The Trustee works closely with its independent advisers, Willis Towers Watson, to provide members with an appropriate range of investment options. This includes a selection of individual funds (your 'freestyle' options) and three investment strategies that automatically change the way your contributions are invested as you approach Normal Pension Date (your 'lifestyle' options).
You can invest in any combination of freestyle funds or you can invest in one of the lifestyle options. You cannot do both. You can however change ("switch") between freestyle and lifestyle.
You pay the investment management costs for your Account. These will be deducted automatically. The costs will vary depending on the type of investment management and the fund(s) you choose to invest in. Currently all the Plan's funds are made available through the LGIM investment platform and are managed either by other companies in the Legal & General group (LGIM) or by other companies Legal & General have agreements with.
Currently the freestyle funds under the Plan and their Annual Management Charges (AMC) or Total Expenses Ratio (TER) are as follows:
Global Equity Fund - 0.075% per annum (TER)
UK Equity Fund - 0.0525% per annum (TER)
Emerging Markets Equity fund - 0.75% per annum (AMC)
Ethical Fund - 0.30% per annum (TER)
Diversified Growth Fund - 0.24% per annum (AMC)
Property Fund - 0.75% per annum (AMC)
Annuity Fund - 0.07% per annum (TER)
Gilts Fund - 0.04% per annum (TER)
Cash Fund - 0.05% per annum (TER)
The AMC is the published headline management charge to investors however there are also additional audit and custodian costs and these are included (when available) in the TER quoted above. Where an AMC and TER is shown there will be additional costs for managing the assets but the industry currently does not provide full disclosure of all the costs, some of which are based on how frequently the funds trade. The Trustee has asked LGIM to provide full disclosures in line with the recommendations made to the Financial Conduct Authority (FCA) by Novarca and in line with the voluntary code for dislcosure issued by the Investment Association. When these details are available the Trustee will update the site accordingly.
LGIM have provided estimates of the potential transaction costs incurred through price movements ("spreads") on trading. Costs may be incurred separately on buying (offer to mid spreads) and selling (bid to mid spreads) and these are shown below for each fund:
Global Equity Fund - 0.27%/0.11%
UK Equity Fund - 0.64%/0.14%
Emerging Markets Equity Fund - 0.3% (potential anti-dilution levy as single priced fund)
Ethical Fund - 0.11%/0.05%
Diversified Growth Fund - 0.26%/0.14%
Property Fund - 3.85%/3.85%
Annuity Fund - 0.39%/0.41%
Gilts Fund - 0.07%/0.07%
Cash Fund - nil
With the exception of the Cash Fund, Emerging Markets Equity Fund, and Property Fund, all the funds are passively managed. That is the investment manager(s) aims to track the return on the respective indices (net of fees). The Diversified Growth Fund is slightly different as it has a passive implementation approach with dynamic asset allocation decisions.
Details of each fund's benchmark are set out in the Plan's Investment Guide and the Fund Fact sheets which are available on request from the Plan Administrator.
A copy of the Plan's Statement of Investment Principles is also available on request from the Plan administrators.
All charges quoted are sourced from LGIM.
The Plan currently provides three Lifestyle options. These are investment strategies that automatically change the way your contributions are invested as you approach your Normal Pension Date (currently age 65 under the Plan).
Each Lifestyle option aims to use different kinds of investment in a sensible way at different stages of your working life depending on how you think you will take your benefits from the Plan and/or your attitude to risk. The lifestyle options are intended to be a sensible choice for most members. However, different people have different investment objectives and plans over when and how to take their benefits, so the lifestyle options may not be suitable for everyone. In particular, all the lifestyle options are based on members taking their benefits under the Plan at Normal Pension Date (age 65 under the Plan rules). Members should consider whether one of the 'freestyle' options would be more appropriate for their circumstances.
The "default fund" for the Plan, where members do not make any active choice of fund(s), is "Lifestyle to Annuity".
Your Lifestyle options -
"Lifestyle to Lump Sum" is for members who think they will want to take their pension savings as cash.
From the early to middle part of your working life your Account will be invested in the Diversified Growth Fund. In the three years before Normal Pension Date, three-quarters of your Account will be moved into the Cash Fund.
"Lifestyle to Lump Sum" has the lowest risk profile of the three lifestyle options, becasue your Account is invested through your working life in the Diversified Growth Fund. The Diversified Growth Fund invests in lots of different things, such as property, infrastructure, equities, commodities and other assets or financial instruments. The aim is that it will not be as volatile as a fund that invests purely in equities - in other words, it should not go up and down in value as much and as frequently as an equity fund might. However, this cannot be guaranteed. It also probably won't grow by as much as equities over the long term (more than 20 years).
In the three years before Normal Pension Date, three-quarters of your Account will switch into the Cash Fund. Cash investments shouldn't go down in value (although this is not guaranteed) but they won't grow by much either.
If you have a large amount in your Account then you will probably want consider whether this lifestyle approach is the right one for you, because the larger the lump sum, the larger the amount of tax you will have to pay when you withdraw your savings from the Plan. You also need to consider the risk of running out of money in later life.
"Lifestyle to Annuity" is for members who think they will want to use all or part of their pension savings to buy an annuity.
For the early to middle part of your working life, your Account will be invested in the Diversified Growth Fund and the Global Equity Fund (with a blended AMC of 0.1575% per annum). Ten years before your Normal Pension Date, your Account will gradually start to switch into the Annuity Fund, and in the final three years, a quarter of it will also move into the Cash Fund. "Lifestyle to Annuity" is designed to be a relatively medium risk option.
When you reach Normal Pension Date, 25% will be invested in the Cash Fund (as we expect that you will want to take your tax-free lump sum under the current tax regulations).The balance will be in the Annuity Fund (56.25%) and the Diversified Growth Fund (18.75%) with a final blended AMC of 0.09688% per annum . The Annuity Fund aims to track the cost of buying a level annuity (with no increases in payment) and the Diversified Growth Fund aims to continue to give some exposure to growth assets.
"Lifestyle to Annuity" assumes that you will take up to the first 25% of your Account as a tax-free cash sum and use the remaining balance to buy a level annuity from an insurance company. The insurance company would normally pay you a guaranteed income for the rest of your life, which would be taxed as income under the PAYE arrangements.
"Lifestyle to Drawdown" is for members who think they will want to transfer their savings out of the Plan and keep their pension savings invested under a "drawdown" arrangement.
For most of your working life, your Account will be invested in the Global Equity Fund. Ten years before your Normal Pension Date, some of your equity investments will gradually be switched into the Diversified Growth Fund, and in the final three years, a quarter of your Account will be moved into the Cash Fund.
"Lifestyle to Drawdown" is potentially the highest risk lifestyle option becasuse your Account is invested in equities right up to your Normal Pension Date. By the time you retire, 37.5% will be in the Diversified Growth Fund, 25% will be in the Cash Fund, and 37.5% will still be invested in the Global Equity Fund with a final blended AMC of 0.1307% per annum. This means that your Account may not be fully protected against sudden stock market falls.
However, if you are planning to enter into drawdown, it is likely that you would keep your savings invested (after transferring out of the Plan) and gradually draw an income from those savings. We expect that you will want to retain an exposure to equities, as equities are expected to increase over the long term (more than 20 years) more than the cost of living, although there is no guarantee that this will happen.
Further information is set out in the Plan's current investment guide.
Lifestyle - "Health Warning"
Lifestyle assumes that members will take their benefits at Normal Pension Date (65) and switches into the final mix of funds at that age. If you do not take your benefiits at age 65 the final mix of funds will remain in place unless you advise the Plan administrator to switch your funds into a freestyle fund(s) or another Lifestyle strategy.
The pre-planned switches under the lifestyle strategies will take place regardless of market movements i.e they are automated switches and do not consider relative valuations of asset classes e.g. equities compared to bonds, or trading conditions.
The lifestyle options will not necessarily produce higher investment returns than other investment options, and they may not be suitable for everyone. The Trustee will continue to monitor the lifestyle options and may change their constitution from time to time.
If you decide to change ("switch") your investment choices, the Plan administrator, JLT, will action your request as soon as possible after receiving them and normally within 5 working days of your request. The switch will then be placed in accordance with your instructions. Some transaction costs may be incurred and these will depend upon the unit prices at the date of the transaction. Further information is available on request.
Please contact the Plan administrator for a copy of the changing investments form.
Similarly, if you give notice that you want to withdraw your savings, the Plan administrator, JLT, will disinvest your funds and pay these into the Trustee bank account before they are paid to you or your new provider. Again, as a result of this process there may be transaction costs incurred. Further information is available on request.
In the short period before either your savings under the Plan are paid or transferred your fund will be "out of market". This means that if the markets fall (or rise) this will have no effect on the value of your fund. The administrators make every effort to minimise the period funds are held "out of market" but this can depend upon third parties and the right documentation being provided on time (due to HMRC requirements).
Security of Assets
The funds we offer for you to invest in are currently provided through an insurance policy with Legal & General Assurance (Pensions Management) Limited ("L&G"). The Plan doesn't invest in the assets directly, but L&G arranges this for us. In practice, the investment funds provided through L&G are managed either by another company in the L&G group or by other companies L&G have agreements with. This is a common way for UK pension schemes to invest and helps give you easy access to a range of investment funds.
The Trustee's policy with L&G is currently covered by the Financial Services Compensation Scheme ("FSCS"). The FSCS is a compensation fund of last resort for customers of financial services firms. In the unlikely event that L&G is unable to meet its financial obligations, the Trustee would be able to make a claim to the FSCS. The claim would be for 100% of the value of the policy with L&G, although the FSCS rules do not set out how they would value the policy in these circumstances (i.e. the FSCS might decide the value of the policy is not the same as the value of the assets in the investment funds under the policy). As an alternative, and in the first instance, we would also expect the industry regulator to find another insurer to take on the policy.
In addition, L&G has put in place arrangements within its own group of companies, and the other companies it has agreements with, which have the aim of minimising the risk that the assets of the underlying funds you are invested in might be used to meet other liabilities on insolvency. Also, the underlying investment funds are subject to their own financial regulation. The Trustee takes all these factors into account when deciding how to provide your investment choices, and keeps this under regular review. The Trustee is satisfied our current arrangements are in line with good market practice.
If you would like more information on the level of security for individual funds, please contact the Plan administrators.
Future Changes or Amendments
The Trustee takes advice from an independent investment consulting firm both over the suitability of the managers and funds on offer and keeps these under review. The Trustee may change a manager (or the funds on offer) and if this happens, existing Accounts may be transferred to the new manager's funds. You would be notified of any changes before your Account would be transferred to any new arrangement.
Please note that the value of your investments may fall in value as well as rise. There are no capital guarantees under any of the Plan's funds, including the Cash Fund.
Please note that due to
the relative illiquidity of Property funds the manager may restrict
withdrawals from the fund from time to time. Currently, AVIVA
operate a potential 12 month deferment on redemptions under the
fund, although they are still accepting new contributions (subject
to the same restriction on withdrawals). AVIVA have confirmed they
will aim to make immediate payments when members reach Normal
Pension Date and wish to take their benefits (or on a member's
death). All other redemptions will be placed in a 12 month queue
although redemptions may be made earlier where possible. AVIVA and
the Trustee are keeping this position under review.
Any queries should be addressed to the Plan
Control Version: 7 August 2018