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Flexible Guarantee Funds Overview

The LV= Flexible Guarantee Funds (FGF) have structured and unique features to provide an important element of protection and investment security for client's retirement funds - both during the accumulation process before retirement and, more importantly, when clients start taking drawdown income.

These funds are managed by the global asset manager Columbia Threadneedle Investments to a mandate set by LV=. Columbia Threadneedle was selected following an extensive due diligence process.

LV='s Flexible Guarantee Pension (FGP) option offers a reduced wrapper charge of just 15bps when funds are solely placed in FGF

Client Suitability

The FGF is designed to suit a range of different client needs. With features to protect client investments against market volatility, FGF is a good option for:

  • Clients in retirement
  • Clients within 10 years of retirement
  • Clients looking to consolidate pensions
  • Clients seeking blended investment solutions

  • Smoothed returns

Smoothing to help reduce the impact of daily price volatility.

  • It works by taking the simple average daily unit price over the last six months.
  • It still means that the value of your investment can go down as well as up - just less so each day.
  • Reducing your clients concerns over daily price volatility.
  • Guarantee option

An optional guarantee facility which can lock in investment gains to protect against downside risk.

  • An invaluable option for retirement income planning and protection against the potentially huge impact of sequential risk.
  • Fund choice & risk rating
  • Three funds available with varying degrees of risk; Cautious, Balanced, and Managed Growth.

    • The three funds have been risk rated by leading market and investment analysts Defaqto*, Distribution Technology and Synaptics.
    • Defaqto rated the funds Cautious – Risk Rating 3, Balanced – Risk Rating 4, Managed Growth – Risk Rating 5.
    • Distribution Technology rated the funds Cautious – Risk Rating 3, Balanced – Risk Rating 4, Managed Growth – Risk Rating 5. In their report on the funds, Distribution Technology stated that the unique smoothing mechanism had the effect of reducing the Risk Rating on all three funds to 2.
    • Synaptics rated the funds Cautious – Risk Rating 2.6, Balanced – Risk Rating 3.1, Managed Growth – Risk Rating 3.5.
    • Both Defaqto and Distribution Technology have produced independent reports about our Flexible Guarantee Funds (available on request).

    *Defaqto is a financial information business, helping financial institutions and consumers make better informed decisions.

Take a look at our new webinar on the challenge of volatility - income in retirement.

You'll find more videos and webinar recordings in our Video Library

Download the webinar slides

Andrew Gilbert

Good morning everyone.

Welcome to the latest in LV=’s quarterly webinars on investing for income in retirement. My name's Andrew Gilbert and it's my pleasure to be hosting you all this morning.

I'm pleased to be joined today by Alex Lyle from our investment partners, Columbia Threadneedle Investments, and Vinnie Lomonaco from LV=’s distribution team.

Today we're here to talk you through a market overview of the volatility challenges, give you an update on our smoothed funds and the current position in the market, and then talk about our Flexible Guarantee Funds. We'll have some time for questions and a summing-up at the end.

So, the aim of today's webinar is to look at the potential impact of investment volatility on the funds and I'll hand over to Alex and Vinnie later on as we go.

I was reading over the market update that I talked through back in March. I think the last webinar we ran was about the 11th. It feels remarkably like Groundhog Day right now.

Brexit was coming. We had the cliff edge at the end of March and we were all very uncertain about what was going to happen, and a bit like Y2K, nothing actually did. We still don't know. We're no closer to a decision. And to boot, we've got a Conservative leadership election from a deeply divided party to provide even more uncertainty on top of where we are.

I've got quite a lot of sympathy at the moment for Michel Barnier, who's saying well we've done all the negotiations and now it’s up to you guys. Now while we continue to work out whether we want to be in, out, shaking it all about, or something else, we're seeing continued economic uncertainty on top of the political turmoil.

Just this morning I was coming into London and reading about the potential closure of the Ford engine plant, putting seventeen hundred jobs directly at risk and impacting many more across the supply chain. Aviva look to be trimming about 6 percent of their workforce to save roughly 20 million pounds of costs. There’s uncertainty over the high street. Look at Arcadia, look at Jamie Oliver's restaurant chains. Many articles in the press suggest that Brexit uncertainty is holding consumers back from making big purchases. So, it really is a tough market out there. We'll have more on that from Alex in a little while.

Tension in the global economy as high as well. We're seeing trade wars escalating between the US and China. I think the IMF would predict that that's going to cost 455 billion dollars in lost output next year if it's not sorted. That's more than the size of South Africa's entire economy. Interesting that Mexico benefited from that, but knowing Trump's opinion, that probably won't last very long.

The market is very volatile. It's tough to make long term recommendations. We're seeing in terms of client confidence only about 29 percent of clients from recent polls are more confident than they were five years ago. So, that makes a really tough job for advisers in terms of what to recommend as clients enter into retirement.

So what does that mean? Well, many people are choosing to access pensions freedoms as we know, and access drawdown and retirements. We've seen a good bull run in the markets since pensions freedoms, which has provided positive return in exchange for some investment risk. But are we heading to a turning point in the markets? I’ll be referring to my fund management colleagues shortly.

Clients approaching, or around, retirement may well have a cautious approach to investing. Their fund needs to last them throughout their retirement, and in many cases beyond if people are looking for intergenerational wealth transfers to their family later on.

There are several key client risks that we see around people taking an income in retirement. I'll just touch on those briefly now.

  1. So first one – inflation. Returns not keeping pace with inflation, and that means that the real value of the income that the clients get will decline over time. A 5 percent rate of inflation will half the value of the client's income over a 15 year spell. And that makes it very hard to continue to provide a decent quality of living with that money.
  2. Longevity. So, I try not to show this at dinner parties, but I'm an actuary by background. I've spent many years looking at life expectancy in retirement and I actually used to price annuities back in a previous life. The best I can do is to come up with educated averages of the average life expectancy for a pool of clients, and if I get that average right for a group of lives then I can be quite pleased with myself. But I'll be wrong for almost everyone. Half the people are going to live longer than that average, and half will live shorter. There's a real challenge to ensure that the clients’ pension funds last as long as is needed without suffering from that regret risk if they die sooner.
  3. Annuity rates. So, one opportunity to get around that risk is to pass the longevity risk to an insurer. But, if you lock in to an annuity rate now, you're fixing your income for life. Over the last couple of years we've had low interest rates, we’ve had quantitative easing. People have believed that interest rates will start to rise at some point in future. And if they do they might be a different type of regret risk for having locked in that guarantee for income for life at a low rate.
  4. Changing circumstances. So, lots of clients in retirement have concerns about health deteriorating. Equally, at the start of their retirement, they might be starting a second life. They might be looking to travel, to start a new job, to take some hobbies they’ve never done before. They may have a real thirst to live that second life to the max. They may get divorced. They may need to help with their kids’ lives, or even their grandchildren. Lots of things can happen that might cause risks around needing to access or change income during that time.
  5. Investment risk is an obvious one. So, the threat of volatility, declining returns and a market downturn.
  6. Sequential risk as well. This is how important the order of investment returns is, and that matters a lot more when you're in decumulation. There is a danger of taking withdrawals when you're using your capital as well as the income whilst you're in retirement.

So, investment really is a balancing act and we tried to find the utopia of a high risk return for low growth. I think I'm still looking for that. In reality, at the early stages of retirement, a lot of clients would prefer a lower risk fund with a good inflation-beating level of investment growth. They're very cognizant of their losses and potential losses. And it goes without saying the key to the decumulation, I think we can perhaps ignore this and also be clear on it, the key to decumulation is low monthly volatility. If most retirees are taking their drawdown income monthly, then you need a fund that will provide you with low monthly volatility, not just in annual timestamps.

So we're really happy with the LV= Smoothed Managed Fund solution that helps mitigate a lot of these myths. It provides a low volatility investment experience, delivered through a globally diverse portfolio and it has a unique smoothing mechanism in the market. It can be used in both the accumulation phase in the run up to retirement, and during retirement. Today we’ve talked about drawdown. Then he will talk to you a little bit more about some of the opportunities there later on in the webinar. We have three different funds that allow you to match it to different risk ratings of clients which cover a large section of the market. We have a very experienced fund manager in Columbia Threadneedle and more about that when we move on to Alex's section shortly.

To be clear, what smoothing is and isn't, it won't prevent losses in the long term. It will not provide immunity from market volatility. What it does is it dampens risk significantly against those short term market fluctuations for clients taking income. We think that's a really, really important feature within a key accumulation portfolio.

So if you look at the volatility and performance of various different fund sectors. We're trying to split this into four based on mean annual volatility and performance. Let me talk you through them. If you follow me round from the top right.

That's the high risk and high return sector. We've called that the ‘roller coaster sector’, so that's where the fund is providing a good return, a lot of volatility and a little of the ‘scream if you want to go faster’ for some clients at some times, that's okay. If you're here in your middle stages of life and are looking at a long term savings horizon for your pension that may well be a position you're comfortable in, and that you may believe that that volatility will provide you with higher returns in the longer term. But whilst you're around retirement, that may not be so relevant.

Bottom right, we call that ‘fingers crossed’. That's where you're getting a relatively low annual performance but with a high level of annual volatility and we all have our fingers crossed because I presume people are invested there because they hope it's going to come good next year and that may happen.

Bottom left, we’re calling this ‘mattress money’. So that’s where you're getting a low level of performance for low level of risk. So with that you might not be able to keep pace with inflation. You will as you move up the other sectors towards the top right, but certainly some of the money markets and those that match inflation are going to be down in that bottom left quadrant.

On the top left you've got ‘sleep easy propositions’ where you've got a lower level of volatility that is still getting an above average level of performance and it's really pleasing to see the FG Cautious funds sitting within that sector. And that's what we believe this is, it is a sleep easy proposition for clients where they don't have to be locking in their investment return and looking at better returns daily. This provides them with some certainty and some assurance and some ability not have to look at those volatility positions in the market as they come through. Vinnie will talk a little bit more about that later on.

As I mentioned, we have our ISA proposition launching soon and this will complement our Smoothed Managed Funds. So feedback from some advisors that we've had is that they love our smoothed funds, both pensions and for savings, but they do have to recommend using their clients’ tax wrapper first. The question we get asked constantly is why don't we have an ISA version of it - we will. It is coming very soon. It’ll complement our Smoothed Managed Funds to have the ISA wrapper alongside them. Some more information on that very shortly.

So, if anyone has any questions on anything that I've already talked through, or any questions when Alex and Vinnie come through with their pieces, please share them. We'll answer as many as we can at the end of the session. Any we can't answer, we’ll follow up on and send round written responses to people. Please don't be shy. We’ve already had a couple come in. We'll continue to monitor those and come back at the end.

So, without further ado, I will move on to the main section and whatever else comes here which is Alex and Vinnie. Firstly, we’ll start with Alex from Colombia Threadneedle. We're really fortunate to have such great access to our fund managers, really grateful for them to come in and share their views and share their expertise. It's always a busy time in the financial world, but particularly now with the volatility that we've talked about, we're really grateful to Alex for taking that time out, and to share his views. So, Alex, thank you and over to you.

Alex Lyle

Many thanks, Andrew. Good morning to you, all those listening and delighted to have a chance to talk to you about the funds. Thank you for investing in them. And so, starting on the first slide, I'd just remind you we're really looking here at Q1, what happened, and how the funds are currently set up, how we see the markets going forward.

So just a quick one on how we started Q1 in the funds. We were optimistic about the outlook for equities, more cautious on bonds as far as style's concerned i.e. the type of company with the holding, we have a bias towards great companies, companies that can produce decent returns, and quality companies – good, solid, well-managed businesses, as opposed to what we call value stocks, which are the cheaper stocks that pay a good value, but in many cases have less good prospects.

Within bonds, we are underweight bonds overall, but within bonds we favour credit i.e. corporate bonds. These are lower quality bonds far for which you get a high return. So just a quick reminder of what happened in Q4, I called it the perfect storm. It was a nightmare. Our positions weren't well suited to it. We had some very good performance ahead of it, but every now and again in markets you get corrections and you can't anticipate when they're coming and you have to take a bit of pain for the long term benefit. And we have more on the days in Q4.

Equities you can see on the left hand side that bar chart down globally 11 percent, whereas bonds were up 4 percent at safe haven assets. Within equities it was those value stocks, these cheap things, which held up much better because there wasn't much profit to be taken in. So our sorts of stocks, our quality ones underperformed the value stocks and again looking for safety, investors went for government bonds rather than credit which underperformed. So that was a very tough Q4.

What happened in Q1. I call that the recovery. We kicked the tyres hard towards the end of last year, and it always feels uncomfortable when markets are collapsing. But we were convinced that there was still value in markets, that the bull market wasn't over, that our forecasts were for growth, both the economies and company earnings, were still reasonably attractive. As a result we stuck with our positions, and we didn't panic out of our good quality growth companies and into the cheap value stocks. And we topped up some of our favourite holdings. We were extremely pleased to see that Q1 reversed a loss of Q4. Equities bounced back, up nearly 10 percent in nominal terms in sterling, and government bonds came back a fraction.

If you look at that line chart on the bottom right hand side, you can see that it was good quality great stocks that outperformed value stocks. So, a much better Q1 recovering a lot of the hardship of Q4.

On to how we see things from here. Our forecasts for global growth are in that table on the left hand side and it’s basically a picture of pretty moderate growth. It's not phenomenally fast by any means. It's reasonable growth and generally slightly slower next year than we see here, and that is accompanied by again reasonably healthy corporate earnings growth from companies. That's crucial, that’s what drives equity markets. You're investing in the cash flow from the companies you own shares in, others of which they pay the dividends.

So against that background, how do we see that different asset classes? Equities remain our preferred asset class. We've talked about growth, looks okay. Corporate earnings look healthy. Valuations we still think it's pretty reasonable, particularly a strong yield compared to other assets, particularly against cash and bonds. And importantly that fourth bullet point, central banks are now more dovish i.e. four or five months ago there was a lot of talk about interest rate rises. There's not much nowadays and in fact generally speaking people are expecting the US, whose economy is ahead of most in this cycle, to start cutting interest rates fairly soon.

So quite a few positives I've got some charts on these to go into slightly more depth in the second, but negatives on the right hand side. One has to say there are certainly negatives around: Brexit, clearly as Andrew said it has got murkier; protectionism - Trump is just making it tougher and tougher. The Chinese talks aren't going desperately well, I think they will come to an agreement. Then more recently, chuck in Mexico, India and negotiations are about to start with Europe on trade as well. We think that markets can get through these issues. It’s very much in Trump's interest to ensure that when it comes to his potential re-election next year, the economy in the US is in good shape and the markets are in good shape. I think even he realizes that trade wars are not going to help that position. So I think he'll take it to the brink, win a few concessions and tick the box, and hopefully get back to trade closer to normal.

But those risks have got worse in the last few months, and as a result, we have reduced the extent of our positions in equities. But we still think the outlook remains fairly favourable.

Moving on, I said I've got a few charts giving a bit more detail on some of those factors on the left hand side. Here we've got the yield on equities - the light blue line, compared to the yield on global bonds, the darker blue line. You can see equities now yield a lot more than government bonds and dividends are raising company cash flow. So better starting yield and it's increasing, unlike the government bond, which is stuck.

Global PE ratio on the right hand side it's about average. This is looking is what's called a cyclically adjusted PE, i.e. it's a PE based on average earnings over the last 10 years, and it's about average. So we need to be cautious from here, but you can see the bull markets tend to end in very high valuations. You tend to get a bit of a bubble towards the end of bull markets and you can see the last three big bull markets have ended up with valuations quite a bit higher than where we are today.

On the next slide, the bar chart with the stocks on the left hand side. That's PE ratios again. But here we’re just looking at this year's earnings. You can see that the bars which show that current prospective PE ratio is below the average the dots since 2020. So all markets are cheaper than they have been in recent years. I mentioned corporate earnings are so important. On the right hand side you've got the bar chart showing our expectations at Columbia Threadneedle corporate earnings growth in the major regions and it works out. It's above averaging seven and a half percent this year. More like six and a half percent next year. That is pretty good real earnings growth when inflation is down at around 2 percent. So, reasonable earnings growth coming through from companies.

That's equities, as I said, our preferred asset class. We remain optimistic over the medium term; we don't think the bull market is over quite yet. Moving on, government bonds there we see a perfectly healthy environment for bonds, but just very limited value. If you look at the government bond yields, three major government bonds on the left hand side. When you've got the Gilts in the UK yielding less than 1 per cent now (that light blue line in the middle) and that's been good value compared to the bottom line which is Germany. A bund now is yielding minus point two percent. So for having the privilege of holding the German government bond, you are paying point two of a per cent per annum. Japan is a similar position. That is point one five negative. So, we think inflation will remain low with big interest rate rises pretty much off the agenda in most places, and expecting some cuts from the Fed. The market's expecting some cuts from the Fed.

That's a good environment. But bonds are fully pricing in that news. On our right hand side just to show you how I mentioned a central bank more dovish, how expectations have changed for interest rates. The top graph there is the situation in the U.K., the steps line at the bottom is base rates, and the three more volatile lines above it are what the market is discounting interest rates at the end of this year, next year, and 2021. You can see now in the UK, the markets are really factoring in a 50 percent chance of a one 25 basis point interest rate rise by the end of 2021. So really looking for pretty much flat rates in the UK and down in the US, the bottom right, the market is now looking for four cuts of 25 per cent by the end of 2021. If you look back where those lines were in November, they were very a different much more aggressive central bank. So the interest rate environment has changed, which is healthier for all markets. Equities hated when they expect interest rate rises to rise dramatically, and put the dampener on economies. That is not what we're seeing at the moment. Just quickly on the next slide our expectations for interest rate rises and inflation, as I said very little in the way of rate rises. Those are very much on the basis of a good Brexit deal, and certainly very much economy dependent. Inflation forecasts on the right, we think inflation globally will remain somewhere around the 2 per cent, which is what central bank's target. So we don't see a lot of pressure on inflation.

Finally on bonds, this chart shows the spread i.e. the incremental yield you get from investing in corporate bonds - investment grade corporate bonds over government bonds. It's about 125 basis points about average, and we think that given good cash flow from company stocks, it's great. The risks - the extra risk, of holding corporate bonds over government bonds is not too great. So we have our portfolios skewed towards that rather than government bonds.

Finally, a look at property. We think property still has reasonable prospects. Those are pretty attractive yields. The index yields around 5 percent and also the funds provide a high yield in the map of more like 6 percent. Supply has been very limited. Very little is coming on, and in offices, quite a bit of it is now being shifted to residential use taking some of the supply off as the government has relaxed planning rules on the change of use.

There are negatives. Obviously we have the risk of another Brexit shock in retail company voluntary arrangements. The second bullet point that, as Andrew mentioned, is very relevant at the moment with Arcadia trying to get some through the high street is that it is a difficult patch but other retail property is nothing like as bad out of town. Retail parks are much healthier a lot more focused on sorts of discounters both in food and clothing and the market is holding up. And the area has been doing very well is some logistics and distribution - the warehousing that satisfying all that online shopping that is causing the problems in the High Street.

So overall we remain optimistic on property although we have to say it is a fairly illiquid asset class. We are well into the bull market. So again we have been reducing the extent of our exposure to property.

So finally, just to sum up where we are in the portfolios. We are more cautious on government bonds. We have come down practically as I said we'd be days in closing in equities to neutral. Given the short term uncertainty over Brexit and trade but we do expect these to reach logical sensible conclusions.

Therefore on a more strategic view we remain optimistic and we still favour property and within bonds, credit, and within equity markets at the moment the few we prefer are Japan and Asia-Pacific to back is our view.

That is how the funds are currently set up. I will leave it there and hand back to Andrew.

Andrew Gilbert, LV=

Alex, thank you very much.

Slide 28 - Again I'm really grateful to Alex for sharing his views on performance and outlook saying it was fascinating to run particularly interesting for me to hear about the current PE ratio and why that position versus previous years not so terrible about those negative bond yields that are experiencing in other countries but slightly blows my mind.

So thank you so much for that. It’s fascinating insight that we just can't get elsewhere. We'll head now over to Vinny Lomonaco. Vinny, welcome. Vinny is one of our retirement consultants here at LV and is an expert on our Flexible Guarantee Funds. So without further ado, Vinny over to you.

Vinny Lomonaco, LV=

Thank you Andrew. It's great fun. Thank you.

Thanks Alex for a presentation and it’s really good to hear directly from the fund managers to get the funds under the bonnet. What I'm going to do today is spend around 10, 15 minutes just looking at the various aspects of the Flexible guarantee funds how they work. And then we'll have to look at some background to .

I joined LV= eight years ago when the fund was just available as the Flexible Guarantee Bond. And I've really seen it evolve over time. Now, there's a pensions version of it, and as Andrew mentioned in the presentation earlier we have an ISA version coming on the horizon.

Slide 29 - So it's been a great journey for the product.

We’ll look at the fund options and go through some of the key reasons why we recommend that you consider the products you pull your investment clients pension funds and in particular how you can use the funds we know so often the pension from transmission to current and other types of investment options that we have available and how you can blend the solutions to meet your client's needs.

And then finally we’ll cover off some frequently asked questions that we get in the team from advisers that we work with. It’s possible that you might have one of these questions in mind. If you have other questions, please ask them on the system and we’ll try and cover them off later.

Slide 30 - So the background of the funds and what to post or bond and the pension options we offer free risk rated funds managed by Columbia Threadneedle. They are actually funds with diverse investment mix - it’s a mix of equities and fixed interest assets I and property in cash as well.

And the three funds have been this way I should say of course the three fatalities a fall and the money supply comes into five and so you can easily match these two your clients risk profiles they have two key features on two to three features to focus on that can help make the funds ideal for your less risk averse clients. First of all look at the smoothing size of the unique negative capital in the market. We said it simple transparent and it's easy to understand which is important to the end user who is actually investing in the funds and it's important. It's about to understand how it works. So simply we are taking the average of the daily unit price Columbia Threadneedle are producing and then we're averaging over twenty six week period.

Every day we get a new unit price. We look back 26 weeks and then calculate a new smoothed price on a very long term basis. We do suggest the investment horizon for the product is ideally five years plus.

And unlike some competitors out there you can start, stop and renew the guarantee at any time not just the outset. If you take it off and then it's not just talk for somebody opportunities that this provides so the

Slide 31 - Flexible Guaranteed Bonds are a simple low cost investment and you only need a minimum of £5,000 to open one up. We see them as a long term vehicle for investment savings – for five years or more ideally.

The FGB can be used for life stage planning, and with the optional guarantee there’s the option to use it as a tactical investment to provide a fixed minimum amount over a fixed period, thus earmarking that amount at a future point in time, making sure capital is not at risk.

You can use guarantee in a flexible way. So you can stop start and renew it at any point. So as an example, if you put in £100,000 today with a guarantee and in a short time it’s worth £125000 you could stop the original guarantee or start a new one on the higher figure.

The FGB can be used as a tax efficient vehicle as well - there’s no CGT and higher rate taxpayers can benefit from the 5 percent tax allowance each year. It can also be used as an IHT planning vehicle and written in trust. We have a range of trusts available that you can use, and we can also accept existing trusts that wish to purchase the investment

You’ll see option six here is Corporate Investment. I don't see that we at LV= talk about this enough. I mean the product is mainly bought by individuals under the trust side but if you do have clients that have their own companies and they've got cash in the bank which isn't really working hard enough for them then you can use the flexible guarantee bond as a corporate investment and invest company money securely using the guarantee option to fix the value over a guaranteed period.

Slide 32) So, that’s just some ideas of how the Bond can be used. Now let’s have a look at the pension version of the funds.

You can use the Flexible Guarantee Funds as a standalone investment in the Flexible Transitions Account, or you can put them with other investments within the pension wrapper. In this example, we’re looking at using the FGF alongside the LGIM Multi Index range of funds

These funds are available to LV= for a discounted rate of just 0.24%. The multi index funds have risks ratings from 3 to 7 inclusive, so you can select the appropriate fund alongside the FG funds with the same level of risk. And the LGIM funds are risk targeted, giving you the reassurance that the risk rating won’t change.

So looking at £100,000 split 50 percent between Flexible Guarantee cautious funds and 50 percent in the LGIM multi index three fund. The total investment charge works out at just 0.66%. If you set that alongside the pension wrapper charge of just 0.25%, that means a value pension with quality investment management for less than 1%. It’s also offering great diversity as both the FG funds and the LGIM multi index funds look to diversify investment as widely as possible within their parameters

Slide 33 - In this second example, we look at how the Flexible Guarantee Funds can be used alongside other product and investment options within the LV= pension wrapper to create a layered approach to providing income for someone in retirement. So the FG investments are part of a much wider portfolio of investments, but all contained within the low cost LV pension wrapper for just 0.25 wrapper charge

If you look at the diagram on the screen –

The first layer is an investment in our fixed term annuity contract called the Protected Retirement Plan. This provides a fixed guaranteed income over a fixed term, with a guaranteed maturity value at the end of the term.

Alongside that, you have the FG funds in the second layer. As an example, you could opt to give a client a guaranteed fixed income over a ten year period – maybe taking them through the period leading up to retirement when they might be reducing their hours and therefore need another income stream to supplement their overall earnings. At the same time they could invest in one of the FG funds and use the 10 year guarantee option (we pledge to always make a 10 year guarantee available in the future). This means that they’ll have a guaranteed amount after ten years, when the fixed term annuity has finished, so providing a further income stream. Remember the guaranteed sum is just the minimum that will be available. If the fund value has gone up, they’ll get the higher amount – in each case less withdrawals or charges. This means that income can be fixed and guaranteed in the initial period after retirement, providing a valuable level of protection against sequential risk – that can be particularly impactful if a client is starting to take income from their fund.

The third level provides additional investment flexibility and the opportunity to investment for growth in the long term. Maybe in a range of active funds we’ve got in our portfolio, or perhaps using the DFM option available through the LV= pension.

So you can see from this that the FG funds can provide a level of flexibility and investment security for your clients, and can be a valuable tool when you’re looking to provide a retirement income plan. There are many other layering options within the LV pension wrapper – if you want more details, or want to discuss a specific client, speak to your usual LV sales contact.

Slide 34 - Finally, I’m going to run through some of the frequently asked questions that advisers like yourself put to myself and my sales colleagues. It’s likely that if you’re new to the funds, these could be questions that you might have. I’ve put quite a bit of detail on the slide so you’ll be able to refer back to these when the deck is made available on our adviser site early next week.

Firstly – What does our performance seem to lag that of our competitors?

I think the important thing here is that we not, aren’t chasing ‘lights out’ performance figures. Our mandate to CTI – Alex whose here and his colleagues is clear that we want these to be seen as ‘sleep easy’ funds for clients, so it’s important to stay within the risk rating parameters 3 4 and 5. We don’t want these funds moving outside their risk parameters – we’ve heard about the impact that can have on advisers and portfolio setting

These are low risk funds. Also bear in mind that the unique mechanism means that it can take time for market movement to filter through to a clients’ fund price. This goes for market movement up as well as down. The 26 week averaging means that a sudden movement will take time to filter fully into the value the client sees.

In the first year of investment, the client will move from the underlying price to the average price after 26 weeks, so this could mean an adjustment up or down to the new level.

Second question – why is the guarantee cost so high?

Honestly, I don’t think it is! The cost is from 1% per annum - we don’t price that to make a profit, so we keep it as low as we can.

Remember is a valuable option and, unlike some competitors, it’s flexible. It can be started, stopped or renewed at any time, so it’s a really useful tool to have up your sleeve when you’re planning with your clients. They can lock in gains after a nice rise in the markets, and then renew if fund values continue to rise. We’ll always offer a 10 year guarantee option, regardless of what happens to the rest of the product terms.

Finally – what happens after 26 weeks? I think I’ve probably covered that already, but after 26 weeks the client moves from the underlying price of the fund to the average of the 26 weeks that have just gone. So if the underlying average is higher than the price at the end of 26 weeks, they’ll see their value go up. If it’s lower, it will go down. The important thing is that any dramatic fluctuations are taken into account and smoothed out.

It’s a transparent process that we think is easy for clients to understand.

I reckon that’s all from me – I hope you found this useful. I'm going to pass back over to Andy to sum up. Thank you for your time and I hope that was useful.

(Slides 35 to close) Andrew Gilbert

Thank you very much indeed for that.

We've had a few questions come in so thank you for sharing. If you have any more please do send them over.

I will touch on those in one second.

So first question that we've got is for Alex. So Alex, how will a long term trade war between the U.S. and China impact on your management decisions?

Alex Lyle

I mean just to say first of all that's not what we anticipate. A long drawn out trade war.

But there's no doubt that it would be negative if we had one. I think that what the Americans are trying to do is to get a much more level playing field for trade. And at the moment I mean there isn't. You can see Trump has a point. There is the taking a level playing field for example if a US company wants to set up in the US. Generally speaking you have to have a joint venture with a Chinese company which means your pay away a lot of the benefit. And you have very limited control over it, whereas Chinese companies can move into America and make acquisitions that much more easily. And the other thing that's a problem that America wants to sort out is that the Chinese don't have a great deal of respect for proprietary information and copyright. You see a lot of cheap copies coming out of China. And if China can give way a bit on these two I think the world can get back to free trade, which has been such a benefit to the world in the last few decades. And that is just logical. That's where I think you should move back to. Having said that there's no doubt if there was one which was your question, a long drawn out trade war , would be negative and would definitely make it a bit more cautious.

I mean I think Andrew mentioned earlier on that in the paper today the IMF has forecast point five percent of global growth if we do get a fairly long trade war which is certain. I mean that is definitely negative. Let's not mince words on it. But it's not the end of the world. That would still allow some growth and companies are very good at operating as environments change. And if you've got a long trade war with China and you've been sourcing a lot of your goods from China companies are pretty quick on the whole to shift production to Vietnam the Philippines India or somewhere else. So it would be a negative but we don't think it's the end of the world.

Andrew Gilbert

Thanks for that. Next question we've got in the pulse of in your life and take it will the ISA funds will be ISA have the same funds and will they be invested in the same way that our existing funds are. I think probably any one of the three of us on the panel would take it. Would you like me to? I'll take that.

So in short the answer is yes. We're really pleased with the three funds that we've got. If it ain't broke don't fix it. We love what CTI do with them and our relation with them so yes they will invest in the same way our existing funds are. So a resounding yes for that one.

Next question. I think I will pass to Vinny, and it’s can the FG funds be used as a Trustee Investment Fund investment in another pension wrapper?

Vinny Lomonaco

Thanks. Thank you. So currently no, we haven't got a TIP version of the flexible guaranteed funds. What I will say is though we will have three versions of it in the near future when the ISA comes along. So watch this space.

But they are available in our flexible transitions account. It's important to note they are you know we do have a really great wrapper charge of 0.25 percent so it is competitive and you can purchase the funds through that option.

And alongside that as well we do have a great investment proposition whoever it is that you want to use these funds alongside - passive funds active funds. Combine it with a discretionary fund manager or even combine it with guaranteed income so we've got a great pension proposition that you can access these funds through.

Andrew Gilbert

Thank you. Thank you. As regards the last couple of minutes we've got another four questions to go so I will just use Alex to the best of his ability in that time and I'll follow up answers to the other ones off line.

So naturally you've got a nice view of economic risks and the prospect of interest rate cuts. Are you moving more into bonds.

Alex Lyle

I don't plan at the moment. As I said, the background environment for bonds is quite healthy but there's very little value at the moment. So as I said we have been doing a bit of top slicing of equities but we've been putting that into cash

Andrew Gilbert

Excellent thank you. And if you've got time you forecasted high growth in India during your presentation do you see India featuring more in the funds in the next few years.

Alex Lyle

I think it will.

Certainly there are some fantastic opportunities to benefit from in India but there are drawbacks. First of all India is a very bureaucratic and inefficient country.

When Modi got in first time round it was very much on the hope that he would introduce reforms to increase efficiencies and there has been a lot of disappointment that that hasn't come through. And also there are limited opportunities for investment there. There aren't that many decent quality quoted companies. It's quite a small market. But having said that there are some good opportunities and there are some very interesting companies in the field of I.T. servicing area and companies benefiting from the growth of consumer wealth. So we do look out there but it's not going to become a large part of our investments in the near future.

Andrew Gilbert


Thank you for that. Very quickly. We've had one person. We've got some concerns with service on a competitor's ISA. I won't say which one. When will you be launching yours?

Watch this space it will be this month.

Summing up speech – there’ll be a link to your sales contact I think when the CPD confirmation goes out there will be a mean comment to refer to your sales consultant if you would like to talk to us about the ISA.

We will follow up the remaining unanswered questions off line.

You can contact your usual LV= sales contact If you've got any questions and there will be further webinars shortly. Watch this space for that - we will be communicating. Many thanks to Alex and thanks to all of you for listening thanks very much.

Have a great day. Thank you.

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