BASF UK Group Pension Scheme. Your member guide. investing to build. your pension. January 2014

Transcription

1 Booklet 3 BASF UK Group Pension Scheme Your member guide investing to build your pension January 2014

2 Inside this guide Investing your DC Account 3 How investments work Types of investments 4 Risk 6 What you need to consider The decision process 8 Check your attitude to risk 10 Which investment path LifePlan or FreePlan? You choose 12 How LifePlan works 14 How FreePlan works 18 Managing your investments 20 Some terms you should know 23 Details of how the Scheme benefi ts are calculated and paid are set out in the Trust Deed and Rules, which take precedence over this guide. See also booklet 2, pages 16 and 17 for more about the Scheme. 2 2

3 Investing your DC Account The contributions that are paid into the Scheme on your behalf go into a DC Account set up in your name and the money in this DC Account is then invested. The Trustee has chosen to use Zurich s investment platform to make investment funds available to members. Investing for your retirement takes special consideration. Making the right choices is important because the better your investments perform, the more money will be available in your DC Account to provide your benefi ts when you retire. Because this is such an important decision and possibly one you have not had to make before, we have produced this booklet to help you understand: How investments work What you need to consider when choosing how to invest your DC Account Once you ve made a choice, how you can manage your investments in the future New to investments? Throughout this guide you will see words and phrases in italics. These special investment terms are explained in clear and simple language on page 23. Note: By law, no company within the BASF Group, nor the Trustee, nor Zurich, nor the Administrator, nor its employees, can give you specifi c investment advice. You should not take any information or explanation that they give you as such. If you would like fi nancial advice, you should speak to an independent fi nancial adviser (IFA). You should bear in mind that an IFA may charge for any advice given. You can obtain details of a local IFA at 3 3

4 How investments work Types of investments There are many different types of investments (or asset classes ) available to investors. The main ones used in the DC Section of the Scheme are equities, diversifi ed growth funds, bonds and gilts, and cash. These are explained below. Your DC Account is invested in units in pooled investment funds which in turn invest in the main asset classes, depending on the investment path you choose. The number of units you purchase will depend on the price of the units on the day that the units are allocated to your DC Account. Asset class What are they? How do they work? Equities Diversified growth funds Company shares owning a stake in the company issuing the shares. The company could be based in the UK or overseas. We also refer to developed market or emerging market equities. Developed markets refer to countries with a well-developed economy, judged on its size and income, (e.g. UK, US, Australia, Germany), whereas emerging markets refer to countries in the process of rapid growth (e.g. Brazil, China, India). Developed markets are often considered to be less risky than emerging markets. Because of their expected growth, emerging markets can offer the potential for good returns but with more risk. A wide range of different types of assets, which might include equities, property, infrastructure (e.g. roads and other transportation networks), bonds and cash. The amount invested in the different assets tends to change over time depending on the investment manager and their views at any point in time. Investment managers are responsible for managing the funds. The investment fund buys shares in a company. Investment returns are received in two ways: Dividends may be paid when a company makes a profi t (a share of profi ts); and Capital growth company shares are traded and prices can rise (or fall) for a number of reasons. For example, they could rise due to an improved outlook for the performance of a business. The investment fund buys a wide range of different types of assets and investment returns are received depending on the asset e.g. dividends for equities, interest stream for bonds (as described above and below). Bonds and gilts There are two main types: Corporate bonds issued by companies usually to fi nance or grow the business; and Government bonds issued by governments to raise capital. Those issued by the UK Government are called gilts. The investment fund buys bonds or gilts, which are effectively loans that promise to pay back the original money loaned on a specifi c date. Investment returns are received in two ways: Interest stream a rate of interest is paid until a specifi ed date when the loan is repaid. Interest can be at a fi xed rate or linked to infl ation (index-linked); and Capital growth bonds and gilts are traded and prices can rise (or fall) for a number of reasons, principally in response to changing interest rates and supply and demand. Cash Cash typically means deposit accounts in a bank or building society, or short-term loans. The investment fund invests in cash deposits and short term loans. Investment returns are received through interest payments on the capital invested. 4

5 What does this mean for you? You may want to refer back to this section when deciding which investment fund(s) to invest in. All of the funds available in the Scheme invest in the main asset classes in various ways. Remember, your DC Account is usually a long-term investment, and you should consider the longer-term view. You must bear in mind that the value of your investments may go down as well as up, and your eventual retirement benefi ts can only be confi rmed when you actually retire. Risk profile Pros Cons May be suitable for... The share price of a company can fl uctuate for a number of reasons, such as good or poor performance, market conditions or investor views. Consequently, equities are higher risk than cash or bonds but over the long term (more than years) should offer greater potential for growth. Potential for higher returns over long term. Provide income through dividend payments. Provide potential for capital growth. Higher risk profi le. Can be volatile and value can fl uctuate. No capital guarantee value can go down. Protection against long-term infl ation risk see page 6. Expected to be lower risk than equities while still receiving returns similar to those from equities over the long term. Investing in a wide range of different types of assets generally reduces investment risk. Potential for higher returns over long term. Provide access to a wide range of different types of assets through one fund. Reduce expected risk by investing in a wide range of different types of assets. Provide income in a number of ways. Provide potential for capital growth. Medium/high risk profi le. Can be volatile and value can fl uctuate. No capital guarantee value can go down. Can be more expensive than other asset classes because these funds tend to include some active management (see page 21). May not perform as well as equities over the short term. Protection against long-term infl ation risk see page 6. Expected to be lower risk than equities. Bond and gilt funds can fl uctuate in value but these changes should not be as sharp as equities and importantly, generally move broadly in line with the cost of buying a pension (this is also known as an annuity). Typically, corporate bonds are not as secure as gilts, because there is an increased risk that the company receiving the loan defaults. Consequently, corporate bonds tend to offer a higher yield (i.e. percentage return) to compensate for this additional risk. Fixed level of income or linked to infl ation. Lower risk profi le. Normally return of original capital if held to maturity. Some scope for capital growth. Price of annuities is linked to bonds, so investing in bonds (or gilts) can help to protect your DC Account against changes in the cost of buying an annuity as you approach retirement. Lower expected returns. Value can fl uctuate. Risk of default some/all original capital not repaid on maturity, and/or default on interest payments. Protection against pension conversion risk see page 6. Cash funds do not normally fall in value but the rate of interest you earn can vary and may not keep up with infl ation over the long term. Low risk profi le. High level of capital security. Low returns. Can be eroded by infl ation. Protection against investment risk (short term) see page 6. 5

6 How investments work Risk Before we explain your investment options in the Scheme, you need to understand risk. What are the different types of risk and how do you, as an investor, feel about risk? Types of risk There are three types of risk you need to consider: 1. Investment risk The value of an investment can rise and fall. s with a low investment risk are usually more stable, but they may not grow over the long term as fast as some of the other funds. They may be more suitable if you are close to retirement, but are likely to be less appropriate if you are investing your DC Account for a long time and you are looking for the best growth potential. s with a higher investment risk are likely to go up and down in value, but they usually offer the greatest potential for growth in the long term. An additional aspect to consider is that where funds make investments in overseas markets, the value of these investments is affected by changes in currency exchange rates. Some of the investment funds available take steps (known as currency hedging) to manage this risk. The fund factsheets confi rm where currency hedging is used. 2. Inflation risk This risk applies to investments that do not grow enough to keep up with increases in the cost of living. This could happen, for instance, with a cash fund, which may only grow gradually at a rate lower than infl ation over the long term. 3. Pension conversion risk When you retire, some or all of your DC Account will usually be used to buy you a pension (also called an annuity). How much annual pension this provides depends on annuity rates, which vary depending on market conditions and other factors. This means that the value of your DC Account may buy more or less pension, depending on annuity rates at the time you retire. Different asset classes and risk In terms of the three types of risk, the four main asset classes explained on pages 4 and 5 can be broadly categorised as follows: Asset class Inflation risk Investment risk Pension conversion risk Equities Medium High High Diversifi ed growth funds Medium Medium/High High Bonds/gilts where the rate of interest paid is fi xed (and not linked to infl ation) Bonds/gilts where the rate of interest paid is linked to infl ation High Medium Low/Medium Low Medium Low/Medium Cash Medium/High Low Medium Key High High exposure to this risk Medium Medium exposure to this risk Low Low exposure to this risk 6

7 Risk and why age matters There are no hard and fast rules when it comes to investing your DC Account, but the following guidelines may help. As you get nearer to retirement, the relative importance of each type of risk changes. As a general rule, the longer you have until retirement, the more investment risk you can tolerate. This is partly because you have time on your side to allow your DC Account to recover if it falls in value. In addition, you may be able to buy more units in an investment fund today than in say 10 years time, as the price may increase between now and then. If you are closer to retirement, you may want to be more cautious by avoiding investment funds that can change dramatically in value in a short period of time. However, the advantage of leaving your DC Account invested in higher risk investment funds is that you may benefi t from higher returns and therefore build up more money in your DC Account to buy benefi ts with. The disadvantage is that investment markets could fall in value as you approach retirement. When you are a long way from retirement (for example, more than 10 years)... If you choose an investment fund with higher investment risk, you may get the highest returns (although this can t be guaranteed). If your DC Account falls in value for a short while there is time for the value to rise again and so you may be happy to take more investment risk the younger you are. The point at which you change to safer investments depends on your attitude to the different types of risk. As you get nearer to retirement (for example, within 5-10 years)... If you are planning to buy an annuity, you may want to start protecting your DC Account from investment risk and also pension conversion risk. This may mean that you begin to switch your DC Account into assets which offer some protection against adverse annuity rate changes (pension conversion risk) and, as you get nearer to retirement, into assets which will protect against investment risk. However, you should remember these funds are more vulnerable to infl ation risk. If you are planning to use income drawdown instead of buying an annuity at retirement, you might not want to switch your DC Account in this way. You will need to consider how important each type of risk is to you (e.g. investment risk, pension conversion risk and infl ation risk) and what protection you want against these risks. It s important to take independent fi nancial advice if you re considering income drawdown, as your personal circumstances (such as how much and the type of pension savings you have) will affect the importance of each type of risk to you and the way you want to invest your DC Account. Setting a target pension date If you choose a LifePlan option, you ll need to select a target pension date which will determine when the switching period starts. If your retirement plans change, you should also change your target pension date so that the switching period doesn t start too early or too late leaving you exposed to the risks described above. See page 17 for more about choosing your target pension date. 7

8 What you need to consider The decision process You ll need to choose how to invest your DC Account and then keep this under regular review. The decision process shown below will help you to understand the key steps and which investment path might be best for you. Understand how investments work see page 4 Check your attitude to investment risk see page 10 Understand the different types of risk see page 6 8

9 If you re not comfortable making all the investment decisions and prefer an automated approach LifePlan Select from the three LifePlan options available see page 14 Select your target pension date see page 17 Read on to see the investment options available to you see page 12 Keep your investment choices under regular review If you want investment fl exibility and want to make your own investment decisions FreePlan Select from the seven investment funds available see page 18 Keep your investment choices under regular review 9

10 What you need to consider Check your attitude to investment risk When you are considering your investment options, you may want to complete the short quiz below, which will help you understand your attitude to investing and give you an idea about how you may want to invest your DC Account. Read each statement and then tick the box that best describes how you feel. If you agree strongly with statement A, tick box 1, but if you strongly agree with statement B, tick box 5. Tick box 2, 3 or 4 if you fall between the two statements. Statement A Your score Statement B I don t know anything about investment and have no interest in it I m quite knowledgeable about investment and am comfortable making investment choices. I want to protect my savings. I d be worried if they fall in value even for a short time I want to earn more on my savings. I am willing to take the risk that they may fall in value. I don t follow the stock market I follow the stock market and have a view on its prospects. I don t like investing in equities they re too risky I don t worry about short term falls in equity prices equities are a way of making money over time. If the stock market crashed, I d cut my losses, sell my equities and put the money in a building society If the stock market crashed, I d buy more equities at a lower price. Once I ve made my initial investment choices, I d prefer to forget about it I d like to be able to review my investment choices on a regular basis, and make changes as necessary. An investment with a steady but low return is more attractive than one which might fl uctuate a lot (even though the alternative might give higher returns) An investment with a steady but low return is less attractive to me than one which might fl uctuate a lot and which might give higher returns overall. If I had a choice between a guaranteed payment of 1,000 or a one-in-fi ve chance of a payment of 10,000, I d defi nitely take the 1, If I had a choice between a guaranteed payment of 1,000 or a one-in-fi ve chance of a payment of 10,000, I d defi nitely take the chance. I am very near to the date I want to retire (much less than 10 years away) I am well over 10 years away from my retirement date. Now add up your scores to get your total. Total: See opposite to fi nd out what your answers suggest about your attitude to investing this will give you an idea of how you may want to invest your DC Account. 10

11 What your risk score means 9 to 14 You re a very cautious investor and want to take as little risk as possible. You may want to consider investing more in bonds, gilts and cash and less in equities and diversifi ed growth funds. 15 to 22 You re a fairly cautious investor but prepared to take some moderate risk if it has little downside. 23 to 34 You re prepared to take moderate risk to get high rewards. You may want to consider investing more in diversifi ed growth funds as well as equities, and less in bonds, gilts and cash. 35 to 41 You re a little more adventurous and will accept high investment risk in return for the chance of higher rewards. 42 to 45 You re happy to be adventurous and take more investment risk to maximise growth. You may want to consider investing more in equities and less in diversifi ed growth funds, bonds, gilts and cash. If you are unlikely to keep your investment choices under regular review, then a LifePlan option may be more suitable for you see page 14. Remember You should keep your investment choices under regular review Return on Scheme investments is not guaranteed. Your DC Account value can go down as well as up. The risk scores shown are indicative and are for illustration purposes only. The Trustee cannot be held responsible for the consequences of any investment choices you make. By law, no company within the BASF Group, nor the Trustee, nor Zurich, nor the Administrator, nor its employees, can give you specifi c investment advice. You should not take any information or explanation that they give you as such. If you would like fi nancial advice, you should speak to an independent fi nancial adviser (IFA). See page 22 for details of how to fi nd an IFA. 11

12 What you need to consider Which investment path LifePlan or FreePlan? You choose There are two investment paths available for members with a DC Account: LifePlan and FreePlan. These are summarised below, with a more detailed description on pages 14 to 19. LifePlan FreePlan If you are not comfortable making all the investment choices and prefer an automated approach, then you may like to consider LifePlan. If you want investment flexibility and want to make your own investment choices, FreePlan may suit you. Under LifePlan, your DC Account is invested using a strategy set by the Trustee, which determines which fund or funds to invest in, depending on how far away you are from retirement. You will need to choose one of the three LifePlan options and a target pension date. These are explained on pages 14 to 17. The main objective of LifePlan is to ensure that the funds chosen carry an appropriate level of risk to refl ect your overall attitude to risk and the time you have left until you retire. Initially, each LifePlan option has medium to high investment risk, depending on which option you choose, and then gradually reduces your exposure to investment risk and pension conversion risk as your retirement draws nearer. If you choose this route, you will make your own investment choices. You can split the money in your DC Account between any of the funds available, or just use a single fund if you prefer. This means that you can tailor your investment choices to suit your personal circumstances and how much risk you are prepared to take. It also means that you will be responsible for deciding when, or if, you need to change how your DC Account is invested in the future. Whilst the investment strategy under LifePlan is set by the Trustee, you should select: Your LifePlan option (Adventurous, Moderate or Cautious); and Your target pension date. Remember the short quiz on page 10 may help you understand your attitude to risk to help you decide whether you want to invest in LifePlan or FreePlan. 12

13 Once you ve decided how to invest your DC Account, you should complete an investment form available on the pension website or from the Administrator (0) What if I don t choose between LifePlan or FreePlan? If you join the Scheme and don t make a choice, your DC Account will automatically be invested in the Moderate LifePlan (which has a 5 year switching period) with a target pension date of 65. You can change how your DC Account is invested see page 20. However, investing your DC Account is an important part of your pension planning; you should therefore try to decide which investment path is better for you: LifePlan or FreePlan. Pages 14 to 19 explain LifePlan and FreePlan in more detail. 13

14 What you need to consider How LifePlan works Under LifePlan, your investment funds are pre-determined and are based on your target pension date and the LifePlan option you choose. Your DC Account will be invested in up to three funds, in various proportions depending on how far you are from your target pension date. Each LifePlan option works in a different way and has different aims, as summarised in the table below. With LifePlan, initially your DC Account is invested in either the Adventurous, Moderate or Cautious, depending on the LifePlan option you choose. Each of these funds aim for growth but, as you will see below, they target different levels of growth in return for different levels of risk. The LifePlan options available are Adventurous, Moderate and Cautious LifePlan: used in initial investment stage Invests in Main aim and assets of fund May be suitable when Level of investment risk prior to switching period... Should protect against Switching period Adventurous LifePlan Adventurous To achieve high levels of capital growth over the long term, but with high levels of risk by investing predominately in equities, but has the potential to hold other growth assets. It is likely to deliver high levels of variability of returns, particularly in the short term. You are several years from retirement High Long-term infl ation risk 7 years Moderate LifePlan Moderate To achieve medium to high capital growth over the long term, with medium to high risk by accessing a diverse range of growth assets including equities as well as some potential allocation to bonds. You are several years from retirement Medium/High Long-term infl ation risk 5 years Cautious LifePlan Cautious To achieve low to medium capital growth over the long term with a medium level of risk by accessing a diverse range of assets including allocations to equities and bonds. You are several years from retirement Medium Long-term infl ation risk 5 years What is a switching period? The switching period determines how long before your target pension date your DC Account begins to switch from either the Adventurous, Moderate or Cautious to the Pre-Retirement and Sterling Liquidity. The switching period depends on the LifePlan option you choose (page 16). Why is a switching period used? To reduce investment risk: The value of equities and diversifi ed growth funds can go up and down, and the closer to retirement you leave your DC Account invested in these types of investments, the more signifi cant investment risk becomes. Switching to the Pre-Retirement and Sterling Liquidity reduces this risk. 14 To reduce pension conversion risk: The closer you are to your target pension date, any changes in the value of equities and diversifi ed growth funds may not be in line with the changing cost of buying an annuity pension conversion risk.

15 As you approach your target pension date, your DC Account and future contributions are gradually switched to the Pre-Retirement and then partially to the Sterling Liquidity, based on the switching period applicable to your LifePlan option. In the year leading up to your target pension date, your DC Account will be invested 75% in the Pre-Retirement and 25% in the Sterling Liquidity. (When you retire, the money in the Sterling Liquidity is usually taken as a cash lump sum, subject to certain limits). s used during the switching period All LifePlan options invest in... Main aim and assets of fund May be suitable when Level of investment risk... Should protect against Pre-Retirement To provide protection against changes in annuity pricing (pension conversion risk) by investing predominately in a mix of government and corporate bonds. You are nearing retirement Medium Pension conversion risk Sterling Liquidity To provide capital protection by investing in a wide range of cash and cash like investments to achieve a relatively stable return. You are very close to retirement Low Investment risk * The funds and how they are invested are kept under review by the Trustee and are subject to change. More detailed information on all investment funds, including the most up-to-date breakdown of how each fund is invested, the charges and investment style used (passive or active see page 21), can be found in the fund factsheets available on the pension website. If you do not have access to the internet, please contact the Administrator. What are the switching periods for the LifePlan options? The Adventurous LifePlan has a switching period of 7 years. The switching period is 5 years for the Moderate and Cautious LifePlan. The charts overleaf show how your DC Account would gradually switch before your target pension date. (In practice, switching will commence about nine months earlier than the applicable switching period.) Your DC Account is reviewed regularly (at least every quarter) and switched to ensure the investment proportions are correct. The switches are done automatically. Which LifePlan option is right for you? Turn over to read more. 15

16 What you need to consider How LifePlan works (continued) Which LifePlan option is right for you? Adventurous LifePlan You might choose the Adventurous LifePlan option if: You re a more optimistic investor. You re prepared to accept high investment risk and pension conversion risk quite close to retirement. The chart shows that your DC Account would still have a small proportion invested in the Adventurous two years before you retire. % of DC Account Adventurous Years to target pension date (TPD) Pre-Retirement TPD Sterling Liquidity Moderate LifePlan You might choose the Moderate LifePlan option if: You re a typical investor with an average attitude to risk. You re prepared to accept higher investment risk and pension conversion risk until you are closer to retirement. The chart shows that your DC Account would still have a small proportion invested in the Moderate two years before you retire. % of DC Account Moderate Years to target pension date (TPD) Pre-Retirement TPD Sterling Liquidity Cautious LifePlan You might choose the Cautious LifePlan option if: You re a more cautious investor. You want to reduce investment risk some time before retirement. The chart shows that your DC Account would still have a small proportion invested in the Cautious two years before you retire, but as a proportion of the Cautious is invested in bonds, not all of your DC Account will be exposed to higher risk investments close to your retirement. % of DC Account Cautious Years to target pension date (TPD) Pre-Retirement TPD Sterling Liquidity Keeping an eye on investments It s important to review your investment choices and your target pension date regularly to make sure that they are still suitable for your circumstances. You should do this at least annually when you receive your annual benefi t statement. You can also use epa to view your current investment choices see page

17 What you need to do if you choose LifePlan Although LifePlan is designed to manage your DC Account switches for you, you still need to make two decisions: Choosing your target pension date You can choose a target pension date between age 55 and Which of the three LifePlan options you want to invest your DC Account in depending on how much risk you want to take (see page 10); and When you think you may take your pension (your target pension date see right). Under LifePlan, new contributions and your DC Account balance are allocated to the appropriate funds automatically, based on this target pension date. However, you are not committed to retiring at this age and should keep your target pension date under regular review. You can change your target pension date at any time, but you must update it on epa or let the Administrator know by completing an investment changes form, available on the pension website or from the Administrator. If you don t make a choice, your DC Account will be invested in the Moderate LifePlan with a target pension date of 65. LifePlan and income drawdown If you are planning to use income drawdown instead of buying an annuity at retirement, you might not want to invest in LifePlan near to retirement. This is because of the automatic switching into assets that offer some protection against pension conversion risk that takes place, which might not be appropriate to you. See page 7 for more information on the risk you need to consider nearer to retirement and how this links to buying an annuity or income drawdown. Remember The earlier you retire, the lower your benefi ts will be. This is because fewer contributions will have been paid into your DC Account, your DC Account will have had less time to grow and your pension will be potentially paid for longer. If you would like an estimate of what your pension is likely to be, you can use the Planner on epa, at (log on to epa using your User ID and Password provided by the Administrator). 17

18 What you need to consider How FreePlan works FreePlan gives you full control over when and how you invest your DC Account. What are the fund options? You can choose to invest in one or more of the seven funds offered by the Scheme, in multiples of 10%. Each fund works in a different way and has different aims, as summarised in the following table. name Main aim and assets of fund May be suitable when Level of investment risk Should protect against Growth funds Adventurous * To achieve high levels of capital growth over the long term, but with high levels of risk by investing predominately in equities, but has the potential to hold other growth assets. It is likely to deliver high levels of variability of returns, particularly in the short term. You are several years from retirement High Long-term infl ation risk Moderate * To achieve medium to high capital growth over the long term, with medium to high risk by accessing a diverse range of growth assets including equities as well as some potential allocation to bonds. You are several years from retirement Medium/ High Long-term infl ation risk Cautious * To achieve low to medium capital growth over the long term with a medium level of risk by accessing a diverse range of assets including allocations to equities and bonds. You are several years from retirement Medium Long-term infl ation risk Ethical To achieve long-term growth via ethical investment in equities. The companies in which this fund invests are restricted to those which are socially responsible. You are several years from retirement High Long-term infl ation risk Amanah To achieve long-term growth via investment in equities. The companies in which this fund invests are restricted to those that satisfy Islamic investment principles. You are several years from retirement High Long-term infl ation risk Protection funds Pre- Retirement To provide protection against changes in annuity pricing (pension conversion risk) by investing predominately in a mix of government and corporate bonds. You are nearing retirement Medium Pension conversion risk Sterling Liquidity To provide capital protection by investing in a wide range of cash and cash like investments to achieve a relatively stable return. You are very close to retirement Low Investment risk * These funds are also available under LifePlan, but under FreePlan, they do not go through a switching process to move your DC Account into lower risk investments as you approach your target pension date. If you want an automated switching process, consider the LifePlan options on page 14. More detailed information on all investment funds, including the most up-to-date breakdown of how each fund is invested, the charges and investment management style used (passive or active see page 21), can be found in the fund factsheets available via the pension website. If you do not have access to the internet, please contact the Administrator. The funds and how they are invested are kept under review by the Trustee and are subject to change. 18

19 How do I decide on specific funds? There are three key factors you will need to consider when deciding how to invest your DC Account under FreePlan: 1. How many years you are from your target pension date; 2. How you feel about investment risk; and 3. Ensure you understand the details of the funds available by referring to the table opposite and the fund factsheets. How far are you from your intended retirement date? As you get nearer to retirement, the relative importance of the different types of risk will change. The following guidelines will help you to understand your investment options and plan for retirement: 1. When you are a long way from retirement: As well as aiming for good growth, you may also want to guard against infl ation risk. Therefore, you may consider investing in funds that are equity based or include diversifi ed growth funds. As your main objective is likely to be growth, investment risk may be less of an immediate concern. This is because if the value of your DC Account should fall in the short term, you still have the time to allow markets to recover again. Also, while you continue to invest after fund values have fallen, you have the scope to benefi t by purchasing more units in your chosen funds due to reduced unit prices. 2. As you approach retirement: Growth may still be important in deciding how you invest your DC Account, but you may also want to reduce the amount of investment risk and think about investing in lower risk investments, such as gilts and bonds which can also provide protection against pension conversion risk. The point at which you change to funds with a lower risk profi le will largely depend on your attitude towards the different types of risk. 3. When you are close to retirement: You may want to think about moving your DC Account to lower risk investments that protect against pension conversion risk and investment risk. You may also want to invest some of your DC Account in the Sterling Liquidity if you plan to take part of your DC Account as a cash lump sum at retirement. You may want to refer back to pages 4 and 5 when deciding which investment fund to invest in to remind yourself about the types of investments, and look at the LifePlan and FreePlan sections that explain the aims of the investment funds available. More detailed information on all investment funds can be found in the fund factsheets. How much risk are you willing to take? Risk means different things to different people, but most of us tend to think of risk in terms of the value of our investments going down. As explained on page 6, investment risk is only one of three types of risk that you need to think about when investing your DC Account. Your attitude to the different types of risk will affect how much of your DC Account you invest in the various funds at different stages of your membership. The table on page 18 shows the level of investment risk associated with each of the funds. The higher the investment risk, the higher the potential returns, but you must also be prepared for the value of your DC Account to go down as well as up. You will also need to think about infl ation risk and pension conversion risk (see page 6). Can I change my investment choice? Your investment needs may change from time to time, so you can change how your DC Account is invested, free of administration charges, up to four times a year. If you wish, you can switch funds more frequently, but the Scheme may make a charge for each additional switch. You can change your investments via the online epa service. Alternatively, investment change forms are available on the pension website or from the Administrator. FreePlan and income drawdown If you are planning to use income drawdown instead of buying an annuity at retirement, you might want to invest in FreePlan near to retirement. See page 7 for more information on the risk you need to consider nearer to retirement and how this links to buying an annuity or income drawdown. Keeping an eye on investments It s important to review your investment choices regularly to make sure that they are still suitable for your circumstances. You should do this at least annually when you receive your annual benefi t statement. You can also use epa to view your current investment choices see page

20 Managing your investments Once you ve made a choice, you should review your investment choices regularly to make sure that they are still suitable for your circumstances. Can I change how my DC Account is invested? Yes, you re not locked into your initial investment choice. Because your circumstances will change over time, you will probably want to change the way your DC Account is invested. You can change your investments via epa at Alternatively, investment change forms are available on the pension website or from the Administrator. If your DC Account is invested in LifePlan You can change your target pension date as often as you like, free of administration charges. You can switch to FreePlan or another LifePlan option. You can change how your DC Account is invested, free of administration charges, up to four times a year. You may be charged for each additional switch you make during the year, to cover administration costs. If your DC Account is invested in FreePlan You can switch to a LifePlan option or other FreePlan fund(s). You can change how your DC Account is invested, free of administration charges, up to four times a year. You may be charged for each additional switch you make during the year, to cover administration costs. Any changes you make would normally apply to future contributions as well as your existing DC Account balance. If you want to do something different to this, you should contact the Administrator who can give you more information on the options available. How can I monitor my investments? You can monitor your investments in the following ways: epa When you join the Scheme, you will be given further details on how to view your DC Account online using epa. The site contains details of contributions and your current DC Account value. You can view your investments and, if applicable, your target pension date. There is also a Planner on epa to help you with pension planning. Log on to (using your User ID and Password provided by the Administrator). Zurich website Information on specifi c investment funds is available on the Zurich website. The site contains historical unit prices, performance and the make-up of each fund. The site is available via epa or the pension website. Pension website fund factsheets Latest quarterly fund factsheets can be found on the pension website at along with a link to the Zurich website, the epa website and general information about the Scheme. The fund factsheets include detailed information on all investment funds, including the investment managers used, the most up-to-date breakdown of how each fund is invested and the charges. Administrator Towers Watson is the Administrator. You can call during offi ce hours on +44 (0) or at any time at basf@towerswatson.com. Personalised statement Each year, you will receive a benefi t statement showing the value of your DC Account, the funds in which your DC Account is currently invested and an estimate of what your DC Account might buy at age 65 or your target pension date. Switching statement You will receive confi rmation of any investment switches you make. 20

21 Are there any investment charges? Yes, the Trustee has negotiated special terms for members of the Scheme. These terms mean that you pay much lower investment charges than you would normally have to pay if you invested as an individual. There is an annual charge for each investment fund, which varies for the different funds and depends on the type of assets being invested in and the investment management style being used (see opposite). Typically, there is a higher fee for investing in actively managed funds because you are paying for the skill of the individual manager. The benefi t is that the manager is aiming for greater returns than you would usually receive through a passive management style. Details of the charges can be found in the fund factsheets. This is the only charge that members pay (other than the switching charges mentioned on page 20). Who manages the investment funds? The Trustee has chosen to use a number of different investment managers to manage the investment options. Using an investment platform (see opposite) makes this possible and also allows the Trustee to change these investment managers more easily for example, if there is an issue with performance. The Trustee monitors the performance of the Scheme s investment managers on your behalf and may make changes to the investment managers and/or the investment funds if it and its advisers think it necessary. How are the investment funds managed? There are two types of investment management style that investment managers can use: 1. Active management style By actively deciding which assets to buy and sell, the manager aims to achieve returns (the money earned on investments) above a particular benchmark. There is a risk that returns could be lower than the benchmark, as returns depend partly on the skill of the individual manager. Typically, there is a higher fee for investing in actively managed funds because you are paying for the skill of the individual manager. The benefi t is that the manager is aiming for greater returns than you would usually receive through a passive management style. 2. Passive management style Following a fi xed investment strategy that does not require a manager s judgement on which assets to buy, sell or hold on to. The manager invests in the same or similar investments as a particular market index. The manager s aim is to match the return gained by that index. For example, if 3% of the Financial Times (FTSE) All-Share Index is made up of BT shares, a UK equity index fund will hold a similar proportion of BT shares. Typically, there is a lower fee for investing in passively managed funds because there is less skill required on the part of the manager. The benefi t is lower charges. What is an investment platform? An investment platform allows the Trustee to access a wider range of investment funds without having to deal directly with multiple investment managers and allows the Trustee to manage these funds in a more fl exible way. What does Zurich do? Zurich has an investment platform, which the Trustee has chosen to use. There are other investment platforms available in the market, but Zurich s was the Trustee s preferred option after careful consideration and having taken appropriate advice. The Trustee tells Zurich what investment funds it wants to make available to members and Zurich handles all of the interaction with individual investment managers to do this. 21

22 Managing your investments What happens if I leave BASF before retirement? Your DC Account will continue to be invested in the way that you have chosen. If you are invested in a LifePlan option, switches will continue to be made for you based on your target pension date. You can still change how your DC Account is invested once you have left BASF, in the same way you do as an employee (via epa or by completing an investment change form see page 20). The switching charges do not change. What if I have a query about my pension? If you have a query about the Scheme or about your pension benefi ts, you can contact the Administrator: Tel: +44 (0) basf@towerswatson.com Towers Watson Ltd, PO Box 545, Redhill, RH1 1YX What if I want financial advice? By law, no company within the BASF Group, nor the Trustee, nor Zurich, nor the Administrator, nor its employees, can give you specifi c investment advice. You should not take any information or explanation that they give you as such. If you would like fi nancial advice, you should speak to an independent fi nancial adviser (IFA). You should bear in mind that an IFA may charge for any advice given. You can obtain details of a local IFA at The Money Advice Service is a free, independent service set up by the Government, which provides unbiased money advice. Visit or call What if I want more information about the funds? The Zurich website contains a range of information. From the site, you will be able to access information about the investment funds, as well as details of the past performance of the funds. (See How can I monitor my investments? on page 20.) Unit prices of all the funds are available on the Zurich website. The number of units you purchase will depend on the price of units on the day that the units are allocated to your DC Account. The price of units will vary over time, depending on how the funds underlying investments perform. Alternatively, you can get copies of the latest fund factsheets available from the Administrator or from the pension website. 22

23 Some terms you should know These pages explain some investment terms you are likely to come Active management style By actively deciding which assets to buy and sell, the manager aims to achieve returns (the money earned on investments) above a particular benchmark. There is a risk that returns could be lower than the benchmark, as returns depend partly on the skill of the individual manager. Administrator Towers Watson, the company that the Trustee has appointed to administer the Scheme see back page for contact details. Annuity A pension which guarantees an income for life, bought at retirement with the value of your DC Account. Bonds See page 4. Capital A sum of money you invest. Capital protection Aims to preserve the value of the sum of money invested. Cash See page 4. CPI The Consumer Prices Index, which measures the price of goods and services in the UK. The CPI does not include some changes in the cost of living that the RPI measures, e.g. mortgage payments. DC Account The amount built up from the contributions paid by your employer, including those under pension salary sacrifi ce, together with any contributions outside pension salary sacrifi ce and any transfers in. Diversified growth fund See page 4. epa BASF/login.htm Equities See page 4. factsheets Factsheets setting out how an investment fund is invested and charges. These are available on the pension website. Gilts See page 4. Income drawdown Income drawdown is an alternative to buying an annuity. It allows you to keep your pension savings invested and then take a variable amount of money out of those savings as income each year. Income drawdown is not guaranteed for life and because your savings remain invested, they can go down. Income drawdown is subject to certain limits and criteria. You should take independent fi nancial advice and will need to transfer out your DC Account to another pension provider that administers income drawdown. Index A consistent means of measuring value, such as the value of a given stock market (e.g. the Financial Times All Share Index) or a part of a stock market (e.g. the Financial Times Stock Exchange (FTSE) 100 Index, FTSE 350 and so on). Indices are also published to measure other fi nancial movements such as infl ation (Retail Prices Index RPI), house prices, earnings growth and so on. Index-linked Typically used to refer to a rate of increase or return linked to price infl ation (RPI or CPI), such as pension payments being index-linked, or from an investment perspective, index-linked gilts, which offer a return linked to price infl ation. Index-tracking funds s designed to perform broadly in line with a given index. See passive management style. Inflation risk See page 6. Investment return The gain (or loss) achieved by an investment. It represents the increase or decrease in the value of the investment plus the income derived from investing in it. Investment risk See page 6. Passive management style Following a fi xed investment strategy that does not require a manager s judgement on which assets to buy, sell or hold on to. The manager invests in the same or similar investments as a particular market index. The manager s aim is to match the return gained by that index. For example, if 3% of the Financial Times (FTSE) All-Share Index is made up of BT shares, a UK equity index fund will hold a similar proportion of BT shares. Pension conversion risk See page 6. Pension website Risk See page 6. RPI The Retail Prices Index, which measures the price of goods and services in the UK. Scheme The BASF UK Group Pension Scheme. Target pension date If your DC Account is invested in a LifePlan option, this is the date you plan to take your pension. This can be any date between age 55 and age 70, but you will need your employer s consent to retire before age 65. Your target pension date determines how your DC Account is invested and when the switching period starts. Switching period If your DC Account is invested in a LifePlan option, the switching period determines how long before your target pension date your DC Account begins to switch to the Pre-Retirement and Sterling Liquidity. Trustee BASF Pensions Trustee Limited, the trustee company that has ultimate responsibility for running the Scheme. Zurich See page