Blake Lapthorn, Barings, Shilling and Barnett Waddingham's Southern Pensions conference - 22 November 2012


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'Blake Lapthorn solicitors Pensions team, along with Barings, Shilling and Barnett Waddingham held a Pensions conference in Blake Lapthorn's Southampton office on 22 November 2012. The conference was titled: Pensions - are we (anywhere near) there yet?

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  • Over 15yr FI GRY
  • Market conditions => allow for in recovery plan Change the date – eg gilt yields were much higher 6-9 months ago… Need to be able to justify! Actual case => scheme merger.. Smoothed gilt yields – (taking average over a period). Feels ok for future service, but more difficult for past service (consistency of asset and liability valuations). Again this is something we have discussed with clients. Key message is that there are alternatives – and not just in theory, we’re actively discussing these with our clients.
  • Shows little correlation between the two and a wide spread of returns for equities. Standard deviation either side of mean shows wide region. Issues Tax Retrospective yield
  • What to do if concerned by a funding update between valuations
  • What to do with a triennial valuation result – guidance from tPR for Sept 2011 – Sept 2012 valuations
  • Only considered Met Life as full market review could cause cost increase due to delay. Move quickly to secure rates. Employer was consulted The Met Life deal complete in less than 6 weeks Issues to keep in mind Put data in Met Life’s format spreadsheets for speed Lots of paperwork for client to sign/provide Client representatives need to be available and ready to act quickly A cash transfer is quicker than an in specie transfer SSD turned round legal advice quickly
  • Helping employees (and others) to understand complex matters - the tools you can use and the benefits you can achieve
  • Fill in the gap! Is pensions communication, AE, a problem for you or an opportunity? If it’s an opportunity, you have to act to maximise and make use of that If it’s a problem, you have to ask, what effect that will have on your workforce. Your negativity will communicate itself… you won’t have to do anything! People will get the message. So… by acting, and choosing your message and style of communication, you can begin to control the situation. Organisations that fail to communicate perform less well and are less resilient to external pressures and challenges. Leadership? Compliance only? Stats Employers of note?
  • This is the first question many Trustees and clients ask / challenge us with Clearly there are two sides…
  • Cost / problem
  • Opportunity
  • Pro-active , encouraging and seeking inclusion Straight down the middle – this is appealing to our industry and character; but does this work? Our “straight” is most people’s nightmare… on the level of mortgage agreements, insurance contracts and lease hire… show 7 page ‘recommended’ letter from TPR! An opportunity to reinvigorate the pensions industry… Still hoping it will go away! ?
  • If people are opting-out, do you know why and are they making that decision appropriately?
  • If there’s one thing pensions people should know it’s their data! Organisational, public and individual Your organisation Staging date Size and structure Your workforce profile: age, gender, location, shift patterns, turnover, pay, first language
  • Using member data to engage with accuracy 40 year old males or 21 year old females Low paid savers or high earners Near retirees or post 65 Risk profiles, personal preferences, different styles Your horizon; how far can you see ahead? Where you are now – Where you need to be Reminders, anniversaries, targets Key issues and messages “ People like you…”, reward good behaviour… These steps can lead to communications which has a deeper connection with your audience
  • In the past, people have said, “you simply have to sell pensions… make them look attractive” but this forgets the pain – fears, frustrations and obstacles are built into the subject.
  • Goal setting Realistic levels Small steps Encouragement, words of support Rewarding behaviour Regular tracking Age-appropriate messages Consumers, marketeers, retail outlets all understand it; some companies understand it, but sober, suited finance industry practitioners don’t get it - rewarding behaviour works. It builds loyalty, a sense of pride and achievement and reinforces good behaviours. Frank’s long term view is, maybe, at best, 2-3 years away – not 45 years. How are YOU going to help him? Tracking and small steps.
  • 95% members are in default choice. Not good or bad – but you can’t prove it’s a conscious decision either…
  • Cash + 4, CPI + 5, equate to real rate of return for many pension schemes. Shown on log scale, equities deliver that return Returns from UK equities over longer term = some 5%, once you’ve stripped out inflation From bonds, some 2%. What does this mean for us as inv managers? We need to take on equity risk… BUT: look at the bars on the chart… = UK equity returns small blip at the end of blue line = last year, -30% I.e. even in a lower vol market such as UK, movements can be huge… Painful in world of FRS17! So our challenge = how do we get the sort of returns offered by UK equities but with less than equity risk? 2 words – asset allocation Various academic studies suggest that bulk of a fund’s returns = from asset allocation
  • The aim of DGF funds is to deliver equity like returns but with less then equity risk and the way to do this is by investing across a range of asset classes, so clients benefit from diversification which in turn can help minimise volatility. However, its important to note that funds should not be diversified just for the sake of diversification, but because the different asset classes will actually contribute to the risk return profile. Diversity means different things at different times ie in ’08 having a bit of everything was no help, whats important is to look at the correlation of different asset classes and how these correlations change over time, DGF mgrs should be looking at this in detail. (ie you don’t need to have every single fruit in your basket, just the right mixture of the ones you want to eat.) In essence it’s a way of realigning what the manager does to fit more closely with the trustees needs of delivering returns to meet the scheme liabilities
  • There are a number of different names for DGF strategies, MATR, DAA, New balanced, however they can broadly be split into 3 categories: At the most basic level Passive S&A consist of all passive, passive funds with static asset allocation. They tend to come up w a LT strategy and stick with it, these funds are still less vol then equities due to their diversity, but they don’t move in and out of different asset classes eg L&G Active ss passive aa – use active managers but are more static in their allocation, they have the same approach to aa as the previous style, but believe there is some value in active ss to generate o/p, they use ss to make the portfolio more aggressive or defensive e.g Schroders Ab return funds utilise the whole opportunity set, they recognize its good to have a lt view, but will take the opportunity to increase/decrease exposure to different asset classes at different times. This style of investment is dynamic in its allocation between asset classes, in anticipation of & responding to market events. The funds can use active or passive funds, depending on the market and have a bias towards the top down macro view. Its estimated that 75% of returns are generated from being in the right asset class at the right time and 25% from selecting the right stock. It wont surprise you that this is our style of mgmt!
  • There are a number of different names for DGF strategies, MATR, DAA, New balanced, however they can broadly be split into 3 categories: At the most basic level Passive S&A consist of all passive, passive funds with static asset allocation. They tend to come up w a LT strategy and stick with it, these funds are still less vol then equities due to their diversity, but they don’t move in and out of different asset classes eg L&G Active ss passive aa – use active managers but are more static in their allocation, they have the same approach to aa as the previous style, but believe there is some value in active ss to generate o/p, they use ss to make the portfolio more aggressive or defensive e.g Schroders Ab return funds utilise the whole opportunity set, they recognize its good to have a lt view, but will take the opportunity to increase/decrease exposure to different asset classes at different times. This style of investment is dynamic in its allocation between asset classes, in anticipation of & responding to market events. The funds can use active or passive funds, depending on the market and have a bias towards the top down macro view. Its estimated that 75% of returns are generated from being in the right asset class at the right time and 25% from selecting the right stock. It wont surprise you that this is our style of mgmt!
  • In summary WHAT are DGF funds? They are an alt…….. WHY are they helpful for pension schemes? Because they target….. HOW do they work? They access equity mkts………… Its an approach seeing growing demand from small, medium sized and large pension schemes.
  • Blake Lapthorn, Barings, Shilling and Barnett Waddingham's Southern Pensions conference - 22 November 2012

    1. 1. Southern Pensions Conference 2012Are we (anywhere near) there yet? New Kings Court, Chandler’s Ford 22 November 2012Adrian LambBlake Lapthorn
    2. 2. Southern Pensions Conference 2012 Health & safety and housekeeping! Feedback forms Ask questions throughout Participate Challenge Enjoy
    3. 3. Southern Pensions Conference 2012 Agenda and timetable 9.30 am Introduction – look back in anger, look forward in hope 9.40 am What really worries me is …… 9.45 am So what are my liabilities exactly? – Paul Jayson, 10.20 am Picking up the pieces - Richard Portlock & Nicola Walker 10.50 am Communication not just information – Alex Thurley-Ratcliff 11.20 am COFFEE BREAK 11.40 am Where in the world – and what – Jonathan Cunningham 12.15 pm Auto enrolment – the duties and challenges – Shaun Thompson 12.35 pm The Trustee’s perspective and the crystal maze 12.50 pm Questions and open forum 1.00 pm LUNCH!
    4. 4. Southern Pensions Conference 2012
    5. 5. Previous questions Is there such a thing as a risk free investment? Can I ever know what our liabilities really are? Data, what data? Is there such a thing as an equity risk premium now … or is it just an equity risk? Can I get smarter with my/our investment strategy? What does it take to make DC adequate? What is adequate? Is auto enrolment just a precursor to more tax? Can it work? What do we need to do? Can I do anything about this (other than pray)?
    6. 6. Why am I here today?
    7. 7. Current questions  Can DC deliver what employers and employees want?  How real is the measure of my liabilities – or what measure is the most realistic – TP, PPF or buy out?  Mistakes happen but what can I do about them?  Where can I achieve the most in the time available?  Can I make auto enrolment into a positive rather than just a headache?  How can I improve understanding?  What is the “big picture” here?
    8. 8. Southern Pensions Conference 2012- the economic backdrop “Fiscal cliff” “Flat is the new growth” “Zombie companies” “Extend and pretend” More for less (or at least no more) Eurozone crisis (chronic) Triple dip? QE – a necessary evil? BRIC & CIVETS v. PIIGS+ ?
    9. 9. Southern Pensions Conference 2012
    10. 10. Southern Pensions Conference 2012
    11. 11. HOPE SPRINGS ETERNAL PLCMain site – Roy Rovers Close, Melchester
    12. 12. So what are myliabilities exactly?How worried do you need to beabout your current deficit figure?Paul Jayson 22 November 2012
    13. 13. Introduction15
    14. 14. The Current Environment16
    15. 15. Low gilt yields Government bond yields are at historic lows A combination of economic factors: • Supply and demand • UK bonds perceived as a relative safe haven • Bank of England’s quantitative easing (QE)17
    16. 16. Low gilt yields Source: FTSE18
    17. 17. Why have yields fallen?19
    18. 18. Impact on actuarial valuations BUT20
    19. 19. Scheme Funding – Double Pain?21
    20. 20. PPF levies Source: PPF • PPF levies (based on deficit) will be significant22
    21. 21. Are Things as Bad as They Seem?23
    22. 22. Do we need to reflect low yields?24
    23. 23. Steep Yield Curve – Case Study Previous method: yield on an index with a shorter average term Revised method: reflects the full profile of the liabilities •Change results in a higher discount rate Single yield 85.7% Yield curve 100%25
    24. 24. Long-Term Equity Model • Alternative equity model • Return = Dividend yield + GDP growth • Current ERP implied by DDM is ca. 5-6% pa26
    25. 25. Equities vs. Gilts Spread of returns Data source: Barcap study27
    26. 26. Other Growth Assets Similar approach possible for: •Property •Infrastructure Absolute return funds: •Consider benchmark return28
    27. 27. RPI & CPI – The Formula Effect Source: ONS
    28. 28. Consultation on changes to RPI • Various options to reduce RPI • Formula effect could be removed entirely • Market already partially pricing in anticipated change ? • Decision expected in January 2013 • Effect on gilts • Some gilts have ‘materially detrimental’ price protection • Another ca. £240bn without protection30
    29. 29. Update your mortality - CMI31
    30. 30. WHAT DO I NEED TO DO?32
    31. 31. Interim valuations Extra security Ride out Revise the SoC storm?33
    32. 32. Regulator’s Statement - SummaryNot appropriate to second-guess gilt yields in thevaluation results • Need to recognise your technical provisions in fullFlexibility in the Recovery Plan • Can reflect post-valuation events • or future investment views • Starting point: maintain contributions in real terms • Reduced contributions or longer recovery plans require “sound justification”Scheme should be equitably treated amongcompeting demands of employer34
    33. 33. Other Possible Actions Uprisking • Can reflect in recovery plan Liability management • Add PIE option at retirement Break salary link? Amendments to future service Additional security • SPV / contingent assets • Improve funding and reduce PPF levy35
    34. 34. Company levers36
    36. 36. Buy-In or Matching Opportunities Pricing attractive for schemes currently holding gilts • Especially shorter-term gilts Pensioner buy-in may have a small or no impact on the scheme funding position Reduce volatility of the funding position38
    37. 37. Strategy changes Inflation Hedging • Lock into current low rates • Especially if selling fixed interest gilts to do so Uprisking? • Opportunity to ‘bank’ gilt rises • Forms part of a wider strategy review39
    38. 38. Quick transaction case study Example Ltd is a mature DB Scheme with 80% pensioners. It is fully funded on a solvency basis with £40m assets. Investments: 75% gilts , 15% corporates, 10% equities BUT… Scheme provides discretionary increases •Funding for these leaves a £4m deficit Valuation in progress – issues faced:40
    39. 39. Quick transaction case study Insure pensioners • Guaranteed benefits only – costs £1m less than TPs with Met Life Split remaining • Protection for other guaranteed benefits (pooled swap funds) assets • Growth to back future discretionary benefit Growth assets • Required return 2% p.a. above gilts if buy-in with Met Life split between cash • No further contributions needed from employer and DGF Trustees and Employer compromised but achieved objectives: • Trustees - security for guaranteed benefits and continuation of discretionary increases • Employer - affordable funding commitments • Both - framework for managing scheme going forward41
    40. 40. Regulatory Information The information in this presentation is based on our understanding of current taxation law, proposed legislation and HM Revenue & Customs practice, which may be subject to future variation. This presentation is not intended to provide and must not be construed as regulated investment advice. Returns are not guaranteed and the value of investments may go down as well as up. Barnett Waddingham LLP is a limited liability partnership registered in England and Wales. Registered Number OC307678. Registered Office: Cheapside House, 138 Cheapside, London, EC2V 6BW Barnett Waddingham LLP is authorised and regulated by the Financial Services Authority and is licensed by the Institute and Faculty of Actuaries for a range of investment business activities.42
    41. 41. Southern Pensions conference Picking up the pieces Nicola Walker, Associate and Richard Portlock, Partner
    42. 42. Picking up the pieces(when you wish you could travel back in time)
    43. 43. Common pitfalls Insufficient detailed knowledge of Deed and Rules – Over reliance on advisers – Understanding particular benefits issues - eg revaluation, application of increases to pensions in payment Lack of care when making specific changes – eg equalisation, changes in benefit structure – ask questions! – Check the amendments reflect what you are trying to achieve
    44. 44. Common pitfalls - continued Failing to act promptly – Do not rely on right to let drafting catch up with decision making/administrative practice – Restrictions on taking away benefits
    45. 45. Rescue missions Applications for directions – Duty of Trustees to understand scope of scheme liabilities – Support for Trustee decision making by the Courts – Involvement of representative beneficiaries Rectification – Available where a document fails to record what you intended it to record – Distinction between a mistake as to the content of a document and its effect – Filling the funding gap
    46. 46. Rescue missions – continued Principal employer Claims against advisers – Negligence – What would have you done, properly advised? – Quantifying loss - actuarial evidence – Contributory negligence?
    47. 47. Tips for sound sleep at night Appoint advisers carefully Rely on advice - but test assumptions and ask questions Maintain a secure grasp of the detailed effect of changes Remember help is available when things go wrong
    48. 48. Some of our happy endings……. Directions Applications – Foster Wheeler Negligence proceedings – Out of Court settlement Rectification – Successful amendment of incorrect documentation
    49. 49. Communication, not information22nd November 2012 Alex Thurley-Ratcliff Please note that the content, designs and specific ideas shown within this presentation are copyright to SHILLING COMMUNICATION LIMITED © 2012
    50. 50. An audience which is engaged and appreciative of yourreward and benefits strategy is ???? ????
    51. 51. Why bother?
    52. 52. Why bother communicating? • Problem • Compliance • Tax • Negative • “They” not “us” • Out of my control • No leadership
    53. 53. Why bother communicating? • Leadership • Opportunity • Supportive • Positive • Taking control • Trustworthy • Future… A co s t or a potential return?
    54. 54. Style
    55. 55. Measurable success Employer wants X to happen… – What outcomes? – What targets? – Measure and refine – Ongoing process and years to develop
    57. 57. What do they THINK AND FEEL? what really counts major preoccupations worries and aspirations What do they What do they HEAR? SEE? what friends say environment what boss says friendswhat influencers say what the market offers What do they SAY AND DO? attitude in public appearance behaviour towards others PAIN GAIN fears wants and needs frustrations measures of success obstacles obstacles
    58. 58. Segmented Communications
    59. 59. Getting attention Recognise that people aren’t interested – Channels: optimised for your audience – Packaging: first impressions count – Relevant: make it personal and meaningful – Tone: honesty“Fits with me”
    60. 60. Build positive initial behaviours Goal setting – Realistic levels Small steps – Encouragement, words of support – Rewarding behaviour – Regular tracking Age-appropriate messages
    61. 61. Age appropriate messaging
    62. 62. Getting real decisions throughcalls to action What is a real decision? How do you increase the likelihood of employees making firm decisions?
    63. 63. Opt Out Join 3 year anniversary? All at once? Annual reminders? Contributions phasing? Eligible Jobholders Printed or Printed orPayroll data Web info as Web info as• One or multiple required required payroll uploads• Common format required• Stage test of data • System carries out  Email Email and then push live checks against  SMS SMS• “Live” feed could be eligibility data: age, AE  PDF PDF discussed pay and joining date  PURL Comms  PURL Web Not Eligible & • Could include cost of Web contributions at point Platform  dPrint dPrint Entitled Workers of AE Opt in Change in eligibility Management info • Can be pulled or pushed via email 1-3 month postponement communications Online updates / checks and end result communicated effectively
    64. 64. AE Comms Platform
    65. 65. AE Comms Platform
    66. 66. AE Comms Platform
    67. 67. AE Comms Platform Dear Mrs Jones You may have heard about Auto-Enrolment or AE. This is the Government’s plan to help more people save for their retirement. Auto- Enrolment means that employees who meet the criteria will be automatically enrolled in the XYZ Pension Scheme, pay a small contribution towards membership, but receive contributions from the James Smith company as well. Pension Manager XYZ Pension Scheme Tel: 01234 567890 E: james/
    68. 68. Please note that the content, designs and specific ideas shown within thispresentation are copyright to SHILLING COMMUNICATION LIMITED © 2012
    69. 69. FOR PROFESSIONAL ADVISERS ONLY Where in the world – and what? Blake Lapthorn – Southern Pensions Conference November 2012Baring AssetManagement Limited Jonathan Cunningham155 Bishopsgate,London, EC2M 3XYTel +44 (0)20 7628 6000Fax +44 (0)20 7638 7928www.barings.comAuthorised and regulated by theFinancial Services Authority CONFIDENTIAL
    70. 70. Introduction• Most pension funds require an allocation to growth assets• Equity investment has been the traditional route• Is there a better alternative?• How do Diversified Growth Funds work?• How can they replace equities in a growth portfolio? 77
    71. 71. Why a cash or inflation + target? Log scale % change year on year 10,000,000 140 120 1,000,000 100 100,000 80 10,000 60 40 1,000 20 100 0 -20 10 -40 1 -60 1899 1909 1914 1919 1924 1929 1934 1964 1974 1979 1989 1999 2004 1904 1939 1944 1949 1954 1959 1969 1984 1994 2009 Gilt returns % (RHS)~ UK equity returns % (RHS)~ UK Equity Nominal TR Index (LHS)* UK Cash + 4% Index (LHS)* UK Cost of Living + 5% Index (LHS)* Libor +4% = equity return with less riskSource: Barclays Equity Gilt Study 2012, 1899 – 2011* Cumulative ~ Annual 78
    72. 72. How do Diversified Growth funds work?Aim• To deliver equity like returns with less risk than equities by targeting an absolute return over cash or inflationApproach• Not benchmark driven - every investment held is because it will contribute to the risk/return profile• Multi-asset investing – potential to hold the broadest range of assets• Manager has control over asset allocation – seeking returns in different markets An investment and governance solution 79
    73. 73. Some examples of Diversified Growth Funds Passive Asset Active Allocation Asset Allocation Active Stock Passive Selection Stock Selection Derivatives Strategies/ Currencies ? Common aim to deliver real returns, reduce volatility and improve governance 80
    74. 74. Our approach The Baring Dynamic Asset Allocation Fund• We target Cash +4% absolute returns within 70% of equity risk• Focus on dynamic asset allocation- the most important generator of returns• Dynamically participating in up-markets and dampening volatility in down markets• Diversify in different ways at different times• Simple building blocks - clear and transparent implementation 81
    75. 75. Why Dynamic Asset Allocation is Critical Best and worst performing asset classes2007 2008 2009 2010 2011Emerging Equities 37.4 Overseas Bonds 58.1 Emerging Equities 59.4 Gold Bullion 33.4 Index Linked Gilts 23.3Gold Bullion 29.6 Gold Bullion 42.8 Asia Ex Japan 53.3 Asia Ex Japan 24.0 UK Gilts 15.6Asia Ex Japan 29.0 UK Gilts 12.8 UK Equities 30.1 Emerging Equities 22.9 Gold Bullion 11.9European Equities 15.3 Cash 4.7 European Equities 19.4 N American Equities 19.0 Property 8.1Hedge Funds 4.5 European Equities -24.4 Cash 0.5 UK Gilts 7.2 Asia ex Japan -13.0Corporate Bonds 1.8 UK Equities -29.9 UK Gilts -1.2 European Equities 5.3 Japanese Equities -13.1Property -5.5 Asia Ex Japan -31.3 Japanese Equities -5.9 Hedge Funds 5.2 European Equities -15.2Japanese Equities -6.5 Emerging Equities -35.2 Overseas Bonds -9.7 Cash 0.4 Emerging Equities -17.6 The right asset class at the right time is keySource: Barings as at 31.12.11 82
    76. 76. Changes in asset allocation since inceptionBaring Dynamic Asset Allocation Fund (% )100 Cash/Near Cash Alternatives 80 Property 60 Themed Fixed Fund* Corporate/Convertible Bonds 40 Overseas Govt Bonds UK Gilts 20 Overseas Equity 0 UK Equity O M M M M M M 2 1 3 c 7 0 n a 1 3 7 n u 0 3 D 8 n u 0 3 D 9 n u 0 3 D 1 n u 0 3 D 1 n u 0 3 D 2 1 n u 0 3 J J S J S J S J S J S J S 7 0 a 1 2 8 0 a 1 3 9 0 a 1 3 0 a 1 3 a 1 3 2 a 1 3 - 7 0 p e 8 2 7 0 e 1 3 8 p e 0 3 8 0 e 1 3 9 p e 0 3 9 0 e 1 3 1 p e 0 3 0 e 1 3 1 p e 0 3 e 1 3 2 1 p e 0 3 t - - c - c - c - c - c - r - r - r - r - r - r - - - - - - - - - - - - Source: Barings, as at 31.10.12, Gross Exposure Inception date: 16.01.07 *Themed Fixed Fund composition: Aug ’07-Feb ’08: 0-3yr Ster bonds. Mar ’09-June ’10: Overseas ILGovt; Aug 10-to date: EMD 83
    77. 77. Current Portfolio & Themes (as at 31st October 2012) Concern Implication US monetary policy more radical, but US the major uncertainty for 1H 2013 fiscal policy tightening Global growth still slow Earnings expectations still vulnerable Slower growth in China recognised by Similarly recognised by Chinese markets the administration ECB has toolbox to avoid financial Governments less threatened by markets, market-induced failure of the Euro rather their electorates Corporate sector hoarding cash; nervous Supporting of credit with still little scope about investment for higher government bond yieldsSource: Barings
    78. 78. Dynamic Asset Allocation Fund PerformanceQuarterly Returns Since Inception Return %30 4 2 .20 6 3 1 . 5 2 1 . 9 0 1 . 4 810 . 4 7 5 6 . 4 6 4 6 1 6 7 5 . . . 5 . . 7 4 . 5 4 8 3 . 7 3 . 3 1 3 0 3 0 3 . 9 2 . 6 2 . . . . 0 2 . 9 1 8 1 . 3 1 2 1 1 . 1 0 . . 0 7 . . 2 0 . . . . 0 -0 4 -0 9 -1 3 . -15 -1 8 . -1 9 . -2 3 -2 4 . -2 6 -2 6 . . -3 1 . . . . .-10 -9 1 -9 9 . . -1 2 0 . -1 8 1 -1 2 .-20 . -1 5 3 . Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 7 0 1 7 0 2 7 0 3 7 0 4 8 0 1 8 0 2 8 0 3 8 0 4 9 0 1 9 0 2 9 0 3 9 0 4 0 1 0 1 2 0 1 3 0 1 4 1 1 2 1 3 1 4 2 1 1 2 2 1 3 S n a ) ( . I Fund FTSE All Share Past performance is no indication of current or future performance. The performance data does not take account of the commissions and costs incurred on the issue and redemption of units. Source: Barings & Morningstar, as at 31.10.12. SI (ann) as at 31.10.12. DAAF performance figures are shown for I Class shares in Sterling on a NAV per share basis, with net income reinvested. Reference to the index is for comparative purposes only. 85
    79. 79. The application of DGFs by pension schemesDB Schemes100%  Substituting all growth assets25% - 50%  A core holding which dynamically changes the growth asset mix of the scheme, while maintaining strategic allocations to other growth asset classes5% - 10%  Strategic allocation to an alternative risk/return profileDC Schemes• An “accumulation phase” equity replacement strategy• Often used as a part of scheme default for early and middle stages of a “lifestyle” approach
    80. 80. Conclusion• An alternative growth asset offering less volatility than equities• Targeting a real rate of return• Aiming to access equity markets at the right time• With the ability to diversify away from risk assets to control volatility An approach generating increased appetite from public and private sector Pension Schemes 87
    81. 81. Important InformationFor Professional Investors/Advisers only. It should not be distributed to or relied on by Retail Investors. This document is approved and issued by Baring Asset Management Limited, authorised and regulated bythe Financial Services Authority and in jurisdictions other than the UK it is provided by the appropriate Baring Asset Management company/affiliate whose name(s) and contact details are specified herein. Theinformation in this document does not constitute investment, tax, legal or other advice or recommendation. It is not an invitation to subscribe and is for information only.Investment involves risk. The value of any investments and any income generated may go down as well as up and is not guaranteed. Past performance is not a guide to future performance. Where yields havebeen quoted they are not guaranteed. Changes in rates of exchange may have an adverse effect on the value, price or income of an investment. There are additional risks associated with investments (made directly orthrough investment vehicles which invest) in emerging or developing markets. Investments in higher yielding bonds issued by borrowers with lower credit ratings may result in a greater risk of default and have a negativeimpact on income and capital value. Income payments may constitute a return of capital in whole or in part. Income may be achieved by foregoing future capital growth. We reasonably believe that the informationcontained herein from 3rd party sources, as quoted, is accurate as at the date of publication. The information and any opinions expressed herein may change at any time. Companies and employees of the Baring AssetManagement group may hold positions in the investment(s) concerned. This document may include internal portfolio construction guidelines. As guidelines the fund is not required to and may not always be within theselimits. These guidelines are subject to change without prior notice and are provided for information purposes only.This document may include forward looking statements which are based on our current opinions, expectations and projections. We undertake no obligation to update or revise any forward looking statements. Actualresults could differ materially from those anticipated in the forward looking statements.This document must not be used, or relied on, for purposes of any investment decisions. Before investing in any product, we recommend that appropriate financial advice should be sought and all relevant documentsrelating to the product, such as Reports and Accounts and Prospectus should be read. Compensation arrangements under the Financial Services and Markets Act 2000 of the United Kingdom will not be available inrespect to any Offshore Fund.Research MaterialBaring Asset Management only produces research for its own internal use. Where details of research are provided in this document it is provided as an example of research undertaken by Baring Asset Management andmust not be used, or relied upon, for the purposes of any investment decisions. The information and opinions expressed herein may change at anytime. Compliance (London): 06 August 2012For data sourced from Morningstar: © Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3)88Compliance (London): 16 November 2012 is
    82. 82. Auto enrolment – the duties and the challenges More than just pensions! Shaun Thompson, Solicitor Pensions team
    83. 83. Auto enrolment in a nutshell Applies to all UK companies! Workforce is split into eligible, non eligible and entitled workers. Different obligations in relation to each category of worker. Some obligations in force now, some will come into force in coming months and years. Re-enrolment obligations.
    84. 84. Why auto enrolment? Cost pressures and lifestyle choices – we are living longer and not saving enough for retirement! The auto enrolment reforms intend to address this issue.
    85. 85. How prepared are you? Studies suggest many UK employers are not yet fully prepared. This will affect your business – ensure you’re ready!
    86. 86. Staging date What is it? When is it? Do you know when your company’s staging date is? How do you comply with it? Payroll issues. Plan and prepare, don’t underestimate challenges!
    87. 87. Identifying your workforce What is a worker? Know which of your employees are eligible, non eligible and entitled workers. Keep this under review – employees can switch between categories!
    88. 88. Which pension arrangement(s) to use? Use an existing pension scheme? Set up a new pension scheme - occupational or personal/trust based or contract based? Master trust? Use NEST? Use a single arrangement or a mix of the above? Self certification. Salary sacrifice. Use postponement/transitional period?
    89. 89. Using contractual enrolment  Simpler but more expensive?  Watch out for potential issue as to deduction of contributions.  Differences in communication requirements?  Remember re-enrolment obligations for employees who opt out!
    90. 90. Notices and record keeping requirements Prescribed requirements which employers must meet. Remember deadlines and time limits!
    91. 91. High earners Potential for HMRC protection to be lost. Potentially expensive consequences for employees with this protection! Duty of good faith - employer communication strategy?
    92. 92. Investment funds and charges – risks toemployers? No “safe harbour” protection in auto enrolment legislation. Suitable default fund, investment options. Pot follows member concerns. Employer’s duty of good faith.
    93. 93. Penalties for non-compliance Pensions Regulator can intervene and require certain steps to be taken and/or impose financial levies for non-compliance. Fines can be of up to £10,000 a day. Criminal offences. Should help companies focus on their duties and obligations!
    94. 94. Conclusion Auto enrolment is not going to go away! Ensure your company will be able to meet obligations by its staging date. Ongoing obligations and compliance. Challenges and opportunities! Success? Here to stay? Get out the crystal ball!
    95. 95. Questions?
    96. 96. The Trustee’s perspectiveand the Crystal Maze
    97. 97. Southern Pensions Conference 2012 Just when you thought things couldn’t get any worse! UK Fund deficits up by £20bn (or more)? Volatile asset values – where to get some value? Auto enrolment – more work but for what benefit? What chance have employees got to understand all that is going on – new arrangements; DB to DC; investment choices; AMCs, AMDs, etc. Continued pressure on covenants Life expectancy??? Retirement – what retirement? Outlook for gilt yields????
    98. 98. Southern Pensions Conference 2012
    99. 99. D = Deficits – but how much really? Deferred payments? Deal with the mistakes Defensive De-risk (or re-risk)? Dynamic Asset Allocation (or Diversified Growth) Defined Contribution = disappointment and delayed retirement Difficult messages and decisions Delegate more or better (or both)
    100. 100. Southern Pensions Conference 2012 - a Trustee’s perspective – a look back at the last 12 months More - or at least the same - for less, eg audit fees What next - valuations, administration, governance budgets? Towards fiduciary management (or proxy) = fewer lunches! Buy ins/outs in vogue and then? Gilts v. Corp bonds 2nd/3rd valuation = better understanding but greater pressures? Data and benefit audits TPR expectations Less time – more focus
    101. 101. Southern Pensions Conference 2012Reasons to be cheerful?
    102. 102. Things to take away from today  This is all for the members – right contributions, right investments, right benefits  Liabilities - follow the rules but check your data  Manage your risks – they come in all shapes and sizes – liability, assets and operational  Good governance – What are you trying to achieve? – Plan on how to get there – Measure what you do as well as what others do for you – Adjust if and when you need to – Be decisive  Most DB schemes headed for either buy out or PPF – but is there an alternative?  Master trusts/aggregated schemes?  Other efficiencies – how hard has the pensions industry tried?Southern PensionsConference 2012
    103. 103. Things to take away from todayIMPROVING DC OUTCOMES Good choice of funds, including default fund Salary sacrifice Annual management charges Save more tomorrow? Governance matters just as much here – Committee with training – replicate trustee role? – Review processes – Agreed objectives Master trusts/aggregationIt’s in everybody’s interests that it is made to workSouthern PensionsConference 2012
    104. 104. Question timeSouthern PensionsConference 2012