HSBC World Selection Personal Pension

Transcription

1 HSBC World Selection Personal Pension Investment Guide January 2011

2 2 HSBC World Selection Personal Pension Introduction 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 World Selection Pension Plan. It contains information on the HSBC World Selection Portfolios and explains the risks associated with investing in each portfolio, a description about how each portfolio is managed and where it is invested. The HSBC World Selection Portfolios operate an investment strategy where they primarily hold other investment funds rather than investing directly in shares, bonds or other securities. In order to meet the investment objectives in a cost efficient way, the World Selection Portfolios will invest in other HSBC funds where possible. 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. 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 normally take benefits from your pension. The potential investment gains you may achieve is generally 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. You may be able to minimise potential losses to your pension investment by taking a low risk approach, but this is not guaranteed and there is a risk that any 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 accept that there may be short term falls in the expectation of better long term gains. 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. 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, or portfolio, has been given one of four 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. 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 potential loss in the value of money invested. However, if gains do not exceed inflation, or the total ongoing charge exceeds the gains made by the fund, 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 funds. 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.

3 3 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 have historically produced 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. 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. Early retirement The earliest you will normally be able to retire and take your pension benefits is age 55. But you may be able to retire earlier than this if a medical condition of disability prevents you from working. If you think you would qualify for early retirement you should contact us so that we can discuss your options and make an assessment. Serious illness Customers who have a very serious illness and are not expected to live more than 12 months might be eligible to take their pension fund as a tax free payment. If you think you would qualify you should contact us as soon as possible to discuss your options. Our qualifies staff and underwriters are trained to deal with serious illness claims sympathetically and with urgency. 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 is 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 World Selection Personal Pension by investing in funds which are less susceptible to capital loss as you approach your retirement age. Enhanced and impaired life annuities Enhanced life annuities are available for people with particular lifestyles for example if you smoke. Impaired life annuities may be available for people who suffer from certain health problems that require to be individually assessed, for example blood pressure. If you qualify for an enhanced or impaired life annuity you could benefit from a higher than normal annuity income in retirement. It is important when you are shopping around for an annuity to see if the provider offers these types of annuity, if you would qualify and the annuity income they would pay.

4 4 The HSBC World Selection Portfolios Overview of HSBC World Selection Portfolios The HSBC World Selection Portfolios aims to provide capital growth through investment in a broad range of asset classes across global markets. The combination of different asset classes, regions and currencies provides diversification. The Portfolios Overall Risk Rating: Lower HSBC Pension World Selection Portfolio Cautious Annual Management Charge 1.25% Additional Charges 0.26% Total ongoing Charge 1.51% Portfolio Objective The portfolio aims to provide capital growth through cautious investment in a broad range of asset classes across the world. Portfolio Bias Investments will be in funds towards bonds, gilts and money market instruments. Asset Allocation The portfolio primarily invests in collective investment schemes that, in turn, invest in Bonds, gilts and money market instruments Shares Property Investment Management Style: Active Overall Risk Profile: Medium HSBC Pension World Selection Portfolio Balanced Annual Management Charge 1.25% Additional Charges 0.27% Total ongoing Charge 1.52% Portfolio Objective The portfolio aims to provide capital growth through balanced investment in a broad range of asset classes across the world. Portfolio Bias Investments will be towards a balance of all asset classes. Asset Allocation The portfolio primarily invests in collective investment schemes that, in turn, invest in Bonds, gilts and money market instruments Shares Property Investment Management Style: Active

5 5 HSBC Pension World Selection Portfolio Dynamic Annual Management Charge 1.25% Additional Charges 0.27% Total ongoing Charge 1.52% Portfolio Objective This Fund aims to provide capital growth through dynamic investment in a broad range of asset classes across the world. Portfolio Bias Investments will be in funds that focus towards shares. Asset Allocation. The portfolio primarily invests in collective investment schemes that, in turn, invest in Bonds, gilts and money market instruments Shares Property Investment Management Style: Active

6 6 Other types of risks Investing in any of the HSBC World Selection Portfolios will expose your pension investment to a number of different risk areas which you should consider before deciding where to invest your pension fund. Stock Market Risk The risk that the value of your pension investment will fall due to a downturn in stock market(s) either in the UK or globally which affects the value of shares held within the pension fund or funds in which 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 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 might suffer from large rises and falls in value if it is not invested in a range of different types of assets. 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 types of investments. Derivative Risk The value of derivative contracts is dependent upon the performance of an underlying asset. A small movement in the value of the underlying asset can cause a large movement in the value of the derivative. This mean the value of your fund can fall as well as rise and you may not get back the amount you invested. 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 fall. The value of pension funds invested in bonds may also fall if the credit worthiness of the gilts or bonds held within them fall, or default or if the income from gilt or bond yields is less than expected. 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, income drawdown) a fall in annuity rates will also reduce the maximum income that may be withdrawn each year. The table overleaf shows which of the risk factors, explained above, each of the HSBC World Selection Portfolios is exposed to. Low absolute return The risk that the performance of 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.

7 7 Stock Market Inflation Diversification Low absolute return Interest rate Exchange rate Annuity rate HSBC Pension World Selection Portfolio Cautious The portfolio predominantly invests in funds that in turn invest in bonds, gilts and money market instruments and performance is therefore less affected by changes in global stock market levels. HSBC Pension World Selection Portfolio Balanced HSBC Pension World Selection Portfolio Dynamic Both portfolios mainly invest in funds that in turn invest in shares, and performance will be affected by changes in global stock market levels. Shares typically represent a higher risk investment than other stock market investments such as fixed interest. The real value of an investment in each of the portfolios will be reduced by future rates of inflation. Funds that invest in money market instruments and bonds have a lower risk of capital loss, but a lower expectation of future growth and therefore are most likely to be affected by future rates of inflation. The portfolio aims to manage risks through a diversified investments approach and predominantly invests in funds that in turn invest in bonds, gilts and money market instruments, with some diversification in other assets classes. The risk of capital loss is expected to be lower than a fund that invests in a single asset sector. But this is not guaranteed. The portfolio predominantly invests in funds that in turn invest in fixed interest and money market instruments and there is a risk the returns from these will be less than the charges applied to this portfolio. The portfolio has a significant allocation to funds that in turn invest in bonds and gilts and the performance will be affected by changes in interest rates. These portfolios aim to manage risk through a diversified investment approach but there remains a risk of capital loss given the predominant investment in shares, although this is expected to be less than a fund that invests exclusively in one asset sector. But this is not guaranteed. Both portfolios mainly invest in funds that in turn invest in shares, and performance will be affected by changes in global stock market levels. Shares typically represent a higher risk investment than other stock market investments such as fixed interest. Both portfolios have a small allocation to funds that in turn invest in bonds and gilts and so changes to interest rates will have a minimal impact on performance. Each portfolio invests in funds that in turn hold both UK and overseas investments and performance will therefore be affected by fluctuations 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. Although, some investment may potentially increase in value to at least in part offset this impart. 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 go down as well as up and you may get back less than the amount you originally invested. 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 HSBC World Selection Portfolio Factsheets which contains this information. Past performance is not a reliable indicator of future returns. The value of investments in the HSBC World Selection Portfolios can fall as well as rise and you may not get back what you invested.

8 8 Important Notes Switching and redirection You may change the funds in which your pension investment is currently invested and/or redirect future contributions to new funds. We make no charge for switching or redirecting future contributions between funds. If you wish to switch or redirect your future contributions into your existing portfolio this can be done online via personal internet banking or alternatively, you can write to us with your switching or redirection instructions or give our Pension Helpdesk a call; and they will take them. Please refer to further information below. How much should I invest? The amount you can invest will depend on your personal circumstances and HM Revenue & Customs allowances. You can use HSBC s online Planning your Retirement 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 the HSBC World Selection 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. HSBC Life (UK) Limited provides the World Selection Personal Pension. HSBC Global Asset Management (UK) Limited provides the HSBC World Selection Portfolios.

9 9 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. It also requires close monitoring from the fund manager. In the case of the World Selection Portfolios the fund manager takes an active management approach which aims to maximise performance without highly volatile returns. Additional Charges There are other expenses borne by the portfolios to cover the costs such as depositary, registrars and auditors fees and dealing costs. In addition you should be aware that each of the HSBC World Selection Portfolios invests primarily in other collective investment schemes. The managers of these schemes also make Annual Management Charges. Where relevant, we have negotiated reduced Annual Management Charges for all the funds we select for the HSBC World Selection Portfolios. These underlying Annual Management Charges are included in the other expenses for the HSBC World Selection Portfolios. 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. In the case of the HSBC World Selection Personal Pension, the AMC is 1.25%. 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 may be 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 World Selection Portfolios is a type of pooled 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. Commodities Commodities are raw materials such as food, grains, and metals, which a fund manager is able to buy or sell, usually through futures contracts which are agreements to buy or sell at an agreed upon price on a specific date. The price of a commodity is subject to supply and demand. Commerical 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.

10 10 Deposit A certificate of deposit entitling the 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. Derivatives Unlike stocks and bonds, a derivative is usually a contract rather than an asset. It is a promise to convey ownership of the asset, rather than the asset itself. Futures and options are two commonly traded types of derivatives. An options contract gives the owner the right to buy or sell an asset at a set price on or before a given date. On the other hand, the owner of a futures contract is obligated to buy or sell the asset. 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. Dividend A financial distribution made by a company to its shareholders, often in the form of cash. Whether a company pays a dividend and the size of the payment is usually determined by the size of the company s profits. Equities/Shares A share is a stake in the company that has issued it. Equities is another name for shares. The value of the shares will depend on 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 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. Floating Rate Notes (FRN) A debt instrument with a variable interest rate. Mainly issued by financial instiutuions and governement, that typically have a two to five year term to maturity. 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. 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. The HSBC World Selection Portfolios are managed on a fund of funds basis. 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) is paid back at a specified date. Gilts are loans to the UK government. 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). 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.

11 11 Money Market Instruments A term that includes various instruments, such as deposits, commercial paper and floating rate notes (FRN). 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. Portfolio Whereas a fund typically invests in shares, bonds and money market instruments, the HSBC World Selection Portfolios invest in a range of funds selected by the fund manager. Real terms Real value removes the effects of general price level changes over time. The effect of inflation is the biggest factor in expressing a real value. For example, inflationary effects will mean that in real terms 1 today will be worth less, and have a lower purchasing power in the future. Tracker Funds An Index Tracker 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. 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, then generally the greater the investment risk. Security/Securities A term used to describe stocks, shares and bonds. Stock Market A place where stocks and shares are bought and sold, for instance the London Stock Exchange. Total Ongoing Charge 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.

12 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. Our firm reference number is You can check this on the Financial Services Register by visiting the Financial Conduct Authority website or by contacting the Financial Conduct Authority on HSBC Life (UK) Ltd 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. This document has been printed on paper made from responsibly-managed forests. hsbc.co.uk Issued by HSBC Life (UK) Limited Customer Service Centre: PO Box 6176, Coventry CV3 9HN Printed by St Ives Management Services Ltd MCP /14 HSBC Life (UK) Limited All Rights Reserved. AC14478