.1 0.8 1.1 -------------- -------------- ------------------- -------------------

Total contributions 7.9 2.2 10.1 65.5 -------------- -------------- ------------------- -------------------

Benefits paid or payable (0.7) – (0.7) (0.6) Payments to and on account of leavers (7.9) (6.3) (14.2) (6.3) Administrative expenses (0.3) (0.1) (0.4) (0.4) -------------- -------------- ------------------- -------------------

(8.9) (6.4) (15.3) (7.3) -------------- -------------- ------------------- -------------------

Net withdrawals from dealings with members

(1.0) (4.2) (5.2) 58.2

Returns on investments Investment income 0.8 0.1 0.9 0.3 Change in market value of investments 39.8 12.5 52.3 36.6 Investment management expenses (0.7) (0.3) (1.0) – ------------------- ------------------- ------------------- -------------------

Net return on investments 39.9 12.3 52.2 36.9 ------------------- ------------------- ------------------- -------------------

Net increase in the Fund during the year

38.9 8.1 47.0 95.1

Transfers between sections (23.4) 3.6 (19.8) (2.9)

Net assets of the Fund At 1 January 289.6 82.3 371.9 279.7 ----------------------- ------------------- ----------------------- -----------------------

At 31 December 305.1 94.0 399.1 371.9 ======================= =================== ======================= =======================


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Statement of Net Assets

NatWest Markets Section

RBS International

Section

NWM and RBSI

Sections Total

NWM and RBSI

Sections Total

2020 2020 2020 2019 £m £m £m £m Investment assets Bonds 136.0 - 136.0 - Pooled investment vehicles 155.7 91.2 246.9 347.8 Cash instruments 17.6 3.8 21.4 16.3 Cash (2.4) - (2.4) - Other investment balances 0.2 - 0.2 - Derivatives 3.2 - 3.2 - APeCs and AVC investments 7.6 0.3 7.9 8.0 ----------------------- ------------------ ----------------------- -----------------------

Total net investments 317.9 95.3 413.2 372.1

Current assets 2.0 1.3 3.3 3.9

Current liabilities (14.8) (2.6) (17.4) (4.1)

----------------------- ------------------ ----------------------- -----------------------

Net assets of the Fund at 31 December

305.1 94.0 399.1 371.9

======================= ================== ======================= =======================

33. Subsequent events

The Main Section is entitled to additional contributions of up to £1.5 billion based on the Fund

receiving an amount equal to any shareholder distributions, such as dividends, subject to a cap

of £500 million in any one year. On 19 March 2021 the Bank announced that it had completed an

off-market purchase of shares from Her Majesty's Treasury, referred to as a “directed share

buyback”. The directed share buyback triggered a £500 million payment to the Main Section. This

payment will be completed by the end of March, reducing the amount outstanding under the

agreement from £1.5 billion to £1.0 billion. The Bank has also announced plans to recommence

paying dividends to shareholders in 2021 but these will not trigger additional payments to the

Main Section in 2021 on the basis that the Main Section will have already received payments up

to the £500 million annual cap in the year.

NATWEST GROUP PENSION FUND – YEAR ENDED 31 DECEMBER 2020 MANAGEMENT AND ADVISORS

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Appendix 1 – Management and Advisors Principal Employer National Westminster Bank plc ("the Bank")

Corporate Trustee NatWest Pension Trustee Limited 250 Bishopsgate, London, England, EC2M 4AA Company registration number 2726164

Administrator Towers Watson Limited (trading as Willis Towers Watson) who can be contacted at:

NatWest Group Pension Fund PO Box 545 Redhill RH1 1YX

email: [email protected]

Fund Actuary David Eteen FIA Aon Solutions UK Limited Independent Auditor Deloitte LLP

Legal Adviser CMS Cameron McKenna Nabarro Olswang LLP

Consultants Investment RBS Investment Executive Limited ("RIEL") Aon

Tax Deloitte LLP

Employer Covenant Penfida Limited

Voting and Engagement Hermes Equity Ownership Services Ltd

mailto:[email protected]


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Investment Managers Listed below are all the organisations who acted as an investment manager for part or all of the year covered by this Annual Report. Further details regarding the investment strategy are included in the Investment Report.

Main Section

AA Section NWM Section

RBSI Section

Quoted equity

Coronation Investment Management International (Pty) Limited

Global Thematic Partners LLC

Legal & General Assurance (Pensions Management) Limited

Pzena Investment Management LLC

Sustainable Growth Advisers LP

Private equity

Hermes GPE LLP

JP Morgan Chase and Co

Navis Capital Partners

Pathway Capital Management LLC

SL Capital Partners LLP

Alternative equity

Foresight Group LLP

MFS International (UK) Limited

New Forests Asset Management Pty Limited

Tufton Oceanic Limited

Vantage Infrastructure (UK) Limited

Credit

Aberdeen Standard Investment Life and Pensions Limited

AXA Real Estate Investment Managers SGP

Bain Capital, LP

Bybrook Capital LLP

Gramercy Funds Management LLC

Leadenhall Capital Partners LLP


Man Global Private Markets (UK) Limited

M&G Investment Management Limited

PGIM Fixed Income

PIMCO Europe Limited

Vantage Infrastructure (UK) Limited

Property

Brockton Capital Fund II LP

LaSalle Investment Management

Lothbury Investment Management Limited

Man Global Private Markets (UK) Limited

Orion Capital Managers LP

Partners Group Management

Principal Real Estate Limited

Standard Life Investment Limited

Insurance

Brickell Key Asset Management Limited


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Leadenhall Capital Partners LLP

Nephila Capital Limited

Cash & Hedging Assets


Investment Custodian Bank of New York Mellon

AVC Providers Listed below are all the organisations who acted as AVC providers during the year:

Aviva Insurance Limited Clerical Medical Investment Group Limited The Prudential Assurance Company Limited Standard Life Assurance Limited Scottish Widows’ Fund and Life Assurance Society Utmost Life and Pensions Limited

APeCs Provider Fidelity Investments Life Assurance Limited (investment platform provider & administered by Willis Towers Watson)

Derivatives Clearing Brokers J.P. Morgan Securities plc HSBC Bank plc

Banker National Westminster Bank plc

NATWEST GROUP PENSION FUND – YEAR ENDED 31 DECEMBER 2020 ACTUARIAL CERTIFICATION OF THE SCHEDULE OF CONTRIBUTIONS

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Appendix 2 – Actuarial Certification of the Schedule of Contributions


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