April 2015 For professional investors and advisors only. Not suitable for retail clients.

1
In an ideal world, workers would join their pension scheme early, increase their contributions as they get older and keep saving until they retire. But even with auto-enrolment now well underway, we still think it will prove hard to get defined contribution (DC) savers to make the right decisions all the way through their career unless their scheme is very carefully designed. Encouraging people to stay and pay depends on building a DC lifestyle approach that maximises the growth of their savings, while minimising unpleasant shocks. Achieving that happy equilibrium means setting the right balance between risk and return all the way along the savings journey.
Good member outcomes require carefully designed solutions
Value of DC Savings
– Focus on downside protection
– Transition phase
– Traditional de-risking phase
– Growth still required for drawdown
– Drawdown?
– Equity-like
– All weather performance
Stable
Growth
Transition into retirement
– Cash?
– Annuity?
Growth
Retirement Age
Source: Schroders, for illustration only.

Schroders Defined Contribution Solutions 2
For most people, we think that journey divides into three stages:
– A growth phase, from when a saver starts work – typically in their 20s – to their early 40s. In this period of roughly 20 years they need to build their pension savings, so they can afford to take risks with their investments. Indeed, they need to take risks if they are to generate the growth that will turn their pension contributions into something more substantial.
– A stable growth phase, from a saver’s mid-40s to their mid-50s. During this period their need for returns becomes more balanced with potential risks. Growth is still important, particularly as it can have much more impact on what is likely to be a bigger pot. At the same time, the saver can less easily afford to make losses, as there is less time for them to make up for any downturn through further savings or investment returns.
– A transition into retirement phase, from a saver’s mid-50s on. At this stage, the balance starts shifting decisively towards risk: a loss for a saver in the years just before they retire is likely to be irretrievable, given the limited time they have to make it up. However, while they need stability, the saver also needs to take account of both the corrosive effects of inflation on their savings and how they are going to generate an income once they give up work.
We think each of these distinct phases requires different savings products to meet the particular risk and return requirements of that stage of the journey.

3
In this phase, the emphasis should be on keeping young members in the scheme and encouraging them to increase their contributions.
So it’s important that their journey is made as smooth as possible.
Unfortunately, this aim may be at odds with what is best for them.
They typically have few assets but lots of time ahead of them for saving. As a result, the younger saver is in a good position to benefit from compounding, or ‘time-weighted’ returns (see chart below).
The other side of the coin, of course, is that if things go badly and markets slide, the younger saver can still make up the deficit through further savings in a way that an older person can’t. They are therefore able to maximise their time-weighted return potential by investing in higher risk assets. A low-cost global equity fund might suit them well. However, we think a well-diversified growth fund designed to dampen volatility and that aims to protect against the worst losses may be better for a saver’s morale at this stage of their journey.
Time is on the side of the young pension saver
15%
10%
5%
0%
The balance shifts from time-weighted to money weighted returns as the saver ages
Growth in final pension pot
20%
First 20 years
1% increase in contribution rate
Second 20 years
1% increase in investment return
Source: Schroders, for illustration only. 40 year contributions at base contribution rate of 10% of salary. Salary increases assumed to be 3% per annum. Starting salary is £25,000. Base annual investment returns are estimated expected returns of a lifestyling strategy switching from equities to bonds and cash in the 10 years prior to retirement.

Schroders Defined Contribution Solutions 4
The Schroder Life Diversified Growth Fund aims for equity-like returns with two-thirds of the volatility of global equities over a typical market cycle (around five to seven years).
– Invests in a broad mix of growth assets
– Dynamically adjusts asset allocation over a market cycle
– Uses active, passive and external investment as appropriate
The Schroder Life QEP Global Core Fund is an enhanced index strategy constructed to take many diversified positions to deliver outperformance of the benchmark in all major market environments.
– Aims for 1% a year outperformance of global indices (gross of fees)*
– Invests in over 500 stocks in order to help broaden the range of return opportunities
*The return target is an investment objective only and not guaranteed.

5
The member in this phase, from about their mid-40s on, becomes much more sensitive to risk. Any losses they make are much harder to make good, either through additional savings or compound returns.
As the chart below shows, this extra risk is not often adequately dealt with by traditional lifestyle approaches that don’t start de-risking the saver’s portfolio until they reach at least 55 (and sometimes later).
However, middle-aged savers also have the biggest opportunity to build their capital, as any growth should apply to a much larger pot
(see chart on page 3, second 20 years). To optimise the benefits of these money-weighted returns, we believe it’s very important that they use a savings vehicle that offers them inflation-beating growth.
However, it should also provide a better balance of risks by investing in a broader range of asset classes, aim for a lower level of volatility than equities and minimise big losses. A stable growth fund is ideal (see chart below, right-hand bar).
Middle-aged savers require a better balance of risks
Probability of experiencing an annual loss of over 25%
40
30
20
10
0
%
100
90
80
70
60
50
First 20 years
Probability is more than
50% with a traditional equity
lifestyle strategy
Second 20 years
Probability reduces to less than 10% when including a stable growth solution
Equities 25-45 Equities lifestyle 45-65 Stable growth lifestyles 45-65
Source: Schroders, for illustration only. Equities lifestyle 45-65 invests in a 40/60 UK/Global Equity portfolio, switching to passive index-linked gilts and cash over 5 years to retirement (age 65). Stable growth lifestyle invests in Schroder Life Dynamic Multi Asset
Fund (DMAF), switching to passive index-linked gilts and cash over 5 years to retirement. Equity and bond volatility assumptions are based on historic monthly data. Expected return assumptions are based on forward looking estimates. DMAF expected return and volatility assumptions assumed to be in line with the target (target of CPI+4% and volatility of half to two-thirds of equities).

Schroders Defined Contribution Solutions 6
The Schroder Life Dynamic Multi-Asset Fund seeks growth with lower risks by using dynamic techniques to invest in multiple assets. It allocates between passive and active managers, both internal and external.
– Aims to beat the Consumer Price Index by at least 4% after fees over a rolling five-year period*
– Uses systematic risk management techniques to keep volatility to between half and two-thirds that of global equities*
The Schroder Life Risk Managed Global Equity Fund aims to provide DC investors with exposure to the long term growth potential of global equities, while avoiding extreme short term negative price swings.
– Aims to limit losses to no more than 15% in any rolling 12 month period*
– Seeks returns of between 60% and 90% of the equity market over a rolling five-year
period using index funds, exchange-traded funds and futures*
– Uses systematic risk management techniques to reduce volatility
*The return and maximum loss targets are investment objectives only and not guaranteed.

7
By the time a saver reaches later middle age, from their mid-50s onwards, a major loss of savings could be very serious. There is unlikely to be enough time for such a worker to replenish their pot through additional savings or investment returns unless they delay retirement, which is unlikely to be welcome even if it is possible (see chart below). The saver’s need to minimise risk is therefore paramount
(although they should not ignore growth).
We believe these older savers need a vehicle which preserves their wealth, by protecting their savings from losses, while offering a return that at least matches, and preferably beats, inflation. It should also offer them the flexibility to keep their options open when they give up work. The pension changes from April 2015 mean that retirees now have much more choice over what they do with their pension pot – they can convert their savings into cash, stay invested and take an income from them, or buy an annuity. Given that most people may not decide what to do until very late in their journey, a default fund that can provide security and choice, but without giving up on growth, is likely to be ideal for the majority of members.
Losses can be disastrous for the older saver
A 20% loss has a much bigger effect on older savers
Pension pot size £
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46
Loss at age 35 Loss at age 60
47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
Age
Source: Schroders, for illustration only. Starting age 25 years, retiring at 65. Starting salary is £25,000. Salary growth is 3% p.a.
Contributions are 10% p.a. and assume a five-year lifestyling strategy starting at age 60, gradually switching from equities to bonds and cash.

Schroders Defined Contribution Solutions 8
We think this new freedom available to members at retirement calls for a solution that gives them maximum flexibility in their final savings years. For most older workers not looking to buy an annuity, this means a default fund that lets them take a lump sum on retirement or remain invested so they can generate a drawdown income, or both.
The Schroder Life Flexible Retirement Fund aims to keep members’ options open by providing them with the right balance between growth and security.
– Targets a return of Consumer Price Index +2% per annum net of fees over a market cycle (typically three to five years)*
– Uses a range of assets to provide growth in a variety of market environments
– Aims to limit losses to no more than 8% of the value of the fund over any period, via systematic downside risk management*
– Has an ongoing charge of 0.30%**
* The return and maximum loss targets are investment objectives only and not guaranteed.
** As at April 2015

9
Helping savers help themselves to better pensions requires trustees, sponsors and providers to work together to improve the journey.
Achieving this aim requires savings vehicles designed, in our opinion, to suit each stage of the route. Below we summarise how each one fits in along the way.
Type of Saver
Young, from 20 to 45
Aims
Build small savings pots by maximising time-weighted returns
Solutions
– Schroder Life Diversified
Growth Fund
– Schroder Life QEP Global
Core Fund
Early middle age, from 45 to 55
Balance risks with returns to boost money-weighted returns
– Schroder Life Dynamic
Multi-Asset Fund
– Schroder Life Risk Managed
Global Equity Fund
Late middle age, from 55 to retirement
Maintain choice in retirement by balancing growth with security
– Schroder Life Flexible
Retirement Fund
Good member outcomes require carefully designed solutions
Value of DC Savings
Growth
– Drawdown?
Stable
Growth
Transition into retirement
– Cash?
– Annuity?
Retirement
Source: Schroders, for illustrations only.
Age

Schroders Defined Contribution Solutions 10
Schroders is a global asset management company with £300.0 billion under management and an international network spanning 37 offices in 27 countries. We have significant experience of managing
DC assets and of helping scheme managers, trustees and sponsors to operate pension schemes efficiently. We manage assets for
DC pension schemes in the UK and also have relationships with institutional investment platforms. UK pension funds form a significant proportion of our global client base, with more than £41 billion in assets managed on behalf of both defined benefit and defined contribution pension schemes in both the corporate and public sector.
Source: Schroders, at 31 December 2014.

D E F I N E D C O N T R I B U T I O N S O L U T I O N S
Contact our dedicated DC team today to discuss the ways in which we may be able to add significant value for your DC scheme and its members.
Stephen Bowles
Head of UK Institutional
Defined Contribution
Tel: +44 (0) 20 7658 4916
Email: stephen.bowles@schroders.com
Hilary Vince
DC Strategy Manager
Tel: +44 (0) 20 7658 5727
Email: hilary.vince@schroders.com
Tim Horne
DC Investment Solutions Manager
Tel: +44 (0) 20 7658 4877
Email: tim.horne@schroders.com
David Heathcock
DC Product and Distribution Manager
Tel: +44 (0) 20 7658 2806
Email: david.heathcock@schroders.com
Schroder Pension Management Limited
31 Gresham Street, London EC2V 7QA, United Kingdom
Tel: +44 (0) 20 7658 6000 Email: ukpensions@schroders.com
www.schroders.com/definedcontribution
Important information. For professional investors only. Not suitable for retail clients.
This brochure is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Pension Management
Limited does not warrant its completeness or accuracy. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The values of investments, and the income from them, can go down as well as up and investors may not get back the amount originally invested. Schroders has expressed its own views and these may change. The data contained in this document has been sourced by Schroders and should be independently verified before further publication or use. The forecasts included in this document should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors. To effectively run the strategy Schroders may rely on information generated internally or sourced externally, used separately or in combination. There is a risk of errors arising directly or indirectly from erroneous data. Schroders will not be liable for errors arising directly or indirectly from erroneous data. Internal and/or external providers may be used to deliver index tracking equity returns. There is a risk of differential performance between the index and portfolio or pooled vehicle. Schroders will not be liable for differential performance between the index and the portfolio and pooled vehicle. Where funds hold investments denominated in currencies other than sterling investors should note that exchange rates may cause the value of these investments, and the income from them, to rise or fall. Potential investors in emerging markets should be aware that this can involve a higher degree of risk. Less developed markets are generally less well regulated than the UK, investments may be less liquid and there may be less reliable arrangements for trading and settlement of the underlying holdings. The funds can use derivatives for investment purposes. This involves a higher degree of risk and may lead to a higher volatility in the unit prices of the fund.
These instruments can be more volatile than investment in equities or bonds. The target returns are an estimate and are not guaranteed. Funds which invest in alternative investments
(including commodities) which involve a higher degree of risk and can be more volatile. They should only be considered as a long term investment. Investments in smaller companies may be less liquid than in larger companies and price swings may therefore be greater than in larger company funds. Funds that invest solely in the companies of one country or region can carry more risk than funds spread over a number of countries. A small proportion of the Schroder Life Diversified Growth Fund may invest in unregulated Collective
Investment Schemes which may be closed for subscription/and or redemptions, may be subject to certain restrictions or limitations, and there is unlikely to be an active secondary market in the shares or units of such underlying schemes. Issued in April 2015 by Schroder Pension Management Limited, 31 Gresham Street, London EC2V 7QA. Authorised by the Prudential Regulation Authority and regulated by the Prudential Regulation Authority and the Financial Conduct Authority. For your security, communications may be taped or monitored. INS03710 w46865