AXA Australia Staff Superannuation Plan

Transcription

1 AXA Australia Staff Superannuation Plan March 2008 Newsletter for Retirement Pensioner and Deferred Benefit members covering: - Changes to the Plan s investment structure The trustee of the AXA Australia Staff Superannuation Plan (the Plan), Mercer Investment Nominees Limited (MINL), and the sponsoring employer of the Plan, The National Mutual Life Association of Australasia Limited (AXA Australia), have decided to make some important changes to the investment management of the assets supporting the Defined Benefit division of the Plan. These changes are expected to be fully implemented by mid-april 2008, and the details are set out in this Newsletter. This Newsletter should be read carefully and kept for future reference. The information contained in this Newsletter is general information only and does not take into account your individual financial objectives, financial situation or needs. If you have any questions about the information contained in this Newsletter, contact the Plan s Helpline on Remember, for other information on your super you can visit the website 7 March 2008 This Newsletter is only applicable to members of the AXA Australia Staff Superannuation Plan in the membership categories named above and is issued by Mercer Investment Nominees Limited ABN RSE Licence #L , Australian Financial Services Licence # as trustee of the AXA Australia Staff Superannuation Plan (RSE Registration No. R ). The AXA logo is a trademark of The National Mutual Life Association of Australasia Limited, ABN

2 The current investment structure of the Plan As has been reported in the Plan s Annual Report, the assets of the Defined Benefit division of the Plan consist of life policies issued by AXA Australia, a discrete portfolio and small holdings in AXA Asia Pacific Holdings Limited shares and a Super Members Home Loans bond. The underlying assets of the life policies are held within AXA Australia s Statutory Funds. AllianceBernstein Management Australia Limited (ABAL) via National Mutual Funds Management Ltd currently acts as the portfolio manager for these assets. The discrete portfolio assets are also currently managed by ABAL. The revised investment structure of the Plan While the trustee will continue to invest most of the assets of the Defined Benefit division in AXA life policies, and will retain the AXA Asia Pacific Holdings Limited shares and the Super Members Home Loan bond, the following changes will be made to the underlying investment structure of the Defined Benefit division: The underlying investments of the life policies will still be held within AXA Australia s Statutory Funds. However, AXA Australia will implement a wider level of diversification by investing in multi-manager portfolios, which utilise the skills and resources of ipac asset management limited as the portfolio manager. Multi-manager means that specialist investment managers are used to manage the assets in a particular asset class e.g. property, shares, and fixed interest. In this way the relative expertise and styles of different managers can be combined to provide expected above average performance for the Defined Benefit division s investments over time; The discrete portfolio assets will be transferred to the life policies and managed in the same way as the other monies invested in the life policies; Reasons for the change, and its impact The trustee has approved the change of the underlying investments supporting the Defined Benefit division assets of the Plan in order to utilise a diversified multi-manager approach for the investment of these assets. The changes will result in a greater diversification of asset managers and asset classes. The trustee believes that the revised investment structure with the exposure to a broader range of investment managers and to asset classes not accessible under the current investment arrangements will assist the Defined Benefit division s investments to perform better in future compared to the existing arrangements. Note that any costs incurred in the transition to the revised arrangements will be reflected in the value of the Defined Benefit division assets just as will occur when investment managers are changed under the existing arrangements. The trustee is satisfied that any such costs will be more than offset in future by the expected improvement in investment performance compared to the existing arrangements. Implementation of the changes Implementation Date By 18 April 2008 all Defined Benefit division investments (other than the holdings in AXA Asia Pacific Holdings Limited shares and the Super Members Home Loans bond which will not be changed) should be fully transitioned to the new investment structure. However while it is the trustee s intention that the changes be fully implemented by this date, it is possible that the changes will be finalised in the week before this date or that due to circumstances beyond the trustee s control, implementation will not be finalised until shortly after this date. The actual date that all of the changes are finalised will be published on the Plan s website - and will be referred to within this document as the Implementation Date. The growth/defensive mix within the Defined Benefit division s investments will remain the same, however there will be a greater level of diversification across managers within the investments and some new asset classes will be introduced; Revised investment management fees will apply; and Performance fees will be introduced. 2

3 Changes to management costs As a result of the changed investment arrangements, from the Implementation Date there will be changes to the management costs for the Defined Benefit division s investments. Performance fees will also apply from the Implementation Date. The changes in management costs reflect both the increased diversity of the managers and asset classes which will be utilised under the revised structure, compared to the costs under the current arrangements. A comparison of the management costs prior to the Implementation Date and the management costs applicable from the Implementation Date is set out in the table below. Management costs table Period Estimated investment management fee^ (% pa of the Plan s Defined Benefit division s assets) (i) Estimated performance fees* (% pa of the Plan s Defined Benefit division s assets) (ii) Prior to the Implementation Date - deferred members Prior to the Implementation Date - pension members From the Implementation Date - all members Estimated management costs (% pa of the Plan s Defined Benefit division s assets) (iii) = (i) + (ii) Notes: ^ The investment management fee varies within a range due to the composition of the investment managers used within portfolios and/or changes in the fees charged by the investment managers used within the portfolios. * As part of the revised investment structure, investment managers which also charge performance fees may be used. Performance fees are fees that are charged only when the investment manager achieves an out-performance against an agreed target. The agreed performance target may vary between the underlying investment managers, or may change from time to time. Hence it is not possible to provide a precise figure for the performance fees. Although an upper limit on performance fees is shown in the above table, performance fees are in fact not capped. The estimated range shown above allows for achievement of investment returns of up to 8% pa in excess of the agreed performance target set for the underlying investment managers. In the trustee s view an out-performance of 8% pa is at the top end of the range of likely outcomes. It is therefore expected that, in most years, the performance fees paid will fall inside the ranges shown, however they will vary from year to year. The trustee believes the Defined Benefit division will generally benefit from these arrangements as performance fees are only charged when outperformance is achieved. A performance fee (initially at the rate of 20.5% of the outperformance over the agreed target) will apply for those investment managers who charge performance fees. For example, if a return of 8% was achieved by a particular manager in a period when the target return was 6%, the performance fee paid to the manager would be 20.5% of 2% or 0.41% of the assets managed by the manager that outperformed (note that it is likely that only a small proportion of the Defined Benefit division s assets will be placed with any single manager such that the estimated net effect will be in the range stated in the table above). Any under performance by a particular manager versus the agreed performance target in previous months will offset the amount of out-performance in determining the performance fees to be applied. Investment Management Fees Investment management fees cover the costs of investing and managing the Plan s assets. The fees effectively cover the cost of professional investment advice on the selection and monitoring of managers, and the fees charged by the investment managers used. The investment management fees are allowed for in the Investment Crediting Rates (ICRs) declared from time to time and are therefore reflected in the value of certain of your account balances if you are a Deferred Benefit Member with balances to which you have elected that the ICR apply. They do not impact those Deferred Benefit members' contribution balances which are subject to the Cash Crediting Rate or any Retirement Pensioner Members. Performance Fees Investment managers that charge a performance fee only apply those fees when performance is greater than an agreed target. Accordingly, performance fees only arise when higher returns, relative to a specified target for a particular manager, are achieved. As the agreed performance targets may vary between investment managers, it is not possible to provide a precise figure for the performance fee applicable. The performance fees are allowed for in the ICRs declared from time to time and are therefore reflected in the value of certain of your account balances if you are a Deferred Benefit Member with balances to which you have elected that the ICR apply. They do not impact those Deferred Benefit members' contribution balances which are subject to the Cash Crediting Rate or any Retirement Pensioner Members. Transaction and operational costs When the Plan invests or redeems assets from an investment this requires the trustee to buy and/or sell investments. The impact of transaction and operational costs on the Plan's earning rate, i.e. expenses, commissions, brokerage and other fees which are incurred in buying or selling part or all of the underlying investments, may be passed onto members through the ICR. The ICR (which, as described above affects certain member balances for Deferred Benefit Members) is calculated after allowing for these costs. 3

4 The revised investment structure in detail The trustee is responsible for the overall management of the Plan s assets and therefore for the assets underlying the Defined Benefit division. The trustee has set investment objectives and an underlying asset allocation for the Defined Benefit division assets. With effect from the Implementation Date, the underlying asset allocation will change, however the investment objectives remain as they were prior to the Implementation Date. Information on the investment objectives and underlying asset allocations is summarised in the following pages. The information presented here is general information only and does not take into account your individual financial needs, circumstances and objectives. It is recommended that you speak to a licensed, or appropriately authorised, financial adviser for advice. The allocation of assets within the Defined Benefit division is determined by the benchmark figure and can vary within a specified range. The trustee has a set of investment objectives Under the revised investment arrangements, the trustee has adopted an underlying asset allocation for the Defined Benefit division s investments, which together with the overall investment approach for the Defined Benefit division (which is to utilise a multi-manager approach in order to diversify investments across the investment styles of multiple specialist managers) it believes are reasonably likely to assist the Defined Benefit division in meeting its objectives. The underlying asset allocation includes the selection of a long-term mix of investments (asset classes) that supports the investment objectives. This is the benchmark asset allocation for the investments. The trustee believes that the underlying asset allocation gives the Defined Benefit division a reasonable probability of meeting its objectives. There is no guarantee, however, that an objective will be met and the objectives should not be treated or relied upon as a forecast, indicator or guarantee of any future returns or performance. Changes can be made to the underlying asset allocation as required in order to ensure that the objectives continue to have a reasonable probability of being attained. In addition, the trustee monitors the Defined Benefit division s performance against the objectives on a regular basis. Some terms explained To help you understand the differences between the existing investments and the changed investments, we ve explained below some of the terms used throughout this Newsletter. Benchmark and ranges The benchmark is the long-term mix of investments. Factors such as the trustee s assessment of market valuations may cause the actual mix to vary from this benchmark but it will generally stay within the asset allocation ranges. Consumer Price Index (CPI) This index is currently published by the Australian Bureau of Statistics and is used to measure the rate of inflation in Australia. It is based on a selection of household goods and services. Mix of investments This refers to the benchmark asset allocation of the Plan. Investment objectives These attempt to quantify the return the Plan aims to achieve. These are sometimes stated in relation to a particular named index such as CPI. Please note that the objectives should not be treated, or relied upon as a forecast, indicator or guarantee of any future returns or performance. Alternative assets This asset class consists of non-traditional investments that use non-conventional investment strategies such as hedge funds and absolute return funds that aim to produce consistent absolute returns that are less correlated to broad market movements. Alternative assets can comprise investments that accept applications or redemptions infrequently, for example once per month instead of daily. This may result in the allocation to alternative assets and other asset classes (e.g. cash) falling outside the range specified at times where an application or redemption is received by AXA Australia at a time that does not coincide with the time applications or redemptions can be made in respect of the investment. Alternative income This asset class uses a strategy that manages its investments relative to a cash benchmark but aims to add value over and above cash returns by utilising a broad range of fixed income securities and strategies that are not exclusively cash like. Portfolio risk is managed relative to cash partly by managing the portfolio s duration exposure to maintain an overall cash-like duration. Emerging market shares Emerging market shares are shares in economies other than the main OECD developed economies. Returns from this asset class tend to be relatively volatile, but add diversification to the overall portfolio. 4

5 Defined Benefit division Investments prior to the Implementation Date Defined Benefit division Investments from the Implementation Date The primary investment objective The trustee s primary investment objective is for the Defined Benefit division s overall investment return (net of tax and investment management fees) to exceed the salary growth experience of the Defined Benefit division by 3% pa, over rolling 3, 5 and 10 year periods. The secondary investment objectives The trustee expects that the Defined Benefit division s medium term investment performance should exceed the median manager s performance as measured in an appropriate industry survey of Market Linked Pooled Funds. This objective is to be measured quarterly over rolling 3 year periods and should be achieved two thirds of the time. The trustee expects the Defined Benefit division s investment returns (net of tax and investment management fees) to exceed the returns which could be achieved on a benchmark portfolio over the medium term, measured quarterly over rolling 3 and 5 year periods. The asset allocation The primary investment objective The trustee s primary investment objective is for the Defined Benefit division s overall investment return (net of tax and investment management fees) to exceed the salary growth experience of the Defined Benefit division by 3% pa, over rolling 3, 5 and 10 year periods. The secondary Investment objectives The trustee expects that the Defined Benefit division s medium term investment performance should exceed the median manager s performance as measured in an appropriate industry survey of Market Linked Pooled Funds. This objective is to be measured quarterly over rolling 3 year periods and should be achieved two thirds of the time. The trustee expects the Defined Benefit division s investment returns (net of tax and investment management fees) to exceed the returns which could be achieved on a benchmark portfolio over the medium term, measured quarterly over rolling 3 and 5 year periods. The asset allocation Asset Class Range % Benchmark % Asset Class Range % Benchmark % Australian Shares Overseas Shares (a) Property (b) Total growth assets Australian Fixed Interest International Fixed Interest (c) Cash Total defensive assets (a) May include hedging of foreign currency to Australian Dollars (b) May include exposure to overseas investments which may have currency exposure hedged to Australian Dollars (c) Foreign currency normally hedged to Australian Dollars The range indicates the minimum and maximum amounts allowed for each asset class. The benchmark is the expected long-term asset allocation. Investment management fees Investment management fees are allowed for in determining Investment Crediting Rates declared from time to time. Australian Shares Unhedged International Shares Hedged International Shares (a) Emerging Markets Shares Australian Property Securities International Property Securities (a) 4.9 Total growth assets 67.5 Australian Fixed Interest International Fixed Interest (a) Alternative Income Cash Alternative Assets Total defensive assets 32.5 (a) Generally foreign currency exposure is hedged to Australian Dollars The range indicates the minimum and maximum amounts allowed for each asset class. The benchmark is the expected long-term asset allocation. Investment management fees Investment management fees are allowed for in determining the Investment Crediting Rates declared from time to time. Performance fees Performance fees (if any) are allowed for in determining the Investment Crediting Rates declared from time to time. 5

6 What do I do now? You should take the time to read all of the information contained in this Newsletter. If you have any queries please contact the Plan s Helpline on

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