BAXI GROUP PENSION SCHEME DEFINED CONTRIBUTION SECTION INVESTMENT SUPPLEMENT

Transcription

1 BAXI GROUP PENSION SCHEME DEFINED CONTRIBUTION SECTION INVESTMENT SUPPLEMENT This Supplement to the "Benefits for Members of the BGPS Defined Contribution Section" booklet has been produced for the Baxi Group Pension Scheme (the "Scheme") by Baxi in conjunction with Hymans Robertson LLP, who have been appointed to act as pension consultants for the Scheme. Introduction Throughout your Scheme membership, your own contributions and those of the Company are paid into your retirement account in the Scheme. The amount you contribute and the investment returns earned by your retirement account will be key factors in determining what your retirement benefits will ultimately be. For this reason, the Scheme allows you to decide how your retirement account is invested to enable you to meet your own personal objectives and circumstances. Your investment options You can choose to invest the contributions made to your retirement account, including any Additional Voluntary Contributions (AVCs), in a range of investment funds offered by Threadneedle Investment Management (Threadneedle), a leading UK investment manager. To assist you in making your investment decisions, there are two basic investment approaches from which you can choose. These are: Lifestyle Option, or Self-Select You can only invest in one of these two approaches at any one time, although you can switch between them at any time, as explained later. How do I select the investment strategy which best suits me? Selecting the investment strategy which suits you will depend upon a number of factors. Your personal circumstances and period up to retirement will influence your decision, as will your attitude towards risk. You should use the information contained in this Supplement, the Threadneedle booklet entitled Investing for a Sunny Day and the Threadneedle website ( to help you select the investment strategy that is best for you. Once you have read these documents thoroughly, you should be able to decide which strategy is right for you. Please appreciate however, that neither the Trustees nor their advisers, Hymans Robertson LLP, can provide you with individual financial advice, and ultimately you must make your own decisions regarding your investment choices. You may wish to seek independent financial advice to assist you. Page 1 of 8

2 The Lifestyle Option One of the key issues to appreciate when selecting your investment strategy is that your tolerance to investment risk is likely to change as you approach retirement. When you are younger, the main risk is that the investment return on your retirement account does not keep pace with inflation and the value of your benefits are eroded in real terms. However as you get older and approach retirement age, the main risk is that there may be a sudden fall in the value of your investments which would reduce your retirement benefits. The objective of the Lifestyle approach is to try to combat these risks. If you select the Lifestyle option, you will automatically follow one of four pre-determined investment strategies. Each strategy consists of three linked elements: a long-term portfolio during your working career that is invested predominantly in stocks and shares; a middle-term portfolio as you become approximately 10 years from retirement that is invested predominantly in a diversified growth fund; and a short-term portfolio as you approach retirement that is invested in index-linked Government bonds (index-linked gilts), cash and/or a diversified growth fund dependent upon the option you select. The objective of the long-term portfolio is to provide the potential for capital growth, whilst the short-term portfolio is designed to help protect against the risk of a sudden fall in your investments, as well as protecting against an increase in the cost of purchasing pensions. During the middle-term portfolio, the aim is to provide good returns whilst reducing the volatility of returns that could be expected in the long term portfolio. Under the Lifestyle option, your accumulated funds and your future contributions are gradually switched during the 20 years prior to your selected retirement age from stocks and share based funds (ie the long-term portfolio) into a diversified growth fund(ie the medium-term portfolio). The timing of these switches is pre-determined and is carried out automatically. During the final 10 years prior to your selected retirement age, your accumulated funds and your future contributions are gradually switched to contain a proportion of gilts and cash. The four Lifestyle strategies are: Mixed Lifestyle Option Annuity Lifestyle Option Cash Lifestyle Option Flexible Income (Drawdown) Option All four strategies work in a similar way and have no differences in the long and medium term strategies. The long term portfolio is invested 100% in equities in all four strategies. During the medium term portfolio, the portfolio gradually reduces the proportion invested in equity until it is fully invested in diversified growth assets. The key difference being the proportion of the short term portfolio that is invested in gilts and cash compared to diversified growth assets: Mixed Lifestyle Option the short-term portfolio is typically invested 1/3 in cash, 1/3 in bonds and 1/3 in diversified growth assets. : Page 2 of 8

3 Annuity Lifestyle Option the short-term portfolio is typically invested 75% in bonds with the remainder in cash. Cash Lifestyle Option the short-term portfolio is typically invested 100% in cash. Flexible Income (Drawdown) Lifestyle Option the short-term portfolio is typically invested 75% in diversified growth assets and the remainder in cash. Full details of the investment funds used and the timing of the switches are available from Xerox. Please contact the person responsible for HR at your site if you require further information. : Page 3 of 8

4 How does Lifestyle work if I want to retire early? Your Lifestyle Strategy will be geared to your selected retirement age, which may be different from the Scheme's normal retirement age (65). You can confirm your selected retirement age on your Money Purchase Section Application Form, which is included in the invitation pack. You may change your selected retirement age in the future if you wish. Can I switch out of the Lifestyle option or join it at a later date? Yes. You can change from the Lifestyle option to Self-select (or vice versa) by completing an Investment Switch Form. The Self-Select Option If you prefer to design your own investment strategy you can do this by selecting the funds yourself. There are ten funds from which you can choose: TPEN UK Equity Fund, Aquila Life World (ex UK) Equity Index Fund Aquila Life (50:50) Global Equity Fund Threadneedle Global Emerging Market Equity Fund TPEN Property Fund TPEN UK Bond Fund, TPEN Index Linked Bond Fund TP Aquila Life Over 15 Year UK Gilt Index Fund Dynamic Real Return Fund TP Aquila Life Cash Fund What happens if I do not want to make an investment decision? The Trustees will automatically choose the Mixed Lifestyle Fund for you if you do not make an investment choice. This is the default fund and may or may not be appropriate for your circumstances. You will remain invested in the Mixed Lifestyle fund until you instruct the Trustees otherwise. Can I invest in more than one fund? Yes. You can invest in as many of the fund options as you wish. Simply indicate the proportion of your contributions to be invested in each fund (minimum for each fund is 10%) in your Money Purchase Section Application Form. If you wish to invest in one fund only, simply indicate your fund choice and confirm that you wish to allocate 100% of your retirement account to that fund. Please note, you cannot invest in the lifestyle and the self-select funds at the same time. Which funds are most suitable for me? Ultimately this is your decision. If you choose the Self-Select Option, you must decide in which individual fund(s) to invest. You may invest in one or more of the ten funds offered by Threadneedle that are available under the Scheme. When making a choice you should think about how long you might be investing before you reach retirement and how much risk you are prepared to take. Bear in mind that although higher risk funds (such as those that invest in equities), may be more likely to go up and down in value they may also give the better returns over the long-term. Lower risk funds : Page 4 of 8

5 will tend to give lower investment returns over the long-term but will provide better security for your pension fund in the short-term when you need it, ie when you are close to retirement. The important thing is to choose a fund or a combination of funds that suit you. You also need to remember that the nature of risk changes over time; when you are young the main risk is poor long-term growth. However, when you get closer to retirement, your main risks are a sudden fall in your investment and/or an increase in the cost of buying pension annuities. The four lifestyle funds have been designed to target a different options at retirement. At retirement, you have the choice to purchase an annuity from an insurer, take your fund as a cash lump sum or keep it invested and take out money as you need it (income drawdown). If you already know how you would like to take your savings at retirement, the three lifestyle funds might be suitable to help you manage your risk as you approach retirement: 1. If you want to buy a lifetime income (annuity), then the Annuity Lifestyle Option might be suitable. 2. If you expect to take 100% cash, then the Cash Lifestyle Option might be suitable for you. 3. If you would like to take money out of your pension as you need it, then the Flexible Income (Drawdown) Lifestyle Option might be more appropriate. If you are unsure how you wish to use your pension pot on retirement, the mixed lifestyle might be a good option. It does not target a specific outcome on retirement but a blend of all three of the above options. None of the options above are different until 10 years before your retirement, so you have the option to switch between the lifestyles without incurring a charge before that point. How can I find out more information to make an informed decision? Threadneedle's website ( contains fund factsheets on each of the ten funds. These reports provide useful information about each fund's aims and objectives, its risk grading (as determined by Threadneedle) as well as past investment performance figures. Please note, however, that the reports merely provide general information and cannot provide financial advice on which fund(s) to choose. You also need to remember that the value of funds can go down as well as up, and that where past performance figures are quoted, these are not a guide to the future performance of a fund. If you are unsure about your investment choices, you should contact an independent financial adviser for advice. You can obtain the contact details for an advisor at Neither Threadneedle, the Trustees nor Hymans Robertson LLP can provide you with individual financial advice on which fund(s) to invest in. Can I change the funds in which my contributions are invested? Yes. You can change the funds in which all (or part) of your future contributions are invested by completing an Investment Switch Form. You can also choose to switch the funds in which your existing retirement account is invested, or leave them as they are. When making changes to your investment strategy you have three basic choices: : Page 5 of 8

6 Change how your future contributions are invested, whilst leaving your accumulated funds unchanged. Change how both your future contributions and accumulated funds are invested. Change your existing accumulated funds, but leave the investment choices for future contributions unaltered. Are there any costs involved in switching funds? The Trustees and Threadneedle reserve the right to make a small charge to cover the cost of switching funds. However, it is not the current practice to make a charge for the first switch in each Scheme year. What is the past investment performance of the funds? Information regarding the past investment performance of each of the investment funds is available from Threadneedle. If you would like to see this information for any of the funds, please contact the person responsible for HR at your site or go to the Threadneedle website However, you should be aware that past investment performance is not necessarily a guide to future performance. How do I know what my retirement account is worth? You will receive a benefit statement each year showing the current value of the units you hold in each fund, along with other information regarding your retirement account. Your benefit statement will also include a Statutory Money Purchase Illustration, which shows a projected pension at retirement. This projection is carried out on prescribed assumptions which may not be appropriate in all circumstances. : Page 6 of 8

7 What are the Scheme's investment charges? Threadneedle apply an annual fund management charge to each fund. Details of the fund charges are in the Appendix. The charges are taken into account in the unit prices for each fund. The charges may change in future and you will be advised if any change is to be made. Further Information If you require any further information, please contact the person responsible for HR at your site. IMPORTANT NOTE Please note that if you do not indicate which investment option you wish to choose, your contributions will be invested in the Mixed Lifestyle Option. INVESTMENT WARNING Please note that the value of certain investments can go down as well as up. Past investment performance is not necessarily an indication of future investment returns. Please read the description of the Scheme's investment strategies and investment funds carefully to ensure that you choose the funds most suitable for your needs and objectives. Hymans Robertson LLP is regulated by the Financial Conduct Authority in the conduct of its UK investment business. The accompanying booklet, entitled "Investing for a Sunny Day" and the fund factsheets have been produced by Threadneedle Asset Management to provide members with factual information and general guidance only. Details such as the aims, objectives and risk ratings of the individual funds are supplied by Threadneedle Asset Management and not the Trustees or Hymans Robertson LLP. May 2016 : Page 7 of 8

8 APPENDIX THREADNEEDLE FUNDS AND FUND CHARGES Below is a list of the Threadneedle funds in which you may invest and the charge that Threadneedle applies to each of the funds: Fund Charges (% per annum) TPEN UK Equity Fund, 0.35 Aquila Life World (ex UK) Equity Index Fund 0.25 Aquila Life (50:50) Global Equity Fund 0.15 Threadneedle Global Emerging Market Equity Fund 0.91 Dynamic Real Return Fund 0.50 TPEN Property Fund 0.78 TPEN UK Bond Fund, 0.23 TPEN Index Linked Bond Fund 0.12 TP Aquila Life Over 15 Year UK Gilt Index Fund 0.15 TP Aquila Life Cash Fund 0.15 Each charge is expressed as a percentage of the value of the fund per annum, and is automatically taken into account in the price of the units. Please note that charges can change. The charges above are as at the beginning of : Page 8 of 8