The L&G Pathway Funds A flexible way to achieve individual retirement goals

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1 For Investment Professionals The L&G Pathway Funds A flexible way to achieve individual goals Pathway Funds are the target date fund range from the UK s leading provider of pension scheme solutions

2 A new freedom For defined contribution pension schemes The UK pension industry is undergoing a revolution. First announced in 2014, the government s new Freedom and choice for pensions allows much greater flexibility in the use of savings. These landmark changes mean getting to grips with a much more flexible, but also more complex and uncertain landscape. Finding the right solution to take defined contribution (DC) pension scheme members to, and through,, is now more crucial than ever. AN AWARD WINNING MANAGER There is more to success than assets under management. We put our clients at the heart of everything we do, and this drives our approach from investment management to product development and client service. The success of this philosophy has been regularly recognised with numerous industry awards. Legal & General Investment Management (LGIM) is a leading provider of solutions for DC pension schemes in the UK and we continue to innovate as the market evolves. We build strong relationships with clients and consultants and use these partnerships to drive product innovation and systems development. Our extensive fund range reflects our focus on delivering what our clients need, and this approach ensures we remain a leading UK DC provider. WINNER 2016 WINNER Investment Manager of the Year LEGAL & GENERAL INVESTMENT MANAGEMENT Legal & General Investment Management is one of Europe s largest asset managers 1 and a major global investor, with total assets of 902 billion 2. We work with a wide range of global clients, including pension schemes, sovereign wealth funds, fund distributors and retail investors. Throughout the past 40 years we have built our business through understanding what matters most to our clients and transforming this insight into valuable, accessible investment products and solutions. We provide investment expertise across the full spectrum of asset classes including fixed income, equities, commercial property and cash. Our capabilities range from indextracking and active strategies to multi-asset, liquidity management and liability-based risk management solutions. BEST DEFAULT FUND STRATEGY 2015 GPP PROVIDER OF THE YEAR 2015 Largest manager of UK pension fund assets 52bn DC AUM 3 DC Investment Innovation of the Year 1: IPE research top 400 survey 2: LGIM internal data as at 31 December These figures include assets managed by LGIMA, an SEC Registered Investment Advisor. Data includes derivative positions and advisory assets. 3: As at 31 December 2016, including LGIMA. 2

3 The L&G Pathway Funds The L&G Pathway Funds are the next step in the evolution of LGIM s offering to the DC pension market. Designed following the Freedom and choice pension reforms, the L&G Pathway Funds aim to provide DC investors with a flexible solution to building a income that is aligned with their individual goals. FOCUSED ON THE ENTIRE JOURNEY TO AND THROUGH RETIREMENT The L&G Pathway Funds are target date funds, which are investment strategies specifically developed for DC pension savings. They are designed so that scheme members can invest for their entire journey to and through, no matter when they plan to retire or how exactly they plan to use their pension savings. The L&G Pathway Funds have two clear objectives: To help DC investors build their real income, while managing possible downside risk. To align asset allocation with members chosen goals in the run-up to and during. Retirement goals vary from person to person and can range from prioritising a stable level of current income, to focusing on increasing potential for later in or for future generations. We offer three different Journey Plans to align investments with these different goals. UNIQUE EXPERTISE FROM ACROSS LEGAL & GENERAL GROUP Developed by solutions specialists and managed by an award-winning investment team, the funds leverage expertise from all across LGIM. In addition, our close links with the wider Legal & General Group, a leading provider of annuities and equity release solutions, means we are uniquely positioned to understand an evolving landscape and take it into account in the funds design. HELPING DC SCHEMES TO NAVIGATE THE NEW PENSIONS LANDSCAPE The funds are designed to offer an adaptable solution to help DC schemes in the changing pensions world. We also ensure that any changes are implemented as efficiently as possible. A CLEAR INVESTMENT PHILOSOPHY We believe that an investment strategy for DC default funds should reflect trends in pensions and savings, changing markets and longevity. By combining this adaptable approach with our focus on diversification, risk management, implementation efficiency and cost control, we believe that the L&G Pathway Funds can deliver real long-term benefits to DC investors. Retirement range FLEXIBLE BY DESIGN Each Pathway Fund in each Journey Plan has a range of target dates, for example A member invests in the fund that aligns with their estimated date. Very few people know exactly when they are going to retire and the target date ranges provide flexibility even if the member s exact date is not certain. To ensure that members savings are always invested in an appropriate manner, the L&G Pathway Funds investment strategy is flexible by design. We review the asset allocation regularly to ensure it reflects the objectives for each Journey Plan as well as long-term market trends and current regulation. Choose a date range Choose a Journey Plan Journey Plan 1 Journey Plan 2 Journey Plan 3 3

4 The L&G Pathway Fund Range A RANGE OF TARGET RETIREMENT DATES The L&G Pathway Funds have been designed following the Freedom and choice pension reforms to provide DC investors with a flexible solution to building a income that is aligned with their individual goals. If their plans change later on, they can change their fund choice at any time Fund Fund Estimated date Fund The investment mix within each Pathway Fund is evolved by LGIM according to the investment phase. There are four investment phases, depending on how close investors are to : Higher The early years of saving for Stable A scheme member s middle earning years, starting around years before Approaching Starting around 10 years before Retirement Over time, as investors move through the four phases, we will aim to gradually decrease the proportion of riskier investments, such as equities, and increase the proportion of less risky investments, such as government and corporate bonds. Illustrative asset allocation for L&G Pathway Journey Plan % 80% 60% 40% 20% 0% Stage 1 Stage 2 Stage 3 Stage 4 Higher - Steady Approaching - Retirement Growth Cash Fixed Interest Government Bonds Inflation-Linked Bonds Investment Grade Corporate Bonds High Yield Bonds & Emerging Market Debt Infrastructure & Commodities Direct Property & REITs UK Equities Overseas Equities (including Private Equity and Emerging Market Equities) Years before Years into * Including private equity and emerging market equities. 4.Allocation shown for a member retiring in This allocation is illustrative and will evolve over time. The asset allocation for Journey Plans 1 and 3 will differ from that of Journey Plan 2. 4

5 BUILDING THE MEMBER S PENSION SAVINGS During the early years of saving for (the higher phase), the primary focus is on achieving longterm investment and making the most of the contributions that members (and/or their employer) are paying in. This means investing in assets that generally involve taking more risk, but which have the potential to deliver higher rates of return. During the stable phase we will invest in a somewhat wider, more diversified range of assets. We will aim to continue to invest for but also look to increase the proportion invested in less risky assets. Diversification is key to how we invest. The portfolio is diversified across asset classes, countries, currencies, industry sectors and securities. It also reflects a preference for longer-dated and inflation-sensitive assets. This aim of maintaining a diversified portfolio is to continue growing investors pension investments while reducing the effects of stock market downturns. FLEXIBILITY TO ALIGN INVESTMENTS WITH RETIREMENT GOALS In the run-up to and during, we align investments with individual goals. This is why we provide three different types of fund: Journey Plan 1, Journey Plan 2 and Journey Plan 3. fund choices can be changed at any time. Journey Plans 1, 2 and 3 have the same asset allocation as each other during the higher and stable phases. However, the asset allocations diverge during the approaching phase, around 10 years before the estimated date. During this phase, we will balance the asset allocation within the Pathway Fund, aiming to achieve some continued investment but also having an increasing focus on aligning the fund s asset allocation more closely with the scheme member s individual goals. Personal financial circumstances, such as whether individuals have other sources of income in (including final salary pensions, the state pension and other investment or rental income), may be an important consideration when choosing which Journey Plan is appropriate. Closer to, investors may wish to review their goals and may consider seeking financial advice. Illustrative asset allocation 5 Journey Plan 1 Journey Plan 2 Journey Plan 3 Stage 1 Stage 2 Stage 3 Stage 4 Stage 1 Stage 2 Stage 3 Stage 4 Stage 1 Stage 2 Stage 3 Stage 4 Higher Steady Approaching Retirement Higher Steady Approaching Retirement Higher Steady Approaching Retirement Less risky assets Riskier assets 5. Allocation shown for a member retiring in This allocation is illustrative and will evolve over time. 5

6 Choosing the right journey plan DC investors will need to decide which Journey Plan is right for them. The following guide describes whom the different funds are aimed at in terms of goals and what type of investments investors in each fund should feel comfortable holding. JOURNEY PLAN 1 This fund is aimed at investors who are willing to sacrifice some potential for investment in, in order to seek greater stability in their income. To achieve this greater stability, an individual choosing this fund is likely to purchase an annuity when they retire, which gives a guaranteed lifetime income, or invest primarily in cash and bond investments. JOURNEY PLAN 2 Investors should note that Journey Plan 2 is the default fund, designed for those who do not specifically choose Journey Plan 1 or 3. Individuals in this bracket are likely to hold some lower-risk investments in such as cash, bonds or an annuity, while also allocating some money to higher-risk assets such as equities, property and alternative investments. JOURNEY PLAN 3 This fund is aimed at investors who are comfortable taking a higher level of investment risk with their pension savings in, in pursuit of a higher level of return. These individuals are unlikely to purchase an annuity in the early years of their and are more likely to invest their pension savings in a wide range of assets including equities, property, bonds and alternative investments WHAT HAPPENS WHEN SCHEME MEMBERS RETIRE? During, the Pathway Funds will continue to be managed by LGIM. The asset allocation within Journey Plans 1 and 2 will aim to evolve further as progresses, either through a changing split between more risky and less risky assets, or a changing asset allocation in these two categories. Journey Plan 3 will aim to stay invested in a wide range of investments, aiming to deliver long-term investment. The range of options available in has broadened over recent years due to pension reforms introduced by the government. Members can choose to stay invested in their chosen fund, move investments to another investment product or pension investment provider, withdraw all their savings as cash (which may have tax implications), or choose to buy an annuity. Should scheme members wish to take income from their pension savings, they can choose to either withdraw one or more cash lump sums, or take a regular income. All three Journey Plans are designed for flexibility around options and allow all the options above. Of course, available options may change if regulations change again. Pension Wise, a free and impartial government service, provides information and guidance around options. Members may also consider taking independent financial advice. 6

7 Why invest with LGIM? 1 SCALE We are the UK s largest manager of pension fund assets. Our success has been built on providing products and services that meet our clients needs. 2 COMBINED EXPERTISE Our in-house specialists include dedicated economists, strategists and fund managers. Direct access to cost-effective index funds, genuinely diversified solutions, market-leading de-risking solutions and low-cost execution enables us to implement the investment strategy efficiently. 3 A UNIQUE UNDERSTANDING OF RETIREMENT NEEDS We have significant experience in providing market-leading solutions. In 2014, we launched the UK s first investment fund designed for the new income drawdown world the award-winning Retirement Income Multi Asset Fund. Collaboration with Legal & General Group, a leading provider of annuities and equity release solutions, makes us uniquely positioned to understand -related investment needs. 4 INSTITUTIONAL-QUALITY RISK MANAGEMENT We are award-winning providers of risk management and de-risking solutions. We manage bespoke asset allocation and de-risking mandates for some of the UK s largest pension schemes. 7

8 CONTACT US For further information about the L&G Pathway Funds or our wider investment capabilities please contact your usual LGIM representative or Rita Butler-Jones - Head of DC Sales on: rita.butler-jones@landg.com lgim.com Important Information Investing in financial markets exposes investors to risk. These funds invest in a wide range of asset classes, predominantly equities and fixed income, typically by investing in other funds. Equities (shares of companies) have a higher risk of being volatile (i.e. going up and down) than most other asset types, particularly in the short term. The funds fixed income exposure usually corporate and government bonds is particularly sensitive to trends in interest rate movements. The value of the funds exposure to this asset class is likely to fall when these interest rates rise (such falls may be more pronounced in a low nominal interest rate environment). The financial strength of a company or government issuing a fixed interest security determines their ability to make some or all of the payments due. If this financial strength weakens, the chances of them not making payments increases and this will reduce the value of the funds exposure. The funds may also hold assets in currencies that are not denominated in sterling. If the value of these currencies falls compared to sterling this may cause the funds value to go down. While the funds broad diversification aims to lower risk, each asset class has risks that may impact the value of the fund. Any objective or target will be treated as a target only and should not be considered as an assurance or guarantee of performance of the funds or any part of these. The asset allocation of the funds and therefore the risk profile may change over time due to the nature of the product or to meet changes to legislation and other market developments. There will be transaction costs associated with maintaining and switching between asset distributions. The funds are designed to be held until the cohort date range selected at the initial investment. If the investors target date changes there may be other more relevant cohort ranges available. The value of the funds can go down as well as up. This document should not be taken as an invitation to deal in Legal & General investments or any of the stated stock markets. Legal & General Assurance (Pensions Management) Limited ( PMC ) is a life insurance company and carries on the business using a linked policy ( the policy ). The policy is divided into a number of sections ( the funds or PF Sections ). Legal & General Investment Management Limited provides investment and marketing services to PMC. PMC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority Legal & General Investment Management is authorised and regulated by the Financial Conduct Authority. To ensure quality of service and for the protection of all parties, telephone calls may be recorded Legal & General Investment Management. All rights reserved. No part of this document may be reproduced in whole or in part without the prior written consent of Legal & General Investment Management. M0606