For members. Your investment options. Aegon Master Trust Drawdown

Transcription

1 For members Your investment options Aegon Master Trust Drawdown

2 [2] Investment options Aegon Master Trust Drawdown

3 A choice of funds to help you meet your retirement goals This guide aims to help you make an informed choice about which type of fund(s) to invest your Drawdown Account in. Some things to keep in mind when reading this guide: Your circumstances might change after you start taking your income, so you should regularly review your income needs and fund choices with your financial adviser if you have one. If you take too much income too soon your Account may run out of money sooner than expected. If the amount of income you withdraw is greater than any investment growth, the value of your Account will go down. The value of your Account is directly related to the value of the assets held within the investment fund(s) to which its value is linked so will go up and down in value. If the value of your Account goes down this may reduce the amount of income that you can receive in the future. Also, you need to take account of: the cash lump sum (Pension Commencement Lump Sum) if any that you want to take at outset; how long you anticipate using income drawdown, and the level of income you think you will withdraw each year and how that might vary from year to year. You can change your mind about where you want to invest and switch from your existing funds into different investments at any time. There may be a cost involved with switching funds and each fund carries differing investment risks. Investment options Aegon Master Trust Drawdown [3]

4 If you re not sure which fund is right for you, you should speak to a financial adviser. See page 20 for details of how to find a financial adviser. More details on the options available, including fund factsheets and the investor questionnaire, can be found on lwp.aegon.co.uk/targetplan. To register you ll be asked to enter your Account number (which can be found on your welcome letter or annual statement), National Insurance number and last name. Alternatively, if you re unable to access the internet, please contact Aegon on What choice of investment funds do you have? 1. Choose your own investment funds You may choose to select your own investment funds. This is known as self-select. There are a number of funds to choose from. 2. Core fund We understand that it can be difficult for you to select the investment option that works best for you so, under the Account, there is a core fund that has specifically been designed with drawdown in mind. It s called the Aegon LifePath Flexi (BLK). The fund aims to provide a balance between providing continued growth, while trying to limit the effect of stock market falls. It does this by investing 60% in bonds (loans to governments and companies) and 40% in equities (company shares) from around the world. The Trustees of the Aegon Master Trust do not give advice and cannot make a recommendation that the Aegon LifePath Flexi (BLK) fund or any particular fund(s) will be right for you. If you want to receive a personal recommendation, you ll need to get advice from a financial adviser. [4] Investment options Aegon Master Trust Drawdown

5 LifePath Flexi The chart below gives you an indication of how your savings will be split should you select the Aegon LifePath Flexi (BLK) fund. It has a mix of bonds which generate interest and shares which pay dividends. In addition to these sources of income, the fund has potential for some capital growth. This mix of income and capital growth is designed to support investors while they take an income from their savings. However, whether your money lasts through retirement depends on returns from the underlying investments and the amount of income you take from your Account. You may feel that a fund investing in a mix of different investment types, such as the Aegon LifePath Flexi (BLK) fund, will meet your needs. Before you make a decision, we would like you to assess your own attitude to risk and consider the full range of investment options available. Aegon LifePath Flexi (BLK) fund The above chart is for illustrative purposes only. Commodities Equities made up of: UK equities Developed ex-uk equities Developed ex-uk small companies equities Emerging market equities Fixed income made up of: UK gilts UK inflation-linked gilts UK corporate bonds Overseas government bonds Overseas corporate bonds Overseas emerging market bonds Investment options Aegon Master Trust Drawdown [5]

6 Leave it with me If you d rather create your own investment strategy by selecting your own funds, there is a range of funds available which are managed by different fund managers. Before you make any decisions about your investments, you may find it useful to consider the following information about balancing risk and reward. Balancing investment risk and reward All investments come with a degree of risk. The typical assumption is the more risk an investor is willing to take, the more potential they have for seeing their investment grow, but on the flip side the more potential there is to lose some, or even all of their investment. Investment professionals refer to a fund s volatility the amount the fund value can rise or fall over a period of time, and the riskier the investment the greater the volatility an investor should expect to see. That rise and fall in value can be very hard to live with for some investors. Lower risk funds will also fluctuate in value, but generally by smaller amounts than riskier funds the expected potential growth is lower for these funds, but so is the expected potential for them to lose value. Some investors may prefer to sacrifice growth for greater peace of mind. It s essential you take on the level of risk that you re comfortable with.this depends on lots of things, including how you are as an individual (see Deciding what your attitude to risk is ), other assets you have to fall back on if things don t go well in your investments and the time you have before you need access to your investments. Before investing work out what level of investment risk you re prepared to take to try and achieve your retirement goals. You need to look at the types of fund available to you in your pension policy principally these are equities (stocks [6] Investment options Aegon Master Trust Drawdown

7 and shares); multi asset funds, bonds (loans to governments and companies), and cash we explain these below. Once you ve made your investment choice it s good practice to review your investments regularly to make sure they re helping you towards meeting your retirement goals. If you need help doing this, speak to a financial adviser. What risk means when you re using your accumulated savings to provide your income needs and what you need to consider There are three types of risk you need to be aware of when you re choosing how to invest your pension fund. Investment risk is the risk of your pension savings falling in value. This must be balanced against the risk that your savings don t grow enough to meet your needs. Generally, riskier investments have better growth potential but are more likely to fall in value by a greater amount than lower risk funds. Inflation risk is the risk that your investments may grow at a rate less than the rate of increases in the cost of living (inflation). For example, if inflation is 2% and your investments are only growing at 1%, rising prices will erode the real value of your pension savings. Depletion risk is the risk that you drawdown too much too soon and deplete your Account to such an extent that it cannot grow sufficiently to sustain the level of income drawdown required. Continuing to draw income during market lows can force fund values even lower. The combination of all these risks could be considered too high a risk to take for those relying solely on their drawdown fund for their income. This may result in you only selecting funds with a low investment risk, or deciding that you prefer the predictability of an annuity (guaranteed income). Investment options Aegon Master Trust Drawdown [7]

8 The amounts and frequency of your planned withdrawals of income should be an important factor in your decision-making. Generally, the longer you anticipate using income drawdown, the higher the risk you may be prepared to take in return for the potential of greater rewards as you have time to ride out some ups and downs from riskier investments. Other factors can be the level of your surplus income from elsewhere and the value of your other assets. Deciding what your attitude to risk is Having identified the main risks, the next stage is to determine your attitude to those risks. Are you prepared to live with some degree of investment risk, and if so, how much? Aegon s investor questionnaire, which can be found online lwp.aegon.co.uk/targetplan, can help you decide what kind of investor you are and help you decide on the investment choices that are right for you. It should form part of a wider assessment and shouldn t be taken as advice. What is your capacity for loss? This is a very personal to you and based on your capacity to tolerate fluctuations in your Account value. Put bluntly, would you have the capacity to lose a large segment of your pension income? Do you have other assets or retirement savings which enable you to take higher or lower risk with your pension funds? Do you have the capacity in your income needs to absorb a fall in fund values, and the potential long-term effect this might have on your pension income? [8] Investment options Aegon Master Trust Drawdown

9 Other questions to ask yourself: In the accumulation phase of building your pension funds before taking benefits, the aim is focused on the capital growth of funds. In drawdown, your objectives may be more mixed so you need to consider things like: Do I want income and to what extent should I split my investments between capital growth and cash-like funds? Will I want to take a cash lump sum in the near or longer term? Again, what fund objectives might help? Would the Aegon LifePath Flexi (BLK) fund (the core fund) be suitable or do I need to create my own investment strategy from the full fund range? What tax will I need to pay on withdrawals? Where the funds can be invested The range of investment options cater for different attitudes to risk and the requirement to balance risk with reward according to an individual s needs and goals. The funds invest in a wide range of asset classes (types of investment), which carry different levels of risk, including: cash, bonds and equities (company shares) and commercial property. Equity funds Equity funds primarily invest in company shares. The fund participates in the profits of the companies it invests in and, if the value of the companies go up, the value of the fund will go up. But, if the value of the companies goes down, so does the value of the fund. An equity fund can be spread across many countries and company types; it can concentrate on one geographic area (such as the UK, Asia, Europe or the US), or even a particular sector. These have historically been the riskiest of the main asset types, with the greatest potential for growth and loss among those asset types. Please note that past performance is not a guide to future performance. Investment options Aegon Master Trust Drawdown [9]

10 Multi-asset funds These typically invest in a broad mix of investment types, including UK and global equities, bonds, cash and other investments, such as commercial property and commodities (such as copper, coffee or wheat). Given the diversity in assets, a multi-asset fund seeks to offer more stability than a fund of pure equities but, as a result, may reduce the potential for higher returns. The extent to which a multi-asset fund goes up and down in value usually depends on the proportion invested in higher risk investments like equities. Bond funds Bonds effectively make loans to companies, governments or local authorities. These investments generally pay interest to the lender and the loan is repaid at the end of the term. There are many other names for this type of investment, for example: fixed interest securities; government bonds (loans to governments), and corporate bonds (loans to companies). The main benefit of these investments is that the fund normally receives a regular, stable income. The fund value can go down as well as up, depending on market circumstances, although typically they are less volatile than equities. Cash funds When most people think of savings, they think of cash a deposit account in a bank or a building society. But, over the long term, cash savings can struggle to beat inflation. Over longer periods, cash has typically given lower returns than equities or bonds. Cash is generally seen as the safe option as, when you invest in cash, you do get interest. However, if the interest rate you receive is less than the inflation rate, then the real value of your money is actually going down. This is true of any investment where growth fails to exceed the rate of inflation. [10] Investment options Aegon Master Trust Drawdown

11 Cash funds can also be invested in money market instruments, these are short-term investments paying a known income and which are readily saleable. These generally pay a slightly higher rate of interest, which is fixed for a short time, normally a few weeks or months. You should also be aware that the value of cash on deposit or invested in money securities could be affected if the institutions it s invested with become insolvent or have other financial difficulties. So, why would you ever choose to invest in cash? The main reason might be to shelter investments in the short term, particularly if you may require quick access to savings. Risk/reward summary 1. Aiming for high returns usually means accepting more risk. 2. The higher the returns you aim for, the greater the potential of risk to your capital. This may involve losing some or all of your investment. 3. Investing for the long term usually means you can afford to take more risk and ride out the ups and downs of market values. 4. Investing in company shares is widely considered to offer the greatest potential for growth over the long term (five years or more). Due to the potential for significant gains or losses in value, shares are better suited to investors who are prepared to invest for at least five years as part of a well diversified portfolio. 5. You must be comfortable with how much risk you re prepared to take, and the balance of reward you might expect in return. If you don t feel confident in making that decision you should speak to a financial adviser. Investment options Aegon Master Trust Drawdown [11]

12 Active versus passive fund management A passive fund (also known as a tracker fund) will look to mirror the returns of the index it s tracking. For example, a UK Equity passive fund might aim to mirror the returns of the FTSE All Share Index. So, if a company s shares make up, say, 7% of the index by market valuation, the fund would hold the same % of its assets in that company s shares. This is repeated for every company quoted in the Index until the fund mirrors the make-up of the FTSE All Share Index. Fund returns should be in line with Index returns before fees. An actively managed fund aims to invest in those shares that the fund manager believes will outperform the index or sector they re investing in. So, if their aim is to outperform the FTSE All Share Index they will invest only in those shares they believe will perform better than the index and avoid those that they believe will underperform. Because of the additional analysis and expertise required to run an active fund, the annual management charges are typically higher, with no guarantee the fund will outperform its passive equivalent and a greater chance it could significantly underperform. Both active and passive funds can go down, as well as up, in value. [12] Investment options Aegon Master Trust Drawdown

13 Keeping a check on your pension Whichever option you choose, it s important that you monitor your Account. There s every chance that your circumstances and attitude to risk change as you progress through your working life, which means you may want to adjust your investment choices. Keeping you informed Each year, Aegon will send you a benefit statement showing you the value of your fund and an illustration of how long your funds are likely to last based on current withdrawal rates. Your fund choices A full list of the funds available and their fund factsheets can be found on lwp.aegon.co.uk/targetplan Charges The annual management charge (AMC) is a fixed percentage applied to each fund. The AMC represents the percentage that will be deducted from the fund s value each year. The AMC includes the cost of managing the investments of the fund, the costs of administration, and other services such as maintaining a record of your savings and calculating the value each day. Your Account value reflects the amount of money in your Account after charges have been deducted. If a fund invests in a collective investment scheme, it will also bear its share of the costs of other services, such as the fees paid to the trustee/depositary, custodian, auditors and registrar. Where they are not included in the AMC, an estimate of these charges is shown under additional expenses in the table of funds. This figure is reviewed yearly and the ongoing charges figure is the sum of the AMC and the additional expenses. Investment options Aegon Master Trust Drawdown [13]

14 Where the AMC is inclusive of any additional expenses it s noted in the fund table. You can access lwp.aegon.co.uk/targetplan to view all the funds, the risk rating and the charges associated with each fund. Investment risk rating Please remember that each fund will have a different risk rating and are classified as follows: 1 Very low 2 Low 3 Low-medium 4 Medium 5 Medium-high 6 High 7 Very high These risk ratings are only applicable to funds available via TargetPlan range. Information around risk ratings can be found on TargetPlan. Other risk ratings apply across the rest of our fund range and they, or ratings from other providers, are not comparable. Be aware that even lower risk investments can fall in value. Suitability The Trustees of the Aegon Master Trust have not considered the suitability of the investment options in relation to your individual circumstances or risk tolerance. [14] Investment options Aegon Master Trust Drawdown

15 Details of investment funds Fund name Aegon LifePath Flexi (BLK) Aegon Diversified Growth (BLK) Active/ Passive Passive Active Investment objectives This fund is designed for members who wish to stay invested post-retirement and draw down an income from their pot. The fund invests in predominantly fixed income assets and some equities. Exchange rate movements can affect the value of investments that are in foreign currencies and therefore the LifePath strategy will use specific instruments with the aim of hedging out the majority of the foreign currency exposures. This fund targets a consistent investment return of 3.5% above the Bank of England base rate over rolling 3 year periods by utilising a multi-asset flexible investment approach. The focus on getting the asset mix right in order to achieve the target means this fund will generally hold a variety of different assets at any one time. Annual management charge (AMC) (% p.a.) Additional expenses (% p.a.) 0.41 The AMC is inclusive of any Additional Expenses Risk rating 3 Aegon Market Advantage (BLK) Active The fund invests in a highly diversified mix of asset classes based on target exposures to fundamental economic risk factors. By managing exposure during market extremes, the fund seeks to deliver risk in line with target while reducing downside risk Investment options Aegon Master Trust Drawdown [15]

16 Annual management charge (AMC) (% p.a.) Additional expenses (% p.a.) Fund name Active/ Passive Investment objectives Global Equities Funds Aegon Passive Invests primarily in equities, both in the UK and overseas markets. Approximately 30/70 30% is invested in the shares of UK Currency companies, 60% of the assets are Hedged invested at market capitalisation weights Global Equity into developed equities with the currency Index (BLK) exposure hedged back to Sterling and the remaining 10% is invested into Emerging Market Equities. The fund aims to produce a return in line with its benchmark. Aegon Passive Invests in shares of overseas companies (Europe ex-uk, Japan, Pacific Rim, US World and Canadian markets) according to (ex-uk) market capitalisation weightings and Equity Index aims to produce a return in line with its (BLK) benchmark. Aegon UK Equity Index (BLK) Passive Invests in shares of UK companies and aims to produce a return in line with its benchmark Risk rating [16] Investment options Aegon Master Trust Drawdown

17 Active/ Fund name Passive Investment objectives UK Equity Funds Aegon Passive Emerging Markets Equity Index (BLK) Fixed Income Funds Aegon Active Pre- Retirement (BLK) Aegon Passive Over 5 Years Index-Linked Gilt Index (BLK) Aegon Passive Over 15 Years Gilt Index (BLK) Aegon Active Corporate Bond (BLK) The fund objective is to achieve a return that is consistent with the return of the MSCI Global Emerging Markets Index. The fund invests mainly in UK Gilts, UK Bonds and other fixed income securities and aims to produce a return in excess of a benchmark designed to reflect long-term changes in immediate annuity prices. Invests in index-linked UK government bonds with a maturity period of 5 years or longer and aims to produce a return in line with its benchmark. Invests in UK government bonds with a maturity period of 15 years or longer and aims to produce a return in line with its benchmark. Aims to maximise total return by investing principally in corporate bonds and other interest-bearing securities. Exposure to non sterling denominated assets will typically be hedged back to sterling. Separately, the fund may also invest in preference shares, convertibles, other transferable securities and collective investment schemes. Annual management charge (AMC) (% p.a.) Additional expenses (% p.a.) Risk rating Investment options Aegon Master Trust Drawdown [17]

18 Fund name Active/ Passive Investment objectives Specialist/Other funds Aegon Active Aims to produce a return in excess of its benchmark principally from a portfolio of Cash (BLK) Sterling denominated cash, deposits and money-market instruments. Aegon Passive The fund has a diversified exposure to a range of commercial property assets Property such as offices, shopping centres, retail (BLK) warehouse parks and industrial estates. The fund gains its exposure to these assets by investing in a number of underlying pooled property funds. Annual management charge (AMC) (% p.a.) Additional expenses (% p.a.) Risk rating External Global Equity Funds Aegon HSBC Islamic Global Equity Index (BLK) Aegon LGIM Ethical Global Equity Index (BLK) Passive Passive Invests in company shares from around the world and is compliant with Islamic Shariah principles. Invests mainly in overseas equities within the FTSE4Good Global Equity Index and aims to track the return of its benchmark [18] Investment options Aegon Master Trust Drawdown

19 Aegon review the additional expenses annually and these may change. Aegon also reserve the right to change the AMC, although Aegon would write to you to inform you in advance. There s no guarantee the funds will meet their objectives. You should be aware that the value of investments can go down as well as up for a number of reasons, for example market and currency movements. You may get back less than the amount invested. Aegon base the risk rating for each fund on its risk relative to other funds in our full TargetPlan fund range. It s not its risk compared against industry benchmarks. Aegon regularly review the risk ratings, so they can change. For funds that use derivatives, they use these in a number of ways to achieve its objectives. This means the fund could be exposed to additional risks and costs should the market move against it. If the fund invests in property you should be aware that when there are more people leaving the Property fund than investing in it, the fund manager may have to sell properties to pay claims. If this is the case, they may take one or other, of the following steps to help protect the remaining investors: They may change the valuation basis, which will result in a drop in the fund price. This will be bigger than for other types of funds because of the extra costs involved in buying and selling property when compared with, say, shares. They may also delay acting on instructions to switch/cash in a client s investment by anything up to 12 months if market conditions make it difficult for the manager to sell properties at a fair price. The value of properties is determined by independent valuers appointed by a fund manager and is generally a matter of their opinion rather than fact. For more information on funds please refer to the fund factsheets which can be accessed on the website lwp.aegon.co.uk/targetplan. Investment options Aegon Master Trust Drawdown [19]

20 Do you need more help? If you need help with any decisions relating to your finances you should speak to a financial adviser. They ll be able to give you advice based on your personal circumstances. This may incur a charge. You can find a financial adviser near you by using unbiased.co.uk. If you want help with deciding how best to take your benefits there is a free and impartial government guidance service called Pension Wise (pensionwise.gov.uk or ). Pension Wise offers guidance and can help you understand the information you need to make a decision, but won t give you personal advice and tell you which option is the most suitable for you based on your circumstances. You should shop around as other providers may offer pension decumulation products that are more appropriate for your needs and circumstances and may offer a higher level of retirement income. [20] Investment options Aegon Master Trust Drawdown

21 Investment options Aegon Master Trust Drawdown [21]

22 Want to know more? Aegon UK Aegon UK This document has been written and produced on our behalf by Aegon, the company we ve chosen to administer the Master Trust. Aegon is a brand name of Scottish Equitable plc. Scottish Equitable plc are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Their Financial Services Registration number is WP /18