BAXI GROUP PENSION SCHEME MONEY PURCHASE SECTION INVESTMENT SUPPLEMENT

Transcription

1 BAXI GROUP PENSION SCHEME MONEY PURCHASE SECTION INVESTMENT SUPPLEMENT This Supplement to the "Benefit Choices to Shape Your Future" booklet has been produced for the Baxi Group Pension Scheme (the "Scheme") by Baxi in conjunction with Towers Watson, 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 main "Benefit Choices to Shape Your Future" booklet, 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, Towers Watson, 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. Ref: H:\Rachel's Files\Pensions\Member Booklets - All Schemes\BGPS - February 2010\Section 4 - Investment Supplement.doc Page 1 of 6

2 The Lifestyle Option One of the key issues to appreciate when selecting your investment strategy is that the nature of investment risk changes 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 risks are that there may be a sudden fall in the value of your investments and the cost of purchasing pension benefits could suddenly become more expensive. 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 three pre-determined investment strategies. Each strategy consists of two linked elements: a long-term portfolio during your working career that is invested predominantly in stocks and shares, and a short-term portfolio as you approach retirement that is invested in index-linked Government bonds (index-linked gilts) and cash. 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. Under the Lifestyle option, your accumulated funds and your future contributions are gradually switched during the 10 years prior to your selected retirement age from stocks and share based funds (ie the long-term portfolio) into gilts and cash (ie the short-term portfolio). The timing of these switches is pre-determined and is carried out automatically. The three Lifestyle strategies are: Adventurous Pathway Balanced Pathway Cautious Pathway All three strategies work in a similar way, the key difference being the proportion of the longterm portfolio that is invested in company shares (equities): Adventurous Pathway the long-term portfolio is typically invested 50% in UK equities and 50% in overseas equities. Balanced Pathway the long-term portfolio is typically invested 75% in equities (UK and overseas) with the remainder in bonds and property. Cautious Pathway the long-term portfolio is typically invested 50% in equities (UK and overseas) with the remainder in bonds and property. Full details of the investment funds used and the timing of the switches are available from Pentagon House Pension Services. Please contact the person responsible for HR at your site if you require further information. Ref: H:\Rachel's Files\Pensions\Member Booklets - All Schemes\BGPS - February 2010\Section 4 - Investment Supplement.doc Page 2 of 6

3 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 10 funds from which you can choose: Threadneedle Adventurous Pathway, Threadneedle Balanced Pathway, Threadneedle Cautious Pathway, Threadneedle UK Equity, Threadneedle UK Bond, Threadneedle Index Linked Bond, BGI 50/50 Global Equity Fund, BGI Aquila Life World (ex UK) Equity Index Fund, BGI Over 15 Years Gilt Fund and BGI Cash Fund. What happens if I do not want to make an investment decision? The Trustees will automatically choose the Cautious Pathway 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 Cautious Pathway 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. 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 nine 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 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. Ref: H:\Rachel's Files\Pensions\Member Booklets - All Schemes\BGPS - February 2010\Section 4 - Investment Supplement.doc Page 3 of 6

4 Threadneedle's booklet entitled "Investing for a Sunny Day" contains "Weather Reports" on each of the nine 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 name, address and telephone number of your nearest independent financial adviser from IFA Promotions whose telephone number is Neither Threadneedle, the Trustees nor Towers Watson 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: 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. Ref: H:\Rachel's Files\Pensions\Member Booklets - All Schemes\BGPS - February 2010\Section 4 - Investment Supplement.doc Page 4 of 6

5 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 Cautious Pathway. 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. Towers Watson is regulated by the Financial Services Authority in the conduct of its UK investment business. The accompanying booklet, entitled "Investing for a Sunny Day" and the "Weather Reports" 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 Towers Watson. February 2010 Ref: H:\Rachel's Files\Pensions\Member Booklets - All Schemes\BGPS - February 2010\Section 4 - Investment Supplement.doc Page 5 of 6

6 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 Charge (% per annum) Managed: Adventurous pathway 0.70 Balanced pathway 0.60 Cautious pathway 0.60 UK Equity 0.60 UK Bond Fund 0.35 Index Linked Bond 0.15 BGI 50/50 Global Equity 0.15 TP BGI Aquila Life World (ex UK) Equity Index Fund 0.25 BGI Over 15 Years Gilt Fund 0.30 BGI 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. Ref: H:\Rachel's Files\Pensions\Member Booklets - All Schemes\BGPS - February 2010\Section 4 - Investment Supplement.doc Page 6 of 6