Welplan Pensions Investment Options Guide. (from August 2016)

Transcription

1 Welplan Pensions Investment Options Guide

2 Background To provide for retirement it is important to start saving as early as possible. It is also important to consider the rate at which your investments may grow. A pension plan is a long-term commitment. Investment funds involve a certain level of risk - generally the greater the risk taken, the higher the potential level of reward but also the greater the potential loss. Please remember that the value of an investment can go down as well as up. This is especially important if you are close to retirement. Contents Investment options Spectrum of risk Members options Option 1 - Cash Lifestyle Option 2 - Annuity Lifestyle Option 3 - Drawdown Lifestyle Option 4 - Freestyle Welplan Pensions investment funds and their aims Glossary of investment terms Important notes

3 1 Investment Options Welplan Pensions Investment Funds and their aims. The Trustees have identified eleven separate investment funds to be offered to members of Welplan Pensions. In making this choice the Trustee Board has considered the full range of investment opportunities available, and has consulted with its investment advisers to ensure that there is a range of quality investment options to satisfy the investment needs of a diverse membership. The current Scheme fund manager, Legal & General Investment Management Ltd (LGIM), is subject to regular monitoring by the Trustee Board. The table on page 9 sets out the full range of funds available to members of Welplan Pensions. Unless otherwise stated, all underlying assets are managed by LGIM on a passive basis. When reading the following pages, you may wish to refer to the Glossary of Investment Terms on page Spectrum of Risk Low Risk Funds tend to have a significant proportion of assets in fixed interest stocks and/or cash. The fund may hold other stock market investments, but their risks are moderated by spreading the investment between asset classes. Moderate Risk Funds in this category take risks to provide greater returns, so there is a real risk you may lose money, balanced by the prospect of greater returns. They mainly invest in equities and fixed interest stocks, with a higher risk of default, and/or property. There may also be investment outside the UK. High Risk Funds may invest purely in higher risk asset classes such as equities or be specialised in a specific asset class or region, leading to a poorer spread of assets and less diversification. They are subject to greater volatility. 3

4 3 Member Options As a member of Welplan Pensions you can choose one of four options when investing for your retirement. There are three Lifestyle options and a Freestyle option. Lifestyle options are based on the assumption that as people move closer to retirement it is likely that their tolerance towards investment risk will reduce. Each Lifestyle option therefore provides automatic switching from funds with higher volatility (more risk) over a period of time to funds with less volatility (less risk) as retirement approaches. For the default Cash Lifestyle, this means moving from equity type investments to cash type investments. All four options are based on a Target Retirement Age (TRA) equal to your State Pension Age. If you plan to retire earlier than this then it is important, ideally, that you let us know at least 10 years beforehand using the Investment Options Form. Unless you instruct us otherwise, your fund will be invested automatically in the Scheme s default Cash Lifestyle option with a TRA the same as your State Pension Age. Option 1 Cash Lifestyle (Default Option) The default Cash Lifestyle is designed for those members who plan to take their pension fund as a single cash lump sum in retirement, or smaller cash sums spread perhaps over a short period, such as a year. If you want a low level of involvement in the management of your investment fund, this could be the option for you. However, it is still important to monitor the performance of your fund. How the default Cash Lifestyle Option works The Trustees recognise that investment is a specialist area. If you do not choose which funds you want to invest in, and until you tell us otherwise, the Trustees will invest your pension contributions as follows: Long-term growth phase from commencement until ten years from retirement your funds will be 100% invested in the Growth Fund. Pre-retirement phase once you reach ten years from retirement your funds will be gradually switched from the Growth Fund to the Moderate Growth Fund until five years from retirement. After this your funds are switched into cash type investments as retirement approaches. 4 You are free to choose your own Target Retirement Age (age 55 or over). If you do not, your State Pension Age will be automatically selected as your TRA.

5 The table below shows the overall mix of funds through a member s working lifetime, assuming a Target Retirement Age of 65. Investment breakdown for the default Cash Lifestyle Strategy Age Phase Growth Moderate Liquidity Fund Growth Fund Fund %* %* %* Up to 54 Long-term growth Pre-retirement * Fund Fact Sheets are available from the Downloads section of the Welplan website. 5

6 Option 2 Annuity Lifestyle Whilst the Cash Lifestyle strategy is the Scheme s default investment strategy, the Trustee Board has made available two new optional Lifestyle strategies to cater for those members for whom the Cash Lifestyle may not be appropriate. If you already know you are likely to purchase an annuity (i.e. an insurance policy that provides known, regular income for life) at retirement, you might want to consider this option. The Annuity Lifestyle follows the Cash Lifestyle during the Long Term Growth phase. The main difference compared to the Cash Lifestyle strategy, is that during the five years prior to retirement, 75% of your investments will be moved to the Pre-Retirement Fund and 25% to the Liquidity Fund. By keeping the majority of your investments in the Pre-Retirement Fund in the consolidation phase, it allows for an element of growth in the run-up to retirement whilst still protecting your investments, but with better alignment to annuity prices. The table below shows the overall mix of funds through a member s working lifetime, assuming a Target Retirement Age of 65. Investment breakdown for the Annuity Lifestyle Strategy Age Phase Growth Moderate Pre-Retirement Liquidity Fund Growth Fund Fund Fund %* %* %* %* Up to 54 Long-term growth Pre-retirement * Fund Fact Sheets are available from the Downloads section of the Welplan website.

7 Option 3 Drawdown Lifestyle The Trustee Board has also made available a Drawdown Lifestyle to cater for those members for whom the Cash and Annuity Lifestyles may not be appropriate. If you want to take your retirement income partly as cash whilst still keeping some of your fund invested, you may wish to consider this option. The main difference compared to the default Cash Lifestyle strategy, is that during the five years prior to retirement, 75% of your investments will be moved into the Retirement Income Fund, and 25% to the Liquidity fund. By keeping most of your remaining investments in the Retirement Income Fund, this allows continued growth over the longer term (even post-retirement) but with the option to take cash drawdowns over an extended period. The table below shows the overall mix of funds through a member s working lifetime, assuming a Target Retirement Age of 65. Investment breakdown for the Drawdown Lifestyle Strategy Age Phase Growth Moderate Pre-Retirement Liquidity Fund Growth Fund Fund Fund %* %* %* %* Up to 54 Long-term growth Pre-retirement * Fund Fact Sheets are available from the Downloads section of the Welplan website. 7

8 Option 4 Freestyle Members who prefer to design their own investment portfolio can do so by selecting from any of the eleven Welplan Pensions investment funds described on page 9. Please refer to the Welplan Pensions Fund Fact Sheets for further details and fund performance. If you have good investment knowledge and want a high level of involvement and control over your investments, this could be the option for you. Your portfolio can include a mixture of funds from any of the eleven Welplan Pensions funds. It is up to you to regularly monitor the performance of your funds and decide whether to change funds. How the Freestyle Option Works You will have the opportunity to select any mix of the available Welplan Pensions investment funds when you join the Scheme. Periodically, you may also request that your investments are switched between funds using the Switch Request Form. This also allows you to reallocate the investment of future contributions only, without affecting existing funds. No charge will be made by Welplan Pensions for fund switching. Please also note that the value of assets in each investment fund can go down as well as up. Past performance is not a guide to future performance. Welplan Pensions Investment Funds and their aims The table on page 9 sets out the full range of funds available to members of Welplan Pensions. Unless otherwise stated all underlying assets are managed by Legal & General Investment Management on a passive basis. If you do not actively choose how your funds are to be invested the Trustees will invest your funds using the default Cash Lifestyle Option (explained on page 4 of this guide). 8

9 4 Welplan Pensions Investment Funds and their aims Fund Risk Grading Member Investment Profile Description Global Equity 50:50 Index High Adventurous 100% invested in equities, split 50% UK equities and 50% in a basket of overseas equities. Growth Fund High/ Moderate Balanced 80% invested in equities, 10% invested in corporate bonds and 10% invested in long-dated index-linked gilts. Property High/ Moderate Balanced Predominantly invested in directly held UK commercial property. Actively managed. Moderate Growth Fund Moderate Balanced/ Cautious 60% invested in equities, 20% invested in corporate bonds and 20% invested in long-dated index-linked gilts. Diversified Fund Moderate Balanced Invested in a wide range of asset classes with the overall objective of achieving long-term growth with less volatility than equities. Actively managed. Retirement Income Moderate Balanced The investment objective of the Fund is to provide longterm investment growth up to retirement with a focus on income generation. The Fund invests globally in a range of different asset classes in both passive and actively managed funds. Pre-Retirement Moderate/ Low Balanced/ Cautious To provide diversified exposure to sterling assets (typically corporate bonds and fixed interest gilts) that reflect the broad characteristics of investments underlying the pricing of a typical non-inflation linked annuity product. Actively managed. Active Corporate Bond All Stocks Moderate/ Low Balanced/ Cautious Predominantly invested in the debt of corporates and other non-government entities issued in the UK. Actively managed. Over 15 Year Gilts Index Over 5 Year Index- Linked Gilts Index Low Cautious 100% invested in long-dated fixed interest Government bonds. Low Cautious 100% invested in long-dated inflation linked Government bonds. Liquidity Low Cautious 100% invested in cash instruments including bank deposits and other cash instruments. Actively managed. 9

10 5 Glossary of investment terms Active Management A style of investment whereby the investor seeks to beat a particular market index (e.g. FTSE 100) by investing differently from the market, either by holding more of a particular security or less/none, relative to the market. Assets/Asset Classes An asset is something a fund can invest in to make a return: cash, shares, bonds, for example. Bonds Government and companies issue bonds as a type of loan in order to borrow money. In return they promise to repay the loan at a future date and may also pay interest at a promised rate. Historically bonds have produced better returns than cash, but lower returns than property or equities. Bonds include Gilts (see below). Cash Investing in cash means putting your money on deposit (for example in a bank account) or in other short term instruments, where it earns interest. This does offer more security than equities, property or bonds, but has less potential for growth and the long-term return is uncertain. Developed Market Equities Equities held in the financial market in a country with a well-established economy (for example, UK or US) which is therefore thought to offer safer, more stable opportunities than a developing/emerging market. Emerging Market Equities Equities held in the financial market of a developing country, usually (but not always) a smaller market with a short operating history (relative to developed markets) - for example, Brazil or China. Equities Commonly used term for company shares. A share is something a company might issue in order to finance itself. By owning a share, an investor owns a part of that company and receives dividends set by the company. A share may also rise or fall in value. Foreign Currency Movements A change in price, value or rate of a foreign currency. Gilts Bonds issued by the UK Government. The payments on the gilt may be either fixed ( fixed-interest Gilt ) or increase with inflation ( index-linked Gilt ). Lifestyle Investment Strategy An investment strategy that develops over the course of a member s working life. The traditional form of lifestyle is one that invests mainly in growth orientated assets (e.g. equities) that promise above average rates of return (e.g. compared with a deposit account), during a member s working life. As retirement approaches the focus switches to protecting against the shorter term fluctuations in markets. This is achieved by switching investments from growth orientated assets to more defensive assets such as bonds and cash. Passive Management A style of fund management where the aim is to match the performance of a chosen index for example, the FTSE 100 index of all shares. Portfolio A combination of financial assets (shares, bonds, etc) held by an investor with a view to achieving a particular aim. Risk Uncertainty, volatility or failure to meet expectations. In the case of investments, there is a risk of a fall in the value of investments. State Pension Age The State Pension age is the earliest age you can claim your State Pension. This is used as the default Target Retirement Age for the Lifestyle options. Your State Pension age (SPA) depends on when you were born. For men born before 6 December 1953, the current State Pension Age is 65. For women born after 5 April 1950 but before 6 December 1953, their State Pension Age is between 60 and 65. Recent changes to the State Pension System have extended the SPA for men and women born on or after 6 December 1953 so that their SPA ranges from between age 65 and 68 depending on date of birth. To check your own SPA, you can access a calculator on the GOV.UK website. Target Retirement Age When you join Welplan pensions, the default investment option is the Cash Lifestyle, with a Target Retirement Age (TRA) that matches your State Pension Age. You can change your TRA to age 55 or over at any time to suit your retirement plans. 10

11 6 Important Notes The information contained within this guide is for general information and does not constitute financial advice. The return for each investment fund is directly related to the performance of the assets in which it is invested. The value of the underlying assets in each investment fund can go down as well as up. As a result of this you may not get back as much money as you invest. The sterling value of overseas assets in these funds may rise and fall as a result of exchange rate fluctuations. 11

12 Welplan Old Mansion House Eamont Bridge Penrith Cumbria CA10 2BX Freephone: Welplan Pensions Investment Options Guide