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Private & Confidential

Nigel Aston09 November 2010

Driving Value in DC Default Funds

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Some context

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Some context

Read more: http://www.professionalpensions.com/professional-pensions/news/1811130/financial-services-trusted-hand-car-salesmen#ixzz13SyWeDlm

A lack of transparency and "difference between the advertised offer and the results of the service

rendered".

Investments, pensions and securities “trusted less than second-hand car salesmen”

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What do trustees ask?

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Research

2010 Sponsor Default Survey

2010 Provider Default Survey

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SOURCE: ProfileME TM PensionDCisions’ free on line risk profilerNote: High Risk, Medium Risk and Low Risk reflect the top 33%, middle 33% and bottom 33% of risk score, respectively, across those individuals that were profiled.

What do consumers want?

Low Risk Medium Risk High Risk

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What do consumers get?

SOURCE: PensionDCisions FT Provider Default Survey 2010

Average asset allocation consumed by schemes (FTSE PensionDCisions DC Growth Index)

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Recommendation vs. Consumption

SOURCE: PensionDCisions FT Provider Default Survey 2010Note: The increased diversification is despite three asset managers recommending 100% equity index trackers

Average asset allocation recommended by respondents (asset managers) and consumed by schemes (FTSE PensionDCisions DC Growth Index)

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Who does what?

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Who does what?

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Who does what?

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Who does what?

Source: PensionDCisions.Note: Investment consultants are defined as primary driver if the plan sponsor cited them as influential, unless the underlying investment strategy provides the asset manager with independence to take asset allocation decisions.

Respondents View of the Responsible Party for Asset Allocation

Drivers of Asset Allocation Decisions

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Is cheaper better?

SOURCE: PensionDCisions FT Provider Default Survey 2010

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Worst Performing Default Solution: -4.9%

Static Default Solutions: -3.2%

Dynamic Default Solutions: 1.0%

Best Performing Default Solution: 7.6%99

90

51

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Distribution of 3-year annualised return for CuBITTM consumers

Percentage of CuBITTM consumers whose return would have been improved by using the relevant solution

It’s about value, not about price

SOURCE: PensionDCisions FT Provider Default Survey 2010; Note: The Figure excludes those strategies with less than three years of performance data. Static includes balanced strategies.

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The big question

What’s everyone else doing?

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.

Transparency is needed

SOURCE: PensionDCisions CuBIT platformNote: * The Growth Stage includes only those active and deferred customers with more than 15 years to retirement and more than 3 years in scheme

EMPLOYER level: 3-Year Risk / Return as at March 2010 (Growth Stage)

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Return

Risk (Volatility)

n=158 employers, size of bubble indicates relative AUM of employer

Transparency is needed

-4%

-2%

0%

2%

4%

6%

10% 14% 18% 22%

Employer Average Total Book Average FTSE PensionDCisions DC Growth Index

FTSE 100 Index MSCI The World Index Free Employer A, B, C

SOURCE: PensionDCisions CuBIT platformNote: Return as at March 2010 (Growth Stage) includes only customers with >15 years to retirement and > 3 years in scheme.

Risk

3 Year Risk / Return as at March 2010 (Growth Stage)

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-4%

-2%

0%

2%

4%

6%

10% 14% 18% 22%

Employer Average Total Book Average FTSE PensionDCisions DC Growth Index

FTSE 100 Index MSCI The World Index Free Employer A, B, C

Risk (Volatility)

3 Year Risk / Return as at March 2010 (Growth Stage)

SOURCE: PensionDCisions CuBIT platformNote: Return as at March 2010 (Growth Stage) includes only customers with >15 years to retirement and > 3 years in scheme.

Risk

Transparency is needed

Return

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FTSE PensionDCisions DC Index Series

•Holds up a mirror

•Objective and transparent

•Risk adjusted return and lifecycle

•Yardstick for sponsors, trustees, consultants to calibrate asset allocation decisions

•Additive – doesn’t replace objective

•NEST

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FTSE PensionDCisions DC Index Series• DC plans with 250+ active members eligible.• Participation is free of charge and respondents receive:

– Analysis of the default strategies in place in large DC plans today.– The latest thinking from asset managers with respect to default

strategies.– Designated access to FTSE PensionDCisions DC Index Series data,

without charge. • The survey comprises six questions and takes less than 10 minutes to

complete• Deadline is 28 January 2011• Please contact

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In summary