Page 12 - Group Insurance and Retirement Benefit IC 83 E- Book

What Kind of Investment Vehicles Are Used?

This depends on the type of scheme and its size in terms of numbers of members and
total contributions. Most smaller schemes nowadays are defined contribution schemes So

are most of the arrangements designed to accept additional voluntary contributions
(AVCs).The pattern of investment is very similar to that adopted for Retirement Annuity

Contracts, except that trustees are legally responsible for the investments.
Therefore, the individual scheme member may have little or no say in how his/her money

is invested. Sometimes the trustees will allow members a choice between a limited

number of investment options – at times including a choice of different investment
managers. The contributions made for and by individual members must be ―tracked‖ so

that each receives a fair return on his/her investment.

Defined benefit schemes include most of the biggest schemes in terms of membership.

Trustees will decide how they wish to invest the money in conjunction with their
appointed investment manager. Insurance contracts are not as widely used now as they

once were. Most schemes use shared or pooled investment vehicles, and the largest are
―directly invested‖ – often called ―segregated‖.

Pooled Funds
Shared investment vehicles include the wide variety of managed funds offered by

insurance companies and unit trusts offered by the investment banks and specialist fund
managers. They are similar to the funds used for individual investment. The main

advantage of pooled investment vehicles is that they offer even smaller pension schemes
an opportunity to spread their investments over a wide range of assets. A scheme that

could never consider buying a property, for example, can still benefit from property

investment by buying units in a managed property fund.

Direct Investment

When the value of a scheme‘s assets reaches a certain size, trustees often feel that they
can add value by moving away from shared investment arrangements and asking their