November Meeting your income goals in retirement INVESTMENTS

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1 November 2018 Meeting your income goals in retirement INVESTMENTS

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3 3 Contents This guide is designed to help you understand what options are available in retirement and how you can generate the income you need for the future. The income challenge 4 Bringing your savings to life 6 How have pensions changed? 9 Investing for income 10 Targeting a natural income 12 Investing in funds for income 14 What can M&G offer? 17

4 4 Meeting your income goals in retirement Meeting your income goals in retirement Whatever your aspirations for life after work, the key is having the income to bring them to life. When it comes to retirement, a key priority is working out how much income you can take today that will leave you enough for tomorrow. However long your money needs to last, it could well be longer than you think. So it s important to be aware of the options available to you and the important factors to consider when making your financial plans. After all, how would you feel about running out of money in your retirement? With traditional income streams in retirement being squeezed, however, this could make it harder than you might have thought to generate the income you desire or need even with a healthy pot of hard-earned savings behind you. The route you take will be unique to your goals and needs, but investing some or more of your savings could help you pursue your goals in retirement whether that might be travelling, hobbies, or simply living in greater comfort or with more security. By targeting a sustainable income, you can look to enjoy the income that investments can generate while leaving them intact, without having to compromise your financial future. The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested.

5 5 Complicating things are a cocktail of factors: Interest rates are at historic lows The interest paid on cash savings in bank and building societies remains near record lows, meaning you need a larger pot to provide an income. Inflation matters Savings and income need to rise by at least as much as shop prices and bills to protect your standard of living. State pensions are later, and limited Not only is the qualifying age gradually being pushed up, but relying on this income alone to achieve a comfortable lifestyle is probably unrealistic for many. Savings might have to last longer UK life expectancy continues to rise, with men and women aged 65 expected to live for a further 18½ and 21 years respectively, increasing the risk that you could outlive your savings.

6 6 Meeting your income goals in retirement Bringing your savings to life

7 7 Where are you now? After decades of putting away money for your future, it is very common to have savings in a number of places. It is quite possible that you not only have pension schemes perhaps from previous employers or ones you have set up yourself but also different types. While some, mainly older-style, employer pensions offer defined benefits, entitling you to a fixed income for as long as your retirement lasts, most private and recent company pensions do not. Instead, when you come to retire you can access the pot into which you (and potentially your employer) have contributed. What are your options? You can choose what to do with this money, as well as any other savings and investments that you have built up for your retirement, of course. One option is to buy an annuity. In exchange for handing over some or all of your pension pot, you receive a guaranteed cash income for life or a number of years. While annuities can provide a secure income for retirement, there is a risk that they may not provide good value, especially if your retirement is prematurely cut short. In the current climate of very low interest rates and yields on government bonds lower risk assets it can be challenging to generate the income that you might be aiming for from annuities.

8 8 Meeting your income goals in retirement The figures below illustrate the savings that you could need, in the current climate, to generate given incomes from indicative annuity products. i Amount needed to buy an annuity that will provide you with an income of iii 480,000 15,000 per year i iii Amount needed to buy an annuity that will provide you with an income of 1,120,000 35,000 per year Source: Hargreaves Lansdown/M&G, 3 October These calculations are based on the best available annuity rates available for a male aged 65, for a 50% joint life policy meaning that half of the income would be paid to a surviving spouse with a 3% escalation meaning the income would rise by 3% a year for the duration of the policy.

9 9 New pension freedoms Annuities could form part of your income solution, but they are not the only option. Depending on your circumstances, recent pension reforms mean you now have more choice about how and when to access your pension savings and what you can do with them. One other option is called drawdown this is where you draw on the money you have saved when you choose to. It could be worth exploring how you could make the most of freedoms that can allow you to access your pension pot from the age of 55 including up to 25% tax-free. Income you draw from pensions is normally taxed like any other income, so taking a tax-free lump sum could make financial sense, depending on your circumstances.

10 10 Meeting your income goals in retirement How have pensions changed? Responsibility for ensuring that workers have enough income in retirement has gradually shifted from employers to the individual. Traditionally, most employee pensions offered defined benefits. This means that an employee would be paid an income in retirement according to their final or average salary, or their number of years working for the company. This entitlement would last for life. With people increasingly living longer in retirement, however, many such schemes have been phased out by companies because they have proved too expensive. In their place are defined contribution schemes, where employees and employers both contribute regular amounts that are locked away and invested until they reach 55 or retire.

11 11 Instead of being guaranteed an income in retirement, savers will gain access to their pot of savings the size of which will depend on how much they have saved, and how well their investments have performed, until that point. This presents both challenges and opportunities. Although defined contribution pension schemes come without guarantees, pensions should play an important part in everyone s long-term financial planning for a number of reasons. These include making the most of any contributions that your employer might make, and the fact that money is securely tied up for your future. Uniquely, your contributions are also tax-free on the way in, up to certain limits, making it a very efficient way to save. Pensions can be a highly complex and technical subject, not least because of changes to rules over the years. Any decisions regarding investments or pension savings are important and you should be aware of all your options. We are unable to give financial advice. If you are unsure about the suitability of your investment, you should speak to a financial adviser who will be able to provide regulated advice. If you don t already have a financial adviser, you can visit a financial adviser search website such as or Alternatively, you should consult Pension Wise ( gov.uk) which is a free and impartial service designed to help you understand your retirement options.

12 12 Meeting your income goals in retirement Investing for income Whether or not you are looking to complement guaranteed income from defined benefit pensions, an annuity, or indeed from the state pension, your other retirement savings can be put to work to pursue your goals. After all, any fixed retirement incomes may not be enough to meet your ambitions and priorities for life after work. What matters, of course, is having enough income from your combined sources. Investing can play a valuable role at this stage in your life, especially if you are considering drawdown as part of your income solution. As you were building your savings ahead of retirement, you were likely investing to accumulate wealth in other words, looking to grow your money over the long term. Your priorities may have shifted for the next chapter in your life, but there are a range of investments that aim to deliver a regular income but not at the expense of your capital, provided you can accept some level of risk.

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14 14 Meeting your income goals in retirement Certain investments including company shares, property and bonds (where your money is effectively lent to governments or companies) can help deliver an income that: rises and falls in line with inflation, to help protect their value from being eroded by higher prices can grow over time is paid regularly annually, semi-annually, quarterly or even monthly By keeping control of your investment pot, you can be flexible in how much income you draw from your savings, and when, to match your spending and needs. This could allow you to realise any expensive goals, perhaps in the earlier stages of retirement. It also gives you the flexibility to tap your savings when you need to, perhaps to cover any unexpected costs, like healthcare or treatment, down the road. The value of investments and the income from them will fluctuate. This will cause the fund price to fall as well as rise. There is no guarantee the fund objective will be achieved and you may not get back the original amount you invested.

15 15 Targeting a natural income One approach to investing in retirement is to generate a natural income from your savings. This is where you might look to take the natural income that your investments produce while leaving your pot intact for the future. This could mitigate the risk of outliving your savings and running out of money. Over time, the value of the underlying investments within your portfolio could also rise if they perform well. Growth in the value of your investment pot reduces the risk that the value of your savings could be eroded by the effect of inflation. So long as your pot rises by at least as much as prices do, your savings will importantly retain their real value. It is possible that income from your investments could also rise over time if they perform well. Conversely, if they perform poorly, your investment income could also fall. Even though your investments might underperform, you retain the flexibility to reallocate your pot at any point.

16 16 Meeting your income goals in retirement Investing for income in retirement* Cumulative Total Return Natural income Portfolio capital value Accumulation phase Retirement phase Source: M&G, *for illustrative purposes only. This chart illustrates the effect of moving to an income investing strategy, perhaps on entering retirement, on your total returns from investing being the combination of capital growth and income. If you choose to target an income from your investments, the focus switches away from achieving capital growth the focus of the accumulation phase although your portfolio should continue to grow in value if your investments perform well. Instead, a greater share of your total returns from investing will be taken in the form of income, although this too can rise and fall with the performance of your investments.

17 17 Investing for a natural income could be an attractive approach if you would like to: Keep your pension savings invested but want to enjoy retirement today Preserve the value of your savings pot to potentially cover unexpected large one-off costs Benefit from rising asset values if your investments perform well Pass on some of your life savings to younger generations Keep flexibility in how and when you draw upon your savings pot In general, investment products that offer a higher prospective rate of return generally come with a trade-off of enduring a greater level of risk. So it s important to recognise your time horizon and willingness to accept fluctuations in the value of your investment. It s also worth remembering that income from investing can never be guaranteed and you could lose some or all of the money you invest. You should remember that up to 85,000 of your money is secure in a bank or building society through the Financial Services Compensation Scheme, unlike stocks and shares or fixed interest investments which are less secure.

18 18 Meeting your income goals in retirement Investing in funds for income Professionally managed funds which combine a range of assets into a single investment will aim to achieve a specific objective that could resonate closely with your own personal investment goals. This objective could be to deliver a regular or even a rising income to their investors. Fund managers will aim to achieve their objective over a given period by actively selecting and managing a combination of assets on behalf of you and many other investors. Each fund will have its own characteristics and a distinct risk and return profile. Some funds target a higher income than others, but this will often be accompanied by a greater chance that the actual income they deliver is volatile or, in other words, fluctuates up and down from year to year. Such investments may therefore be less reliable sources of income than those that aim for a lower, more reliable income.

19 19 Likewise, some funds place a higher priority than others on keeping any capital losses to a minimum in other words, they aim to preserve the value of their investments. When funds generate income from their investments, that income will be paid out to you on a regular basis say quarterly or twice a year, depending on the fund if you choose to own income shares. The alternative is to reinvest it to generate further income and capital growth. Please keep in mind that the value of investments and the income from them will fluctuate, which will cause fund prices to fall as well as rise. There is no guarantee any fund objective will be achieved and you may not get back the original amount you invested.

20 20 Meeting your income goals in retirement About us When it comes to managing money, you re in experienced hands with M&G. From launching the UK s first unit trust for private investors in 1931, M&G has grown to become one of the largest investment managers in Europe, with over 285 billion of funds under management (as at 30 June 2018). We retain our belief that an active approach to investing can deliver strong performance over the long term. Our experienced and talented investment experts can follow their own original thinking and convictions, rather than the crowd. Whatever your investment goals, we re confident that the wide range of M&G funds should hold options that can help you realise your financial ambitions. It is important that any investments are suitable for your goals and circumstances. To see our full range, you can visit or ask a financial adviser. Before considering investment in any fund, please ensure you have read an up-to-date version of the Key Investor Information Document (KIID), which has a summary of the main risks relating to each fund.

21 21 What can M&G offer? If you want to invest to target a sustainable income, we have a number of funds that are designed to offer the prospect of a regular income distribution that could grow over the years. Here we have highlighted four M&G funds that you could consider. We hope they give you food for thought as you weigh up your investment options. However, please bear in mind that these funds are not a recommendation or advice, and you should consider if they fit your personal circumstances. It is important that any investments are suitable for your goals and circumstances. To see our full range, you can visit Before considering investment in any fund, please ensure you have read an up-to-date version of the Key Investor Information Document (KIID), which has a summary of the main risks relating to each fund. We would like to remind you that we are unable to give financial advice. If you are unsure about the suitability of an investment, please speak to a financial adviser. The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested.

22 22 Meeting your income goals in retirement M&G Episode Income Fund This fund aims to: Multi-Asset Income: Monthly Generate a growing level of income over any three-year period by investing in a mix of income-generating assets from anywhere in the world. Provide capital growth of 2% to 4% on average each year over any three-year period. There is no guarantee, however, that it will achieve its objective over this, or any other, period. Fund manager Steven Andrew has a flexible investment approach with the freedom to invest in different types of assets including company shares, bonds, currencies and property (the latter only through other funds) in response to changes in economic conditions and the valuation of assets, and to manage risks. Changes in currency exchange rates will affect the value of your investment. This fund allows for the extensive use of derivatives. The fund may use derivatives with the aim of profiting from a rise or a fall in the value of an asset (for example, a company s bonds). However, if the asset s value varies in a different manner, the fund may incur a loss. The value of investments and the income from them will fluctuate. This will cause the fund price to fall as well as rise. There is no guarantee the fund objective will be achieved and you may not get back the original amount you invested.

23 23 M&G Episode Income Fund* Investor returns on 10,000 five years on 14,000 13,000 12,000 Total income 1,972 11,000 10,000 Capital value 11,372 9, Mar Mar Mar Mar Mar Capital Value Cumulative Income Source: Morningstar, 8 October Sterling A class shares, returns calculated on a price-to-price basis,with income distributions paid monthly. Past performance is not a guide to future performance. Single year performance (5 years ending tember 2018) From: To: Sterling A Inc 2.4% 11.9% 10.9% -1.0% 8.5% Source: Morningstar, 8 October Total returns calculated on a price to price basis with income reinvested. * While each fund aims to achieve its objective in any market conditions, there is no guarantee that the fund will achieve a positive return over any period. Investors may not get back the amount they originally invested.

24 24 Meeting your income goals in retirement M&G Global Dividend Fund This fund aims to: Equities Income: Quarterly Deliver an increasing income stream every year by investing in the shares of companies from anywhere in the world. Deliver a dividend yield above that available from the MSCI All Country World Index over any five-year period. Deliver higher combined income and capital growth than the MSCI All Country World Index over any five-year period. Fund manager Stuart Rhodes focuses on companies with the potential to pay rising levels of cash out to their shareholders over time, in the form of a growing dividend. Stuart invests in companies with different drivers of dividend growth, across a range of countries, sectors and company sizes. Changes in currency exchange rates will affect the value of your investment. The fund invests mainly in company shares and is therefore likely to experience larger price fluctuations than funds that invest in bonds and/or cash. The value of investments and the income from them will fluctuate. This will cause the fund price to fall as well as rise. There is no guarantee the fund objective will be achieved and you may not get back the original amount you invested.

25 25 M&G Global Dividend Fund* Investor returns on 10,000 five years on 16,000 15,000 14,000 Total income 1,739 13,000 12,000 11,000 10,000 Capital value 14,108 9,000 8, Mar Mar Mar Mar Mar Capital Value Cumulative Income Source: Morningstar, 8 October Sterling A class shares, returns calculated on a price-to-price basis with income distributions paid quarterly (January, April, July, October). Past performance is not a guide to future performance. The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested. Single year performance (5 years ending tember 2018) From: To: Sterling A Inc 13.9% 14.4% 35.1% -12.9% 7.7% MSCI All Country World Index 7.3% 16.2% 28.7% 3.0% 10.1% Source: Morningstar, 8 October Total returns calculated on a price to price basis with income reinvested. * While each fund aims to achieve its objective in any market conditions, there is no guarantee that the fund will achieve a positive return over any period. Investors may not get back the amount they originally invested.

26 26 Meeting your income goals in retirement M&G Optimal Income Fund This fund aims to: Fixed Income Income: Biannual Deliver income and capital growth from investing strategically in bonds. Richard Woolnough, who has managed the fund since its launch in 2006, has great flexibility to react to the opportunities and challenges that bond markets present. Richard can not only invest globally across fixed income assets from government bonds to high yield corporate bonds, which are deemed to carry greater investment risk but also invest up to one-fifth of the fund in company shares if he believes they offer better value than bonds on a case-by-case basis. This fund allows for the extensive use of derivatives. The value of investments and the income from them will fluctuate. This will cause the fund price to fall as well as rise. There is no guarantee the fund objective will be achieved and you may not get back the original amount you invested.

27 27 M&G Optimal Income Fund* Investor returns on 10,000 five years on 13,000 12,000 11,000 Total income 1,176 10,000 Capital value 10,602 9, Mar Mar Mar Mar Mar Capital Value Cumulative Income Source: Morningstar, 8 October Sterling A class shares, returns calculated on a price-to-price basis with income distributions paid biannually (April, October). Past performance is not a guide to future performance. Single year performance (5 years ending tember 2018) From: To: Sterling A Inc -0.3% 6.6% 6.2% -1.1% 6.3% Source: Morningstar, 8 October Total returns calculated on a price to price basis with income reinvested. * While each fund aims to achieve its objective in any market conditions, there is no guarantee that either fund will achieve a positive return over any period. Investors may not get back the amount they originally invested.

28 28 Meeting your income goals in retirement M&G Global Listed Infrastructure Fund This fund aims to: Equities Income: Quarterly Provide total returns (combined capital growth and income) that are higher than the MSCI All Country World Index, net of ongoing charges, over any five-year period. Deliver an increasing income stream every year in sterling terms. Fund manager Alex Araujo looks to invest in share of companies that can generate stable and growing incomes from critical physical infrastructure long-term assets which are essential for the functioning of global society. Alex aims to provide diversity by investing beyond the traditional realm of economic infrastructure (utilities, energy and transport) to build a fund that has the potential to cope in a variety of market conditions. The fund invests mainly in company shares and is therefore likely to experience larger price fluctuations than funds that invest in bonds and/or cash. The value of investments and the income from them will fluctuate. This will cause the fund price to fall as well as rise. There is no guarantee the fund objective will be achieved and you may not get back the original amount you invested. While each fund aims to achieve its objective in any market conditions, there is no guarantee that either fund will achieve a positive return over any period. Investors may not get back the amount they originally invested.

29 29 The M&G Global Listed Infrastructure Fund was only launched on 5 October 2017, so its five-year performance cannot be presented as for the above funds. The fund s performance in its first year, to 5 October 2018, is included below. M&G Global Listed Infrastructure Fund* Single year performance since launch (to 5 October 2018) From: To: Sterling A Inc 3.0% N/A N/A N/A N/A MSCI All Country World Index 7.3% 16.2% 28.7% 3.0% 10.1% Source: Bloomberg, 5 November Total returns calculated on a price to price basis with income reinvested. * While each fund aims to achieve its objective in any market conditions, there is no guarantee that either fund will achieve a positive return over any period. Investors may not get back the amount they originally invested. Past performance is not a guide to future performance.

30 30 Meeting your income goals in retirement Glossary Asset Anything having commercial or exchange value that is owned by a business, institution or individual. Bond A loan in the form of a security, usually issued by a government or company, which normally pays a fixed rate of interest over a given time period, at the end of which the initial amount borrowed is repaid. Capital Refers to the financial assets, or resources, that a company has to fund its business operations. Capital growth Occurs when the current value of an investment is greater than the initial amount invested. Corporate bonds Fixed income securities issued by a company. They are also known as bonds and can offer higher interest payments than bonds issued by governments as they are often considered more risky. Derivatives Financial instruments whose value, and price, are dependent on one or more underlying assets. Derivatives can be used to gain exposure to, or to help protect against, expected changes in the value of the underlying investments. Derivatives may be traded on a regulated exchange or traded over the counter.

31 31 Distribution Distributions represent a share in the net income of the fund and are paid out to income shareholders or reinvested for accumulation shareholders at set times of the year (monthly, quarterly, half-yearly or annually). They may either be in the form of interest distributions or dividend distributions. Dividend Dividends represent a share in the profits of a company and are paid out to the company s shareholders at set times of the year. Equities Shares of ownership in a company. Government bonds Fixed income securities issued by governments, that normally pay a fixed rate of interest over a given time period, at the end of which the initial investment is repaid. High yield bonds Fixed income securities issued by companies with a low credit rating from a recognised credit rating agency. They are considered to be at higher risk of default than better quality, ie higher-rated fixed income securities but have the potential for higher rewards. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security s life. Income shares A type of share where distributions are paid out as cash on the payment date.

32 32 Meeting your income goals in retirement Inflation The rate of increase in the cost of living. Inflation is usually quoted as an annual percentage, comparing the average price this month with the same month a year earlier. Risk The chance that an investment s return will be different to what is expected. Risk includes the possibility of losing some or all of the original investment. Total return The term for the gain or loss derived from an investment over a particular period. Total return includes income (in the form of interest or dividend payments) and capital gains. Valuation The worth of an asset or company based on its current price. Volatile When the value of a particular share, market or sector swings up and down fairly frequently and/or significantly, it is considered volatile. Yield This refers to either the interest received from a fixed income security or to the dividends received from a share. It is usually expressed as a percentage based on the investment s costs, its current market value or its face value. Dividends represent a share in the profits of a company and are paid out to the company s shareholders at set times of the year.

33 Find out how we can help you reach your income goals. Visit today. We are unable to give you financial advice. If you are unsure about the suitability of your investment, please speak to a financial adviser. The value of investments and the income from them will fluctuate. This will cause the fund price to fall as well as rise. There is no guarantee the fund objective will be achieved and you may not get back the original amount you invested. The views expressed in this document should not be taken as a recommendation, advice or forecast. INVESTMENTS This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides investment products. The registered office is Laurence Pountney Hill, London EC4R 0HH. Registered in England No OCT 18 / W314813