Lotus Development Pension Investment Plan
Investing for retirement Presentation
Name Andrew StrathdeeRichard Smith Rita Galbraith November 2011
Welcome to our 2011 Lotus Development Pension Investment Plan Members Day
Agenda for Today– Introduction – Andrew Strathdee - Trustee and Secretary– Plan Update – where are we now?
• Age Discrimination Legislation• State Retirement Age• The New Funds• Member Nominated Trustees
– Thinking about retirement – Richard Smith - Plan Administrator• How much do I need to retire?
– Expectations and Aspirations – Rita Galbraith – Fidelity• Contributions• Investments• Tools to help you• What to do now
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Plan Update
Andrew Strathdee
Age Discrimination
Following legislation in 2006, the Trustees have agreed:– To allow “late retirement” after the scheme normal retirement age of 60– New Tier for contributions for members under age 35– Under 35 Tier applies equally to members over 60
The Trustees are still awaiting formal agreement from the Company
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New Contribution Rates (over 60s/under 35s)
Option 1 Option 2 Option 3Member 2% (4%) 3% (5%) 4% (6%)
Company 6% (12%) 7% (13%) 8% (14%)
Total 8% (16%) 10% (18%) 12% (20%)
IBM PPP - Member 3% 4% 5%
IBM PPP - Company 8% 9% 10%
Total 11% 13% 15%
Figures in brackets are current Lotus rates for members over age 50
Options at 60
Check contribution rates of the schemes
Are you on a Sales Plan? Pensionable Salary may be higher in Lotus Plan
If you leave Lotus Plan you cannot rejoin
IBM matching rates not contractual
TAKE ADVICE!
State Retirement Ages
Still some uncertainty. Latest Position:
For men born before 6 December 1953, the current State Pension age is 65. For women, the current State Pension age is increasing from 60 to 65 from April 2010.
This affects women born on or after 6 April 1950.
Proposal to increase State Pension age to 66: The government has published new proposals for increasing the State Pension age to
66. Women’s State Pension age will increase more quickly to 65 between April 2016 and
November 2018. From December 2018 the State Pension age for both men and women will start to
increase to reach 66 in 2020. These proposals affect you if you are one of the following:
– a woman born on or between 6 April 1953 and 5 April 1960 – a man born on or between 6 December 1953 and 5 April 1960
These proposed changes are not yet law and still require the approval of Parliament.
State Retirement Ages
People not affected by these proposed changes
These proposals do not affect you, if you are one of the following: a woman born on or before 5 April 1953 a man born on or before 5 December 1953 a man or woman born on or after 6 April 1960
The current law already provides for the State Pension age to increase to: 67 between 2034 and 2036 68 between 2044 and 2046
However, the government is considering how the State Pension age should be changed in the future. This may mean the timetable for increases to 67 and 68 will be revised. The government will bring forward proposals in due course. Any change to the timetable would require the approval of Parliament.
The New Funds Part of Trustee’s Role is to:
– Monitor investment arrangements, performance and prospects and review choices available– Implement changes after appropriate professional advice– Review new opportunities and developments
Trustee’s concerns– Concerned about disappointing past performance and about the suitability of the Fidelity
International Equity Fund as a long-term investment option for Plan members– Over the past few years, investment markets suffered as global economy went into recession. – Poor performance of many asset classes, in particular equities, has shown that investing Pension
Account in one single asset class can increase risk
The New Funds Trustees took advice and decided to:
– Replacing the Fidelity International Equity Fund with a new, actively managed, global equity fund• Design a new global equity fund (“Lotus Active Global Equity Fund”) that will invest in
actively managed equity funds, split between overseas and UK equities. – Introducing a new type of actively managed fund: the Schroder Diversified Growth Fund
• Spreading or “diversifying” Pension Account across different asset classes spreads investment risk
• Different asset classes have different characteristics; giving different performance depending on the economic climate, leading to smoother investment return for investors over most time periods.
Rita will talk more about these funds Later
Member Nominated Trustees
We will need to elect new Member Nominated Trustees (MNTs) next year– There are three MNTs for the Fund and six Company appointed.– The responsibilities of all Trustees are identical
• To ensure contributions are received from the Company and invested in line with members’ wishes;
• To keep records of members benefits and Pension Accounts;• To keep beneficiaries informed;• To appoint the Plan’s advisers;• To review the performance of the Plan’s investment managers and to appoint new
managers if necessary;• To act in the interests of the beneficiaries and ensure that benefits are paid in
accordance with the Plan Rules.
Member Nominated Trustees
You can be a Member Nominated Trustee if:– You are an active member of the Lotus Plan;– You understand the need for confidentiality;– You have an interest in pensions;– You are prepared to commit to the role for approximately 5 years.– You can attend approximately four meetings per year and undertake training as
required, including attending appropriate training courses and seminars, as well as taking the time to familiarise yourself with the Plan’s various documents
– Have the support of your manager– But NOT:
• undischarged bankrupts;• anyone either disqualified from being a director or convicted of an offence involving dishonesty
or deception• Not of sound mind!
Member Nominated Trustees
The Trustees will announce the nomination process early next year– Will require Nominees to produce a personal statement supporting their nomination, will check to
ensure they are eligible and get them to sign a declaration of eligibility– Publish a list of nominees to the members– Arrange selection panel of Trustees to identify the successful .nominee(s)– Announce the results
New MNTs will be formally appointed by Deed
MNTs who cease to be a member of the Plan for any reason, or to be an employee of IBM (UK) Limited will automatically be ineligible for continued Trusteeship
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Thinking aboutRetirement
Richard Smith
Thinking about retirement
1. Income in Retirement - what do I need and get?
2. Outliving your money – How long will I need it for
3. Inflation – the ever present threat
4. Investment Risks on my retirement income
5. Health Risks – Paying for care as I get older
Today we will look at the first three
The three pillars of Retirement Income
State Pension
Company Pension Savings
Income in Retirement
What do I need?– Comparing gross Lotus pension with gross IBM Salary can be misleading
• You don’t pay National Insurance • You don’t pay Pension Contributions• Tax may reduce• Other deductions will cease• Many work related expenses are no longer payable (e.g. Professional memberships , work clothing etc)
– Some expenses will increase• Home heating• Leisure and outings• Home entertainment equipment
What do I spend it on?– Varies by stage of retirement - On top of living expenses,
• Early in retirement - travel and recreation • Later in retirement - health, care and heating
Longevity – will I run out of money?
Actuarial Tables
Life Stage Life Expectancy Life Expectancy
Male Female
At Birth 78.2 80.3
At age 50 years 79.0 82.7
At age 60 years 80.9 83.9
At age 65 Years 82.2 84.9
Buy yourself some extra time…If you do this… You could gain this…
Stop smoking 6 years
Chat to friends
Keep a pet 1 year
3 to 4 years
Have sex every day
Do brain exercises 5 years
8 years
Source: The Daily Telegraph, 17.09.07 (article re Laindon Model); Life Trust presentation for ILAG.
Sleep 8 hours a night
3 years
6 years
Five-a-day fruit and vegetables
2 to 4 yearsModerate cardiovascular exercise
Get married Man: 7 years. Woman: 2 years.
Inflation Risk
At retirement, you will be able to choose between a fixed rate pension and one that increases in value
Whichever option you choose, it is likely that the real value will reduce over the course of your retirement
Fixed v Escalating Pension
Assume a fund of £250,000 for a male member retiring at 65
Flat pension = £15,400
Pension increasing at 3% = £10,600
These figures are based on current annuity rates and are subject to fluctuation. They assume a 50% spouse’s pension on death.
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Level or increasing?
Annual pension available from £100,000 pot
Retirement Age 65
Annuity rates: October 2008
Cumulative pension payments cross over after 23 years
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Year
Cum
ulat
ive
Pen
sion
(£)
in to
day'
s m
oney
term
s
Level Increasing 3%
Actual pension payments cross over after 11 years
Inflation Risk
With inflation at 3%, an annual fixed pension of £15,425 will reduce in real terms to £8540 in 20 years.
You may have other sources of income, eg State Benefits, that are fully protected against inflation.
Your personal inflation rate
Official figures – whether RPI or CPI – are a “broad brush” – everyone has their own individual rate according to their own life style and circumstances
Average Personal Inflation Rates, by age, September 2011
Spending Patterns of retired people
Spending by Age
Inflation over 25 years
Inflation since 1997
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ExpectationsAspirations
Rita Galbraith
Basic State Pension
Paid from state pension age – currently age 65 for men and between 60 and 65 for women
Set to increase over the coming years to 68 for those born after the 5th March 1959.
The full amount of Basic State Pension from 6 April 2011 is £5,311.80 a year for a single person
State Second Pension also available. Top up to Basic State Pension
State Benefit
DWP State Pension Forecasting Team on 0845 3000 168 www.thepensionservice.gov.uk
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Company contributions Your contribution
Contributions invested
Tax free cash
Pension income
At retirement
Lotus plan
Annuities vary with time
Source: Canada Life based on £100,000 male joint life at 65 / 60 March 2011Rates: February 2002 To June 2010
Annual Pension Bought With £100,000
£6,028
£6,478
£7,076
Lowest Rate Average Rate Highest Rate
Annuities vary with age
£5,535 £6,478
£8,303
Age 55 Age 65 Age 75Average Annuity Rates
Rates: February 2002 To June 2010Source: Canada Life based on £100,000 male joint life
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Contributions
How much should I save?
www.fidelitypensions.co.uk
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Investments
Investment choices
‘Hands on’ approach 10 Funds New funds
– Schroder Diversified Growth Fund – Lotus Global Equity Tailored Portfolio
‘Hands off’ approach Ready-made investment option
Self-select Lifestyle strategy
The value of investments may go down as well as up and an investor may not get back the amount invested. Fund charges and expenses may change in the future.
Risks
0
Time to retirement
Price inflation
Capital Falls
Missed opportunity
Investment
Growth
Pension conversion
Lifestyle option
Automatic investment process
60 – default target retirement age or select own retirement age The lifestyle strategy is an investment strategy driven by your retirement date. If selected it is important that you keep Fidelity informed of any changes to this date.
Equities – Fidelity BlackRock Global Equity 50/50 Fund
Bonds Fidelity Lotus Bond Fund
Cash - Fidelity Cash Pensions Fund
Lifestyle option
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Less than 1
1 and 2
2 and 3
3 and 4
4 and 5
5 and 6
6 and 7
More than 7
Year
s fro
m re
tirem
ent a
ge
% invested
Equities Bonds Cash
Tools to help you
PlanViewer
Help and support
Pensions Service Centre 08457 234 235
www.fidelitypensions.co.uk
Pensions Service Centre 08457 234 235
Account balance
Personalised illustrations
Fund performance information
Switching & redirecting investments
Investment options
Open UK business days
8am to 6pm
What you should do now
How do you make a difference?
Review your contribution level
Review your fund choice
Engage with your plan & take financial advice, if required
Important Information
No statements or representations made in this document are legally binding on Fidelity or the recipient.
Fidelity only gives information about its own products and services and does not provide investment advice based on individual circumstances. If you would like advice, please contact a Financial Adviser.
Past performance is not a reliable indicator of future results.
FIL Limited, and its subsidiaries are commonly referred to as Fidelity International. Fidelity, Fidelity International and the Pyramid Logo are trademarks of FIL Limited. Issued and approved by FIL Life Insurance Limited (FSA registered number 186526). Authorised and regulated by the Financial Services Authority. Registered in England and Wales No. 3406905. Registered Office at: Oakhill House, 130 Tonbridge Road, Hildenborough, Kent, England TN11 9DZ.
October 2011 MDC05429