STRATEGIC ASSETALLOCATION

SERVICE

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CONSULTING ACTUARIES

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It’s a fact that no two defined benefit schemes are the same. The membership profile is unique and the benefit structure provided by the employer reflects the needs of its business. So an investment strategy that fits the requirements of one scheme may not be suitable for another scheme. This is especially important for defined benefit schemes where the employer is committed to offering the members a guaranteed level of benefits.

The trustees of defined benefit schemes have a duty to make sure that their scheme’s investment strategy is suitable and relevant for the scheme members. That’s why we’ve developed our Strategic Asset Allocation Service which is designed to help you create an investment benchmark strategy and to understand your scheme and its cash flows better.

Our service is tailored to provide you with the support you need, with the minimum of effort on your part.

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INTRODUCINGROYAL LONDON

CONTENTSIntroducing Royal London 2Summary 4Good governance 5How it works 6How much does it cost? 10An effective solution 11

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INTRODUCINGROYAL LONDON

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A QUICK SUMMARY

Our Strategic Asset Allocation Service is a cash flow driven investment profiling method, which is designed to help you and your advisers:

• understand your scheme and its expected cash flows better

• create a benchmark investment strategy for your scheme and

• maintain good governance of your investment strategy.

The service we offer is competitively priced, and does not depend on any of the scheme assets being held with Royal London.

The table below shows some of the main features and benefits for you.

Features BenefitsComprehensive written report. Can be used as a basis for discussion at trustee

meetings on investment strategy and to record the reasons for decisions made.

Bespoke scheme asset allocation benchmark. Helps you frame your investment decisions now and in the future.

Analysis of the expected future cash flows. Helps you make investment decisions with an understanding of your scheme’s cash flows.

Regular updates on how the benchmark asset allocation is expected to have evolved.

Helps you understand how your asset allocation should be changing.

Road map of how investment strategy will evolve over time.

Integrated with funding. Can be used to assess the discount rate for your actuarial funding valuation.

Updated every three years. Remains up to date as your scheme evolves.

Competitive explicit fee agreed in advance. A proportionate service in comparison to complex alternatives, with known costs.

Please note that this service does not constitute regulated investment advice, and we would recommend that you consider any investment decisions in consultation with your financial adviser.

If you don’t have a financial adviser, you can find one in your area at unbiased.co.uk/find-an-adviser. Remember, you may be charged for this service.

GOODGOVERNANCE

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A QUICK SUMMARY

GOODGOVERNANCE

A relevant and closely monitored investment strategy is essential for any pension scheme.

Doing this can be complex. Yet trustees are required to demonstrate that their investment decisions are appropriate and reached using a robust decision-making framework. Our Strategic Asset Allocation Service helps the trustees do this.

How do you decide your benchmark asset allocation?

You receive a report detailing a bespoke benchmark asset allocation based on your scheme’s expected cash flows.

How do you ensure your strategy remains appropriate over time?

The modelling is updated every 3 years, ensuring your strategy remains up to date.

You receive regular updates on how the benchmark asset allocation is expected to have evolved.

How do you link together funding, covenant and investment?

The investment strategy roadmap takes into account the employer’s covenant and can feed directly into your funding assumptions.

Other governanceInvestment Advisory CommitteeThe time dependent asset portfolios underlying our Strategic Asset Allocation Service are rigorously assessed each quarter by our expert Investment Advisory Committee (IAC), based on comprehensive risk reports from Moody’s Analytics.

The IAC is made up of five pension and investment experts. It takes a long term view to ensure decisions are based on sound fundamentals and that the portfolios continue to hold an efficient blend of assets, no matter the economic outlook.

Cash flow managementYou will gain an understanding of your scheme’s expected cash flows, assisting you with long term cash flow management.

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What happens next?Here’s a simple overview of the process.

Step 1 You choose an appropriate level of risk

Step 2 Royal London calculates the cash flows

Step 3 Royal London derives appropriate time

dependent asset portfolios

Step 4 Royal London constructs the strategic

asset allocation benchmark

Step 5 You choose investment funds

HOW ITWORKS

Step 1 – Choose an appropriate level of riskFirst of all you need to sit down with your adviser and decide the level of risk you are comfortable with for your scheme and how those risk decisions should vary over time. This will depend on a range of factors such as the scheme’s current funding level and how much confidence you have in the employer’s covenant.

Step 2 – Calculate the cash flowsBefore deciding where to invest, it’s important to analyse when payments will be made out of the scheme’s assets to cover retirements, transfers etc. It’s also important to understand when future contributions might be made into the scheme.

Every scheme is unique, and that’s why, as part of the triennial actuarial valuation, we will carry out a bespoke scheme assessment to understand the size and timing of potential future cash inflows and outflows.

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HOW ITWORKS

Step 3 – Identify asset portfolios over timeOnce we have an understanding of your appetite for risk and your scheme’s cash flow profile, we then move to the next stage of identifying a series of asset portfolios over different investment time horizons.

We believe that it’s important that a scheme’s asset allocation uses diversification between asset classes to ensure that it is efficient – in other words, it has the aim of growing the investments by as much as possible but without taking unnecessary risk. This is achieved by blending equities, property, bonds and other assets together. You could miss out on potential returns if you don’t have an efficient benchmark. Alternatively, it could mean taking unnecessary risk without a corresponding increase in potential returns.

This is important information that will help you understand and assess your investment decisions in the context of your scheme’s potential cash flows.

Governed PortfoliosThe building blocks of your bespoke benchmark are based on our Governed Portfolios.

These are nine asset allocation portfolios, specially constructed with different risk attitudes and investment horizons in mind. Each portfolio is regularly monitored by our expert Investment Advisory Committee.

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Step 4 – Constructing the benchmarkThe analysis in Steps 2 and 3 is used to create a bespoke benchmark for your scheme. All the results are then summarised in a report which will be presented to you by a Royal London expert. The following process shows how this works in practice.

a) The scheme net cash flows are calculated using data from the actuarial funding valuation.

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b) Next, the portfolios for your selected level of risk are applied.

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c) And finally, this is combined to give your scheme’s bespoke benchmark.

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As part of the same review, and at no additional charge, we will project forward the analysis of cash flows to look at how the asset allocation is expected to change over time. This provides you with an indication of the dynamics within your investment benchmark.

You will receive regular updates showing how your asset allocation is expected to be evolving. This helps you to monitor the actual composition of your portfolio against the expected benchmark asset allocation.

Note

1. These graphs are for illustration purposes only and details will vary according to your specific circumstances, and the Governed Portfolios chosen.

2. The results are based on the expected cash flows calculated at the time of the latest actuarial funding valuation. Over time these cash flows will inevitably be different from those calculated.

3. Our analysis does not provide any guarantees in relation to the investment performance of the assets selected or in relation to the future funding of the scheme.

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Step 5 – Choose the investment fundsOur Strategic Asset Allocation Service does not select the actual investments for you. You should discuss these results with your investment adviser who will help you select the investment funds to choose.

The trustees can invest assets with Royal London, but they can also invest elsewhere.

We provide an extensive range of funds:

• In-house funds managed by Royal London Asset Management

• Links to external funds from some of the best known investment managers

These funds are regularly reviewed by our Investment Advisory Committee.

Investments with us will also participate in our ProfitShare arrangement. This means we’ll aim to boost your investments by giving you a share of our profits each year. Although, this isn’t guaranteed.

ASSET MANAGEMENT

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We believe this service provides exceptional value for money, and that our fees are amongst the most competitive in the industry.

Our Strategic Asset Allocation Service is also intuitive and easy to understand. It’s a proportionate solution.

Please contact us to get a fee quotation. The fee will depend on the complexity of your scheme.

A choice of different payment approaches are available, depending upon your requirements.

Frequency of service required

Fee structure

Every three years Where assets are invested with us, a choice of annual fee or via an annual management charge.

Where assets are not invested with us, an annual fee is payable.

Adhoc investigation A one-off fee agreed in advance.

The benefits of doing it our way

• Cost control

• Proportionate solution

• Flexible fee options

HOW MUCHDOES IT COST?

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HOW MUCHDOES IT COST?

Monitoring your scheme’s investment strategy can be a complex area, yet trustees are required to demonstrate that their investment decisions are sound, appropriate, and reached using a robust decision-making framework. Consequently a relevant and closely monitored investment allocation strategy is essential for any pension scheme.

Our Strategic Asset Allocation Service provides you with the support you need at a competitive cost, and gives you valuable information to help you meet your ongoing responsibilities – an effective solution for all concerned.

Taking the next stepContact us to find out more about how Royal London can help you.

Website royallondonconsulting.co.uk

Emailactuaries@royallondonconsulting.co.uk

Telephone 0131 652 6550

AN EFFECTIVESOLUTION

January 2018 12L8/19

Royal London1 Thistle Street, Edinburgh EH2 1DG

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in

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302391. Registered in England and Wales number 4414137. Registered office: 55 Gracechurch Street, London, EC3V 0RL. Royal London Corporate Pension Services Limited is authorised and regulated by the Financial Conduct Authority and provides pension services. The firm is on the Financial Services Register,

registration number 460304. Registered in England and Wales number 5817049. Registered office: 55 Gracechurch Street, London, EC3V 0RL.