Frequently Asked Questions

Transcription

1 Frequently Asked Questions Please note that all information, including figures and funds, described in this document were correct as at 22 January Please refer to the Interactive Investment Guide for full details relating to the new investment options and guidance on making your choices. For further useful information about the Scheme, your savings and your investment choices, as well as links to individual investment fund factsheets, please see the Scheme website. If you are unsure about your options, you may wish to consider taking independent financial advice. NEW PENSION FLEXIBILITIES AND TAX RULES 1. Am I able to take a cash lump sum at 55 but still remain in the scheme (and not retire until later)? No, it is not possible at the current time to take a cash lump sum and remain in the Scheme. This would effectively be electing flexible drawdown at 55 which the Scheme cannot provide (under current legislation). 2. If I transfer out to take the drawdown option am I able to take 25% tax-free cash and then drawdown at a later stage when my marginal rate of tax is lower? Yes, that is possible after you transfer out to a drawdown arrangement (subject to the options available from your chosen provider). 3. Is there more information about the impact of the Annual Allowance changes? Members were sent a newsletter setting out the changes in August 2015; please contact HR if you need a copy. The member workshop slides also contain a little more detail in an Appendix; the slides are available on the Westpac pension scheme website. HMRC provides an explanation of the Annual Allowance on its website ( though it spends a lot of time talking about what happens after you start drawing your benefits in drawdown which was not covered in the member workshop. There is an Annual Allowance charge calculator on HMRC s website although it states that it does not work if you are affected by the tapered Annual Allowance (i.e. a high earner). You will have to submit additional information on your Self-Assessment Tax Return if you are affected (there is an extra form to fill in if you submit a paper return). Capita, the scheme administrators, will let you know the relevant figures you will need if you are affected due to your contributions in the Scheme. If you are contributing to other pension arrangements then you will need to ask each arrangement for the figures for your contributions and collate the information yourself.

2 OVERSEAS PENSION HOLDINGS 4. I m building up pension in the UK, but may retire in Australia / New Zealand. How does this work in practice? If you draw a pension from a UK arrangement or policy, it is usually possible to have the pension paid into an overseas account (though you should check with your policy provider). You may be exposed to exchange rate risk as your benefits may be in GB pounds but your living expenses may be in Australian or New Zealand dollars. Taxation will depend on any taxation agreements between the two countries (as for any other overseas income). You are allowed to transfer your UK pension benefits (before retirement) to overseas pension schemes which conform to certain HMRC standards. If you transfer your pension benefits to one of these Qualifying, Recognised Overseas Pension Schemes (or QROPS ), the conversion will be one-off, which may be convenient from a tax and currency perspective. However, you would almost certainly need to seek advice from a specialist adviser at that time to be sure that you do not transfer to a scheme that does not qualify, as HMRC can levy very harsh charges on you (as well as the Westpac scheme) if it perceives an unauthorised payment has been made. At the present time, we understand that Australian superannuation schemes do NOT conform to the HMRC standards described above, due to a recent and unintended incompatibility between UK and Australian pension law. We understand that both governments are in dialogue to find a work around, so this may be resolved before you come to retirement. You should also be aware that it is very difficult to transfer pension benefits out of the UK after retirement (though payments can be made from a UK policy to overseas, as set out above). 5. I have a frozen pension in Australia, but I expect to retire in the UK. How does this work in practice? Generally speaking, transfers from Australia are not possible where the individual is an Australian resident/citizen (

3 CHANGES TO INVESTMENT OPTIONS 6. Why were members not consulted during the decision making process? Consulting directly with individual members is not a practical approach. You are represented by an elected board of Trustees. The Trustees have a fiduciary duty to act in members best interests and to receive professional advice. Your new investment choices are the result of a detailed review carried out over and are expected to contribute towards better outcomes at retirement. As part of their review, the Trustees, working with their professional advisers: Analysed aggregate membership data, including projecting-forward each DC account to assess expected outcomes at retirement; Discussed the likely investment needs and objectives for different representative groups within the membership; Carried out mathematical modelling work (net of fees) to compare the current default lifestyle strategy versus a number of possible alternative strategies, looking at both the return (DC account value) and risk (expected loss over a specified period) for each of the strategies; Examined the current range of self-select options and debated how to provide members with access to a broad range of high-quality options to meet their needs; Investigated possible providers, debating the pros and cons; and Completed a site visit at the chosen provider to confirm suitability. 7. Why did the Trustee choose Aon's Delegated Investment Service? The Trustees carried out a detailed strategy review and considered possible providers. Aon's Delegated Investment Service was selected as the best option because it: Unites Aon s DC and investment expertise; Provides DC fund design and construction; Offers members a more sophisticated and diverse investment approach; Provides fund manager selection and transition services; and Provides continuous monitoring, including to remove or replace underlying managers quickly if their performance falls short of expectations, and to adjust the underlying asset allocation to take advantage of changes in financial markets.

4 FUND FEES 8. What is the fee for investing in a Lifestyle strategy? The Annual Management Charge (AMC) and Total Expense Ratio (TER) for every new fund are set out in the Interactive Investment Guide. Page 38 of the Guide also includes a glossary to explain special terms such as AMC and TER in more detail. The TER for each fund is an all-inclusive fee which is deducted from the value of your savings. There are no additional fees. The fee you pay for Lifestyle is calculated based on the underlying funds you are invested in. So for example: If you choose the new Drawdown Lifestyle strategy and are more than 10 years from retirement you will be invested wholly in the Aon Managed Initial Growth Phase Fund which has an AMC of 0.26% and a TER of 0.31%. If you choose the new Drawdown Lifestyle strategy and are 5 years from retirement you will be invested as follows: Allocation Underlying fund AMC TER 45% Aon Managed Initial Growth Phase Fund 0.26% 0.31% 20% Aon Managed Progressive Growth Phase Fund 0.80% 0.88% 22% Aon Managed Bond Phase Fund 0.38% 0.41% 4% Aon Managed Short Term Inflation Linked Fund 0.20% 0.21% 9% Aon Managed Long Term Inflation Linked Fund 0.20% 0.21% 100% The AMC will be 0.39% (calculated as: (45% x 0.26%) + (20% x 0.80%) + (22% x 0.38%) + (4% x 0.2%) + (9% x 0.2%)) and the TER will be 0.43%. The AMC and TER will change over time as you get older and the underlying investments change. 9. What is the fee for investing in Self-select funds, including any underlying manager fees? The AMC and TER for every new fund is set out in the Interactive Investment Guide and collated in the table below. Note that the Guide also includes lots of useful information about the different types of asset classes and investment styles, and guidance to help you make choices about your funds.

5 The TER for each fund is an all-inclusive fee which is deducted from the value of your savings. There are no additional fees. Self-select fund option AMC TER 1. Managed Liquidity Fund 0.20% 0.23% 2. Managed Pre-Retirement Bond Fund 0.32% 0.32% 3. Managed Long-term Inflation-Linked Fund 0.20% 0.21% 4. Managed Bond Phase Fund 0.38% 0.41% 5. Managed Progressive Growth (active) Fund 0.80% 0.88% 6. Managed Property and Infrastructure Fund 0.45% 0.47% 7. Managed Active Global Equity Fund 0.80% 0.87% 8. Managed Global Equity Fund (i.e. Passive) 0.23% 0.28% 9. LGIM Global Ethical Index Fund 0.35% 0.35% 10. HSBC Amanah Fund 0.35% 0.35% 10. The fee for the Aon Managed Initial Growth Phase Fund is higher than the fee for the growth fund in the old lifestyle strategy why? The Aon Managed Initial Growth Phase Fund offers an improved risk and return profile compared to the old growth fund, and is expected to contribute toward better outcomes for members at retirement net of fees. The Aon Managed Initial Growth Phase Fund invests in a number of underlying funds, including a mix of equity funds and a 10% allocation to property and infrastructure funds. Some of the underlying asset classes (such as emerging market equities and property) have a higher fee than the old growth fund, but nevertheless represent competitive rates for these types of investment. Remember that you have a broader range of funds in which you may choose to invest with the new Self-select range. The Aon Managed Initial Growth Phase Fund is professionally monitored and managed by Aon's Delegated Investment Service. This means that the underlying funds, asset allocations and selected investment managers may change over time if a change would be in the best interests of members. Aon's Delegated Investment Service will remove or replace underlying managers quickly as and when needed, for example if their performance falls short of expectations. This type of monitoring service was not available as part of the old growth fund. 11. Are the charges fixed or can they vary over time? The charges may vary over time, depending on the underlying fund managers used within the Aon Managed Funds and the allocation to each of these managers. For example, if one of the underlying fund managers is changed within one of the Aon Managed Funds and a more expensive manager is introduced, this may result in a slight increase to the annual management charge that you pay. Of course the reverse is true; if a manager with a lower charge was used then you would pay less. In addition, the additional fund expenses will vary from time to time, resulting in changes to the total charges applying to each fund.

6 PERFORMANCE AND TRACK RECORD 12. Where can I find past performance of the Scheme s new funds? The funds have only just completed the required period of 12 months of historical performance which is required by law for us to be able to publish this information. Therefore the next quarterly fund factsheets will include performance information. The factsheets will be available 8-10 weeks following each quarter end. However, the new funds are funds of funds and the underlying funds do have past performance. You can see which underlying funds make up each new Aon Managed fund by looking at the fund factsheets on the website. Unfortunately due to rules around fund performance disclosure, we cannot provide you directly with performance estimates based on a combination of underlying fund holdings in this way. Please remember that with any investment, past performance is not an indication of future performance and returns are not guaranteed. If you have any questions regarding the underlying funds that are not answered in the interactive guide or fund factsheets please contact Louise Ward - louiseward@westpac.com.au 13. What is Aon's track record for managing funds? Aon s Delegated Investment Service for both Defined Benefit (DB) and Defined Contribution (DC) clients, globally and in the UK, has evolved from Aon's detailed knowledge of investment markets to offer a market-leading solution which provides members with access to more sophisticated investment options. One of the reasons that the Trustees selected Aon's Delegated Investment Service was Aon's experience and track record. Aon's successful Delegated Investment business manages approximately $70 billion for 317 clients globally. Aon has been managing Delegated Investment mandates for DB pension scheme clients in the UK since In the UK, Aon manages 8 billion of assets on behalf of 69 DB pension fund clients and employs 62 staff dedicated to the Delegated Investment part of the business. Please note all figures are as at 30 September Your new investment options are provided by Aon s Delegated Investment Service for DC schemes. The service was launched in the UK in October 2014 in response to the new pension flexibilities, and already has a number of DC clients invested with assets of approximately 340 million. A number of other UK DC schemes, which together have a combined asset value of around 150 million, are currently in the process of moving to this service. 14. How does Aon's Delegated Investment Service pick the underlying managers and what due diligence is carried out? Aon's Delegated Investment Service manages each of the Aon Managed Funds within specific parameters (as set out in the Interactive Investment Guide and fund factsheets). The Aon Managed funds are 'funds of funds'; the underlying investment structure and fund managers are chosen, implemented and monitored on an ongoing basis by Aon's Delegated Investment Service, drawing on the expertise and resource of Aon s global research teams. All of the underlying fund managers used within the Aon Managed Funds must be 'Buy' rated by Aon's specialist global manager research team; this is a prerequisite for inclusion. If the rating on

7 any fund used is downgraded from a Buy, then it must be replaced with an alternative 'Buy' rated fund as soon as practicable. Aon s global manager research team provides continual assessment of the Buy rated managers that are used within the Delegated Investment Service. In order for a fund manager to be rated as a 'Buy', Aon's manager research team will carry out extensive research and due diligence on the manager. This considers a wide range of different aspects associated with the fund manager's business and processes and the full range of issues considered is set out below. Performance analysis Investment staff Investment process Investment risk Operational due diligence Business strength Terms and conditions. Within the research process, both quantitative and qualitative research techniques are used. The ratings are an ongoing process; each Buy rated fund is reviewed on a quarterly basis to assess performance and understand any developments at the manager. On at least an annual basis, formal research meetings are held face to face with the manager. Certain events (such as the departure of key personnel) would trigger an immediate review of the rating.

8 FUNDS AND INVESTMENT OPTIONS 15. Why are there three new Lifestyle strategies? Broadly to align with the three different ways you can take your Scheme benefits under the new rules which came into force in April 2015: Transfer your assets to a drawdown arrangement so that you can take income as and when you like via drawdown; or Buy an annuity to provide a guaranteed retirement income; or Transfer your assets to a cash arrangement and take all of your benefits as cash in one go. Each Lifestyle strategy automatically switches your investments according to your retirement age in a way that suits how you plan to take your benefits. 16. Why is the current investment set-up not fit for purpose? The current Lifestyle strategy assumes that you will use your pension savings to buy an annuity when you retire. However, under new rules, that may no longer be the case. New pension flexibilities mean that you can now also choose to access your savings via income drawdown or to take all of you pension savings as cash in one go. If you plan to take advantage of one or more of the new flexible ways to access your pension, then a change to your investment options is expected to deliver a better outcome at retirement. Your new investment options are the result of a detailed review carried out by the Trustees over and include three new Lifestyle strategies (aligned with the new flexible ways to take your benefits) and an improved range of Self-select funds. 17. I currently invest in one of the regional equity funds as part of the Self-select options. Why have the Trustees removed the regional equity fund choices? On balance, the Trustees agreed to focus on providing members with access to a broad range of asset classes, including high-quality actively managed options, rather than offering a range of regional funds. This is because the Trustees have a fiduciary duty to act in a way which they believe is consistent with all members best interests, having taken professional advice. When deciding on the new investment options, the Trustees considered a number of factors, including the need to provide a representative fund range. Through the new Self-select options you can now choose to invest in a number of new asset classes which were not previously available, such as property, inflation-linked bonds and a preretirement bond fund (which invests in a mix of government and corporate bonds, aiming to match the cost of buying an annuity). The new Self-select range also includes an ethical investment fund and a Shariah-compliant investment fund. The Trustees took into account that a global approach to investing is in line with Aon's investment advice, as it offers better diversification of equity exposure which is likely to be a more suitable approach for most members. Within each major asset class, the Trustees have selected a new fund option which gives you access to Aon's best investment ideas, asset allocation advice and manager research expertise.

9 For example, the Aon Managed Global Equity Fund is invested in a mix of underlying funds, including a mix of different passive investment strategies and a dedicated allocation to emerging market equities, and is professionally monitored on a daily basis. Aon's Delegated Investment Service may change the underlying funds, asset allocations or selected managers (only within defined parameters, as set out in the Interactive Investment Guide) as and when it believes that a change is likely to be in the best interests of members. 18. The factsheet for the Aon Managed Global Equity Fund shows that it invests in four underlying funds. Please can you explain the Minimum Volatility Index fund and the Fundamental Weight Index fund? Both of these funds are global equity funds which aim to track the performance of their respective benchmarks (known as 'passive' investing). However, they differ in how their benchmarks are constructed. Typically the benchmark for most passive global equity funds is constructed using a traditional market capitalisation approach (whereby the allocation to each company within the benchmark is determined by the total value of shares outstanding as a measure of company size). However, the Minimum Volatility Index fund uses a benchmark which defines the allocation to each company in a different way. This index incorporates a higher allocation to company shares that tend to exhibit a more stable share price over time (i.e. low price volatility). Empirical evidence suggests that these stocks have outperformed stocks with less stable pricing (i.e. higher volatility stocks) over the long term. Similarly, the Fundamental Weight Index fund also uses a benchmark which is constructed in a different way to the traditional approach. This index determines the allocation to each company based on accounting measures of company size (such as total sales, total cash dividends, free cash flow and book equity value). This type of portfolio is expected to be less prone to excessive concentration (in specific companies, sectors or countries) than if a market capitalisation approach is used. Research has shown that these types of index construction techniques (often referred to as 'alternative indexation' or 'smart beta') can lead to better risk-adjusted returns than the traditional market capitalisation approach, and Aon believes that inclusion of these funds is expected to contribute towards delivering better outcomes for members net of fees.

10 TRANSITION, ACTIONS AND TIMESCALES 19. I m concerned that my pension fund might be switched at a low point in markets. Will this be a problem? As with any transition of assets, there are a number of risks associated with moving assets from the existing funds to the new funds. These include out of market risk and market timing risk and are described below. The Trustees, working with their advisors and the transition manager, BlackRock, have taken steps to mitigate these risks as far as possible. Out of market risk This occurs during the period of time when assets in one fund are sold and the proceeds are reinvested in a new fund. During this time (which can be a number of days), assets are not exposed to market movements and as a result, if markets increase in value significantly during this period, members would lose out on return. In order to minimise out of market risk as far as possible, the transition will involve the pre-purchase of funds (i.e. essentially buying units in the new funds in advance of the proceeds of the sale from the old funds having been received).this means that all of your funds will be transferred on the same day. The majority of funds (including all of the Self-Select equity options and growth phase of the default Lifestyle strategy) will be transferred at the same time of day. For a minority of funds this is not possible, however the pre-investment approach means that any mismatch in timing is limited to half a day at most. Market timing risk This arises when moving between different types of assets and reflects the risk of buying or selling at a bad time, e.g. buying a new investment at a high point, or selling a current investment asset at a low point. The Trustees are seeking to minimise this risk by switching your existing funds to equivalent funds with exposure to the same or similar asset class wherever possible. 20. Do I need to do anything if I'm happy with the investment change shown in my personalised statement? We recommend that you read the Interactive Investment Guide before you decide how to invest your savings. If you then decide that the mapped change outlined in your personalised statement is the right change for you, you do not need to return the investment change form as the change will happen automatically with effect from late February However, it would help with the administration of this change exercise if you do fill and return the form as requested by 5 February 2016.