YOUR INVESTMENT OPTIONS

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1 YOUR INVESTMENT OPTIONS Hyde Housing Association Limited Pension and Assurance Scheme This booklet shows you the range of investment options available through the Hyde Housing Association Limited Pension and Assurance Scheme (the Scheme ) and answers some of the questions you may have. It is designed to help you make the decisions that are right for you about where you invest your pension contributions. There are a variety of funds for you to invest in, depending on your particular lifestyle and retirement goals. These funds invest in a wide range of company shares (equities) and fixed-interest investments, such as government bonds (Gilts) and corporate (Company) bonds, both in the UK and around the world these terms are explained in more detail later in this booklet. Selecting your investment funds is a very important decision. We have set out what options you have overleaf.

2 1. Choose a Lifestyle Strategy The Scheme includes investment strategies called Lifestyle which will automatically manage your investment for you. Lifestyle will automatically change how your money is invested as you approach your target retirement age; switching your pension savings from higher risk or volatile funds, such as equity funds into lower risk alternatives (such as fixed interest funds and cash funds) these different funds and the terms associated with them are explained later in this booklet. 2. Choose your own investment funds You may, if you wish, select your own investment funds (known as Self Select ). The Scheme offers a number of funds that have been selected by the Trustees and their advisers. Further details of the funds can be found in the table at the back of this booklet. 3. What happens if you do not make an investment choice If you do not make an investment choice, your contributions will be invested in the Default Income Drawdown Lifestyle, although this is not a recommendation that this option will be right for you. Don t worry about changing your mind about where you want to invest; you can switch your existing funds and/or redirect future pension contributions into different funds in accordance with the scheme rules. Lifestyle Lifestyle aims to provide you with an opportunity to grow your savings over the majority of your working life, whilst moving your savings into less volatile funds as you near your target retirement age. Under Lifestyle, it is important that you notify the Hyde Administration Team at Punter Southall Administration Limited (PSAL) ( to hydehousing@puntersouthall.com or telephone ) if your target retirement age changes as this will have an impact on when the switching process starts. Key features and benefits of Lifestyle ``Invests your account for you, you do not need to make any investment decisions yourself. ``Aims to beat the potentially damaging effects of inflation on the value of your pension savings by investing in growth assets, such as equities, during the early years. We call this the accumulation phase. ` ` As you approach your target retirement age, switches to funds with the aim of protecting the value of your account (although this is not guaranteed please see Important notes). [2] INVESTMENT OPTIONS HYDE HOUSING ASSOCIATION LIMITED PENSION AND ASSURANCE SCHEME

3 ``Can help to protect you from unexpected falls in fund prices near to retirement. However, it can also mean that your funds are moved at a time when you may lose out on future investment growth, meaning you do not maximise the investment growth potential of your fund as you approach retirement. ``If you decide to move away from Lifestyle it is important that you fully understand your investment options and make decisions that are appropriate for you. Your fund(s) will no longer be switched into funds that aim to protect the value of your account as you approach your target retirement age. The Hyde Housing Association Lifestyle Strategies There are three different Lifestyle Strategies available which are detailed overleaf. Further information about the funds contained in each Lifestyle Strategy is given in the fund table at the back of this booklet. INVESTMENT OPTIONS HYDE HOUSING ASSOCIATION LIMITED PENSION AND ASSURANCE SCHEME [3]

4 The Default Income Drawdown Lifestyle invests your contributions in the BlackRock DC Aquila (50:50) Global Equity Index Fund, while you are in the Accumulation Phase, more than 25 years from your target retirement age. It aims to generate long-term growth in your pension savings, but you can expect to see your account value fall and rise as equity markets can fall and rise. Once you are within 25 years of your target retirement age, your account begins to switch out of the BlackRock DC Aquila (50:50) Global Equity Index Fund into the Hyde Housing Diversified Growth Fund, still aiming for growth but with less risk than investing in the BlackRock DC Aquila (50:50) Global Equity Index Fund. DEFAULT INCOME DRAWDOWN LIFESTYLE % ALLOCATION YEARS TO TARGET RETIREMENT AGE BlackRock DC Aquila (50:50) Global Equity Index Hyde Housing Diversified Growth Hyde Housing Global Diversified Bond BlackRock DC Cash When you are eight years from your target retirement age, your account will gradually start to switch into the Hyde Housing Global Diversified Bond Fund. In the last three years, a portion of your account will also switch into the BlackRock DC Cash Fund. At your target retirement date, around 50% of your account will remain invested in the Hyde Housing Diversified Growth Fund, 25% will be in the Hyde Housing Global Diversified Bond Fund and 25% in the BlackRock DC Cash Fund (as we expect that you will want to take your tax-free lump sum). This means that your account may not be fully protected against sudden stock market falls. [4] INVESTMENT OPTIONS HYDE HOUSING ASSOCIATION LIMITED PENSION AND ASSURANCE SCHEME

5 The Annuity Lifestyle invests your contributions in the BlackRock DC Aquila (50:50) Global Equity Index Fund, while you are in the Accumulation Phase, more than 25 years from your target retirement age. It aims to generate long-term growth in your pension savings, but you can expect to see your account value fall and rise as equity markets can fall and rise. Once you are within 25 years of your target retirement age, your account begins to switch out of the BlackRock DC Aquila (50:50) Global Equity Index Fund into the Hyde Housing Diversified Growth Fund, still aiming for growth but with less risk than investing in the BlackRock DC Aquila (50:50) Global Equity Index Fund. ANNUITY LIFESTYLE % ALLOCATION YEARS TO TARGET RETIREMENT AGE BlackRock DC Aquila (50:50) Global Equity Index Hyde Housing Diversified Growth BlackRock DC Pre-Retirement BlackRock DC Cash When you are eight years from your target retirement age, your account will gradually start to switch into the BlackRock DC Pre-Retirement Fund, which aims to track the cost of buying an annuity. When you are three years from your target retirement age, your account will also switch into the BlackRock DC Cash Fund. At your target retirement date, 25% of your account will be invested in the BlackRock DC Cash Fund (as we expect that you will want to take your tax-free lump sum). The remaining 75% will be in the BlackRock DC Pre-Retirement Fund. INVESTMENT OPTIONS HYDE HOUSING ASSOCIATION LIMITED PENSION AND ASSURANCE SCHEME [5]

6 The Cash Lifestyle invests your contributions in the BlackRock DC Aquila (50:50) Global Equity Index Fund, while you are in the Accumulation Phase, more than 25 years from your target retirement age. It aims to generate long-term growth in your pension savings, but you can expect to see your account value fall and rise as equity markets can fall and rise. Once you are within 25 years of your target retirement age, your account begins to switch out of the BlackRock DC Aquila (50:50) Global Equity Index Fund into the Hyde Housing Diversified Growth Fund, still aiming for growth but with less risk than investing in the BlackRock DC Aquila (50:50) Global Equity Index Fund. CASH LIFESTYLE % ALLOCATION YEARS TO TARGET RETIREMENT AGE BlackRock DC Aquila (50:50) Global Equity Index BlackRock DC Cash Hyde Housing Diversified Growth Hyde Housing Global Diversified Bond When you are eight years from your target retirement age, a portion of your account will gradually switch into the Hyde Housing Global Diversified Bond Fund. When you are three years from your target retirement age, your account will gradually switch into the BlackRock DC Cash Fund, so that by the time you are ready to retire your account will be invested 100% in the BlackRock DC Cash Fund, ready to take as a 100% cash lump sum. You can at this point take up to 25% of your account as a tax-free lump sum. The balance will be taxed at a rate that depends on how much income you have earned that tax year. These Lifestyle Strategies are intended for those who want to reduce the volatility of their investments as they near their target retirement age. [6] INVESTMENT OPTIONS HYDE HOUSING ASSOCIATION LIMITED PENSION AND ASSURANCE SCHEME

7 Important note: If you do not wish to use your account to provide a drawdown arrangement, then the Default Income Drawdown Lifestyle may not be appropriate for you. For example, if you wish to take your fund as cash or purchase an annuity, then you may want to decide on an alternative Lifestyle. You may wish to consult a financial adviser in such circumstances. Self Select Investment If you would rather create your own investment strategy by selecting your own funds, full details of the investment funds available can be found at the back of this booklet. Before you make any decisions about your investments, you may find it useful to consider the following information about balancing risk and reward. Balancing risk and reward Any investment involves some sort of risk, but what do we mean by risk? When most people think about risk, they think of it in terms of danger and potential loss. Of course, taking a risk can be dangerous, but it can also be rewarding (racing drivers, mountain climbers and other extreme sports enthusiasts will agree with this). Risk can mean uncertainty too not being able to predict exactly what might happen in the future is a risk we live with every day. All these concepts of risk can be applied to investments. It is certainly difficult to predict exactly what will happen over time share prices fluctuate daily, interest rates vary and some investments are more rewarding (and more risky) than others. Understanding these different types of investment risks is important if you are to make the decisions that are right for you. What risk means when you are saving for retirement and what you need to consider There are three main risks you need to be aware of when you are choosing how to invest your pension contributions: Investment risk is the risk of your pension savings falling in value. 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, let s say 4% over time and your investments are only growing at 2%, rising prices will erode the value of your pension savings. Pension conversion risk you may decide to use some or all of your built-up savings to buy a pension via an annuity, which will provide you with an income in retirement. The amount you will get depends on a number of factors, including interest rates, the level of inflation when you retire and your anticipated life expectancy. Pension conversion risk is the risk that your investments don t protect you against the cost of buying an income in retirement. INVESTMENT OPTIONS HYDE HOUSING ASSOCIATION LIMITED PENSION AND ASSURANCE SCHEME [7]

8 What kind of investor are you? 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 if it means a better chance of achieving higher returns? Are you totally risk averse and don t want to risk your capital under any circumstances? Or are you somewhere in between? You may find it helpful to complete our Investor Questionnaire as a starting point. Important notes: 1. The Investor Questionnaire does not take into account all of the factors which might influence your attitude to risk and the funds you may choose. 2. How close you are to retirement should be an important factor in your decision-making. Generally, the longer you have until retirement, 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 the ups and downs from riskier investments. Investor Questionnaire 1. What best describes your outlook? A I m aiming to live the high life when I retire and I m willing to take a higher level of investment risk to get it B I want my retirement days to be enjoyable but I ll settle for a little less to spend if that means less investment risk C I want to keep my investment risks as low as possible, even if that means a smaller pension fund 2. How long will it be before you retire? A More than 10 years B 5 to 10 years C Less than 5 years 3. What do you expect to happen to your pay/salary? A My salary should increase substantially over the years B My salary should increase in line with price rises but I m not expecting it to get much higher C I don t think my salary will increase. In fact it might even decrease as I may reduce my working hours 4. If you wanted to increase your chances of improving the size of your pension fund, would you? A Take a big risk with a small amount of money [8] INVESTMENT OPTIONS HYDE HOUSING ASSOCIATION LIMITED PENSION AND ASSURANCE SCHEME

9 B Take a small risk with a bigger amount of money C I wouldn t be happy taking any risk 5. Investing in company shares is generally acknowledged as the best way of providing growth that beats the effects of inflation over the long term. Are you happy to put your money in funds that invest in company shares? A Yes, for me the risks are worth it B Yes, but I also want some less risky investments C No, the risk makes me nervous 6. Just two months after you put money into a long-term investment, it falls by 20%. You still think it s a good investment. What do you do? A Buy more. It was always a good investment and now it s a cheap one too B Hold tight and wait for it to bounce back C Sell it. It would worry me too much to hold onto it 7. Which would you choose? A 20% chance of winning 50,000 B 50% chance of winning 15,000 C 2,000 guaranteed cash If you answered: Mostly A You appear to be an Adventurous Investor. You want your capital to grow as much as possible and seem to be prepared to take a risk in order to achieve your financial goals, to ride out the ups and downs of the market over the long term. The fund range available to you is risk-rated from 1 (very low risk) to 7 (very high risk) in terms of investment risk so you may wish to avoid funds that are rated 1 or 2. Mostly B You appear to be a Balanced Investor. You are comfortable taking some risks to help your capital grow but you don t want to see your investments going up and down like a rollercoaster. This suggests that you may prefer investment options which don t rise and fall too sharply. The fund range available to you is risk-rated from 1 (very low risk) to 7 (very high risk) in terms of investment risk so you may wish to avoid funds that are rated 1 (very low risk) and those rated 5 (medium-high risk) or above. Mostly C You appear to be a Cautious Investor. You want your investments to grow but do not want to take many risks to help make this happen. Protecting the value of your INVESTMENT OPTIONS HYDE HOUSING ASSOCIATION LIMITED PENSION AND ASSURANCE SCHEME [9]

10 investments seems to be more important to you than trying to grow them in the long term. The fund range available to you is risk-rated from 1 (very low risk) to 7 (very high risk) in terms of investment risk so you may wish to avoid funds that are rated 3 (lowmedium risk) or above. What does this mean for you and your pension scheme? The range of investment options caters 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. Dealing with the main asset sectors in order of risk: ``Cash is generally deemed the safest asset but is likely to generate comparatively lower investment returns over the long term; and historically cash savings have struggled to beat inflation. ``Fixed Income funds invest in a spread of fixed interest investments. They include government bonds and corporate bonds, and are suitable for lower risk investors. ``Property funds invest in a range of UK commercial property assets such as offices, shopping centres, retail warehouse parks and industrial estates. These funds are often used as a diversifier and are seen as an alternative investment for long-term growth. ``Multi-asset funds mean a mix of conventional investments, such as cash, fixed interest and equity funds and alternative investments, which might include commercial property or commodities, for example. Given its diversity of assets, a multi-asset fund may offer less volatility than an equity fund but, as a result, the potential for higher rate returns may be reduced. ``Equity funds invest in a mix of UK and global equities. They can be actively managed with an aim to beat index returns or they can be passively managed (for less cost) with an aim to track the index. There will be greater volatility and risk than cash or fixed interest funds, but improved long-term growth prospects. Please remember that each fund will have a different risk rating. BlackRock has classified the risk rating of the available investment funds as follows: 1 (Very Low), 2 (Low), 3 (Low-Medium), 4 (Medium), 5 (Medium-High), 6 (High), 7 (Very High). Remember that the higher the risk score, the greater the potential for good long-term growth. However, the higher risk funds are also likely to display greater account movement over the shorter term. [10] INVESTMENT OPTIONS HYDE HOUSING ASSOCIATION LIMITED PENSION AND ASSURANCE SCHEME

11 Active versus passive fund management What are passive funds? A passive fund will look to mirror the index in which it invests. For example, a UK equity passive fund will mirror the FTSE All Share Index. If one company s shares make up over 4% of the index by market valuation, this fund would hold the same percentage of its assets in this 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 broadly be in line with Index returns before fees. What are active funds? By contrast, an actively managed fund will pick out stocks within the index that the fund managers believe represent good value for your money. So the difference here is that an actively run UK equity fund could outperform or underperform an equivalent passively run UK equity fund and the Index return. Because of the additional analysis and expertise required to run an active fund, the annual management charges are typically higher than a passive fund. The fund range The Trustees, in conjunction with their investment advisers, have decided to make available a range of investment funds. The range is made up of investment funds that the Trustees and their advisers feel will provide you with sufficient choice and flexibility to focus your investment decisions. The Trustees, as part of their governance arrangements, will monitor the funds to ensure they remain suitable and that they continue to meet their objectives. Charges Annual Management Charge (AMC) Each of the funds is subject to an Annual Management Charge (AMC). We have included the Annual Management Charge in the fund table. The AMC is a fixed percentage applied to each fund and represents the percentage BlackRock will deduct from the fund s value each year. Your account value reflects the amount of money in your account after charges have been deducted. The AMC includes the cost of managing the investments of the fund and the costs of administration and other services such as maintaining a record of your savings and calculating the value each day. Additional Expenses 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. An estimate of these charges is shown under Additional Expenses in the fund table. This figure is reviewed yearly and the ongoing charges figure is the sum of the AMC and the Additional Expenses. INVESTMENT OPTIONS HYDE HOUSING ASSOCIATION LIMITED PENSION AND ASSURANCE SCHEME [11]

12 Total Expenses Ratio (TER) The combination of the AMC and additional expenses is known as the Total Expense Ratio. Keeping a check on your pension Whichever option you choose, it is important that you monitor your pension account from time to time. There s every chance that your circumstances and attitude to risk are likely to change as you progress through your working life, which means you might want to adjust your investment choices over time. DETAILS OF INVESTMENT FUNDS Fund name BlackRock DC Aquila Emerging Markets Equity Index BlackRock LGIM Ethical UK Equity Index BlackRock DC Aquila (50:50) Global Equity Index BlackRock HSBC Amanah Fund type Category Fund objectives and policies Equity Passive The Fund objective is to achieve a return that is consistent with the return of the MSCI Global Emerging Markets Index. Equity Passive Invests mainly in UK equities within the FTSE4Good Index and aims to track the return of its benchmark. Equity Passive Invests primarily in UK and overseas equities and aims to produce a return in line with its benchmark. Approximately 50% of the Fund is invested in shares of UK companies and the remaining 50% is split equally between shares of companies in the US, Europe ex-uk and the Pacific Rim. The Fund aims to provide a return consistent with its benchmark. Equity Passive Invests in company shares from around the world and is compliant with Islamic Shariah principles. Annual Management Charge (AMC % p.a.) Additional Expenses (% p.a.) Total Expense Ratio (TER % p.a.) Risk rating [12] INVESTMENT OPTIONS HYDE HOUSING ASSOCIATION LIMITED PENSION AND ASSURANCE SCHEME

13 Fund name Fund type Category Fund objectives and policies Annual Management Charge (AMC % p.a.) Additional Expenses (% p.a.) Total Expense Ratio (TER % p.a.) Risk rating Hyde Housing Diversified Growth Multi- Asset Active The Fund aims to achieve long-term growth by investing in a diversified range of assets. These may include, but are not limited to, a broad range of traditional and alternative asset classes such as equities, investment grade and high yield bonds, property, commodities and currencies. The Fund gains exposure to these assets by investing in one or more underlying funds BlackRock DC Aquila Consensus Index Multi- Asset Passive Invests primarily in shares of both UK and overseas companies and to a lesser extent in gilts, index-linked gilts, corporate bonds, overseas bonds and cash. The Fund aims to produce a return in line with its benchmark BlackRock DC Property Property Active The Fund has a diversified exposure to a range of commercial property assets such as offices, shopping centres, retail warehouse parks and industrial estates. The Fund gains its exposure to these assets by investing in a number of underlying pooled property funds BlackRock DC Aquila Over 15 Year Corporate Bond Index Fixed Income Passive This Fund invests in investment grade corporate bonds denominated in sterling with a maturity period of 15 years or longer and aims to produce a return in line with its benchmark INVESTMENT OPTIONS HYDE HOUSING ASSOCIATION LIMITED PENSION AND ASSURANCE SCHEME [13]

14 Fund name Fund type Category Fund objectives and policies Annual Management Charge (AMC % p.a.) Additional Expenses (% p.a.) Total Expense Ratio (TER % p.a.) Risk rating Hyde Housing Global Diversified Bond Fixed Income Active The Fund aims to achieve a total return from a globally diversified bond portfolio, predominantly comprising high-yielding corporate and government fixed-interest securities. The Fund gains exposure to these assets by investing in one or more underlying funds BlackRock DC Pre- Retirement Fixed Income Active 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 BlackRock DC Aquila Over 15 Year Gilt Index Fixed Income Passive 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 BlackRock DC Aquila Over 5 Year Index Linked Gilt Index Fixed Income Passive Invests in index-linked UK government bonds with a maturity period of five years or longer and aims to produce a return in line with its benchmark BlackRock DC Cash Cash Active Aims to produce a return in excess of its benchmark principally from a portfolio of sterling-denominated cash, deposits and money-market instruments Please note that the risk ratings have been set by BlackRock and any change in the risk profile of a fund will be notified to the Trustees. For more information on funds, please refer to the fund factsheets which can be accessed on the website, blackrock.co.uk [14] INVESTMENT OPTIONS HYDE HOUSING ASSOCIATION LIMITED PENSION AND ASSURANCE SCHEME

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16 Want to know more? blackrock.co.uk/targetplan (Splash/341641/Aug17)