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Investment Policy Review for Pension PlansA presentation to:Trusteesand other related parties

October 28, 2015

Review of the Performance and Governance of Managed Funds in Barbados

A presentation to:Trustees and Other Related Parties

October 28, 2015

What we will cover

- Legislative Requirements- Reviews to be carried out- Assets Under Management for each fund- Asset Allocation- Fund Charges- Fund Performance- My $6,000 investment- Governance

Occupational Pension Benefits Act

- Registration of pension plans

- Submission of annual returns

- Statement of Investment Policies and Goals (SIP&G)

- Registration of pension plans

- Submission of annual returns

- Statement of Investment Policies and Goals (SIP&G)

Why have a SIP&G?

- Requirement of the Act

- Good governance

Annual Review

- Performance Review

- Governance Review

- Performance Review

- Governance Review

Investment Providers

- Sagicor

- Fortress Fund Managers

- Royal Fidelity

- Republic Bank

- ICBL

- Sagicor

- Fortress Fund Managers

- Royal Fidelity

- Republic Bank

- ICBL

Comparisons-Older Funds

- Equity Styled Funds- Sagicor Equity Fund- Fortress Caribbean Growth Fund

- Fixed Income Styled Funds- Sagicor Bonds Fund- Fortress High Interest Fund

- ICBL

Comparisons-Other Funds

- Aggressive Styled Pension Fund/Mutual Fund- Sagicor Select Growth Fund- Fortress AA Fund- Royal Fidelity Strategic Growth Fund

- Balanced Styled Pension Fund/Mutual Fund- Sagicor Global Balanced Fund- Fortress CC Fund- Royal Fidelity Select Balanced Fund- Republic Bank Capital Growth Fund

- Secure Styled Pension Fund/Mutual Fund- Sagicor Preferred Income Fund- Fortress CS Fund- Royal Fidelity Preferred Income Fund- Republic Bank Income Fund

Assets Under ManagementAssets Under Management

Assets Under Management- Equity

Sagicor Equity Fund Fortress Caribbean Growth Fund

AUM($M)

Assets Under Management- Fixed Income & ICBL

Sagicor Bonds Fund Fortress High Interest Fund ICBL

AUM($M)

Assets Under Management- Aggressive

Sagicor Select Growth Fund Fortress AA Fund Royal Strategic Growth Fund

AUM($M)

Assets Under Management- Balanced

Sagicor Global BalancedFund

Fortress CC Fund Royal Select BalancedFund

Republic Capital GrowthFund

AUM($M)

Assets Under Management- Secure

Sagicor PreferredIncome Fund

Fortress CS Fund Royal Premium IncomeFund

Republic Income Fund

AUM($M)

Asset AllocationAsset Allocation

Asset Allocation- Equity

Equities76%

Bonds6%

Mortgages1%

Real Estate11%

Cash5%

Deposits1%

Sagicor Equity Fund

Equities 73%

Bonds5%

Real Estate6%

Cash & Equiv16%

Fortress Caribbean Growth Fund

Asset Allocation- Fixed Income

Equities2%

Bonds66%

Mortgages24%

Cash2%

Deposits6%

Sagicor Bonds Fund

Equities12%

Bonds51%

Cash & Equiv37%

Fortress High Interest Fund

Asset Allocation - Aggressive

Equities87%

Bonds3%

Cash10%

Sagicor Select Growth Fund

Equities37%

Mutual Funds60%

Cash3%

Royal Fidelity Strategic Growth Fund

Equities72%

Bonds26%

Real Estate2%

Fortress Pension Fund‐ AA Share

Asset Allocation - Balanced

Equities58%

Bonds42%

Fortress Pension Fund‐CC Share

Equities47%

Bonds53%

Royal Fidelity Select Balanced Fund

Equities64%

Bonds29%

Cash7%

Sagicor Global Balanced Fund

Equities51%Bonds

Money Market5%

Republic Capital Growth Fund

Asset Allocation- Secure

Equities8%

Bonds85%

Cash7%

Sagicor Preferred Income Fund

Preference Shares14%Mutual Funds9%Bonds

Cash4%

Royal Fidelity Premium Income Fund

Equities10%

Bonds90%

Fortress Pension Fund‐CS Share Preference Shares14% Mutual

Funds9%

Bonds73%

Cash4%

Royal Fidelity Premium Income Fund

Fund ChargesFund Charges

Fund Charges- Front End

Fund Charges- Annual Fees

Fund Total Annual

Equity Type

Sagicor Equity Fund 0.75%

Fortress Caribbean Growth Fund 1.90%

Fixed Income

Sagicor Bonds Fund 0.50%

Fortress High Interest Fund 0.92%

Fund Charges- Annual FeesFund Total Annual

Aggressive Styled Pension Fund/Mutual Fund

Sagicor Select Growth Fund1.00%

Royal Fidelity Strategic Growth Fund1.00%

Fortress AA Fund0.50%

Balanced Styled Pension Fund/Mutual Fund

Republic Capital Growth Fund2.50%

Sagicor Global Balanced Fund2.00%

Royal Fidelity Select Balanced Fund1.00%

Fortress CC Fund0.50%

Secure Styled Pension Fund/Mutual Fund

Republic Income Fund 1.75%Sagicor Preferred Income Fund 1.00%Royal Fidelity Premium Income Fund 0.75%Fortress CS Fund 0.50%

ICBL 0.75%

Republic Bank – 0.5% if funds are invested and withdrawn within 6 months, otherwise 0%.

Sagicor– 3% charge if funds are divested from the Sagicor Segregated Pension Funds only. No charge if the divestment is to pay benefits.

ICBL- Surrender penalty is charged on any surrenders except benefit payments.

All other funds- No charges

Republic Bank – 0.5% if funds are invested and withdrawn within 6 months, otherwise 0%.

Sagicor– 3% charge if funds are divested from the Sagicor Segregated Pension Funds only. No charge if the divestment is to pay benefits.

ICBL- Surrender penalty is charged on any surrenders except benefit payments.

All other funds- No charges

Fund Charges- Redemption Charges

Fund PerformanceFund Performance

BenchmarksEquity /Aggressive

3% +Inflation rate

Balanced

2% + Inflation Rate

Fixed Income/Secure

1% + Inflation Rate

Fund PerformanceEquity Styled – Short Term

‐3.00%

‐2.00%

‐1.00%

YTD 2014 3YR

Equity Styled Funds

Sagicor

Fortress

Benchmark

Fund PerformanceEquity Styled – Long Term

Equity Style Funds

Sagicor

Fortress

Benchmark

Fund PerformanceFixed Income Styled - Short Term

YTD 2014 3YR

Fixed Income Style

Sagicor

Fortress

Benchmark

Fund PerformanceFixed Income Styled – Long Term

Fixed Income Style

Sagicor

Fortress

Benchmark

Fund PerformanceAggressive Styled Mutual Funds – Short Term

‐8.00%

‐6.00%

‐4.00%

‐2.00%

YTD 2014 3YR

Aggressive

Sagicor

Fortress

Benchmark

Fund PerformanceAggressive Styled Mutual Funds – Long Term

‐6.00%

‐4.00%

‐2.00%

5YR 10YR

Aggressive

Sagicor

Fortress

Benchmark

Fund PerformanceBalanced Styled Funds – Short Term

‐4.00%

‐2.00%

YTD 2014 3YR

Balanced

Sagicor

Fortress

Republic

Benchmark

Fund PerformanceBalanced Styled Funds – Long Term

5YR 10YR

Balanced

Sagicor

Fortress

Republic

Benchmark

Fund PerformanceSecure Styled – Short Term

-1.00%

YTD 2014 3YR

Secure

Sagicor

Fortress

Republic

Benchmark

Fund PerformanceSecure Styled – Long Term

5YR 10YR

Secure

Sagicor

Fortress

Republic

Benchmark

• Average annual return of 4.5% to 7.4% over the last nine years.

• Fund has a guaranteed interest rate currently set at 4.5% payable semiannually.

• Bonus interest of 50% of the rate earned in excess of the guaranteed rate is payable at December 31 in each year.

• Average annual return of 4.5% to 7.4% over the last nine years.

• Fund has a guaranteed interest rate currently set at 4.5% payable semiannually.

• Bonus interest of 50% of the rate earned in excess of the guaranteed rate is payable at December 31 in each year.

Fund PerformanceICBL

My $6,000 investmentMy $6,000 investment

My $6,000 investment- EquityEffective

Fund Value Annual ReturnSagicor Bonds Fund $6,904 5.7%Republic Capital Growth Fund $6,903 5.7%Royal Fidelity Premium Income Fund $6,865 5.5%Select Growth Fund $6,647 4.2%Republic Income Fund $6,614 4.0%Fortress High Interest $6,430 2.8%Conservative Consolidator $6,425 2.8%Capital Secure $6,415 2.7%Sagicor Equity Fund $6,414 2.7%Aggressive Accumulator $6,364 2.4%Fortress Caribbean Growth Fund $6,291 1.9%Sagicor Global Balanced Fund $6,252 1.7%Royal Fidelity Select Balanced Fund $6,207 1.4%Sagicor Preferred Income Fund $6,179 1.2%Royal Fidelity Strategic Growth Fund $5,763 -1.6%

GovernanceGovernance

GovernanceChecklist

Date of

Most Recent Freq.Audited Latest of

Fund Financials NAV Val.Sagicor Equity Fund 31-Dec-14 30-Sep-15 M

Sagicor Bonds Fund 31-Dec-14 30-Sep-15 M

Sagicor Select Growth Fund 30-Sep-14 09-Oct-15 W

Sagicor Global Balanced Fund 30-Sep-14 09-Oct-15 W

Sagicor Preferred Income Fund 30-Sep-14 09-Oct-15 W

Fortress Caribbean Growth Fund 30-Sep-14 23-Oct-15 WFortress High Interest Fund 30-Sep-14 23-Oct-15 WFortress Pension Funds 30-Sep-14 30-Sep-15 M

Royal Fidelity Strategic Growth Fund 30-Jun-14 30-Sep-15 MRoyal Fidelity Select Balanced Fund 30-Jun-14 30-Sep-15 MRoyal Fidelity Premium Income Fund 30-Jun-14 30-Sep-15 M

Republic Capital Growth Fund 30-Sep-14 23-Oct-15 W

Republic Income Fund 30-Sep-14 23-Oct-15 W

Thank you

How to pay Pensions and Reduce Risk

A presentation to:Eckler’s Annual Investment Review Seminar

October 28, 2015The LES Centre

Background

>The Risk:>DC Plans have no longevity risk or

investment risk to the plan sponsor.>If pension are paid from the fund then

risk to the sponsor is introduced.>In this presentation we explain the risk

and how it can be avoided.

Three Alternatives to avoid risk.

>Annuity Purchase>Drawdown Arrangement>Conservative conversion

Purchasing Annuities

>This is the easiest BUT>Annuities can be expensive and

pensioners may receive less that was targeted or expected.

>The process:• Plan Administrator/Record keeper requests

annuity quotes from all eligible insurance companies.

• Pensioner selects quote.• Premium is paid from Pension Plan• Insurance company assumes risk and pays

pension.

>The insurance companies that offer annuities in Barbados are:• Sagicor Life• Guardian Life• Insurance Corporation of Barbados Limited• Pan American

>From time to time some of these decline to quote.

>Current Rates reflect discount rates of 4% - 5%p.a.

>Male age 60 $5.69 - $5.13 per month per $1,000 of single premium.

>Given the current S&P rating of Barbados Government Bonds insurers are cautious in issuing annuities.

Drawdown Arrangements

>The Pension Act – defines a “pension benefit” as a periodic payment and does not seem to disallow drawdown arrangements.

>In the Budget Speech 2013 the Minister announced that Regulations were being drafted to permit drawdown arrangements in pension plans.

>Fortress Insurance Company Limited has been selling policies which mimic drawdown arrangements.

>How it works:• Pensioner continues to have a DC Account• Pensioner continues to have the right to select

the investment fund• Monthly payments are deducted from the DC

Account• Payments stop when the Account runs out.• When the pensioner dies the account balance

is paid to his estate.

>How it works:• Monthly payments are recomputed annually

and fixed for the next 12 months.• There is a minimum and maximum rate for

each age which is applied to the current Account Balance.

• If the maximum rate is used the Account runs out at age 90 and if the minimum rate is used the account runs out at age 100.

• In any year if the account earns more than 5% then the payments in the next year increase and conversely.

Age Last Birthday

Proportion of Account Value to be paid each month for the next 12 months

Age Last Birthday

55 0.4847% 73 0.7040%56 0.4901% 74 0.7323%57 0.4960% 75 0.7646%58 0.5022% 76 0.8018%59 0.5090% 77 0.8449%60 0.5163% 78 0.8954%61 0.5242% 79 0.9555%62 0.5327% 80 1.0278%63 0.5420% 81 1.1166%64 0.5521% 82 1.2280%65 0.5631% 83 1.3716%66 0.5752% 84 1.5636%67 0.5884% 85 1.8331%68 0.6029% 86 2.2382%69 0.6190% 87 2.9144%70 0.6368% 88 4.2683%71 0.6567% 89 8.3333%72 0.6789% 90 100.0000%

Maximun Rate

Age Last Birthday

55 0.4465% 78 0.6029%56 0.4493% 79 0.6190%57 0.4523% 80 0.6368%58 0.4555% 81 0.6567%59 0.4589% 82 0.6789%60 0.4625% 83 0.7040%61 0.4664% 84 0.7323%62 0.4705% 85 0.7646%63 0.4749% 86 0.8018%64 0.4796% 87 0.8449%65 0.4847% 88 0.8954%66 0.4901% 89 0.9555%67 0.4960% 90 1.0278%68 0.5022% 91 1.1166%69 0.5090% 92 1.2280%70 0.5163% 93 1.3716%71 0.5242% 94 1.5636%72 0.5327% 95 1.8331%73 0.5420% 96 2.2382%74 0.5521% 97 2.9144%75 0.5631% 98 4.2683%76 0.5752% 99 8.3333%77 0.5884% 100 100.0000%

Minimum Values

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

Drawdown IllustrationAge 60Single Premium 1,000,000.00$ Inv Yield 5.00%Schedule A

$50,000

$52,000

$54,000

$56,000

$58,000

$60,000

$62,000

$64,000

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

Drawdown IllustrationAge 60Single Premium 1,000,000.00$ Inv Yield 5.00%Schedule B

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

Flexible Annuity IllustrationAge 60Single Premium 1,000,000.00$

Schedule A

Mean 6.0%STD 4.0%

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

Schedule A

Mean 6.0%STD 4.0%

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

Schedule A

Mean 6.0%STD 4.0%

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

Schedule A

Mean 6.0%STD 4.0%

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

Schedule A

Mean 6.0%STD 4.0%

>Providers• Currently only Fortress Insurance Company

Limited has a policy that works this way.• Any individual pension plan can make

payments in this way.

Conservative Conversion

>In a pension is paid from the plan then:>The there are two assumptions that are

used to convert the Account Balance to a monthly pension: Discount rate and Mortality rates.

>The Discount rate is the rate that the investments must earn in the future and is generally the largest risk.

>Mortality risk can not be diversified in a small pension plan.

>If a low discount rate of say 3% p.a. is used then:

> the initial pension will be small• Whenever investment returns greater than 3%

are earned a pension increase can be given.• Lower investment returns would be carried

forward and recovered from future high returns or paid by the sponsor.

• Higher returns might also be used to cover longevity but this is difficult to manage at older ages.

>This method also results in am IAS19 requirement since the plan is no longer Pure DC.

>Paying annuities from a DC Plan is NOT recommended.

Comparison

Male Age 60Single Premium $1,000,000

Initial Monthly Annuity From:Annuity Purchase G10 $5,687 Never changesDrawdown; Maximum Scale $4,625 Changes depending on investment yieldDrawdown; Minimum Scale $5,163 Changes depending on investment yieldConservative Conversion G10 $4,831 Changes depending on investment yield

Defined Benefit Plans

>DB Plans sponsors are no strangers to risk but in a period of sustained low returns are generally tired of losses.

>Often pensions are reserved for with an assumption for pension increases. These can be reduced when returns are low.

>If the plan is large then mortality experience is more likely to “average out”.

>DB Plans may still wish to consider the following at retirement:• Purchasing an annuity.• Explaining to the member that he has an

option to transfer to an individual plan and use a draw down arrangement.

>Why a DB pensioner might prefer a draw down arrangement:• He can direct the investment of his fund.• The balance in his account goes to his estate

on death.• The investments might have a FX component.• He can afford to take the risk.

Recommendations

>DC Plans should decide whether they will offer drawdown arrangements from the plan or just from a provider.

>DC Plan should always offer a drawdown arrangement as an alternative to an annuity.

>DC Plans should NOT pay regular pensions from the plan.

>DB Plans should consider explaining transfer options at retirement.

Discussion

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