Investment Guide December 2015

Transcription

1 Investment Guide December 2015 For members of the Hewlett Packard Enterprise Investment Scheme Your investment guide This guide is for members of the Hewlett Packard Enterprise Investment Scheme (the Scheme) and provides an overview of your investment choices so that you can make the most of your membership. EXECUTIVE OVERVIEW 2 SELECTING YOUR INVESTMENTS 3-13 YOUR INVESTMENT CHOICES IN MORE DETAIL MAKING YOUR CHOICE 19 JARGON BUSTER 20

2 Executive overview The benefits you receive from the Scheme when you retire will mainly depend on: how much you and your employer have paid in; where you choose to invest the money paid in and the performance of your investments; your age when you retire; the type of retirement income you choose and any costs associated with that choice. This guide gives information about your investment options. It will also help you decide what kind of investor you are so you can choose the investment option that is right for you. Thinking ahead to the benefits you might want at retirement will also influence your investment choice. For more detailed information about each of the funds, you can download fund fact sheets from the Scheme website at or contact the Scheme Administrator, Capita. Contact details are given on page 19. Please refer to the jargon buster on the back page for an explanation of some of the terms used in this guide. If you feel that the investment funds offered are not suitable for you, then you can transfer some or all the money from your retirement account into another registered pension arrangement such as a Self Invested Personal Pension (SIPP). Even if you do decide to transfer money into another arrangement you can still remain an active member in the Scheme for future contributions. 2 Investment Guide

3 Selecting your investments The value of your retirement account, and in turn your future retirement income, will depend largely on how your money is invested. When deciding which investments to select there are many factors to consider these are shown on the right. We explain more about each of these in this guide to help you make the right choice for you. 1 What are your retirement income options? page 3 2 What type of member you are? page 4 3 When do you want to retire? page 5 4 What is your attitude to risk and return? page 6 5 What are the different investment types? 6 What is active and passive management? 7 Your investment options at a glance page 7 page 8 page 9 8 Is a lifestyle strategy right for you? page What are your retirement income options? The purpose of your retirement account is to give you an income for your retirement. You might actually be quite far away from your Selected Retirement Date (SRD) but the investment decisions you make now will directly affect how much income you will receive when you eventually retire. Your retirement income options When you retire, there are a number of ways that you can take your retirement account. These options include: Option 1 Buying a guaranteed income for life (annuity): taking up to 25% of your retirement account as tax-free cash (if you wish) and use the balance to buy a guaranteed income for the rest of your life (known as an annuity). This option is available through the Scheme. Option 2 Single cash lump sum: taking all of your Retirement Account as a single cash lump sum to fully extinguish your benefits in the Scheme, 25% of which will be tax free, with the remainder taxed at your marginal rate. This option is available through the Scheme. Option 3 Two cash lump sums: taking all of your retirement account in two cash lump sum payments over two consecutive tax years. With each cash withdrawal 25% will be tax free, with the remainder taxed at your marginal rate. This option is available through the Scheme. Option 4 Income drawdown: you can take 25% of your Retirement Account upfront as a tax-free cash lump sum under this option and keep the balance invested in the investment funds you have selected. You determine the level of income and frequency to withdraw directly from your Retirement Account. This option is not available in the Scheme, therefore you would need to transfer your Retirement Account out of the Scheme to access this option. For example, to a Self Invested Personal Pension that offers an income drawdown facility. Please note that it is possible to take one or a combination of all four options at retirement, although not all of the options outlined above are currently available within the Scheme. For example, if you wish to take part or all of your savings using income drawdown you will need to transfer your savings out of the Scheme to an arrangement that offers this facility such as a Self Invested Personal Pension (SIPP). The funds in your chosen SIPP will differ from the funds available in the Scheme so you will need to select new investments depending on your attitude to risk and personal circumstances. Page 6 helps you think about your attitude to risk. Each retirement option has advantages and disadvantages and we have set out some of the key features in the Pre-Retirement Guide which is available at 3

4 2. What type of member are you? The Trustees acknowledge that some members may find choosing their investment choices difficult and they want to make sure that you have a suitable range of funds. With this in mind the Trustees, with the help of their investment adviser, have selected three ways of investing for you. Which one you choose will depend on how confident you are making investment decisions. You need to decide which of the three choices you would prefer: the default option, risk rated funds or self-select funds. Tick the applicable answer below to help you make this decision: Task Yes No Are you comfortable making investment decisions? Do you understand how investments work? Are you comfortable managing your own investments? If you answered mostly no, the default option may be suitable for you. If you answered mostly yes, the risk rated or self-select funds may be suitable for you. Read on to find out more about the choices. Default option The default option is designed for members who are less confident about making investment decisions and require assistance in making their choice. This option has, with the Trustees and their investment adviser s input, been designed to offer members a good balance between risk and return that should meet the needs of the majority of members. The default option uses a process called lifestyling. This means your retirement account is automatically moved as you get closer to your SRD from investments designed for growth to investments that protect the value of your account and are a better match for taking your benefits as a level (i.e. non-increasing) pension and cash. However members will be reminded of their lifestyle choices six years before SRD. It is important to note that the Trustees will continue to monitor, and if necessary, update the default option. Risk rated funds There are five risk rated funds designed for members who want to have a choice in where they invest, but need assistance (one of the risk rated funds is used as the growth phase of the default option). This range offers members pre-built funds that target certain risks and return characteristics (low to high risk). The Trustees monitor and, if necessary, update the risk rated funds to ensure the mix of assets remain suitable. Self-select funds In addition to the risk rated funds and the default option, members can also choose from the range of self-select asset class funds. These self-select funds are designed for members who are confident in making their own investment choices and wish to tailor their investment decisions to suit their individual needs. While the Trustees will monitor the range of funds on offer, they will not monitor your individual fund choices (apart from the ongoing monitoring of the investment options). Neither the Trustees nor their advisers can advise you what to do but it is important that you invest your contributions in a way that is right for you. This guide is designed to help you and further information is available on the Scheme website 4 Investment Guide

5 3. When do you want to retire? It is important to carefully consider when you would like to retire because this can affect your investment decisions. If you are a long way from retirement, you may be willing to accept the volatility that comes with investing in higher risk assets, such as equities, on the basis that over the longer term these assets can potentially provide higher returns for the risk taken. Also, when you are further from retirement, the growth in the value of your retirement account can be more influenced by the amount of contributions invested rather than through the investment performance of the funds in which you invest. This is because contributions made when you are further from retirement have a longer time to grow. If you are approaching retirement, you will need to think about the type of retirement income that you want to take. The Trustees have created different lifestyle options to help you move your retirement account in line with the type of income you want at retirement. The age you choose to retire will also affect when your investments start to move in the lifestyling process. If you choose this option, your investments start to switch five years before your SRD. Further details can be found on page 10. If you plan on retiring later or sooner that your SRD, make sure you let us know as you may be exposing your retirement account to unnecessary risk (if you re retiring sooner), or not making the most of your investments (if you re planning on retiring later). 5

6 4. What is your attitude to risk and return? If you are choosing either the risk rated or asset class funds, you can spread your risk by investing in a combination of different assets this is known as diversifying your investments. A diversified spread of investments can help to reduce the risk associated with investing in one particular asset type. However, by reducing the risk your retirement account is exposed to, you may also lose out on potential returns if higher-risk asset classes (such as equities) perform well. More cautious investment, while protecting the value of your retirement account, typically have lower returns which will offset returns from equities if they have high growth. Levels of risk To help you make your fund choice, each fund has been given a risk rating to provide an indication of the potential investment risk within the fund. In other words, how much the value of the fund can be expected to move up and down over the short-term, which is called volatility. For example, higher-risk funds are expected to have more volatility in their pursuit of delivering higher long-term returns than lower-risk funds, which deliver lower long-term returns. Low Risk/Return funds typically bank and building society deposit accounts and investments, primarily in cash and bonds, with a minimal investment in equities. Greater emphasis is placed on lower risk and protecting your account s value than on maximising potential returns. This means that these types of funds will generally deliver a low rate of growth, but with a lower level of volatility than riskier assets, such as equities. Low to Medium Risk/Return funds investments in bonds, typically government bonds. Less emphasis is placed on keeping the risk low than in the Low Risk/Return category by introducing a chance of higher potential returns. Compared to the Low Risk/Return category, there is more of a risk of your fund value going down but in return for this there is a better chance of your fund value experiencing a higher rate of growth over the longer term. Medium Risk/Return funds a mix of investments in corporate bonds and products that blend together asset classes, such as diversified growth funds. The prospects for capital growth are generally good but the value of the fund may vary considerably either up or down. Medium to High Risk/Return funds a mix of investments primarily in equities, specialist bond products and property. The prospects for capital growth are higher than the Medium Risk/Return category, but the risk in achieving this potential growth is increased. s in this category can often experience large fluctuations in value especially over the shorter term. High Risk/Return funds investments in highly specialist markets in both the UK and overseas, including hedge funds and derivatives. As these products can invest substantially in overseas assets, they can also be significantly affected by currency fluctuations. The potential for growth is high with a corresponding level of risk. s in this category can often experience extreme fluctuations in value especially over the shorter term. Please note that the risk definitions above are relative to each other and do not refer to the risk involved in buying a pension such as a lifetime annuity. In other words, the asset class most closely matched to the bond-like characteristics of an annuity would generally be bonds. In this context a cash investment may behave differently to an annuity and could be regarded as more risky. If you require further advice in relation to risk for your own specific circumstances you should seek financial advice (see page 19). If you would like to get more information about any of the funds, you should go to where you will be able to find links to further information and the fund fact sheets provided quarterly by Zurich. 6 Investment Guide

7 5. What are the different investment types? Cash Cash funds are similar to a bank savings account. The value of the account should not fall, but the interest earned will vary and over a longer period the returns are not expected to be as high as either bonds or equities. In addition, in extremely adverse market conditions investors can be exposed to the risk that the bank or building society with which the cash fund holds deposits might fail, leading to losses. Investment in cash funds is appropriate for those approaching retirement who plan to take part or all of their pension entitlement as a cash lump sum. Bonds A bond is a type of loan made to either a company (corporate bonds) or a Government. The value of bond funds broadly moves in line with the cost of buying an annuity from an insurance company and therefore may provide some protection against sudden changes in the cost of buying a pension close to retirement. These funds are therefore more appropriate for those approaching retirement, or for those who do not wish to be exposed to the volatility of stock markets. Global bonds are those issued by overseas Governments and companies. Consensus These funds can invest in the full range of investments including UK and overseas equities, bonds, property, and cash. They are suitable for long-term growth, but returns can vary from year-to-year. They can be expected to give slightly lower but less variable returns over the long-term than the equity funds. Consensus funds are less focused on growth than equities and aim to provide investors with a more balanced mix or consensus view of assets. Diversified Growth Strategies/Absolute Return Strategies Similar to the consensus funds, diversified growth and absolute return strategies can invest in the full range of investments and are suitable for long-term growth. Returns will vary, however the diversified nature of these products should help to dampen volatility. These funds typically have active management of the underlying investments and typically can react quicker to changes in market conditions, than the more balanced views of the consensus funds. Absolute returns strategies aim to return a positive return in all market conditions, but have a lower long-term return expectation than diversified growth strategies. Equities These funds invest entirely in stocks and shares of UK and overseas companies. These funds would be considered higher risk than some other forms of investment. The value of the funds can fluctuate a lot over the short term, but investing in equities has generally produced higher returns over the long term. These funds are most suitable for those who are looking for long-term growth. Emerging markets These are investments in areas with rapidly developing economies. The aim is that high investment returns are achieved because of the markets expanding resources, industrial capacity, and consumer spending power. Because of their nature, emerging market equities are usually considered to be higher risk than UK equities. The graph below shows the relative levels of risk and return for each of the different investment types. Property These funds invest in commercial property and are designed to provide a combination of capital growth and income. Over time, the performance of property is linked to how the economy performs and has different risk and return characteristics to equities and bonds. As a result, investing in property can be considered as a good way to spread risk. You should be aware that your money could be tied up for many months after you decide to stop investing in property. Return Cash Low Risk Bonds Consensus DGF/ Absolute Return Strategies Medium Risk Risk Property Equities High Risk Emerging markets 7

8 6. What is active and passive management? Passive managers aim to provide the same rate of return as the major indices used to measure the performance of investment funds. For example, a passive UK equity index might aim to track the FTSE 100. If the index rises, your fund should rise by the same amount; the same principle is true if the index falls. Compared to active management, there is less chance that passive funds will underperform, or outperform, the index that they follow. On the other hand, the aim of active management is to outperform the index, but in doing so can at times fail and provide returns lower than the index. Active managers also charge more than passive managers because of the active involvement and higher operating costs. Whilst active management carries greater risk of underperformance than passive management, these risks are relatively modest compared to those associated with your choice of assets. For example, investing in equities rather than bonds, is much more likely to influence the growth (or protection) of your retirement account, than whether the fund is actively or passively managed. The HP Cash, HP DGF, HP Property, HP Corporate Bond and HP Absolute Return Bond funds are actively managed; all the other funds are passively managed. 8 Investment Guide

9 7. Your investment options at a glance The Scheme provides a range of investment choices to offer something for everyone. Each of the options varies in its objective and potential for growth your choice will depend on your approach to risk and the level of control you want over your investments. Your investment options DEFAULT OPTION SELF-SELECT OPTION You can invest in one or a combination of either the risk rated funds and/or the asset class funds GROWTH PHASE If you don t make an investment choice you will be invested in the current default option. During the Growth phase, your retirement account will be invested in the Higher Growth & Risk fund. RISK RATED FUNDS If you want to make some investment decisions but only want a limited choice of funds, you can choose from 5 risk rated funds 1 : HP Lowest Growth & Risk HP Lower Growth & Risk HP Moderate Growth & Risk HP Higher Growth & Risk (used for the Growth phase of the default lifestyle strategy) HP Highest Growth & Risk ASSET CLASS FUNDS If you want more investment choice, you can choose from 15 asset class funds that invest in one of the following investment types: Cash Bonds Consensus Property Diversified Growth Equities PROTECTION/POSITIONING PHASE 1 Risk rated funds are designed for members who want to have a choice in where they invest, but need assistance (one of these is the default option). This range of pre-built funds offers members an efficient mix of assets in funds that target certain risk and return characteristics (low to high risk). The Trustees monitor and, if necessary, update the underlying funds/assets that make up the risk rated funds. 5 years before your Selected Retirement Date (SRD) You can change your investments to help position your retirement account for how you want to take your savings at retirement. If you don t make an active investment decision, you remain in the current default lifestyle strategy. During the Protection phase, your investments will automatically switch to the default lifestyle glidepath which targets 50% level annuity 2 and 50% cash at retirement. You have the option of choosing one of the 5 lifestyle glidepaths that switch investments to target how you want to take your retirement savings: Option 1 (default) Targets a level annuity 2 (50%) and cash (50%) Option 2 Targets a level annuity 2 (75%) and cash (25%) 3 Option 3 Targets an increasing annuity (75%) and cash (25%) 3 Option 4 Targets 100% cash Option 5 Targets income drawdown (75%) and cash (25%) Members don t have to choose a lifestyle glidepath and can continue to invest in one of the 5 risk rated funds 1 and/or the 15 asset class funds instead. If you are invested in one of the legacy lifestyle strategies your default Growth phase and Protection phase will be different to the current default lifestyle strategy s Growth phase and Protection phase. 2 A level annuity will pay you a fixed income for the rest of your life which does not increase in value. This type of annuity costs you less than an increasing annuity. 3 Members who are invested in the Scheme s previous default lifestyle strategy targeting 75% level annuity and 25% cash, or the increasing annuity lifestyle strategy will not be affected by the changes. Please note that a number of the lifestyle glidepaths target an annuity purchase at SRD. These lifestyle glidepaths may not be suitable for you if you do not wish to buy an annuity. 9

10 8. Is a lifestyle strategy right for you? Protecting/positioning your retirement account It is important that you think about what type of income you would like in retirement as this decision will affect your investment choices. As you get closer to your retirement, it is important to protect your retirement account if you plan to buy an annuity which guarantees your income for life. This is because you will have less time to rebuild your savings if the market falls during the years running up to your retirement. On the other hand, if you plan to keep your retirement account invested for income drawdown purposes or take your retirement account as cash in either one lump sum, or spread over several years, this will affect your investment choice. Lifestyle strategies Lifestyle glidepaths have been designed to automatically change the mix of funds you are invested in. As you approach your SRD, your retirement account will be gradually switched into lower-risk funds (depending on your lifestyle selection) over five years to help to protect your savings and/or position your retirement account to meet your income preferences. The process of switching of funds from high-risk assets to lower-risk assets is carried out on a monthly basis to minimise the risk of significant market movements. There are five different lifestyle glidepaths you can choose from to meet your income preferences, they can be summarised as: Taking cash and buying a guaranteed income for life If you plan to buy a lifetime annuity or pension (to provide you with an income for life) you will have important decisions to make. For example, you have a choice between a level pension or an increasing pension which goes up over time. When you get closer to retirement it is important to think about what choice you might make and how much cash you wish to take. There are three lifestyle options that have been designed to accommodate buying an annuity and taking an element as cash. Taking all your retirement account as cash You can take your entire retirement account as cash, e.g. in a single cash instalment or in two cash lump sums. With each cash withdrawal, 25% will be tax free with the remaining 75% taxed at your marginal income tax rate. Drawing down an income from your retirement account over time It is possible to keep your money invested for longer and receive an income directly from your retirement account. This is known as income drawdown or drawdown. If you choose to take this option your money will remain invested in the funds you have selected with your drawdown provider and you will receive your income directly from those funds. The value of your savings and also the level of your income will be based (in part) on the investment performance of the funds you choose. You drawdown from your retirement account regardless of its size and there are no limits on the amount you can withdraw in any year. Up to 25% can be taken as a tax-free cash lump sum and the remaining 75% will be taxed at your marginal rate of income tax. For members who want to use income drawdown, there is a drawdown lifestyle option. Please note that income drawdown facilities are not available in the Scheme, therefore, if you want to take drawdown, you would need to transfer your retirement account into a registered pension scheme that offers this facility, e.g. a Self-Invested Pension Plan (SIPP). The Trustees strongly recommend that you seek financial advice from a financial adviser authorised and regulated by the Financial Conduct Authority (FCA) before making your decision, to ensure this option is right for your circumstances. 10 Investment Guide

11 The Scheme has five lifestyle glidepaths for you to choose from depending on how you want to take your retirement account: Lifestyle option Targets Key information Option 1 (Default) Level annuity and cash Lifestyle glidepath which targets 50% level annuity and 50% cash. This is the Scheme s current default lifestyle option if you do not select your own investments from April This option gradually moves your retirement account to reach 50% HP Cash and 50% HP Pre-Retirement by your SRD. This option may be suitable for you if you plan to take more cash than the tax-free allowance and buy a lifetime annuity which is fixed at the outset and does not increase. This option targets a higher weighting in cash than option 2 and 3. CASH AND LIFETIME ANNUITY Default members who are within five years of Selected Retirement Date (SRD) If you re in the previous default lifestyle strategy and are within five years of your SRD, your lifestyle option will remain unchanged. You will remain in the previous default lifestyle that targets 25% HP Cash and 75% HP Pre-Retirement by your SRD, but you can change to one of the new lifestyle strategies at any time. Please note that the default option targets an annuity purchase. This may not be appropriate for you if you do not wish to buy an annuity. Option 2 (Self-select) Level annuity and cash Lifestyle glidepath which targets 75% level annuity and 25% cash. This was the Scheme s previous default lifestyle option if you did not select your own investments. This option gradually moves your retirement account to reach 25% HP Cash and 75% HP Pre-Retirement by your SRD. This option may be suitable for you if you plan to take your tax-free cash allowance and buy a lifetime annuity which is fixed at the outset and does not increase. Option 3 (Self-select) Increasing annuity and cash Lifestyle glidepath which targets 75% increasing annuity and 25% cash. This option gradually moves funds to reach 25% HP Cash and 75% HP Pre-Retirement Inflation Linked by your SRD. This option may be suitable for you if you plan to take your tax-free cash allowance and buy a lifetime annuity which will increase by the rate of inflation or by a fixed percentage each year. 100% CASH Option 4 (Self-select) Cash Lifestyle glidepath which targets taking all your retirement account as 100% cash. This option gradually moves funds to reach 100% HP Cash by your SRD. This option may be suitable if you plan to take all your retirement account as cash. DRAWDOWN Option 5 (Self-select) Income drawdown and cash Keeping your account invested and drawing down an income as needed. This option gradually moves funds to reach 37.5% HP DGF, 37.5% HP Lowest Growth & Risk and 25% HP Cash by your SRD. This option may be suitable if you plan to commence a drawdown programme at your SRD. You can take up to 25% of your retirement account as a tax-free cash lump sum (up front). For further information on the retirement income options, please refer to the Pre-Retirement Guide at

12 The following illustration summarises your key investment decisions and options available in the Scheme from April 2015, including: Step 1 Review your investment choices for the growth phase Step 2 Six years before SRD, consider your income preferences and select a lifestyle strategy (if appropriate) Growth phase Lifestyle strategy 5 years before Selected Retirement Date Income preference at Selected Retirement Date Default option HP Higher Growth and Risk DEFAULT CASH AND LEVEL ANNUITY Targets: 50% cash, 50% level annuity NEW Self-select option (choose from 5 risk rated funds and/or 15 asset class funds) Critical decision point CASH NEW Targets: 100% cash SECURED INCOME CASH AND LEVEL ANNUITY Targets: 25% cash, 75% level annuity SECURED INCOME CASH AND INCREASING ANNUITY Targets: 25% cash, 75% increasing annuity INCOME DRAWDOWN NEW Targets: 37.5% HP DGF, 37.5% HP Lowest Growth & Risk and 25% HP Cash n Your Growth (s) n HP Cash n HP Pre-Retirement n HP Pre-Retirement or HP Pre-Retirement Inflation Linked n HP Lowest Growth & Risk n HP DGF Please note that if you are on an old ten-year lifestyle glidepath, you do not have access to any of the lifestyle options which target an increasing pension, cash or drawdown unless you switch to the five-year lifestyle glidepath. If you wish to change your lifestyle glidepath, you should contact the Scheme Administrator, Capita (see page 19 for contact details). Lifestyling is automatically applied in the default option. Additionally, if you have self-selected your own investment funds you can choose one of the lifestyle options by contacting the Scheme Administrator. If you are not invested in the default option, it is likely that you do not have lifestyling automatically set up. If this applies to you, the Scheme Administrator will write to you six years before your SRD to ask you to confirm whether you want to add lifestyling and, if so, which type of lifestyling you would prefer. Full details and information will be provided to you at that time to help you decide. Please note that a number of the lifestyle glidepaths including the Scheme s default option targets an annuity purchase and therefore, may not be appropriate for you if you do not wish to buy an annuity. 12 Investment Guide

13 Selected Retirement Date (SRD) Your SRD is the date you choose to retire. Six years from this date you will be asked to choose if you want to select one of the lifestyling options. When you retire you can take up to 25% of the value of your retirement account as a tax-free cash lump sum, possibly more depending on the size of your retirement account. Some of the lifestyle strategies are designed on the basis that most members will take the maximum tax-free cash available. The diagrams on page 12 show how the different lifestyle strategies automatically change the mix of funds you are invested in as you approach your SRD. To make sure the changes happen at the right time, it is important to make sure that your SRD is the age when you are planning to retire. You can choose your own SRD, but if you don t the default will be your 65th birthday. You can change your SRD either by contacting the Scheme Administrator (see page 19 for contact details) or online at Some examples: John invests in the default option. Emma is invested in the default option, the HP Higher Growth & Risk. During the growth phase his retirement account is invested in the HP Higher Growth & Risk. Lifestyling applies automatically so when he reaches his SRD, 50% of his retirement account is invested in the HP Cash and the other 50% is invested in the HP Pre-Retirement. Michael is invested in HP Moderate Growth & Risk during the Growth phase. Six years from her SRD she reviews her savings and investments and decides she d like to draw down an income over time when she retires, rather than buy an annuity. So, instead of remaining in the default option, she chooses the income drawdown lifestyle glidepath (option 5 income drawdown), keeping her account invested in the HP Higher Growth & Risk until the switching begins. By changing her lifestyle glidepath, when she reaches her SRD, 37.5% of her account will be invested in the HP DGF, 37.5% in the HP Lowest Growth & Risk and 25% in the HP Cash. Emma knows that income drawdown is not available within the Scheme. Emma therefore decides to transfer out into a Self Invested Personal Pension which offers an income drawdown flexibility. Unless he chooses otherwise his account will be invested in this fund until his SRD. He decides he wants to de-risk in the lead up to retirement but doesn t want to choose the funds himself, so six years before his SRD he chooses to invest in the Cash lifestyle glidepath (option 4 cash) because he wants to take his entire savings as a cash lump-sum at retirement. He s aware this might have some tax implications so he seeks financial advice before choosing this option. Alice is in her late 20 s and chooses the self-select route. She is investing 50% of her account in the HP UK Equity and 50% in the HP Consensus. Alice does not choose a lifestyle option six years before her SRD so she will remain in these funds until she retires or until she chooses to switch across to an alternative fund. 13

14 Your investment choices in more detail Now that you have read all the information about the various factors to consider, you need to make your choice. This section provides more detail about each of the funds. Default option This may suit you if you are less confident about making an investment decision and require assistance in making a choice. This option has been designed to offer a good balance between growing your retirement account whilst protecting it from any unnecessary risk. The default option is currently made up of the HP Higher Growth & Risk in the years prior to lifestyling, known as the growth phase, which consists of the following funds: 20% n HP Diversified Growth (DGF) 80% 1 n HP Global (40:60) Equity 20% 80% 1 The HP DGF is made up of three underlying funds: Schroders Intermediated Diversified Growth 50% Standard Life Global Absolute Return Strategy 37.5% Standard Life Enhanced Diversified Growth 12.5% Unless you tell the Scheme Administrator otherwise, your investments in the HP Higher Growth & Risk will be linked to the default lifestyle strategy. More information about how lifestyle works is given on page 10. Ex-EDS Plan members The Passive Base was the previous default option for ex-eds Plan members although lifestyling was not automatically applied. If you are still invested in the Passive Base, lifestyling will be applied automatically unless: you decide to opt-out of lifestyling; or you are already within five and a half years of your SRD. If you do not have lifestyling applied automatically, you can choose one of the lifestyle options at any time by contacting the Scheme Administrator, Capita (details on page 19). 14 Investment Guide

15 Risk rated funds For members who want to be involved in making decisions about their investments but only want a limited choice of funds, the risk rated funds provide a choice of pre-built funds. The five risk rated funds have been named according to their relative potential risk and return characteristics. You can select as many funds as you wish in whatever proportion you choose. The table below shows the key characteristics of each of the risk rated funds, including the objective of the fund and the charge payable. The Total Expense Ratio shown includes all services and expenses incurred in the running of each fund. Name Underlying funds Objective Risk/Return Total Expense Ratio (% per year)* HP Lowest Growth & Risk 50% HP Pre-Retirement 25% HP Index-Linked Gilts 25% HP Cash This fund aims to provide members with easy access to a diversified fund that is expected to deliver low growth, compared to the other risk-rated funds, over the long-term through exposure to bonds and cash. Short term market volatility may occur; this fund is not a capital protection fund. Low-Medium HP Lower Growth & Risk 60% HP DGF 40% HP Pre-Retirement This fund aims to provide members with easy access to a balanced fund that is expected to deliver low to moderate long-term growth, compared to the other risk-rated funds, through exposure to bonds, equities and a range of alternatives. Short term market volatility may occur. Medium HP Moderate Growth & Risk 50% HP DGF 15% HP UK Equity 15% HP World ex-uk Equity 20% HP Pre-Retirement This fund aims to provide members with easy access to a diversified fund that is expected to deliver moderate long-term growth, compared to the other risk-rated funds, through exposure to equities, bonds and a range of alternatives. Short term market volatility may occur. Medium HP Higher Growth & Risk (default) 80% HP DGF 20% HP Global (40:60) Equity This fund aims to provide members with easy access to a diversified portfolio that is expected to deliver long term returns similar to those of equities, but with lower volatility. The fund can invest in a broad array of asset classes including equities, bonds and a range of alternatives. This is the growth phase fund for the Scheme s default investment option. Medium-High HP Highest Growth & Risk 35% HP DGF 25% HP UK Equity 25% HP World ex-uk Equity 15% HP Emerging Market Equity This fund aims to provide members with easy access to a fund that is expected to deliver equity-like returns in the long term, with slightly lower volatility. The fund invests predominantly in equities, including emerging market equities but also has an allocation to a diversifying range of other asset classes. High For details of each underlying fund, please see the individual fund descriptions in the self-select fund section on the next page. * The charges shown are correct as at 30 September

16 Self-select funds For members who are more confident making investment decisions, the Trustees have provided a choice of self-select funds. Don t forget, you can also select from the risk rated funds described on page 15. You can select as many of these funds as you want, in whatever proportion you choose, however you will be responsible for making sure the funds are appropriate now and in the future. The Trustees will monitor the range of funds on offer but they will not monitor your individual fund choices. You should only use the self-select funds if you are happy to choose which funds to invest in and are comfortable with managing your choices. Details about the levels of risk are shown in the table below. The self-select funds are: Name objective Risk/Return Type Total Expense Ratio (% per year) 1 Cash HP Cash Bonds HP Pre- Retirement HP Pre- Retirement Inflation Linked HP Index Linked Gilts HP Corporate Bond HP Global Bond HP Absolute Return Bond Consensus HP Consensus This fund expects to deliver low risk and typically modest returns by investing in cash deposits and short term investments. This fund will provide protection from volatility but its real value may be eroded when inflation is high. This fund aims to match the median return of similar cash funds without incurring excessive risk. This fund aims to invest in assets that reflect the performance of the investments underlying a typical fixed rate pension annuity product. This fund is a dynamic blend of investment grade corporate bonds and UK gilts. This fund aims to invest in assets that reflect the performance of the investments underlying an typical inflation linked pension annuity product. This fund is a dynamic blend of investment grade corporate bonds and UK index-linked gilts. This fund aims to capture the returns of the UK index-linked gilt market. It tracks the FTSE A Index Linked (Over 5 Year) Index and invests in medium and long-term index linked gilts. This fund aims to capture the returns of the UK corporate bond market. It is an actively managed fund that aims to outperform the Merrill Lynch Sterling Non-Gilts All Stocks Index by 0.8% p.a. gross of fees over a 3 year cycle. This fund invests in investment grade global government bonds and aims to track the JPMorgan Global Government (Ex UK) Traded Bond Index. The fund aims to build a diverse portfolio of investment strategies that aims to earn an absolute return above cash. The fund can invest in a broad array of asset classes including bonds and a range of bond alternatives. This fund combines the mid to long-term growth potential of UK and overseas equities with the relative security of gilts, overseas bonds, and cash. The fund is likely to be of specific interest to members with mid to long-term investment horizons. Low Active Low-Medium Passive Low-Medium Passive Low-Medium Passive Medium Active Medium Passive Medium Active Medium Passive Investment Guide

17 Name objective Risk/Return Type Total Expense Ratio (% per year) 1 Mixed s HP Passive Base Property HP Property This fund is created from two of the passively managed fund options. The growth portion consists of 70% of the HP Global (40:60) Equity and with the remaining 30% invested in the HP Pre-Retirement. This fund invests in a wide range of commercial property types, for example, shops, offices, retail parks, industrial units. The fund does not invest, to any great extent, in residential property. Medium Passive Medium Active Diversified Growth HP DGF Equities HP UK Equity HP Global (40:60) Equity HP World ex UK Equity HP Emerging Market Equity This fund aims to provide growth similar to, but with reduced volatility, as compared to equities. The fund can invest in a broad array of asset classes including equities, bonds and a range of alternatives. This fund aims to capture the returns of the UK equity market. It tracks the FTSE All-Share Index and invests only in UK equities. This fund provides access to the UK and overseas markets via index funds and aims to capture global equity market returns. It is invested 40% in UK equities and 60% in overseas equities. This fund aims to capture global equity market returns (excluding the UK). It tracks the FTSE World (ex-uk) Index and invests in units in pooled equity index funds in North America, Europe (excluding UK), Japan, Asia Pacific and Advanced Emerging Markets. This fund aims to capture the performance of global emerging equity markets. It tracks the FTSE All-World All Emerging Index. Medium-High Active Medium-High Passive Medium-High Passive Medium-High Passive High Passive The Total Expenses shown are correct as at 30 September It is important to regularly review your investment options to make sure that they are still appropriate for you. The fund facts sheets on the Scheme website give you up-to-date information about all the available funds, including performance although you should remember that past performance does not guarantee future returns. 17

18 What is currency hedging? When purchasing overseas assets such as US equities, investors are exposed to fluctuations in the local market and changes in the local currency, for example the US dollar, relative to Sterling. Currency hedging effectively strips out, or reduces, the foreign currency exposure in a portfolio. By hedging some, or all, of the funds various overseas equity currency exposure, the Trustees can maintain the diversification benefits of investing in overseas assets without the additional unwanted risk attributable to fluctuations in foreign currency. Past performance It is important to note that past performance is not necessarily a guide to future performance. To find out how the different funds have performed over time visit the Scheme website risk scale Certain funds tend to have certain risk characteristics and the chart below has been designed to illustrate the relative levels of risk for each of the different fund choices. HP Lowest Growth & Risk HP Lower Growth & Risk HP Moderate Growth & Risk HP Higher Growth & Risk This is the default HP Highest Growth & Risk LOW MED HIGH HP Cash Risk rated funds Self-select funds HP Pre- Retirement HP Index Linked Gilts HP Pre- Retirement Inflation Linked HP Global Bond HP Consensus HP Passive Base HP Property HP Absolute Return Bond HP DGF HP UK Equity HP Global (40:60) Equity HP World ex UK Equity HP Emerging Market Equity HP Corporate Bond 18 Investment Guide

19 Making your choice You can change your investment choices at any time (including during the protection phase of the lifestyle glidepath). If you want to change the way your money is invested, simply complete the form online at or contact the Scheme Administrator, Capita Employee Benefits at: Hewlett Packard Enterprise Investment Scheme Administrator Capita Employee Benefits PO Box 4990 Sheffield S1 9GE Fax: hp@capita.co.uk Financial advice If you are unsure about your investment decisions you should seek regulated financial advice. A financial adviser is likely to charge you a fee which you should agree with them beforehand. For help in choosing a financial adviser, visit To find an adviser local to you go to Please note that this guide does not consider your individual circumstances and does not constitute individual investment advice. The Trustees and the Scheme Administrator are not authorised to give you financial advice. What happens if you cannot find an investment fund to suit you? In the unlikely event that you feel that the investment funds offered are not suitable for you, then you can transfer some of the money from your retirement account into another registered pension arrangement such as a Self Invested Personal Pension (SIPP). In this case, you can carry on paying contributions into the Scheme (if you are an active member). Invest in line with your retirement goals Whatever option you choose, remember that you should review your decision from time to time to make sure it remains the right strategy to meet your investment goals and retirement income plans. From age 55, you can access the Government s Pension Wise guidance service. Pension Wise provides free and impartial guidance about options at retirement. Find out more at

20 Jargon buster There are a number of terms used throughout this guide which are specific to investments. Explanations of these terms are given below. Annuity This is a pension income payable for life. When you retire, your retirement account (after any tax-free cash is taken) is often used to purchase an annuity from an insurance company. Asset allocation This is the key factor in determining investment growth. Asset allocation is the proportion in which contributions are invested. Your asset allocation will determine how much goes into equities, bonds, property, and cash and will have a significant bearing on the investment return you can achieve. Generally, a higher allocation to equity type assets is more suitable for those investors who are a long way from retirement and a higher allocation to bonds and cash is more suitable for those nearer retirement looking to buy an annuity. Deciding your own asset allocation, or self-selecting, should only be for those members that are comfortable making investment decisions. Benchmark This is a standard which can be used for performance comparison. For example, the FTSE 100 Index may be used as a benchmark against which the performance of major UK companies listed on the UK stock exchange may be compared. Capital growth (loss) This is the growth, or loss, in value of the original sum invested. Currency hedging Any investment outside the UK will be influenced by the difference in exchange rates between Sterling and the currency of the country where the investment is located. Any relative movements in these exchange rates, sometimes known as currency fluctuations, will give rise to an increase in the volatility of these investments. Currency hedging can be used to help dampen these fluctuations. Diversification This is the spreading of investments over different types of assets and geographic locations to reduce the exposure an investor has to one particular asset type or country. Diversified growth funds invest in more than one type of asset class and are designed to achieve the potential growth of equities in the medium to long term at relatively lower risk, due to the spreading of investments. Index Typically used as a benchmark to compare the performance of your investments. For example, FTSE is the leading provider of stock market indices in the UK. The FTSE 100 Index tracks the market value of the top 100 UK companies listed on the UK stock exchange. Investment income This is the dividend or interest that is paid on the investment. Investment manager An investment manager chooses investments to target a return in line with the chosen benchmark. Investment platform The Trustees have appointed Zurich to provide the investment platform for the Scheme. An investment platform is a structure by which pension schemes can gain access to a wide range of investment products, from several managers, through a single provider. Decisions on the underlying investment managers remain with the Trustees. From your perspective, one of the main advantages of having your assets on a platform is that all of your funds will be held in one place which makes it easier and quicker for you to change your investment choices. Retirement account The accumulated value of contributions paid by you and Hewlett-Packard (and any previous benefits you have transferred into the Scheme), plus the investment return earned. Selected Retirement Date (SRD) The date you choose to retire. You can choose your own SRD, but if you don t, the default will be your 65 th birthday. Total Expense Ratio This is an amount charged annually by the investment manager to cover the cost of managing your retirement account when it is invested in one of their funds. The charge is a percentage of the value of the fund and is automatically accounted for in the annual benefit statement you receive. The Scheme funds are invested on a group basis, so the charges are generally lower than would apply to individual investors. 20 Investment Guide Produced by Towers Watson December 2015