HSBC Life Based Personal and Executive Pension. Investment Guide

Transcription

1 HSBC Life Based Personal and Executive Pension Investment Guide

2 2 HSBC Life Based Personal and Executive Pension One of the most important choices you make about your pension plan is how your money is invested. This Investment Guide is designed to help you understand the investment options available through your HSBC Pension Plan. It contains information on the funds and explains the risks associated with investing in each, a description about how each Fund is managed and where it invests. There is a glossary at the back of this guide which defines a number of terms used in this guide that might be unfamiliar to you. Investment risk All investments carry some risk and there is a chance that your pension investment could lose some or all of its value. Each HSBC pension fund has been given one of 4 risk ratings which are described below. These risk ratings provide an indicator of the balance between the risk of losses to your pension investment and potential gains. In general a fund with a Minimum rating has the lowest risk of losing value but has lower growth potential. A fund with a Higher rating has the highest risk of losing value but can offer the best potential for investment gains. Understanding the balance between risk and reward Each type of investment carries a different level of risk and you should only take as much risk as you are comfortable with. A pension plan is a long-term investment and your investment choices should target good performance over the longer term rather than short-term gains. Your money invested in a pension plan is usually tied up until you reach age 55 which is the earliest time that you can take benefits from your pension. The potential investment gains you may achieve are linked to the amount of risk you are prepared to take. Although the level of gains is by no means guaranteed, you may for example choose to invest in higher risk investments with the objective of achieving greater gains when compared to investing in lower risk funds. Alternatively you could minimise potential losses to your pension investment by taking a lower risk approach, but there is a risk that investment gains you might make may not keep pace with inflation. Your attitude to risk may vary over time, as your circumstances change. For example, when you are many years from retirement, you may be more prepared to invest in riskier investments and be able to afford potential short-term losses in return for the potential for long-term gains. When you are within a few years of retirement you may wish to take less risk with your pension investment and choose to sacrifice some of the potential gains in exchange for minimising any losses to the money you have invested in your pension plan. It s important to review your investment fund choices and your level of contributions each year to ensure you are on track to achieve your retirement income objectives. Minimum The performance of these funds may be less volatile than bond or share investments and therefore may be more appropriate for those investors who want to minimise the potential loss in the value of money originally invested. However, if returns do not exceed inflation, or the total ongoing charge exceeds the investment rate of return, it is possible for your investment to lose value and result in the loss of capital. The risk of this happening increases with the length of time your money is invested in these fund. Lower Lower risk funds take a more cautious approach to investing, than either medium or higher risk rated funds, generating less potential for growth. These funds will hold investments that are less volatile than shares and have a smaller risk of losing capital although there is still a risk of capital loss. If returns do not match inflation it is possible for your investment to lose value in real terms. Medium Medium risk funds have a less adventurous approach to investing than higher risk funds as they invest in a more balanced way. However the risk of capital loss is higher than a fund with either a Minimum or Lower risk rating. These funds offer a good medium to long term growth potential although you should expect some volatility in the gains they produce. Remember that past performance is not an indicator of future returns.

3 3 Higher Higher risk funds invest in the more adventurous growth opportunities, you must be aware that they can be more volatile during the period you are invested and need careful monitoring. Funds with a Higher risk rating have the greatest risk of capital loss. Higher risk funds are considered to have the potential for the greatest returns over the long term. Approaching Retirement As you approach retirement, you may find that your attitude to risk changes and you feel that investing in funds that hold shares are too much of a risk to take with your pension fund. Although the funds you are invested in aim to achieve capital growth, there is always the risk that a pension fund may reduce in value just before you come to buy your annuity, particularly if there were a major fall in global stock markets. You may wish to change the risk profile of your HSBC Pension Plan by investing in funds which are less susceptible to capital loss as you approach your retirement. If gilt yields rise, the unit price of the Fixed Interest fund may fall if the fund holds gilts with a lower yield than those available at the time. This is because the gilts held by the fund are less attractive to investors, than the currently available higher yielding gilts, and their market value therefore reduces. Under HM Revenue & Customs rules the minimum age you can normally take your pension benefits is from 55. You can take a cash lump sum when you retire, known as the pension commencement lump sum, up to the maximum allowed by HM Revenue & Customs which is normally 25% of your pension fund. This must be taken at the same time as you take an annuity or drawdown from your fund, or the entitlement to it is lost. The Life Based Personal Pension and the Executive Personal Pension (EPP), (please see What Investment Choices do I have? on page 4), offer a minimal risk fund the Money Market. A lower risk fund the UK Fixed Interest is available within the Life Based Personal Pension series 1&5 and the EPP. Neither of these funds offer guarantee of capital and in some situations an investment in either of these funds can lose value. If the annual management charge on the Money Market is greater than the interest rate or investment performance generated by the fund, the value of the Fund will go down. The value of any investment in the Money Market Fund can also be eroded over time through the effect of inflation. The UK Fixed Interest Fund invests in Government bonds, also known as gilts. Gilt prices are affected by interest rates, inflation and the general expectations of the economy. In general, if interest rates are expected to rise the price of gilts will fall, and if rates are expected to fall, their prices will rise.

4 4 What investment choices do I have? The funds that are available depend upon the type of HSBC Pension Plan you hold. The table below shows the range of Funds available within each plan type. Your policy document and schedule will show you which Pension Plan you hold. Fund Lifebased 1 Lifebased 2, 3 and 4 Lifebased 5 Executive Pension Money Market Fund ü ü ü ü UK Fixed Interest Fund ü ü ü Defensive Fund ü ü ü Balanced Fund ü ü ü FTSE All Share Index Tracker Fund ü ü ü ü UK Equity ü ü Global Equity ü ü ü ü Important Note A key difference between the policies is that Lifebased 2, 3 & 4 Pension Plans have the ability to accrue a loyalty bonus whereas the others do not. Any loyalty bonus will be paid upon taking retirement benefits. To find out if your particular plan has the benefit of a potential loyalty bonus, please consult the Policy Document and Schedule you will have received when you took the plan out. If you have mislaid this, please call our Pensions Helpdesk on (textphone ) who will be able to provide you with the answer. You should note that if your policy has a loyalty bonus benefit and you transfer to another provider any potential bonus will be lost.

5 5 The Pension Funds Risk Profile: Minimum Money Market Fund Annual Management Charge 1.00% This Fund is designed to provide investors with a higher degree of capital security and an investment return that is consistent with investing in a diversified portfolio of short-term, high quality money market instruments. High quality monetary instruments Commercial loans Deposits. Investment Management Style: Active Risk Profile: Lower UK Fixed Interest Fund Annual Management Charge 1.00% This Fund aims to provide a return consistent with that of the UK fixed interest securities market through direct and indirect investment in UK gilts and UK corporate bonds. British Government Stocks Sterling Fixed Interest Bonds. Investment Management Style: Active Risk Profile: Medium Defensive Fund Annual Management Charge 1.00% This Fund aims to provide long term growth from investing in a broad range of investments that predominantly includes UK and overseas fixed interest and UK and overseas equity instruments. FTSE UK All Share Index Tracker MERIT UK Shares UK Fixed Interest Money Market investments Investment Management Style: Active

6 6 Balanced Fund Annual Management Charge 1.00% This Fund aims to offer investors the opportunity to grow their money by investing in a range of investments that include UK and overseas shares, UK and overseas bonds, property and cash. FTSE UK All Share Index Tracker MERIT UK shares North American Share Index Tracker European (ex UK) Shares Japanese Share Index Tracker Fund Pacific (ex Japan) Shares Global Emerging Market Shares Fixed Interest Securities Overseas (ex UK) Fixed Interest Securities UK Corporate Bonds Money Market Instruments Investment Management Style: Active FTSE All-Share Index Tracker Fund Annual Management Charge 1.00% This Fund aims to, before charges, match the return of the FTSE All Share Index through direct and indirect investment in United Kingdom securities. FTSE UK All Share Index Tracker Investment Management Style: Passive UK Equity Fund Annual Management Charge 1.00% This Fund aims to provide capital growth over the long term together with income from a portfolio of shares quoted on the London Stock Exchange. MERIT UK Shares FTSE UK All Share Index Tracker Investment Management Style: Active Risk Profile: Higher Global Equity Fund Annual Management Charge 1.00% This Fund aims to, before charges, offer investors the opportunity to grow their money by investing in major world equity markets. MERIT Global Shares Investment Management Style: Active

7 7 Other types of risks Investing in any of the Pension Funds will expose your pension investment to a number of different risk areas which you should consider before deciding on your investment choice. Stockmarket Risk the risk that the value of your pension investment will fall due to a downturn in stockmarket(s) either in the UK or globally which affects the value of shares held within the pension fund or funds that you are invested in. There is a risk with a stock market investment that all capital could be lost. Inflationary Risk the risk that the value of your pension investment will grow by less than price inflation and so your pension investment will buy you less retirement income in real terms when you come to take benefits from your pension plan. Diversification Risk the risk your pension investment suffers from large rises and falls in value if it is not invested in a range of different types of investments. A pension fund that invests in a single share-based investment will have a typically more volatile performance than a fund that invests in a range of different investment types. Low absolute return the risk that the growth in your pension investment may be less than the total ongoing charge of the fund and consequently the value of your pension fund will fall in value. Interest Rate Risk the risk that the value of your pension investment will fall as a result of falls in the value of bonds. The coupon or interest earned by bonds and fixed rate deposits is normally fixed, but the value of bonds can go up or down, such as when interest rates are expected to rise and bond values to fall. The value of pension funds invested in bonds may also fall if the credit worthiness of the assets held within them fall, or default or if gilt or bond yields rise. Exchange Rate Risk where a pension fund invests in overseas securities its value may fall due to a weakening of the pound sterling exchange rate. This risk also extends to UK based companies that have overseas earnings. Annuity Conversion Risk the risk that pension income will be less than expected due to a fall in annuity rates. A fall in annuity rates is normally caused by a lowering of the income paid on long term fixed rate securities, such as Gilts. Annuity rates may also fall if the insurance companies that provide them expect that people will live longer. Where Income is paid directly from the pension fund (ie, Drawdown) a fall in annuity rates will also reduce the maximum income that may be withdrawn each year. The following table shows which of the risk factors, explained above, each of the Pension Funds is exposed to.

8 Pension Fund/ Risk Factor Stockmarket Inflation Diversification Low absolute return Money Market UK Fixed Interest The Funds predominantly invests in Bonds/Gilts and/or money market investments and performance is therefore less affected by changes in global stock market levels. The Fund predominantly invests in money market investments and this fund has the greatest risk of all the pension funds of producing an investment return that is lower than the rate of inflation. The real value of an investment in the fund will be reduced by future rates of inflation and has provided limited protection from the effects of inflation in the past. The Funds predominantly invests in Bonds/Gilts and/or money market investments and the risk of capital loss from diversification is expected to be low. The Fund predominantly invests in money market investments and this fund carries the greatest risk of growth being less than the charges applied to the Fund. The Fund predominantly invests in fixed interest investments and this fund carries a low risk of growth being less than the charges applied to the Fund. Defensive Balanced FTSE All Share Tracker These Funds mainly invest in shares, and performance will be affected by changes in stock market levels, although less than by a fund that invest exclusively in stock markets. Shares typically represent a higher risk investment. UK Equity Global Equity These Funds invest in shares, and performance will be affected by changes in stock market levels. Shares typically represent a higher risk investment. The real value of an investment in each of the funds will be reduced by future rates of inflation. These Funds aim to manage risk through a diversified investment approach but there remains a risk of capital loss given the predominant investment in shares, although less than a fund that invests exclusively in one type of investment. These Funds aim to manage risk through investment in a broad range of UK company shares and these funds carry the greatest risk of capital loss from a lack of diversification as investment is restricted to UK shares only. This Fund aims to manage risk by investing in worldwide shares and there is a risk of capital loss by investment in worldwide shares although less than a fund that invests exclusively in the stock market of one country. Each of these Funds invest in shares, and performance will be affected by changes in stock market levels. These funds carry a minimal risk in the medium to longer term of a low absolute return. Shares typically represent a higher risk investment.

9 Pension Fund/ Risk Factor Interest rate Money Market UK Fixed Interest The Funds have a significant allocation to bonds/gilts or money market investments and performance will be affected by changes in interest rates. Defensive Balanced FTSE All Share Tracker The Fund has a small allocation to bonds/gilts and changes to interest rates will have a minimal impact on performance. UK Equity Global Equity The funds do not invest bonds and performance will not be directly affected by changes in interest rates. Exchange rate Annuity rate The Funds predominantly invests in UK Bonds/Gilts and/ or money market investments and performance is not directly affected by exchange rates. The Funds invests partially in overseas Bonds/Gilts and shares and performance will therefore be affected by exchange rates. The Funds only invests in UK shares and performance is not directly affected by exchange rates. This risk also extends to UK based companies that have overseas earnings. The Fund invests in global shares and carries the highest risk of capital loss from changes in exchange rates. The income you get from your pension fund at retirement will depend on annuity rates at that time. If annuity rates fall, then the income available to you will be less. However, if you have already purchased an annuity, your rate will not be affected by subsequent rate changes. Please note that our pension plans are unit linked. The value of investments can fall as well as rise and you may not get back what you invested. For some investments this can also happen as a result of exchange rate fluctuations as shares and funds may have an exposure to overseas markets. Fund Performance If you would like additional information about how each pension fund has performed or where it is currently invested please contact the Pensions Helpdesk on (textphone ). They will send you the Fund Factsheets which contains this information. Please remember that past performance is not a reliable indicator of future returns. Switching and redirection You may change which funds your pension investment is currently invested and/or redirect future contributions to new funds. If you wish to switch or redirect your future contributions you can write to us with your switching or redirection instructions or give our Pension Helpdesk a call. Please refer to further information for contact details. Important Notes How much should I invest? The amount you can invest will depend on your personal circumstances and HM Revenue & Custom allowances. You can use HSBC s online Retirement Planning Tool to help you understand how much you should invest. This is available on our website at financialplanning.hsbc.co.uk. Further information If you require further information on your Personal Pension please contact our Pensions Helpdesk on (textphone ). Lines are open 8am to 6pm Monday to Friday (excluding Public Holidays). To help us continually improve our service and in the interests of security, we may monitor and/or record your communications with us.

10 10 Glossary of Investment Terms Absolute Return An investment strategy that seeks to generate a positive return as a percentage of money invested rather than relative to an index or benchmark. Active Management A style of investment management that makes specific investment decisions which aim to outperform an index or benchmark. This approach can be associated with a higher degree of volatility than passive management but it also has the potential for greater returns. Additional Charge Some pension funds will incur additional charges in addition to the annual management charge to cover expenses such as depositary, registrars and auditors fees and dealing costs. Annual Management Charge (AMC) A charge made to cover the expenses associated with the management of a fund and the administration of your pension policy. Annuity An annuity is a secure, regular income purchased on retirement from an insurance company using a pension fund. The insurance company is then responsible for paying a secure income for at least the rest of a policyholder s life. Income from an annuity is taxed at the policyholder s marginal rate. Asset Allocation Some pension funds invest in a range of different asset classes, such as company shares, bonds and property. The allocation of funds to different assets is decided by the fund manager within the broad objectives of the fund. The fund descriptions in this guide contain details of the assets which maybe held by each pension fund available in your pension plan. Benchmark A standard against which the performance of a pension fund is measured. Funds usually choose an index to be the performance benchmark and the index will match the region or sector the fund invests in. For example, a Fund investing in companies listed on the FTSE 100 will often use the FTSE 100 Index as a benchmark. Collective Investments Each of the HSBC Life Pension Funds is a type of collective investment. This means that the total of all the pension contributions and tax relief from many different investors is pooled together to form a fund which is then managed on the same basis for all individual investors holding shares in the fund. Commercial Loan An instrument through which a company can secure shortterm funding. This type of investment is most commonly to be found in Money Market and short term Fixed Interest Funds, such as the Money Market Pension Fund. Commercial Paper An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Corporate Bond A bond issued by a company to raise money. In return for lending the company money the investor will receive interest payments (coupon) plus the return of the original investment when the bond matures. Deposit A certificate of deposit entitles the pension fund to receive interest. It has a maturity date, a specified fixed interest rate and can be issued in any currency. They are generally issued by commercial banks. Diversification A method by which a fund s investments are spread, for example, across different types of investments and countries. By doing so the fund s volatility can be minimised by the impact of a loss to any one investment being reduced by the rise of another. Emerging Market Investment in the financial markets of countries whose per capita income is low and usually have a small investment market with a short trading history.

11 11 Equities/Shares A share is a stake in the company that has issued it. Equities are another name for shares. The value of the shares will depend upon a number of factors including how well the company is performing financially. A Pension Fund that invests in shares will hold a stake in a range of companies and the value of this stake is often dependent upon the expectation of the future profits those companies will make as well as their historical profitability. Exchange Rate The price of one country s currency expressed in another country s currency. In other words, the rate at which one currency can be exchanged for another. Fixed Interest Usually used to refer to a bond where the interest is calculated as a fixed percentage of the original amount of money borrowed. Floating Rate Notes (FRN) A debt instrument with a variable interest rate. Mainly issued by financial institutions and governments, that typically have a two to five year term to maturity. Fund A fund pools together the money from many individuals enabling a fund manager to invest in a broad range of assets. The fund manager will invest in different asset types such as money market instruments, bonds, shares and property exactly what the fund manager buys depends on the investment objective of the fund. Fund of Funds A Fund of Funds is a fund which invests in other funds rather than investing directly in company shares (equities), bonds or other securities. This type of fund is also known as a Multi-Manager Fund. Government Bond or Gilt A loan to a national government in return for which the pension fund receives regular payments, (known as the coupon) and a promise that the original investment (principal) will be returned at a specified date. Gilts are a loan to the UK government. RPI and CPI both measure movement in the average price of a shopping basket of goods and services as a way of gauging price inflation. RPI includes certain items that are not part of the Consumer Price Index (CPI), including council tax and mortgage interest payments. MERIT Multi-factor enhanced return investment techniques. MERIT Funds HSBC Asset Management have a range of Investment Funds that use an investment process that seeks to invest in a wide range of companies that combine both attractive valuations and positive corporate earnings and price momentum signals. Money Market Instruments A term that includes various instruments, such as deposits, commercial paper and floating rate notes (FRN). Money Market instruments are often referred to as cash or near cash. These instruments, or types of investment, typically have very short term maturity dates and are used by institutions and the government to manage short term cash needs. Passive Management A passive approach to investment management where a Fund tracks a specific index or set of indices, such as the FTSE All-Share Index. This approach can be less volatile than actively managed funds that invest in shares in the same index. However, passive funds are not free of risks and still exhibit the return and risk characteristics of investing in a large number of company shares. Security/Securities A term used to describe stocks, shares and bonds. Sterling Fixed Interest A bond where the interest is calculated as a fixed percentage of the original amount of money borrowed and is denominated in Sterling (UK pounds). Stock Market A place where stocks and shares are bought and sold, for instance the London Stock Exchange. Inflation The rate of increase in the price of goods and services as measured by the Consumer Price Index (CPI) or Retail Price Index (RPI).

12 Total Ongoing Charge Sometimes referred to as the Total Expenses Ratio, the ongoing charge figure is a measure of what it costs you to invest in a fund on an ongoing basis. It is made up of the annual management charge (AMC) and other costs incurred in running a fund, such as custodian, auditor and regulatory, and which are paid directly out of the fund these are also known as additional fund expenses. The total ongoing charge figure also includes the costs of buying and selling (or trading) the stocks in which a fund invests. Volatility Volatility is a measure of how much a fund s price goes up or down as a percentage of its total value. For example the price of a money market fund will typically change very little from day to day and has low volatility. A fund investing in shares is exposed to stock market variations and has a higher volatility. The higher the volatility of a fund, the greater the investment risk. Tracker Funds An Index Tracker fund aims to replicate the returns of a given index as closely as possible, by investing in financial instruments that will closely replicate the characteristics of the given index. An Index Tracker fund may not exactly replicate an index for a number of reasons, including: Charges will have an impact on the performance of tracker funds It may not be economic for a fund manager to purchase shares in a particular territory and the manager may choose to gain exposure to a region of the world through a specialised financial instrument The effect of dividend payments are normally reflected immediately in the index and often some weeks later in a tracker fund. HSBC Life (UK) Limited is incorporated in England and is a company limited by shares. HSBC Life (UK) Limited is Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Registered number ). HSBC Life (UK) Limited is a member of the Association of British Insurers. Registered office: 8 Canada Square, London E14 5HQ. Registered in England (United Kingdom) number The main business of HSBC Life (UK) Limited is writing life policies. HSBC Global Asset Management (UK) Limited is authorised and regulated by the Financial Conduct Authority ( FCA ), and is entered on the Financial Services Register with the firm reference number The Financial Services Register can be accessed at HSBC Global Asset Management (UK) Limited is part of a worldwide group of businesses known as HSBC Global Asset Management which is ultimately owned by HSBC Holdings plc. HSBC Global Asset Management (UK) Limited is registered in England and is established at 8 Canada Square, London E14 5HQ, which is its registered office. HSBC Global Asset Management (UK) Limited s registered VAT Number is (GB) hsbc.co.uk Issued by HSBC Life (UK) Limited Customer Service Centre: PO Box 6176, Coventry CV3 9HN MCP /13 HSBC Life (UK) Limited All Rights Reserved. AC2668