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/ Mercer Investment Consulting is regulatd by the Financial Services Authority and is a member of the General Insurance Standards Council. /The GMG Lifestyle Plan: Statement of Investment Principles
May 2010
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The GMG Lifestyle Plan
Statement of Investment Principles
May 2010
1. Introduction
1.1 This Statement of Investment Principles (“SIP”) has been prepared by the Trustees of The GMG Lifestyle Plan (the “Plan”). It sets out the principles governing our decisions about the investment of the Plan’s assets. We refer to this SIP when making investment decisions, to ensure that they are consistent with the principles set out in it.
1.2 The Plan is a Defined Contribution pension scheme. In the Plan each member has his/her own account and the level of benefits available to each member at retirement is determined by the accumulated value of this account. However, the assets in respect of each member are held by the Trustees and it is they who have responsibility for the investment policy.
1.3 This SIP provides an overview of the Plan’s investment arrangements. The arrangements are set out in more detail in the Investment Policy Document (“IPD”) which is available to Plan members on request.
1.4 The Trustees have obtained advice from the Plan’s Investment Consultant regarding the investment policy described by this SIP. We will obtain similar advice whenever we review this SIP.
1.5 The Trustees’ investment powers are set out within the Plan’s governing documentation and overriding legislation. If necessary, the Trustees will take appropriate legal advice regarding the interpretation of these. We note that, according to the law, we have ultimate power and responsibility for the Plan’s investment arrangements.
1.6 We seek to maintain a good working relationship with the sponsoring Company, Guardian Media Group, and we will discuss any proposed changes to our investment principles with the Company. However, our fiduciary obligations to Plan members will take precedence over the Company’s wishes, should these ever conflict.
1.7 The Trustees believe that our investment policies and their implementation are in keeping with the principles underlying the Myners Code of best practice for pension fund investment. However, we do not follow every recommendation in the Code because we do not believe that all of them are appropriate for our circumstances, but compliance with the Code is kept under review.
2. Roles and Responsibilities
2.1 The Trustees have ultimate responsibility for decision-making on investment matters.
2.2 The Trustees have appointed a firm of investment consultants (the “Investment Consultant”) to provide advice in respect of all issues relating to the investment of the Plan’s assets.
2.3 The Investment Manager is responsible for day-to-day management of the Plan’s assets in accordance with guidelines agreed on behalf of the Trustees. They have discretion to decide whether to buy, sell or retain individual pooled fund units and the underlying securities within the pooled funds in accordance with these guidelines. They report to the Trustees on a regular basis regarding the performance of those assets and the market background to that performance.
2.4 The responsibility for selecting and monitoring the custodians of the investments within the pooled funds resides with the Investment Manager. The Trustees are satisfied with the arrangements in place.
2.5 The Investment Manager levies fees based on a percentage of the value of the assets under their management. The Investment Consultant charges fees based on a combination of fixed fees and time costs, in line with standard industry practice.
2.6 Overall investment policy falls into two parts:
§ The strategic management of the assets, which is fundamentally the responsibility of the Trustees acting on expert advice and is driven by the Trustees’ investment objectives.
§ The day-to-day management of the assets, which is largely delegated to the Investment Manager.
3. Investment Objectives
3.1 The Trustees recognises that members have differing investment needs, that these needs may change during the course of their working lives and that members may have differing attitudes to risk.
3.2 The Trustee’s primary investment objective is to provide the members of the Plan with long term growth in the accumulated value of their accounts, so as to enable them to purchase an optimum level of benefits at retirement in real terms.
3.3 In order to achieve this, the Trustees believe that the underlying assets should be invested so as to provide protection against long term inflation. The assets should also be reasonably well diversified to limit the risk that a loss in one market sector or investment does not prejudice the overall security of the Funds. Finally in the period approaching retirement, the focus should move from one of seeking to maximise growth in asset values to one of providing protection against the fluctuating cost of purchasing annuities and to preserve capital values.
3.4 The Trustees believes that members should generally make their own investment decisions based on their individual circumstances. It regards its duty as making available a range of investment options which enables members to tailor their investment strategies to their own needs. The fund range is reviewed periodically, and new funds introduced as appropriate.
3.5 However, the Trustees also seek to provide an alternative for members who wish to choose an option which automatically reduces investment risk as the member approaches the Plan’s normal retirement date.
4. Risk, Return and Risk Management
4.1 The Trustees have considered risk from a number of perspectives. These are:
i. The risk that the investment return over members’ working lives will not keep pace with inflation.
ii. The risk that investment market movements in the period immediately prior to retirement lead to a substantial reduction in the anticipated level of pension.
iii. The risk that relative market movements in the period immediately prior to retirement lead to a substantial reduction in the anticipated cash lump sum benefit.
iv. The risk that the investment vehicles in which monies are invested underperform the expectation of the Trustees.
4.2 To control the risks identified in (ii) and (iii) above members’ assets are switched, on a progressive basis, into Funds designed for these purposes. The mechanism in place is for individual members to set their target retirement date (“TRD”). The assets are then automatically switched, on an annual basis, over the ten years prior to their TRD. Individual members can override the automatic switch if they wish.
4.3 Prior to April 2003 the default switching period was five years, therefore alternative options have been put in place for members who were within ten years of their TRD as at 1 April 2003:
§ For members less than five years from TRD, continue with the current approach of switching from the Long Term Fund over five years.
§ For members who were between five and ten years from TRD, switch over the remaining period to TRD (e.g. for a member who is nine years from TRD, switch over nine years; eight years from TRD, switch over eight years, etc).
4.4 To control the risk identified in (iv) above the Trustees have decided that the assets should be managed passively rather than actively.
4.5 Passive management has three key advantages over active management:
§ Virtually zero risk of significantly underperforming the chosen index. Because passive management is more mechanistic and less judgmental than active, it is reasonable to place a higher degree of reliance on a passive manager achieving its objective (i.e. tracking the index). Hence while significant outperformance against the market index is not possible, significant underperformance is also protected against;
§ Investment management fees are generally lower than for active management, because there is no need for expensive research resources, highly paid individual fund managers, etc. In addition, very little turnover of individual stocks is required, so that transaction costs are lower than for active management; and
§ The chances of needing to replace an incumbent passive manager are lower (good passive managers tend to remain good while active managers’ objectives change over time). This is advantageous given that costs are incurred in switching investment managers. In addition limited time is required by the Trustees in monitoring a passive manager compared to an active manager.
4.6 Against these advantages however the main disadvantage of passive management is the cost in terms of the added-value foregone compared with appointing a successful active manager.
4.7 Having considered the relative merits of active and passive management the Trustees believe that passive management is the most appropriate option for the Plan. The possibility of offering active fund options is reviewed periodically.
4.8 Should the Plan’s circumstances alter in a material way, the Trustees will review whether and to what extent the Plan’s investment arrangements should be altered.
5. Investment Manager
5.1 Day-to-day management of the assets is delegated to a professional Investment Manager who is regulated by the Financial Services Authority (the “FSA”). The Plan’s Investment Manager, along with further details on the investment choices available to members, are defined in the IPD (a copy of which is available upon request).
5.2 The Investment Manager has full discretion to buy and sell investments on behalf of the Plan, subject to the constraints of their mandate. They have been selected for their expertise in light of the Plan’s requirements.
5.3 The Trustees accept that it is not possible to specify investment restrictions where assets are managed via pooled funds. Nevertheless, notwithstanding how the assets are managed the Trustees take appropriate legal and investment advice regarding the suitability of the investment management agreements and relevant investment vehicles as and when required.
5.4 The Trustees and Investment Consultant’s responsibilities in terms of monitoring and reviewing the Investment Manager are set out in the IPD.
5.5 The Trustees periodically assesses the continuing suitability of the Investment Manager.
5.6 The Trustees meet the Investment Manager to discuss their performance, activity and wider issues periodically. The Investment Consultant also provides help in monitoring the Investment Manager, both in the form of written reports and attendance at meetings.
5.7 The Trustees will monitor the Investment Manager’s compliance with this SIP annually. We have undertaken to advise the Investment Manager promptly and in writing of any material change to this SIP.
6. Investment Arrangements
6.1 Having identified an appropriate range of fund choices for members and a level of investment risk that it believes is appropriate given the Plan’s circumstances the Trustees have agreed the investment arrangements detailed in this SIP. The Trustees believe these arrangements to be consistent with the targeted level of risk.
6.2 The Trustees invest the main assets of the Plan via a range of pooled funds. The Trustees are satisfied that the spread of assets by type and the spread of individual securities within each type provides adequate diversification of investments.
6.3 The detailed investment arrangements are set out in the IPD.
7. Socially Responsible Investment
7.1 The Trustees take a positive stance with regard to social, environmental or ethical issues.
7.2 The Plan’s main assets are invested in pooled index funds and, as such, the Trustees accept that the assets are subject to the Investment Manager’s own policy on social, ethical or environmental considerations relating to the selection, retention and realisation of investments. The Trustees have however reviewed the Investment Manager’s policies and is comfortable with the arrangements in place.
7.3 The Trustees will keep under review the availability of suitable funds in the light of possible demand from members. The Trustees have made a specialist “ethical” fund available to members within the current fund range.
8. Corporate Governance
8.1 The Trustees wish to encourage best practice in terms of activism. It therefore encourages its Investment Manager to discharge their responsibilities in respect of investee companies in accordance with the Statement of Principles drawn up by the Institutional Shareholders’ Committee.
8.2 In particular, the Trustees requires the Investment Manager to have a formal policy on corporate governance which highlights any areas where investee companies’ policy does not conform to best practice (e.g. in the UK, the Combined Code) and the reasons why.
8.3 As the Plan’s investment is in pooled funds, the Trustees cannot direct the appointed Investment Manager on how to vote. The Trustees has however reviewed the Investment Manager’s voting policies and is comfortable with the arrangements in place.
9. Additional Voluntary Contributions (“AVC”)
9.1 Assets in respect of members’ AVC are invested in a range of investment options. With the assistance of the Plan’s Investment Consultant, the AVC arrangements will be reviewed periodically to ensure that the investment profile of the funds available remains consistent with the objectives of the Trustees and the needs of the members.
9.2 More information on the AVC provider is detailed in the IPD.
10. Cashflow Management and Rebalancing
10.1 The Investment Manager is responsible for the realisation of individual investments in the various Funds.
10.2 A working cash balance is held for imminent payment of benefits and expenses. Under normal circumstances it is not the Trustees’ intention to hold a significant cash balance.
10.3 The Trustees recognise that there is a risk in holding assets that cannot be easily realised should the need arise. Thus, the assets of the Plan are realisable at short notice through the sale of units in pooled funds.
11. Review of the SIP
11.1 Because this SIP covers broad principles, we do not expect to revise it frequently.
11.2 We will review it following any significant change in the Plan’s investment arrangements and, in any event, at least once every three years.
11.3 The IPD records the current investment arrangements and is updated as and when required.