The GMG Lifestyle Plan(formerly The G and MEN Lifestyle Plan)
Investment Bulletinfor Year Ended 31 March 2010
The Trustees of the Lifestyle Plan have appointed Legal General Investment Management to invest the Plan's assets in "index tracking" funds. The Plan's investment advisers, Mercer Limited, carry out an independent assessment of the results and their latest report is summarised below.
The majority of the Plan's assets are invested in the three main Funds that have been available since inception. The market values and underlying performance of the Funds over the year to 31 March 2010are set out in the table below:
MARKET / DIFFERENCEFUND / VALUE / PERFORMANCE / FROM
£ / % / BENCHMARK
%
Long Term Fund / 167,324,027 / +46.3 / +0.1
Short Term Fund (Bonds) / 21,818,577 / +10.9 / +0.2
Short Term Fund (Cash) / 14,029,438 / +0.5 / +0.1
Comments from the Plan’s Investment Advisers….
The performance of the Long Term Fund rebounded sharply on the back of the strong recovery in global equity markets from the very depressed levels seen in March 2009. Over the course of the year, the Trustees reviewed the investment strategy of the Long Term Fund and decided to reduce its exposure to equities, on a phased basis, from a target of 85% to 70% (see overleaf for more details).
The Short Term Fund (Bonds) benefited from its exposure to corporate bonds which have significantly outperformed government bonds over the year.
The very modest return on the Short Term Fund (Cash) reflects the fact that bank base rates have been at 0.5% throughout the year.
Update of changes to the Long Term Fund
As explained in the November 2009 Newsletter, the amount invested in equities is currently being reduced from 85% to 70% on a phased basis, as illustrated below:-
1st January 2010 / 31st March 2010 / TARGETUK Equities / Circa 35% / 32% / Circa 28%
Overseas Equities / Circa 50% / 50% / Circa 42%
TOTAL EQUITIES / 85% / 82% / 70%
Corporate Bonds / 15% / 16% / 20%
Fixed Interest Gilts / 0% / 1% / 5%
Index-Linked Gilts / 0% / 1% / 5%
TOTAL BONDS / 15% / 18% / 30%
GRAND TOTAL / 100% / 100% / 100%
Why are the changes being made?
The Trustees took into account a number of factors, which included the age profile of the members, the relatively disappointing “long term returns” in the Long Term Fund (since the Lifestyle Plan was launched in 1990) and the high levels of volatility, and decided to reduce the amount invested in equities (stock markets).
When are changes being made?
Switches of £1.5M (approximately 1% of the Long Term Fund) take place on a monthly basis until the 70% equity target has been achieved - but switches only happen when twotrigger conditions are both met, whichtake into account the level of the equity market and the relative price of equities and bonds.
The current trigger conditions, which the Trustees will keep under review, are:-
i. The FTSE 100 Price Index is above 5200; and
ii. The ratio of the FTSE 100 Price Index to the FTSE All Stocks Gilt Capital Index is above 33.0
When will the changes be finalised?
Once the Long Term Fund is invested 70% in equities and 30% in bonds.
If you're invested in the Long Term Fund, do you need to do anything?
For most members the answer will probably be no ….. You only need to take action if you want your Lifestyle account to keep a higher % invested in equities. (Remember that over the long term (40 years or so) equities have historically delivered better returns than bonds but with significantly more volatility).
How can you keep a higher % invested in equities?
By specifying your own investment mix on an Investment Choices Form. Forms, plus details of fund choices, are available on the website ( or from the Pensions Department.
Stand Alone Funds
Six additional stand-alone funds are available to members and the market values and underlying performance of the Funds over the year to 31 March 2010 are set out in the table below:
MARKET / DIFFERENCEFUND / VALUE / PERFORMANCE / FROM
% / BENCHMARK
£ / %
UK Equity Fund / 1,804,127 / +54.8 / +0.6
Overseas Equity Fund / 1,391,567 / +49.8 / -0.2
Ethical Global Equity Fund / 450,363 / +47.6 / +0.3
UK Government Stocks Fund / 399,193 / +0.8 / +0.0
Corporate Bond Fund / 208,771 / +17.3 / -0.3
Index-Linked UK Government Stocks Fund / 718,309 / +10.3 / +0.0
The three equity based funds all performed very strongly. Whilst the UK Government Stocks Fund produced a very modest return, the other two bond funds both produced reasonable returns.
Performance Comparisons
The above performance figures are based on interim results supplied by the Plan's investment advisers. The full Report and Accounts of the Lifestyle Plan to be published later in the year will contain the final performance figures.
Unit Values
The values of the Lifestyle funds are normally assessed weekly. The unit price for each of the funds is then used as the basis for all transactions (e.g. adding each month's contributions to your Lifestyle account or withdrawing your Lifestyle funds to secure a pension at retirement etc). The month end unit prices during the year ended 31 March 2010 are shown overleaf.
Month end Unit Prices for Year Ended 31 March 2010
Long Term Fund / Short Term Fund (Bonds) / Short Term Fund (Cash) / UK Equities / Overseas Equities / Gilts / Corporate Bond / Ethical Global Equity Fund / Index Linked UK Government Stocks Fund100p @ Apr 1990 / 100p @ Apr 1990 / 100p @ Apr 1990 / 100p @ Mar 2003 / 100p @ Mar 2003 / 100p @ Mar 2003 / 100p @ Mar 2003 / 100p @ Aug 2004 / 100p @
Aug 2004
MAR 2009 / 307.88 / 579.43 / 300.10 / 142.32 / 141.13 / 137.35 / 114.82 / 102.47 / 128.23
APR / 335.45 / 577.15 / 300.24 / 157.66 / 155.46 / 135.75 / 115.53 / 111.70 / 127.94
MAY / 347.31 / 576.99 / 300.36 / 163.60 / 161.26 / 134.46 / 118.24 / 112.54 / 129.54
JUN / 343.30 / 594.41 / 300.46 / 159.61 / 159.50 / 135.73 / 120.15 / 110.41 / 132.02
JUL / 368.85 / 603.99 / 300.57 / 173.27 / 172.64 / 134.69 / 123.63 / 119.84 / 131.19
AUG / 390.08 / 650.24 / 300.66 / 186.25 / 180.61 / 139.43 / 127.91 / 128.25 / 135.50
SEP / 407.28 / 652.74 / 300.74 / 195.04 / 190.18 / 139.78 / 129.23 / 135.36 / 136.17
OCT / 398.02 / 648.98 / 300.83 / 191.42 / 183.56 / 139.48 / 130.34 / 129.18 / 139.36
NOV / 409.45 / 656.28 / 300.92 / 197.11 / 189.81 / 140.58 / 131.03 / 134.72 / 141.63
DEC / 422.66 / 633.42 / 301.03 / 205.95 / 197.11 / 136.86 / 130.02 / 139.19 / 138.34
JAN 2010 / 408.69 / 644.84 / 301.11 / 198.84 / 189.68 / 137.91 / 132.39 / 133.55 / 138.38
FEB / 419.72 / 632.05 / 301.20 / 205.40 / 197.23 / 137.39 / 131.86 / 141.07 / 137.72
MAR / 447.10 / 645.29 / 301.30 / 220.09 / 211.20 / 138.50 / 134.11 / 150.77 / 141.33
Further Information
This Investment Bulletin is designed to provide a summary of the investments of the Lifestyle Plan. More detailed financial information will be contained in the full Report and Accounts of the Lifestyle Plan which are published later in the year.
Appendix 1, overleaf, gives a reminder of your investment choices and other information.
If you would like to discuss any aspect of the Lifestyle Plan please contact GMG Pensions Department - e-mail
Appendix 1 –Investment Reminders
Your Investment Choices
You have a choice over how to invest your own Lifestyle account. You can spread your investment amongst the nine available funds in whatever way you choose.
However, if you don't feel comfortable managing your own investments, there is an automatic, default, arrangement. The default strategy has been designed to provide a carefully worked out investment strategy that can be suitable for many members through their careers. However, there could be a number of reasons why you might want to override the automatic arrangements and make your own investment choices, perhaps after seeking independent financial advice.
It is important to understand that in a money purchase arrangement such as the Lifestyle Plan it is the responsibility of members to ensure that the funds in which they are invested are best suited to their individual requirements. Whilst over the long-term the expectation remains that funds with high equity (investment in companies on the stock market) content will provide a higher return than funds invested in bonds or cash, albeit with higher volatility, this cannot be guaranteed.
The Role of the Trustees
The role of the Trustees is to provide an appropriate range of funds for members and to review the investment strategies of the various funds from time to time, but it should be stressed this does not include the Trustees trying to forecast investment market movements.
The investment strategy aims to reduce some volatility by investing in "index tracking" funds. This simply means that the investments are made in a broad range of shares or bonds in such a way that the return should be virtually identical to the overall return of the relevant stock market index. You should remember though that investments in equities, corporate bonds and government stocks can all go up and down as a result of market movements generally. The Trustees have appointed Legal and General Investment Management Limited to carry out the index tracking strategy.
The Trustees' investment strategy is set out in their Statement of Investment Principles, which is available on our website or from the Pensions Department (see back page for contact details).
Choosing your own Funds
You can specify how you want your Lifestyle account to be invested, split between the available funds listed below.
(If you wish, you can choose one investment split for your existing accumulated Lifestyle fund and choose a different investment split for future contributions).
- Long Term Fund
- Short Term Fund (Bonds)
- Short Term Fund (Cash)
- UK Equity Fund
- Overseas Equity Fund
- Ethical Global Equity Fund
- Corporate Bond Fund
- UK Government Stocks Fund
- UK Government Index-Linked Stocks Fund
You should monitor the relative investment returns and make further changes as required. Adjustments to your investments will take place on the next available "dealing day" after receipt of your instructions. This often occurs on a Wednesday of each week and on the last working day of every month but there are exceptions so you should check on our website or with the Pensions Department if you require exact details.
Automatic (default) Investment Strategy
If you don't feel comfortable managing your own investments and specifying your own mix of funds, then your Lifestyle account will be invested in accordance with the default strategy. Under this arrangement, your account is normally invested in the Long Term Fund, (see earlier re the mix of equities and bonds in this fund). The value of equity investments can be volatile from time to time and can sometimes suffer sharp setbacks in times of economic or political difficulty. Despite this volatility and the absence of guarantees, equity investments are nevertheless generally considered appropriate for long term growth.
As you approach retirement, it is usually helpful to try to reduce volatility by switching your Lifestyle Account into the Short Term Fund which is currently invested in Bonds and Cash. Whilst Bonds can fluctuate, they tend to move in line with interest rates generally thus giving some stability to the pension which you can purchase with your accumulated account. However, Bonds cannot protect against changes in other factors which insurance companies use to determine annuity rates such as mortality trends.
The default strategy has been designed to provide a carefully worked out investment strategy that can be suitable for many members through their careers. However, there could be a number of reasons why you might want to override the automatic arrangements and make your own investment choices, perhaps after seeking independent financial advice.
Switching – Default Strategy
As you approach retirement, it is usually helpful to try to reduce volatility by switching your Lifestyle account into the Short Term Fund.
The Lifestyle Plan will normally automatically switch 10% of your accumulated account in each of the ten years before your Target Retirement Date (TRD) from the Long Term Fund to the Short Term Fund. Thus, during the last year the whole of your account will be in the Short Term Fund. For some members, the switching period is 5,6,7,8 or 9 years dependent on how far away from TRD they were at 1st April 2003.
Default TRD is age 65 (see below re choosing your own TRD).
You should bear in mind that the automatic switching arrangements into the Short Term Fund may not be suitable if, for example, you are intending to choose a non - conventional annuity or income drawdown arrangement (see the brochure "Your Pension Your Choice" for more information regarding these choices at retirement).
Choosing your own Target Retirement Date (TRD)
This is normally set to age 65 for everyone on joining the Plan. For the purpose of the automatic switching you can set your own TRD to any age between 50 and 65, so that the switching will take place over the 10 year period up to your chosen TRD. You can change your TRD at any time. Remember that if you joined the Plan after 5th April 2006, then you can only take your benefits from age 55 onwards.
If you change your target retirement date the adjustment to your investments will take place on the next available "dealing day". This often occurs on a Wednesday of each week and on the last working day of every month but there are exceptions so you should check on our website or ask the Pensions Department if you require exact details.
When the default strategy may be unsuitable
- If you plan to take your benefits before age 65 ….You should set your own TRD (see above).
- If you want more (or less) invested in equities.
- If you do not intend taking a tax free lump sum at retirement (almost everyone does because it is tax free!).
- If, at retirement, you are planning to transfer your Lifestyle account into an “income drawdown” arrangement (i.e. not immediately purchasing an annuity (pension)).
Further details of all investment options and switching procedures are in the Investment Guide available from the Pensions Department - e-mail
w/years/2010/GMG Inv Bul 2010