Lotus Development Pension Investment Plan

Investing for retirement Presentation

Name Andrew StrathdeeRichard Smith Rita Galbraith November 2011

Welcome to our 2011 Lotus Development Pension Investment Plan Members Day

Agenda for Today

– Introduction – Andrew Strathdee - Trustee and Secretary

– Plan Update – where are we now?• Age Discrimination Legislation• State Retirement Age• The New Funds• Member Nominated Trustees

– Thinking about retirement – Richard Smith - Plan Administrator• How much do I need to retire?

– Expectations and Aspirations – Rita Galbraith – Fidelity• Contributions• Investments• Tools to help you• What to do now

00 Month 0000 in footer3

Plan Update

Andrew Strathdee

Age Discrimination

Following legislation in 2006, the Trustees have agreed:– To allow “late retirement” after the scheme normal retirement age of 60

– New Tier for contributions for members under age 35

– Under 35 Tier applies equally to members over 60

The Trustees are still awaiting formal agreement from the Company

5

New Contribution Rates (over 60s/under 35s)

Option 1 Option 2 Option 3

Member 2% (4%) 3% (5%) 4% (6%)

Company 6% (12%) 7% (13%) 8% (14%)

Total 8% (16%) 10% (18%) 12% (20%)

IBM PPP - Member 3% 4% 5%

IBM PPP - Company 8% 9% 10%

Total 11% 13% 15%

Figures in brackets are current Lotus rates for members over age 50

Options at 60

Check contribution rates of the schemes

Are you on a Sales Plan? Pensionable Salary may be higher in Lotus Plan

If you leave Lotus Plan you cannot rejoin

IBM matching rates not contractual

TAKE ADVICE!

State Retirement Ages

Still some uncertainty. Latest Position:

For men born before 6 December 1953, the current State Pension age is 65.

For women, the current State Pension age is increasing from 60 to 65 from April 2010. This affects women born on or after 6 April 1950.

Proposal to increase State Pension age to 66:

The government has published new proposals for increasing the State Pension age to 66.

Women’s State Pension age will increase more quickly to 65 between April 2016 and November 2018.

From December 2018 the State Pension age for both men and women will start to increase to reach 66 in 2020.

These proposals affect you if you are one of the following:– a woman born on or between 6 April 1953 and 5 April 1960 – a man born on or between 6 December 1953 and 5 April 1960

These proposed changes are not yet law and still require the approval of Parliament.

State Retirement Ages

People not affected by these proposed changes

These proposals do not affect you, if you are one of the following:

a woman born on or before 5 April 1953

a man born on or before 5 December 1953

a man or woman born on or after 6 April 1960

The current law already provides for the State Pension age to increase to:

67 between 2034 and 2036

68 between 2044 and 2046

However, the government is considering how the State Pension age should be changed in the future.  This may mean the timetable for increases to 67 and 68 will be revised. The government will bring forward proposals in due course. Any change to the timetable would require the approval of Parliament.

The New Funds Part of Trustee’s Role is to:

– Monitor investment arrangements, performance and prospects and review choices available

– Implement changes after appropriate professional advice

– Review new opportunities and developments

Trustee’s concerns

– Concerned about disappointing past performance and about the suitability of the Fidelity International Equity Fund as a long-term investment option for Plan members

– Over the past few years, investment markets suffered as global economy went into recession.

– Poor performance of many asset classes, in particular equities, has shown that investing Pension Account in one single asset class can increase risk

The New Funds Trustees took advice and decided to:

– Replacing the Fidelity International Equity Fund with a new, actively managed, global equity fund• Design a new global equity fund (“Lotus Active Global Equity Fund”) that will invest in

actively managed equity funds, split between overseas and UK equities.

– Introducing a new type of actively managed fund: the Schroder Diversified Growth Fund• Spreading or “diversifying” Pension Account across different asset classes spreads investment

risk• Different asset classes have different characteristics; giving different performance depending on

the economic climate, leading to smoother investment return for investors over most time periods.

Rita will talk more about these funds Later

Member Nominated Trustees

We will need to elect new Member Nominated Trustees (MNTs) next year

– There are three MNTs for the Fund and six Company appointed.

– The responsibilities of all Trustees are identical• To ensure contributions are received from the Company and invested in line with

members’ wishes;• To keep records of members benefits and Pension Accounts;• To keep beneficiaries informed;• To appoint the Plan’s advisers;• To review the performance of the Plan’s investment managers and to appoint new

managers if necessary;• To act in the interests of the beneficiaries and ensure that benefits are paid in

accordance with the Plan Rules.

Member Nominated Trustees

You can be a Member Nominated Trustee if:– You are an active member of the Lotus Plan;

– You understand the need for confidentiality;

– You have an interest in pensions;

– You are prepared to commit to the role for approximately 5 years.

– You can attend approximately four meetings per year and undertake training as required, including attending appropriate training courses and seminars, as well as taking the time to familiarise yourself with the Plan’s various documents

– Have the support of your manager

– But NOT:• undischarged bankrupts;• anyone either disqualified from being a director or convicted of an offence involving dishonesty

or deception• Not of sound mind!

Member Nominated Trustees

The Trustees will announce the nomination process early next year

– Will require Nominees to produce a personal statement supporting their nomination, will check to ensure they are eligible and get them to sign a declaration of eligibility

– Publish a list of nominees to the members

– Arrange selection panel of Trustees to identify the successful .nominee(s)

– Announce the results

New MNTs will be formally appointed by Deed

MNTs who cease to be a member of the Plan for any reason, or to be an employee of IBM (UK) Limited will automatically be ineligible for continued Trusteeship

00 Month 0000 in footer14

Thinking aboutRetirement

Richard Smith

Thinking about retirement

1. Income in Retirement - what do I need and get?

2. Outliving your money – How long will I need it for

3. Inflation – the ever present threat

4. Investment Risks on my retirement income

5. Health Risks – Paying for care as I get older

Today we will look at the first three

The three pillars of Retirement Income

State Pension

Company Pension Savings

Income in Retirement

What do I need?

– Comparing gross Lotus pension with gross IBM Salary can be misleading• You don’t pay National Insurance • You don’t pay Pension Contributions• Tax may reduce• Other deductions will cease• Many work related expenses are no longer payable (e.g. Professional memberships , work clothing etc)

– Some expenses will increase• Home heating• Leisure and outings• Home entertainment equipment

What do I spend it on?

– Varies by stage of retirement - On top of living expenses, • Early in retirement - travel and recreation • Later in retirement - health, care and heating

Longevity – will I run out of money?

Actuarial Tables

Life Stage Life Expectancy Life Expectancy

Male Female

At Birth 78.2 80.3

At age 50 years 79.0 82.7

At age 60 years 80.9 83.9

At age 65 Years 82.2 84.9

Buy yourself some extra time…If you do this… You could gain this…

Stop smoking 6 years

Chat to friends

Keep a pet 1 year

3 to 4 years

Have sex every day

Do brain exercises 5 years

8 years

Source: The Daily Telegraph, 17.09.07 (article re Laindon Model); Life Trust presentation for ILAG.

Sleep 8 hours a night

3 years

6 years

Five-a-day fruit and vegetables

2 to 4 yearsModerate cardiovascular exercise

Get marriedMan: 7 years. Woman: 2 years.

Inflation Risk

At retirement, you will be able to choose between a fixed rate pension and one that increases in value

Whichever option you choose, it is likely that the real value will reduce over the course of your retirement

Fixed v Escalating Pension

Assume a fund of £250,000 for a male member retiring at 65

Flat pension = £15,400

Pension increasing at 3% = £10,600

These figures are based on current annuity rates and are subject to fluctuation. They assume a 50% spouse’s pension on death.

22

Level or increasing?

Annual pension available from £100,000 pot

Retirement Age 65

Annuity rates: October 2008

Cumulative pension payments cross over after 23 years

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

Year

Cum

ulat

ive

Pen

sion

(£)

in t

oday

's m

oney

ter

ms

Level Increasing 3%

Actual pension payments cross over after 11 years

Inflation Risk

With inflation at 3%, an annual fixed pension of £15,425 will reduce in real terms to £8540 in 20 years.

You may have other sources of income, eg State Benefits, that are fully protected against inflation.

Your personal inflation rate

Official figures – whether RPI or CPI – are a “broad brush” – everyone has their own individual rate according to their own life style and circumstances

Average Personal Inflation Rates, by age, September 2011

Spending Patterns of retired people

Spending by Age

Inflation over 25 years

Inflation since 1997

00 Month 0000 in footer29

ExpectationsAspirations

Rita Galbraith

Basic State Pension

Paid from state pension age – currently age 65 for men and between 60 and 65 for women

Set to increase over the coming years to 68 for those born after the 5th March 1959.

The full amount of Basic State Pension from 6 April 2011 is £5,311.80 a year for a single person

State Second Pension also available. Top up to Basic State Pension

State Benefit

DWP State Pension Forecasting Team on 0845 3000 168 www.thepensionservice.gov.uk

31

Company contributions Your contribution

Contributions invested

Tax free cash

Pension income

At retirement

Lotus plan

Annuities vary with time

Source: Canada Life based on £100,000 male joint life at 65 / 60 March 2011

Rates: February 2002 To June 2010

Annual Pension Bought With £100,000

£6,028

£6,478

£7,076

Lowest Rate Average Rate Highest Rate

Annuities vary with age

£5,535 £6,478

£8,303

Age 55 Age 65 Age 75

Average Annuity Rates

Rates: February 2002 To June 2010

Source: Canada Life based on £100,000 male joint life

00 Month 0000 in footer34

Contributions

How much should I save?

www.fidelitypensions.co.uk

00 Month 0000 in footer35

00 Month 0000 in footer36

Investments

Investment choices

‘Hands on’ approach

10 Funds

New funds– Schroder Diversified Growth Fund – Lotus Global Equity Tailored Portfolio

‘Hands off’ approach

Ready-made investment option

Self-select Lifestyle strategy

The value of investments may go down as well as up and an investor may not get back the amount invested. Fund charges and expenses may change in the future.

Risks

0

Time to retirement

Price inflation

Capital Falls

Missed opportunity

Investment

Growth

Pension conversion

Lifestyle option

Automatic investment process

60 – default target retirement age or select own retirement age The lifestyle strategy is an investment strategy driven by your retirement date. If selected it is important that you keep Fidelity informed of any changes to this date.

Equities – Fidelity BlackRock Global Equity 50/50 Fund

Bonds Fidelity Lotus Bond Fund

Cash - Fidelity Cash Pensions Fund

Lifestyle option

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Less than 1

1 and 2

2 and 3

3 and 4

4 and 5

5 and 6

6 and 7

More than 7

Ye

ars

fro

m r

eti

rem

en

t a

ge

% invested

Equities Bonds Cash

Tools to help you

PlanViewer

Help and support

Pensions Service Centre 08457 234 235

www.fidelitypensions.co.uk

Pensions Service Centre 08457 234 235

Account balance

Personalised illustrations

Fund performance information

Switching & redirecting investments

Investment options

Open UK business days

8am to 6pm

What you should do now

How do you make a difference?

Review your contribution level

Review your fund choice

Engage with your plan & take financial advice, if required

Important Information

No statements or representations made in this document are legally binding on Fidelity or the recipient.

Fidelity only gives information about its own products and services and does not provide investment advice based on individual circumstances. If you would like advice, please contact a Financial Adviser.

Past performance is not a reliable indicator of future results.

FIL Limited, and its subsidiaries are commonly referred to as Fidelity International. Fidelity, Fidelity International and the Pyramid Logo are trademarks of FIL Limited. Issued and approved by FIL Life Insurance Limited (FSA registered number 186526). Authorised and regulated by the Financial Services Authority. Registered in England and Wales No. 3406905. Registered Office at: Oakhill House, 130 Tonbridge Road, Hildenborough, Kent, England TN11 9DZ.

October 2011 MDC05429