The ITW DC Retirement Plan Investment Guide WE ARE ITW.

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1 The ITW DC Retirement Plan Investment Guide WE ARE ITW. October 2013

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3 The ITW DC Retirement Plan investing your member account This information is generic and based on information supplied by the Trustee's advisers. Neither the Trustees nor any other party can accept any liability for loss or reduction in value of the money in your member account resulting from any reliance on the information provided here. One of the most important financial decisions you will ever make is to save for your retirement and one of the easiest and most tax-effective ways of doing this is through a company pension scheme. The ITW DC Retirement Plan (the Plan) provides a range of benefits, designed to help you save for a pension when you retire, as well as giving you and your dependants financial protection while you re working. This guide gives a brief description of the main features of the investment choices offered by the Plan. The Plan is a defined contribution ( DC ) pension arrangement, where the amount you contribute will have a direct impact on the benefits you get when you retire. What s good about it is the more you pay, the more the Company will credit to your member account on your behalf, and the faster your benefits will build up. You decide how your member account is invested, from a range of funds offered by the Plan. There are six individual funds and two Lifecycle options on offer; amongst other things, you need to think about your choices and consider your attitude to risk and personal circumstances (for example whether you are in the early part of your career or approaching retirement) when choosing what type of investment suits you. Should you not choose how your member account is invested, it will be invested in the Default arrangement (see pages 4 and 5). The Trustees have taken advice and decided that the best way of providing you with a range of investment options is to use a platform provider. For the Plan, the Trustees have chosen BlackRock as the platform provider. A platform provider allows easy access to a large range of funds, and a choice of investment managers. The Trustees have selected which manager and funds are to be used by the Plan, as detailed on page 6. The value of your member account (and therefore the value of your benefits when you retire) will depend, amongst other things, on how much money has been credited into your member account and how your money has been invested, so your investment choices are very important. When you make your investment decision, you will need to take into account a number of factors. In particular, you should decide when you want to retire and the nature of the risk you want to take. ITW DC Retirement Plan Investment Guide: October

4 The Company and Trustees cannot advise you on choosing investments, but here are four steps you should consider when making your choices. The Trustees strongly recommend that you seek independent financial advice about your investment choices. The following is the type of information you will need to think about when making your investment choices. 1. Understand your personal circumstances How long do you have until you want to retire? Do you have any other savings or investments? What other financial commitments do you have? How much other income will you have after you retire? 2. Know what risk means to you Understand the nature of the different types of risk and how they may affect you (see page 3). 3. Choose your investments There are two Lifecycle options available (see pages 4 and 5), or alternatively, you can Self-select from some, or all, of the six individual funds (see page 6). Having made your initial investment choice, you can change, switch or redirect your future contributions to different funds at any time in the future. 4. Regular review It is important that you review your investment choices regularly, as your personal circumstances and attitude to risk are likely to change over time. Independent Financial Advice The Trustees cannot accept responsibility for your investment choices. Neither the Trustees nor the Company are authorised to give you advice about which investments or funds are best for you. If you would like to speak to a local Independent Financial Adviser (IFA) before choosing your investments, please contact IFA Promotion Ltd, either at or to contact@unbiased.co.uk Before you take advice from anyone, you should check that they are authorised to advise you. You should also find out how much they will charge you. ITW DC Retirement Plan Investment Guide: October

5 Equities (or shares) are issued by companies to raise money with the buyer literally owning a share of the company. The value of equities goes up and down depending on how the company and the market performs. Equities are generally considered suitable for long-term or higher risk investors. Bonds are issued by governments and companies as a way of raising money. In return the buyer receives a fixed rate of interest and, in most cases, the return of their original investment at the end of an agreed period. The value of bonds tends to fluctuate less than equities, but over the long term bonds are not expected to produce such high returns. Bonds are usually considered suitable for lower risk investors or members nearing retirement. Cash funds invest in shortterm deposits such as bank deposits, and accounts held at building societies or other financial institutions. The amount of growth earned can vary. Cash investments are not expected to increase at the same rate as other investments over the long term. Risk All investments carry different levels of risk: Inflation risk Investment risk Pension conversion risk If your investments do not grow at least in line with inflation (the cost of living) then their real value goes down. This can happen with low investment risk funds, such as a cash fund. Your investments can drop in value. This can happen with all equity, bond and property funds (although the risk is usually greater for equities). The younger you are, the less worried you may be about short-term fluctuations in the value of your investments. Instead, you may consider looking for longer term growth to protect your member account against inflation and to seek enough growth in the fund to provide an adequate income at retirement. When you retire you usually buy a pension with the money in your member account. The cost of buying a pension (known as an annuity) varies from time to time and depends on a number of factors such as the price of bonds and gilts. By investing your member account in bonds and gilts close to retirement you may protect your account from some of this risk. You need to decide how much, and what kind of risk, you are prepared to take. You should be aware that the value of your investment is not guaranteed and may go down as well as up, and that past performance is not necessarily a guide to the future. Your choice The investment options available are: Lifecycle: if you feel uncomfortable actively managing your own investments, you may wish to choose one of the Lifecycle options. Self-select: if you want to manage the investment of your member account yourself and choose your own funds, you may prefer the Self-select option. Please note that you cannot mix the Lifecycle and Self-select options. ITW DC Retirement Plan Investment Guide: October

6 Lifecycle options When you decide where to invest your member account, you will be asked to choose a selected retirement age, and, if you decide to invest in one of the Lifecycle options, all of your investments will be switched based on that date. Your benefit statements will show a prospective pension calculated as if you were going to retire on your selected retirement age, although you may change your selected retirement age or retire at a different date. The Lifecycle options are approaches that try to manage some types of risk for you by aiming to invest in the appropriate types of funds at the appropriate time between now and your selected retirement age (or 65 if you do not specify a different age). There is no guarantee that this approach will be right for you. The Lifecycle options aim to provide for long-term growth by investing in equities when you are further from retirement. They then switch your account automatically to bonds and cash as you approach retirement (see below). This is done for three reasons: to protect the value of your member account from any poor stock market performance in the last few years before you retire, and to try and protect any growth you may have gained in the earlier years; to help the purchasing power of your member account to remain consistent with the price of purchasing an annuity - as the cost of buying an annuity varies from time to time and depends, amongst other things, on the price of bonds; moving some of your account into the Cash Fund protects any cash lump sum you may want to take. 10 Year Lifecycle option Until you are within 10 years from your selected retirement age (SRA), all your contributions are invested in the BlackRock DC Aquila (50:50) Global Equity Index Fund. As you get closer to your selected retirement age, your investments are switched gradually, so that by the time you retire, your member account is only invested in a mix of the BlackRock DC Pre-Retirement Fund and the BlackRock DC Cash Fund. This graph shows how the switching works: years SPA BlackRock Aquila (50/50) DC Global Equity Index Fund BlackRock DC Pre-Retirement Fund BlackRock DC Cash Fund ITW DC Retirement Plan Investment Guide: October

7 Default option If you retire earlier than your selected retirement age with a Lifecycle option, you risk being invested mainly in higher risk equity funds, rather than lower risk bond and cash funds, when you retire. You should take this into account when you decide to invest in the Lifecycle option and when selecting your chosen retirement age. If you don t make any choice, then your member account will be automatically invested in the 10 Year Lifecycle option. You need to be aware that the 10 Year Lifecycle option invests 100% in the BlackRock DC Aquila (50:50) Global Equity Index Fund until you are 10 years from your selected retirement age (or 65 if you do not specify a different age). If you do not want your member account invested in this way, you must complete the Investment Options section in your Application Form to positively choose the funds you want to invest in. 5 Year Lifecycle option As well as the 10 Year Lifecycle option, there is also a 5 Year Lifecycle option. The switching process starts later and happens more quickly than under the 10 Year option. All your contributions are invested in the BlackRock DC Aquila (50:50) Global Equity Index Fund until you are within five years of your selected retirement age (SRA) and then switched gradually, so that by the time you retire, your member account is only invested in a mix of the BlackRock DC Pre-Retirement Fund and the Blackrock DC Cash Fund. Whilst your investments will still be switched into lower risk funds, under this option you are keeping more of your fund invested in equities for longer years SPA BlackRock Aquila (50/50) DC Global Equity Index Fund BlackRock DC Pre-Retirement Fund BlackRock DC Cash Fund Investment charges The charge made for investing your member account is an Annual Management charge (known as an AMC), calculated as a percentage of the value of your fund each year. This is built into your fund and will already be accounted for in any valuation you receive. Other charges- known as transaction costs may also be incurred and these will be reflected in the unit price of the funds in which you choose to invest. Some investments have higher transaction costs than others and the level of these costs will change depending on market conditions. The investment managers reserve the right to change these charges in the future. ITW DC Retirement Plan Investment Guide: October

8 Self-select Passive management The investment manager aims to produce a return that mirrors that of a specific index. This is known as tracking. Active management The investment manager uses its expertise to try and choose investments that will beat the returns of a specific index this is known as outperforming. There is no guarantee that the investment manager can beat the index and funds may not increase as expected. Your annual Benefit Statement will show the current value of your member account and a projection of the pension this might buy when you retire at your selected retirement age. If you want to manage the investment of your member account yourself and choose your own funds, you may prefer the Self-select option. There are eight funds to choose from, and you can invest in more than one fund at once, if you wish: Fund type Equity Equity Equity Equity Bonds Cash Manager and Fund name BlackRock DC Aquila (50:50) Global Equity Index Fund BlackRock DC Aquila UK Equity Index Fund BlackRock DC Aquila World (Ex-UK) Equity Index Fund BlackRock DC UK Special Situations Fund BlackRock DC Pre-Retirement Fund BlackRock DC Cash Fund Passive / Active Management *Annual Management Charge (see page 5) AMC * How it works Passive 0.13% This fund invests solely in equities (50% UK and 50% overseas (comprising US, Europe (ex- UK), and Pacific Rim)) and aims to generate returns consistent with those of each region s benchmark. Passive 0.13% This fund aims to achieve a return that Passive 0.13% is consistent with the FTSE All-Share Index (UK Equities). This fund invests in the shares of overseas companies, and aims to generate returns consistent with the FTSE All World Developed ex-uk Benchmark. Active 0.45% This fund aims to outperform the IMA Active 0.15 % UK All Companies Sector Average Index. It specialises in UK equities that appear undervalued and involves higher risk. This fund invests mainly in long dated bonds, generally maintaining a 50/50 split between UK government bonds and UK corporate bonds. Active 0.15% This fund invests in Sterling denominated cash, deposits and money market instruments. ITW DC Retirement Plan Investment Guide: October

9 Further details of all the funds can be found in the fund factsheets. For copies of the latest factsheets please contact the Scheme s administrator, Capita Employee Benefits, in one of two ways: Online: Visit the Plan website at Phone: Call the Helpline on The Trustees have not separately reviewed and verified the accuracy of the information the factsheets provide. Making changes to your investments If you want to review your member account, you can do this in two ways: Online: Visit the Plan website at You need to register to use this service. Phone: Call the Helpline on You can change your investment choices as often as you like (normally free of charge). And you can make different choices for your existing member account and future contributions. There are two ways you can change your investments: Online: Visit the Plan website at Phone and post: Call the Helpline on to request an Investment Change form and then send the form to: ITW Pension Funds Trustee Company Radio House Thanet Way Whitstable Kent CT5 3QP In all cases, Capita will send you written confirmation of your new investment choices. ITW DC Retirement Plan Investment Guide: October

10 The Trust Deed and Rules state that the investment of your member account is your decision. This applies whether the Trustees are following your instructions about how to invest, or investing your member account on the default basis because you have not made a choice. The Trustees are not liable to you, or any of the people who may benefit from your member account, for any loss or reduction in the value of the money credited to your account as a result of their investment. It is important that you consider your investment choices carefully and review them regularly. Please bear in mind that the value of your investments can go down as well as go up, and that past performance is not necessarily a guide to the future. The appointed investment manager(s), who have been selected by the Trustees, manage the funds available under the Plan. The performance of these funds is reviewed on a regular basis and the Trustees may in future change the platform provider and/or investment managers, specific funds or range of funds, with or without member consent, if it is felt to be in the best interest of members. You will be fully informed if such changes are made. This Investment Guide must be read in conjunction with the Plan Guide (dated October 2013), a copy of which you should already have received. This Investment Guide summarises the investment options under the Plan and contains a number of simplifications of the Trust Deed and Rules and the HM Revenue & Customs rules that govern the Scheme. Both sets of rules will always take priority over this guide if any questions of interpretation arise. ITW DC Retirement Plan Investment Guide: October

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