Retirement Account

2010 Governed Investment Strategies Review

We’ve carried out a comprehensive review of our three Governed Investment Strategies.

Our Governed Investment Strategies reflect different attitudes to risk and reward, with three strategies to choose from:

• Adventurous
• Balanced
• Cautious

With all three Strategies, your pension fund will gradually move into lower risk investments which can help protect the value of the plan from large fluctuations in market movements in the years leading up to retirement.

The purpose of our regular reviews is to ensure our Governed Investment Strategies continue to meet your needs and long-term objectives. This review was conducted in conjunction with financial risk specialists Barrie & Hibbert and we’re pleased to report the review has confirmed that our Governed Investment Strategies continue to deliver in line with our expectations.

The reassurance of ongoing governance

When we launched the Governed Investment Strategies in 2010, we put an ongoing review process in place with input from independent specialists to ensure we continue to meet our customers’ needs.

The purpose of this review was to:

• consider if changing the proportion of investment in UK and overseas stocks and shares would result in less risk whilst maintaining the same expected investment performance or, alternatively, if taking a slightly higher level of risk would improve the potential investment returns
• evaluate the impact of reducing the length of the lifestyle stage (currently 15 years)
• review the types of assets (e.g. stocks and shares, bonds) currently included in the Strategies, to determine whether any other types of assets should be added, for example global emerging market stocks and shares, commodities, UK government bonds (gilts), property and overseas bonds
• consider whether the funds currently used in the Strategies continue to meet their aims and objectives
• assess the impact of protecting the overseas stocks and shares element of the Strategies from movements in foreign currency markets
• determine whether we should go ahead with our plans to change the element of the Strategies which is invested in bonds from active management to passive management. (Please see the Bond Fund Management section for more information.)

The results of our recent review were as follows:

• the current mix of assets within the Strategies remains fit for purpose
• there wouldn’t be any benefit in reducing the length of the lifestyle stage
• at present, we believe that the types of assets included in the Strategies provide sufficient investment diversification
• the funds currently used in the Strategies continue to meet their aims and objectives
• protecting the overseas stocks and shares element of the Strategies from movements in foreign currency markets would not provide any benefits
• we should go ahead with our plans to move the element of the Strategies which is invested in bonds from active management to passive management as soon as appropriate.

Bond Fund Management

It is our intention to make changes to three of the underlying funds used for our Governed Investment Strategies, by changing the element which is invested in bonds from active to passive (tracker) management. Active management is where a fund manager actively tries to beat a benchmark, such as a stockmarket index. Passive management is where the fund is aiming to match the performance of a benchmark.

We intend to make the switch at a suitable time, later in 2012, subject to market conditions.

We believe this change is appropriate as the majority of the investments in our Governed Investment Strategies (i.e. the element invested in stocks and shares) are already managed on a passive basis, meaning we’ll be taking a more consistent investment approach.

Passively managed funds can be a way for investors to gain access to the world’s equity and bond markets, providing access to funds covering many of the popular market indices. You can find more information on both the general and relevant risks associated with the funds used within the Governed Investment Strategies in the Scottish Widows Governed Investment Strategy Client Guide.

Do I need to do anything?

No. The planned changes to the management of the element of the Strategies which is invested in bonds will happen automatically.

Will there be any future changes?

Other than the change to the element which is invested in bonds from active to passive management outlined above, there are currently no other plans to change our Governed Investment Strategies. The recent review concluded that they still meet customers’ needs, although we will continue to review these during 2012 and beyond

How do I find out more?

For more information on the impact of this review on your investments, please contact your financial adviser.