Investment Guide - Sept 2013
Transcript of Investment Guide - Sept 2013
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Investment GuideFrom September 2013
Further inormation:
www.gmgpensions.co.uk
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This guide gives you detailed
inormation about the
investment o your Liestyle
account and is aimed at
helping you get the mostrom your membership o the
company pension plan. It is
important that you understand
how the Liestyle Plan works
and the choices open to you,
so that you can make inormed
decisions about your uture
and play an active part in
saving or your retirement.
We have tried to explain the
issues as clearly as possible
keeping the use o technical
jargon to a minimum. The
glossary, at the back o thisguide, should also help your
understanding.
I you have any questions
about the Liestyle Plan please
do not hesitate to contact the
Pensions Department see
back page or details.
John Woodman
Pensions Manager
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SummaryYour Liestyle account
Your contributions, together with the
companys contributions and anything youtranser in, will all be allocated to your
individual Liestyle account. You will receive
a benet statement each year showing
details o your individual account. The
statement will show the value o the
contributions you and the company have
made during the year and will also give
details o the way your account is invested.
At retirement, your accumulated account is
available or you to choose your LiestylePlan benets.
Your investment choices
You have a choice over how to invest your
own Liestyle account. You can spread your
investment amongst the available unds in
whatever way you choose.
However, i you dont eel comortablemanaging your own investments, there is an
automatic, deault, arrangement. The
deault strategy has been designed to
provide a careully worked out investment
strategy that can be suitable or many
members through their careers. However,
there could be a number o reasons why you
might want to override the automatic
arrangements and make your own
investment choices, perhaps ater seeking
independent nancial advice.
It is important to understand that in amoney purchase arrangement such as the
Liestyle Plan it is the responsibility o
members to ensure that the unds in which
they are invested are best suited to their
individual requirements. Whilst over the
long-term the expectation remains that
unds with high equity content (investment
in companies on the stock market) will
provide a higher return than unds investedin bonds or cash, albeit with higher volatility,
this cannot be guaranteed.
The role o the Trustees
The role o the Trustees is to provide an
appropriate range o unds or members and
to review the investment strategies o the
various unds rom time to time, but it should
be stressed this does not include the Trusteestrying to orecast investment market
movements.
The investment strategy aims to reduce
some volatility by investing in index
tracking unds. This simply means that the
investments are made in a broad range o
shares or bonds in such a way that the return
should be virtually identical to the overall
return o the relevant index. You should
remember though that investments in
equities, corporate bonds and government
stocks can all go up and down as a result omarket movements generally. The Trustees
have appointed Legal and General
Investment Management Limited to carry
out the index tracking strategy.
The Trustees investment strategy is set out
in their Statement o Investment Principles,
which is available on our website
www.gmgpensions.co.uk or rom the
Pensions Department (see back page orcontact details).
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I you dont eelcomortablemanaging your
own investments,there is anautomatic,deaultarrangement.
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Choosing yourown undsYou can speciy how you want yourLiestyle account to be invested, split
between the nine available unds.
More detailed inormation on each und iscontained later in this guide. The tableopposite has been designed to help youassess the risk and reward you couldexpect rom each und. A risk/rewardrating o 1 represents the lowest riskand 4 represents the highest risk interms o volatility in the capital valueo your liestyle account.
I you want, you can speciy dierent mixesor a) your existing und and b) uturecontributions.
You should monitor the relativeinvestment returns and make urtherchanges as required. Adjustments to yourinvestments will take place on the nextavailable dealing day ater receipt oyour instructions. This normally occurs ona Wednesday o each week and on the
last working day o every month but thereare exceptions so you should check on ourwebsite www.gmgpensions.co.ukor withthe Pensions Department i you requireexact details.
Fund What it is Risk/Reward
Long TermFund
Mainly invested in a wide spread o company shares both in the UK and abroad,together with a smaller amount in corporate bonds and gilts. The capital value o yourpension account is not protected here, so this option would tend to be used when youare a number o years away rom retirement or as part o your overall investmentstrategy.
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Short Term Fund(Bonds)
All company bonds. The returns received on bonds tend to be in line with prevailinginterest rates which, in turn, aect the cost o annuities (pensions). Bonds thereoretend to be used more in the run up to retirement to keep the capital value o yourinvestments in line with the cost o your pension.
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Short Term Fund(Cash)
The objective o this und is to preserve the capital value o your Liestyle acount byinvesting in a well diversied range o investments, with a good geographicalspread. This is probably not a suitable long term option as your investment heremay not keep pace with infation or the cost o buying an annuity at retirement.
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UK Equity FundUK company shares only, based on the FTSE All Share (5% Capped) Index. As withthe Long Term Fund, this und looks to get good returns over a long period o timeand has a wide spread o assets.
3.5
Overseas EquityFund
A wide spread o company shares in Europe, North America, Japan, Pacic Basinand Emerging Markets. Again, long term and could be used as part o a mixedstrategy to get your investments to beat infation. To reduce the currency risk, 50%o these overseas shares have been hedged.
3.5
Ethical GlobalEquity Fund
This und invests in a wide spread o global company shares, tracking a speciallyconstructed index which has been designed to take account o ethical, social andenvironmental principles.
3.5
Corporate BondFund
Invests in bonds issued by companies . Bonds are considered a low risk option whichwill help your pension und keep its value in terms o what it will buy. However,prices do go down as well as up.
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UK GovernmentStocks Fund
Invests in bonds issued by the UK government. Oten considered the most secureoption, these are also known as gilts. 1.5
UK GovernmentIndex-LinkedStocks Fund
Invests in bonds issued by the UK government which give a return that keeps in linewith infation. 1.5
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Automatic(deault)investmentstrategyI you dont eel comortable managing your
own investments and speciying your own mix o
unds, then your Liestyle account will be invested
in accordance with the deault strategy. Under this
arrangement, your account is normally invested
in the Long Term Fund, which is currently invested
in a mixture o Equities and Bonds. The value o
these investments can be volatile rom time to
time and can sometimes suer sharp setbacks in
times o economic or political diculty. Despite
this volatility and the absence o guarantees,
these types o investments are nevertheless
generally considered appropriate or long term
growth.
The Trustees note about Extreme Market
Volatility on our website (www.gmgpensions.co.uk)
has important reminders about the long-term
nature o saving or retirement and the protection
built into the Liestyle Plans deault strategy.
As you approach retirement, it is usually helpul
to try to reduce volatility by switching your
Liestyle Account into the Short Term Fund which
is currently invested in Bonds and Cash. WhilstBonds can fuctuate, they tend to move in line with
interest rates generally thus giving some stability
to the pension which you can purchase with your
accumulated account. However, Bonds cannot
protect against changes in other actors which
insurance companies use to determine annuity
rates such as mortality trends.
As you approachretirement, it is usuallyhelpul to try to reduce
volatility by switching
your Liestyle accountinto the Short Term
Fund
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Years to TRD
Proportion oyour liestyle
account in theLong Term Fund
10 90%
9 80%
8 70%
7 60%
6 50%
5 40%
4 30%
3 20%
2 10%
1 0%
Automaticswitching -deault strategyThe Liestyle Plan will normally automatically
switch 10% o your accumulated account in each
o the ten years beore your Target Retirement
Date (TRD) rom the Long Term Fund to the Short
Term Fund (in practice the rst switch is 10% then,
each year, our quarterly switches o 2.5%). Thus,
during the last year the whole o your account will
be in the Short Term Fund. For some members, the
switching period is 5,6,7,8 or 9 years dependent on
how ar away rom TRD they were at 1st April 2003.
Assuming a ten year switching period, the table
opposite shows the proportion o your account that
will remain in the Long Term Fund at given periods
beore TRD. The remainder o your account will be
invested in the Short Term Fund. See overlea or
more details about the switching arrangements
and the choices you have in setting your TRD.
The deault strategy has been designed to provide
a careully worked out investment stategy that
could be suitable or many members throughout
their careers. However, there could be a number
o reasons why you might want to override
the automatic arrangements and make your
own investment choices, perhaps ater seeking
independent nancial advice.
You should bear in mind that the automatic
switching arrangements into the Short Term
Fund may not be suitable i, or example, you are
intending to choose a non-conventional annuity or
income drawdown arrangement (see the brochure
Your Pension Your Choice or more inormation
regarding these choices at retirement).
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Liestyle Investment Switching Over 10 Years to Retirement
Percentage
ofYourFund
Years to Target Retirement Date
0%11 10 9 8 7 6 5 4 3 2 1 0
50%
25%
75%
100%
KeyShort TermFund (Cash)
Short TermFund (bonds)
Long TermFund
Choose yourown TargetRetirement
Date (TRD)It is important to set your own TRD at the
date you think you are most likely to take
your retirement benets.
TRD is automatically set to age 65 but or
the purpose o the automatic switching you
can set your own TRD to any age between
50 and 75. (Switching will take place overthe 10 year period up to your chosen TRD.)
You can change your TRD at any time.
Remember that i you joined the Plan ater
5th April 2006, you can only take your
benets rom 55 onwards.
I you change your TRD (orm available
on the website) the adjustment to your
investments will take place on the next
available dealing day. This oten occurs
on a Wednesday o each week and on the
last working day o every month but there
are exceptions so you should check on our
website www.gmgpensions.co.uk or ask
the Pensions Department i you require
exact details.
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Focus on thethree undsused in the
deault strategyThe Long Term Fund
The distribution o the Long Term Fund will
vary rom time to time but the ollowing gives
a broad indication o its structure. Up to date
details can be obtained rom the Pensions
Department.
The value o equities can be volatile rom
time to time and can sometimes suer sharp
set backs in times o economic or political
diculty. Despite this volatility and the absence
o guarantees, equities are nevertheless
generally considered to provide an appropriate
investment class or long term growth.
Returns rom overseas equities come through in
dierent currencies, which mean that changesin exchange rates aect the returns in pounds
sterling. 50% o this currency risk has been
taken out (hedged) to reduce the volatility o
this und.
In a low and stable infation environment,
investment in bonds can be expected to
produce reasonable returns above infation.
The market or corporate bonds has expanded
signicantly over the past ew years and such
bonds oer a higher return than government
bonds, albeit with a slightly higher degree o
risk. In the light o volatility o equity markets,
an element o high quality corporate bonds
and government bonds are included in the
Long Term Fund aiming to reduce volatility.
The Short Term Fund (Bonds)
AAA Corporate Bonds
(Over 15 Years)50%
6A Corporate Bonds
(Over 15 Years)50%
The objective o the Short Term Fund is to
reduce volatility as you approach retirement.
Whilst corporate bonds can fuctuate, they
tend to move in line with interest rates
generally thus giving some stability to the
pension which you can purchase with your
accumulated account. However, bonds
cannot protect against changes in other
actors which insurance companies use to
determine annuity rates such as mortality
trends. You should also bear in mind that the
Short Term Fund might not be appropriate
i you intend to choose a non-conventional
annuity or income drawdown arrangement
(see the brochure Your Pension Your Choice
or more inormation regarding these choices
at retirement).
The Short Term Fund (Cash)
This und aims to preserve the capital value
o your Liestyle account by investing in a well
diversied range o investments with a good
geographical spread. Types o investment
include certicates o deposit, commercial
paper, foating rate notes, medium term
notes, government bonds, corporate bondsand cash deposits. (See Glossary).
UK Equities Circa 14%
Overseas Equities:North AmericaEurope (excluding UK)JapanAsia Pacifc (excluding Japan)Emerging Market
Circa 56%
TOTAL EQUITIES 70%
Coporate Bonds 20%
Fixed Interest Gilts 5%
Index-Linked Gilts 5%
TOTAL BONDS 30%
GRAND TOTAL 100%
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Monitoring undperormanceEvery week, the unit prices or each o the unds are
updated on our website www.gmgpensions.co.ukYou can ask the Pensions Department or an
update on your individual Liestyle account at any
time.
The trustees employ independent advisers to
monitor the unds investment returns. Each
summer a detailed investment bulletin is produced
giving details o the investment perormance or
each o the unds.
Financial adviceFor urther general pensions and nancial advice
you may want to consider getting your nancial
aairs reviewed by an Independent Financial
Adviser (IFA) who would be able to advise on your
pension situation as well as other aspects o your
personal nances. You can nd a local IFA via the
website www.unbiased.com
Changing yourmix oinvestmentsAdjustments can be made by completing the
relevant Investment Choices orm available rom
our website www.gmgpensions.co.uk or rom the
Pensions Department. Details o the orthcoming
weekly dealing dates are shown on the website.
You need to get your signed orm to the Pensions
Department by no later than 3.00 pm, two days
beore the dealing date.
e.g. or a Wednesday dealing date the deadline is3.00 pm on the Monday.
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Long TermFund
The UK equity element aims to track the FTSE All-Share Capped 5% Index. Each o the overseas equityelements aim to track the appropriate FTSE World Index. The 6A corporate bond element aims to trackthe iBoxx Non-Gilts (ex BBB) All Stocks Index. The xed interest gilts aim to track the FTSE All Stocks Giltsindex. The index-linked gilts aim to track the FTSE All Stocks Index-Linked Gilts index.
Short Term Fund(Bonds)
The AAA corporate bonds element aims to track the iBoxx AAA Fixed Interest Over 15 Year Index and the6A corporate bonds element aims to track the iBoxx Non-Gilts (ex BBB) Over 15 Year Index.
Short Term Fund(Cash)
This und aims to preserve the capital value o your liestyle account by investing in a diversied rangeo investments, with good geographical spread.
UK Equity FundThis und invests solely in UK equities, with the aim o tracking the perormance o the FTSE All-ShareCapped 5% Index. This und orms the underlying UK equity element o the Long Term Fund.
OverseasEquity Fund
This und invests in various overseas markets , aiming to track the appropriate FTSE World Index in eachregion. The distribution o the und will vary rom time to time but the ollowing gives a broad indicationo its structure. Up to date details can be obtained rom the Pensions Department. North America 44% Europe (excluding UK) 25% Japan 9.5% Asia Pacic (excluding Japan) 9.5% Emerging Markets 12%The returns rom these overseas equities come through in dierent currencies, which means that changesin exchange rates aect the returns in pounds sterling. 50% o this currency risk has been taken out(hedged) to reduce the volatility o this und.
This und orms the underlying overseas equity element o the Long Term Fund.
Ethical GlobalEquity Fund
This und aims to track a specially constructed index, the FTSE4 Good Global Index, which has beendesigned or investors who wish to take account o ethical, environmental, social and governance actors.Further background on the und can be obtained rom the Pensions Department.
Corporate BondFund This und invests in 6A corporate bonds, with the aim o tracking the iBoxx Non-Gilts (ex BBB) All StocksIndex. This und orms the corporate bond element o the Long Term Fund.
UK GovernmentStocks Fund
This is a und invested in government stocks which aims to track the perormance o the FTSE All StocksGilt Index.
UK GovernmentIndex-LinkedStocks Fund
This und invests in index-linked government stocks, with the aim o tracking the perormance o the FTSEAll Stocks Index-Linked Gilt Index.
Available undsThe ollowing table gives more technical details on each und.
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regions (eg Europe, North America, etc)
reers to the stock market grouping or the
particular pooled und.
Floating Rate Note (FRN)Also known as a foater. A note with a
variable interest rate. The adjustments to theinterest rate can be made on a 1, 3, 6 month
or 1 year basis and are tied to a certain
money-market index.
FTSE All Share IndexThe All Share Index is generally regarded as
the most representative index o the overall UK
stock market. The index currently comprises
over 700 UK companies and represents over95% o the value o the stock market.
FTSE All Share (5% Capped)IndexAs above, but no more than 5% o the Index is
invested in any one company. The Liestyle
Plan uses this index or its UK Equities to
reduce the risk o having too much money
invested in one or more o the very largecompanies on the stock market.
Government Bonds or StocksSometimes called Gilts. These are securities
issued by the UK government and thereore
GlossaryThis glossary aims to provide a relatively
straightorward explanation o some o the
technical expressions used in this Investment
Guide.
The exact interpretation o words used is
always subject to the denitions used in the
Trust Deed and Rules o the Liestyle Plan.
Certifcate o Deposit (CD)A tradable savings certicate entitling the
bearer to receive interest by way o a discount
at purchase or with a coupon. A CD bears a
maturity date, a specied xed interest rateand can be issued in any denomination. CDs
are only issued by nancial institutions (FI) and
range rom one month to one year.
Commercial Paper (CP)Generally an unsecured, short-term debt
instrument issued by a corporation, typically
or the nancing o accounts receivable,
inventories and meeting short-term liabilities.
CP can also be issued as asset backedsecurities. Maturities on CP rarely range any
longer than 270 days. The debt is issued at a
discount, refecting prevailing market interest
rates. CPs are similar to CDs but can be issued
by corporate or Financial Institutions.
Corporate BondsThese are similar to government bonds, but
they are issued by non government agencies
and companies. Interest is paid at a xed rate
over the term o the bond and the capital is
repaid at the end o the term. Corporate bonds
are rated by independent organisationsaccording to their ability to be able to pay the
interest payments and the capital at the end
o the term. Investment grade bonds are those
rated AAA, AA, A and BBB, with the highest
rating AAA, ollowed by AA, A and BBB.
Corporate bonds rated below this are known
as sub investment grade, high yield or junk
bonds.
The Liestyle Plan unds only invest ininvestment grade bonds rated AAA, AA
and A.
EquitiesOrdinary shares in companies ie stock market
investments. In the context o the Liestyle
Plan we usually mean investment in a pooled
und which comprises shares in a wide range
o companies rather than shares in just onecompany. UK equities reers to pooled unds
investing in companies quoted on the London
Stock Exchange although most o these
companies do have trading operations all over
the world. Similarly each o the overseas
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the interest payments and the capital repaid
at the end o the term are guaranteed and
can be regarded as absolutely secure.
iBoxx IndexThis is a specially constructed index designed
to provide a reliable benchmark or indextracking o corporate bond investments.
Index TrackingThis is the term given to an investment
approach that is designed to specically track
the perormance o a market index.
Liestyle Account
We allocate all your contributions and theCompanys contributions or you into your
Liestyle account which is then invested. Your
Liestyle account is thereore part o the overall
unds o the Liestyle Plan, but we keep track o
the contributions and changes in value or
each member separately.
Long Term Fund
This is part o the Liestyle Plans unds. It isour own in-house description or the und
which is designed to meet the needs o a
typical member during the majority o his or
her career. It will be invested in the types o
investments which suit this objective.
Medium Term Notes (MTN)A corporate note continuously oered by a
company to investors through a dealer.
Investors can choose rom diering maturities,
ranging rom nine months to our years.
Money Purchase PensionSchemeThe Liestyle Plan is sometimes reerred to as a
Money Purchase pension scheme or a
Dened Contribution pension scheme. This
means that contributions made by you and
the company are invested until you are ready
to draw your benets. The benets at
retirement may be partly in the orm o a lump
sum and the balance o your accumulatedaccount is then normally used to buy an
annuity with an insurance company. There are
a variety o choices available to you at
retirement see Liestyle brochure Your
Pension Your Choice or more inormation.
Mortality TrendsWhen insurance companies calculate how
much pension (annuity) they will give inexchange or a sum o money (e.g. your
Liestyle account), they need to estimate the
length o time that they will have to pay the
pension, i.e. how long you will live. Mortality
trends are used by insurance companies to
help estimate how long people are likely to live
in retirement.
SwitchingIn our deault arrangement, the investments
in your Liestyle account are normally
automatically moved rom the Long TermFund into the Short Term Fund as you
approach retirement to gradually reduce
volatility. For many members this is the most
suitable arrangement and it is thereore a
vitally important eature o the Liestyle Plan.
This is oten reerred to as liestyle switching
and is refected in the name o our company
pension plan!
Target Retirement Date(TRD)This is the date you set or yoursel to control
the timing o the switching o your Liestyle
account rom the Long Term Fund into the
Short Term Fund. It does not mean you must
retire at TRD. It is simply the way in which you
can have personal control over your Liestyle
account in the years leading up to your
expected retirement. You can change yourTRD at any time to refect the best estimate o
when you think you may draw your benets.
(The deault TRD is age 65).
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Helpul Websiteswww.unbiased.co.uk Contains listings o local independent nancial
advisers plus a large amount o savings
inormation
www.moneyadviceservice.org.ukJargon ree guidance on a wide range o topics
rom the Money Advice Service in partnership with
Government.
www.learnaboutmoney.org A nancial education site sponsored by the
pre-Retirement Association in association with a
number o blue chip companies
www.theguardian.com/uk/money A constantly updated site with news and
inormation on personal nance
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Note: This guide is
designed to explain the
main aspects o the
investment arrangements
o the Liestyle Plan. All
aspects o the Plan are
subject to the provisionso the Trust Deed and
Rules.
Contact DetailsFor urther inormation
about the Liestyle
Plan, please contact thePensions Department.
See overlea or details.
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The Pensions DepartmentGuardian Media Group plcCenturion House, 129 Deansgate,Manchester M3 3WR
Tel: + 44 (0)20 3353 2000Fax: + 44 (0)20 3353 3125
Email: [email protected]