Bucket List #48

Go to a football match

Now that I've retired, Chamber Pension Plan allows me to ENJOY SPORTS.

Change of equity allocation to member lifecycles

During 2016, the Trustees determined that a professional review of the structure and glide path design of the Plan’s Lifecycle funds would be appropriate to ensure that the Lifecycle funds continue to meet industry best practices.

 

The Trustees therefore contracted with Mercer Investment Consulting LLC, a world leader in pension plan  consulting and our financial consultants, to review the structure of the Chamber lifecycle funds and make recommendations to the Trustees.

 

Mercer’s study was guided by the primary goal of working to achieve a reasonable and sustainable income in retirement for our members. This involved incorporating a diversified asset allocation, reducing the risk of substantial losses as participants’ age while also protecting them against purchasing power erosion from inflation, accepting the necessary tradeoffs between risk and returns, and providing a solution not just to a member’s retirement date, but also for the rest of his or her life.

 

Mercer compared our plan to a survey of 45 other Target Date Funds. The study’s primary conclusion was that the existing glide paths of our Lifecycle funds were very conservative for nearly the entire age range. That is, with the exception of the very youngest workers, the percentage holdings of higher-return equities in each of our Lifecycle funds was significantly less than the median of the 45 other funds that Mercer surveyed. While these lower percentage holdings of equities do reduce the risk of principal losses in members’ portfolios, they also significantly reduce the opportunity for high returns; most especially so for mid-career wage earners.

 

After reviewing Mercer’s analysis and recommendations, the Trustees accepted a recommendation that increased the percentage of equity in all Lifecycles compared to the current Chamber Lifecycles. With this improvement, these new adapted Lifecycle’s structures continue to remain more conservative and have lower allocations to equity than the Mercer median, except for the youngest age group. The Trustees agree this continued conservative bias was appropriate given the demographics of the Cayman Islands workforce.

 

The table below shows the approximate percentage of equity holdings in the various portfolios as discussed above for selected ages.  

   

 

Approximate Percentage of investment portfolio in equity holdings

Age 20

Age 30

Age 40

Age 50

Age 60

Age 70

Age 80

Mercer median, 45 Target Date Funds

92%

92%

90%

76%

58%

43%

40%

 

CURRENT CHAMBERS LIFECYCLE

90%

73%

57%

40%

25%

25%

25%

ADAPTED NEW CHAMBERS LIFECYCLE

95%

93%

82%

63%

46%

35%

35%

 

WHAT DO I HAVE TO DO?

Members do not have to do anything for their allocations to change in line with Mercer’s recommendations. If a Member wishes to have a more conservative allocation, they should download the Employee Change Form to select a more conservative option. For further clarification, they may contact the hotline at 345-745-7630 or by email at admin@pensions.ky. 

WHAT DOES THIS CHANGE MEAN TO ME AND MY PENSION ACCOUNT?

The increase in equity holdings brings all Lifecycles more in line with pension industry best practices for Target Date Funds. While future results are not guaranteed, the new allocations should allow Members a better chance at reaching retirement with sufficient retirement funds.

WHO DO I CONTACT IF I HAVE ANY QUESTIONS?

Members can call the Chamber Pension hotline at 745-7630 or email ADMIN@PENSIONS.KY with any questions. The Board of Trustees have implemented these changes in the interest of all Members of the Plan and the Trustees will continue to work on ways to maximise Members returns.