Our investment proposition for auto-enrolment pension schemes

Transcription

1 For financial adviser use only. Not approved for use with customers. Our investment proposition for auto-enrolment pension schemes A guide for financial advisers Ready-made and bespoke approaches available Retirement Investments Insurance Health

2 About this guide This guide explains the investment options you can use for Aviva s Group Personal Pension Schemes, our Company Pension and Company Stakeholder Pension. How to find your way around Click on the tabs at the bottom of the page to head straight to the section you want. Or click on a title in the contents list to go to a particular page.

3 Contents Introducing our investment proposition 4 How it works 5 Ready-made approaches 6 Introducing our Future Focus range 7 The approaches in detail 9 Bespoke approaches 19 Take the tailored route 20 How to create your own investment approach 21 More information 24 Recommending a core fund range 25 Governance of auto-enrolment defaults 26 Next steps 27 Introduction Ready-made approaches Bespoke approaches More info 3

4 Introducing our investment proposition for auto-enrolment pension schemes Our investment proposition is designed to help you set up an investment option, or range of options, for your clients auto-enrolment pension schemes. With a selection of off-the-shelf lifestage approaches available and the ability to devise your own, you ll be able to create an investment solution to suit even the most demanding client. What our proposition includes: A selection of lifestage approaches: You can choose from our Future Focus range of ready-made lifestage approaches (ready to use with any auto-enrolment scheme). You can also create your own lifestages from scratch. Or you can use a combination of the two. A selection of lifestage outcomes: Our Future Focus range offers ready-made lifestage approaches that target drawdown, annuity and cash lump sum retirement outcomes. These options are available to employees in addition to any bespoke investment options created specifically for a scheme. Flexibility over default choice: Any of our Future Focus approaches can be used as an auto-enrolment default, giving you plenty of flexibility. You can even create your own lifestage approach to use as a default, if you wish (subject to approval from our governance team see page 22 for details). Governance you can count on: Our fund governance team handles the ongoing governance required for auto-enrolment investment approaches, so you don t have to. The team reviews all the approaches you ll find in this guide (including any you ve designed) to ensure they re performing in line with their objectives. The DWP recommends reviewing the default option at least once every three years. However, we review all our Future Focus approaches on a biennial basis. For bespoke approaches we require you to check whether they are still suitable for scheme members every 3 years. Aviva has also established an Independent Governance Committee. Please see page 26 for details. The option to recommend core funds: Provide your client with even more value by recommending a number of investment funds to include in a core fund range. Choose your recommendations from our full range of over 200 funds from some of the top names in investment. Plus literature for employees: Once you ve set up your client s scheme, we ll produce literature to explain the scheme default and any other investment options to employees. We will also send each member an annual statement explaining, in plain English, how their pension plan has performed. Please remember that the value of investments can go down as well as up and scheme members could get back less than paid in. Designed with auto-enrolment in mind We ve designed our investment proposition based on best practice guidelines issued by the Department for Work and Pensions 1 (DWP). So with an Aviva pension scheme, your clients can feel confident they re offering their employees investment options that are in tune with the regulator s recommendations. 1 Guidance for offering a default option for defined contribution automatic enrolment pension schemes, DWP, May Why we re using lifestaging Our investment approaches for auto-enrolment all use lifestaging because we believe it s the best solution to the best practice guidelines issued by the Department for Work and Pensions 1 (DWP). Lifestaging aims to help protect the retirement benefits the member could get and requires little or no input from them. We designed it with the majority of employees in mind, who typically aren t sophisticated investors and don t have ready access to financial advice. What s more, our lifestage approaches come with automatic rebalancing as standard. The fund splits are moved back to their original levels at regular intervals so employees should rarely (if ever) be exposed to a higher level of investment risk than they re comfortable with. Introduction Ready-made approaches Bespoke approaches More info 4

5 How to create an investment solution for your client s scheme Creating an investment solution for your client s Aviva pension scheme is very straightforward, even if your client s needs aren t. Here s how to do it: Choose from and plus (optional) Future Focus investment approaches (page 7 16) Five ready-made lifestage investment approaches. Three different retirement outcomes. Three different risk profiles to choose from. Designed by Aviva s investment experts. Bespoke investment approaches (page 19 21) Create your own lifestage investment approaches. Choose from 200+ high quality funds. You can white label your approach. A core fund range (page 23) Recommend a core range of investment funds. Choose your selection from our range of A good way of adding more value for your client. Please note: scheme members have a range of investment options to choose from and can change their investments at any time. Your questions answered Q: How many investment options can my client offer scheme members? A: We don t impose a limit, but its worth noting that The Pension Regulator has issued guidance that too much choice can be confusing for members. We expect that most auto-enrolment schemes will offer a choice of investment options that cover different potential retirement outcomes. Q: Can my client offer different investment options to different employees? A: Yes. Your client can offer different options to different categories of employee all within the same scheme. For instance: they could give their office-based staff a separate range of investment options from their sales force. The same applies to auto-enrolment defaults; your client can have a different default option for different categories of employee. Q: If I m adapting an existing scheme for auto-enrolment, can my client keep any of their existing investment options? A: They can. However, if they want to do so, we recommend adding one of our Future Focus investment approaches to the scheme as a default option. This range is specially designed to be suitable for auto-enrolment pension schemes. Speak to your usual Aviva consultant for more information. Introduction Ready-made approaches Bespoke approaches More info 5

6 Ready-made investment approaches Introducing our Future Focus range 7 The approaches in detail 9 Introduction Ready-made approaches Bespoke approaches More info 6

7 Introducing our Future Focus range Our Future Focus range of ready-made lifestage approaches gives you a way of putting together an investment solution for your client s scheme. A fast-track way to build an investment solution Our Future Focus range consists of five lifestage investment approaches. This allows you to put together an investment solution for different member retirement needs. Our Future Focus range at-a-glance Lifestage approach name Aviva Future Focus 1 Drawdown Lifestage Approach Aviva Future Focus 2 Drawdown Lifestage Approach Aviva Future Focus 3 Drawdown Lifestage Approach Aviva Future Focus 2 Annuity Lifestage Approach Aviva Future Focus 2 Lump Sum Lifestage Approach What s available This approach is only available to employers who have taken financial advice. This is Aviva s standard default option. If an alternative default isn t selected this approach will be used. This approach is only available to employers who have taken financial advice. Member target retirement outcome To take some of their money from their pension pot as and when they need it, for example as cash sums or as a flexible income (known as drawdown) when they reach their chosen retirement age. To use their pension pot to buy an income for their lifetime (an annuity) when they reach their chosen retirement age. To withdraw all their money in their pension pot as a one-off cash lump sum when they reach their chosen retirement age. A range of retirement outcomes available for employees to select This includes our full Future Focus range which is available to all employees to select in addition to any other investment options created specifically for a scheme. Employees can only invest in one approach at a time. All suitable as auto-enrolment defaults All our Future Focus approaches are designed for those employees most likely to end up in their scheme s default. Which means you can use any of them right off-the-shelf as the default option for your client s auto-enrolment scheme. No governance for you or your client What s more, if you use one of our Future Focus range for your client s auto-enrolment default, we ll handle all the governance required right from day one. Please see the governance section on page 24 for full details. All governance is handled by Aviva Introduction Ready-made approaches Bespoke approaches More info 7

8 Specially designed for auto-enrolment Our Future Focus approaches are designed to be used as an auto-enrolment default option. Every aspect of each approach has been designed with this in mind from the funds used right through to how the investments change as employees using these approaches near their chosen retirement age. The early years of the approaches are designed to provide investment growth. For the Future Focus 1, 2 and 3 Drawdown and Future Focus 2 Lump Sum Lifestage investment approaches, the aim is to invest in funds with the potential for growth in the early years, and then automatically and gradually move the member s money into lower risk funds in the years before they are due to take their retirement benefits. For the Future Focus 2 Annuity Lifestage investment approach, as the member nears their chosen retirement age, their investment is moved into different types of fund to help protect the level of income they could get. All of this happens automatically. Low cost The DWP charge cap statement means default fund charges cannot exceed 0.75% from April Good news then, that our Future Focus range is specifically designed never to breach this cap. Volatility-targeted The Aviva Diversified Assets Funds we re using for the growth stage of each approach target volatility, not return. Why? In turbulent economic conditions, funds that aim for a certain return target have to take more risk to achieve that return. But by targeting volatility, there will be a greater correlation between the level of investment risk a scheme member thinks they re taking, and the risk they re actually taking. In short, we believe this makes volatility-targeted funds far more appropriate to use for auto-enrolment defaults than funds which target a certain return. Introduction Ready-made approaches Bespoke approaches More info 8

9 Our Future Focus range the approaches in detail There are five lifestage investment approaches in our Future Focus range. Read on for details of how each approach works, what its objectives are and what funds it uses. Overview and objectives Each approach in our Future Focus range is designed to offer an appropriate balance of risk and return for employees being automatically enrolled into a pension scheme. Aviva s Future Focus 2 Drawdown Lifestage Approach is Aviva s standard default option. If an alternative default isn t selected, Future Focus 2 Drawdown Lifestage Approach will be used. Approach name Aviva Future Focus 1 Drawdown Lifestage Approach Objectives This approach aims to minimise large fluctuations in the value of the member s pension pot, but the potential for growth may be limited. It is designed to prepare their pension pot for flexible access at their chosen retirement age: taking some of the money as and when they need it, either as cash sums or as flexible income (known as drawdown) or leaving their money where it is and making their choices later Please note: At their chosen retirement age the member will have a number of retirement options, (even if they remain invested in this lifestage approach), however this lifestage investment approach has been designed to prepare for the particular retirement options shown above. This approach is not designed to prepare for: withdrawing all the money in their pension pot buying an income for life (known as an annuity) at the member s chosen retirement age. Aviva Future Focus 2 Drawdown Lifestage Approach This approach aims to provide growth in the early years, although the value of the member s pension pot could fluctuate. It is designed to prepare their pension pot for flexible access at their chosen retirement age: taking some of the money as and when they need it, either as cash sums or as flexible income (known as drawdown) or leaving their money where it is and making their choices later Please note: At their chosen retirement age the member will have a number of retirement options, (even if they remain invested in this lifestage approach), however this lifestage investment approach has been designed to prepare for the particular retirement options shown above. This approach is not designed to prepare for: withdrawing all the money in their pension pot buying an income for life (known as an annuity) at the member s chosen retirement age. More overleaf Introduction Ready-made approaches Bespoke approaches More info 9

10 Approach name Aviva Future Focus 2 Annuity Lifestage Approach Objectives This approach aims to provide growth in the early years, although the value of the member s pension pot could fluctuate. It is designed to prepare their pension pot for: buying an income for life (known as an annuity) at their chosen retirement age. Please note: At their chosen retirement age the member will have a number of retirement options, (even if they remain invested in this lifestage approach), however this lifestage investment approach has been designed to prepare for the particular retirement option shown above. This approach is not designed to prepare for: taking some of the money as and when they need it, either as cash sums or as flexible income (known as drawdown) withdrawing all the money in their pension pot or leaving their money where it is and making their choices later Aviva Future Focus 2 Lump Sum Lifestage Approach This approach aims to provide growth in the early years, although the value of the member s pension pot could fluctuate. It is designed to prepare their pension pot for: withdrawing all the money in their pension pot at their chosen retirement age. Please note: At their chosen retirement age the member will have a number of retirement options, (even if they remain invested in this lifestage approach), however this lifestage investment approach has been designed to prepare for the particular retirement option shown above. This approach is not designed to prepare for: taking some of the money as and when they need it, either as cash sums or as flexible income (known as drawdown) buying an income for life (known as an annuity) leaving their money where it is and making their choices later Future Focus 3 Drawdown Lifestage Approach This approach offers the potential for good returns over the long term, although the value of the member s pension pot could fluctuate significantly. It is designed to prepare their pension pot for flexible access at their chosen retirement age: taking some of the money as and when they need it, either as cash sums or as flexible income (known as drawdown) or leaving their money where it is and making their choices later Please note: At their chosen retirement age the member will have a number of retirement options, (even if they remain invested in this lifestage approach), however this lifestage investment approach has been designed to prepare for the particular retirement options shown above. This approach is not designed to prepare for: withdrawing all the money in their pension pot buying an income for life (known as an annuity) at the member s chosen retirement age. Introduction Ready-made approaches Bespoke approaches More info 10

11 How the approaches work Future Focus 2 & 3 Drawdown 100% 90% 80% 70% 60% 50% Stage 1 Stage 2 Stage 3 40% 30% 20% 10% 0% 10 years At retirement Aviva Diversified Assets Fund II or III Aviva Diversified Assets Fund I Aviva Deposit fund Stage 1 is the growth phase, when all the employee s payments are invested in the Aviva Diversified Assets Fund II (Future Focus 2) or Aviva Diversified Assets Fund III (Future Focus 3). The purpose of this stage is to maximise the growth of the employee s pension pot, while keeping the risk profile consistent. 1 Stage 2 is when consolidation begins. It kicks in when the employee reaches 10 years from their chosen retirement age. During this stage, we gradually (and automatically) move the scheme member s money into the lower volatility Aviva Diversified Assets Fund I. 2 The purpose of this stage is to move the investments into a lower risk fund as they near their chosen retirement age. Stage 3 begins three years from the employee s chosen retirement age. During this stage, we start moving money into the Aviva Deposit fund, as well as continuing to move it into the Aviva Diversified Assets Fund I. 3 This stage is designed to help protect the value of the tax free cash lump sum the employee can choose to take when they take their benefits along with continuing to move the client s investments into lower risk funds. By the time the employee reaches their chosen retirement age, 25% of their pension pot will be invested in the Aviva Deposit fund, and 75% will be invested in the Aviva Diversified Assets Fund I. The exact fund split at the start of the investment depends on how far the employee is from their chosen retirement age when they become a scheme member. Automatic Rebalancing From the start of stage 2 onwards, the funds are automatically rebalanced back to their original weightings at set intervals. This will happen every 3 months. Introduction Ready-made approaches Bespoke approaches More info 11

12 How the approaches work Future Focus 2 Annuity 100% 90% 80% 70% 60% 50% Stage 1 Stage 2 Stage 3 40% 30% 20% 10% 0% 10 years At retirement Aviva Diversified Assets Fund II Aviva BlackRock Over 15 Years Corporate Bond Index Tracker Aviva Deposit fund Stage 1 is the growth phase, when all the employee s payments are invested in the Aviva Diversified Assets Fund II. The purpose of this stage is to maximise the growth of the employee s pension pot, while keeping the risk profile consistent. 1 Stage 2 is when consolidation begins. It kicks in when the employee reaches 10 years from their chosen retirement age. During this stage, we gradually (and automatically) move the scheme member s money into the Aviva BlackRock Over 15 Years Corporate Bond Index Tracker. 2 The purpose of this stage is to help protect the level of income the employee s pension pot could buy at their chosen retirement age. Stage 3 begins three years from the employee s retirement date. During this stage, we start moving money into the Aviva Deposit fund, as well as continuing to move it into the Aviva BlackRock Over 15 Years Corporate Bond Index Tracker. 3 This stage is designed to help protect the value of the tax free cash lump sum the employee can choose to take when they take their benefits along with continuing to help protect the level of income their pension pot could buy. By the time the employee reaches their chosen retirement age, 25% of their pension pot will be invested in the Aviva Deposit fund, and 75% will be invested in the Aviva BlackRock Over 15 Years Corporate Bond Index Tracker. The exact fund split at the start of the investment depends on how far the employee is from their chosen retirement age when they become a scheme member. Automatic Rebalancing From the start of stage 2 onwards, the funds are automatically rebalanced back to their original weightings at set intervals. This will happen every 3 months. Introduction Ready-made approaches Bespoke approaches More info 12

13 How the approaches work Future Focus 2 Lump Sum 100% 90% 80% 70% 60% 50% Stage 1 Stage 2 Stage 3 40% 30% 20% 10% 0% 10 years At retirement Aviva Diversified Assets Fund II Aviva Diversified Assets Fund I Aviva Deposit fund Stage 1 is the growth phase, when all the employee s payments are invested in the Aviva Diversified Assets Fund II. The purpose of this stage is to maximise the growth of the employee s pension pot, while keeping the risk profile consistent. 1 Stage 2 is when consolidation begins. It kicks in when the employee reaches 10 years from their chosen retirement age. During this stage, we gradually (and automatically) move the scheme member s money into the Aviva Diversified Assets Fund I. 2 The purpose of this stage is to move the investments into a lower risk fund as they near their chosen retirement age. Stage 3 begins four years from the employee s chosen retirement age. During this stage, we start moving money into the Aviva Deposit fund. This stage is designed to help protect the value of the pension pot, assuming the employee is considering taking it all as a lump sum. By the time the employee reaches their chosen retirement age, 100% of their pension pot will be invested in the Aviva Deposit fund. There is a greater possibility that the investment returns on the Aviva Deposit fund may not cover the scheme charges. The exact fund split at the start of the investment depends on how far the employee is from their chosen retirement age when they become a scheme member. 3 Automatic Rebalancing From the start of stage 2 onwards, the funds are automatically rebalanced back to their original weightings at set intervals. This will happen every 3 months. Introduction Ready-made approaches Bespoke approaches More info 13

14 How the approaches work Future Focus 1 Drawdown 100% 90% 80% 70% 60% 50% Stage 1 Stage 2 40% 30% 20% 10% 0% 10 years At retirement Aviva Diversified Assets Fund 1 Aviva Deposit fund Stage 1 is the growth phase, when all the employee s payments are invested in the Aviva Diversified Assets Fund I. The purpose of this stage is to maximise the growth of the employee s pension pot, while keeping the risk profile consistent. 1 Stage 2 is when consolidation occurs. Stage 2 begins 3 years from the employee s chosen retirement age. During this stage, we start moving money into the Aviva Deposit fund, as well as continuing to invest in the Aviva Diversified Assets Fund I. 2 This stage is designed to help protect the value of the tax free cash lump sum the employee can choose to take when they take their benefits along with continuing to invest in a lower risk fund as they near their chosen retirement age. By the time the employee reaches their chosen retirement age, 25% of their pension pot will be invested in the Aviva Deposit Fund, and 75% will be invested in the Aviva Diversified Assets Fund I. The exact fund split at the start of the investment depends on how far the employee is from their chosen retirement age when they become a scheme member. Automatic Rebalancing From the start of stage 2 onwards, the funds are automatically rebalanced back to their original weightings at set intervals. This will happen every 3 months. Introduction Ready-made approaches Bespoke approaches More info 14

15 The funds used For the growth stage (stage 1) Aviva Diversified Assets Fund I (used for Future Focus 1) Aviva Life risk rating: 2 (low to medium) Target volatility: 7%* Annual management charge: 0.0% Fund objective: To provide long-term growth through exposure to a range of asset classes, that can include, but is not limited to equities, fixed interest, cash, property and commodities. The fund may also use derivatives. This fund is part of a range of funds that have been designed to offer different risk options. This fund is designed to provide a lower risk option, with the expectation of less potential for growth, than Diversified Assets Fund II. Asset allocation: International Equities 34.6% UK Gilts 14.5% UK Corporate Bonds 12.2% International Bonds 10.1% UK Equities 2.7% Property 0.8% Alternative Trading Strategies 0.0% Other 0.7% Cash and Equiv 24.4% Please note: This is the fund s asset allocation as at 30/05/2017 Aviva Diversified Assets Fund II (used for Future Focus 2) Aviva Life risk rating: 3 (medium) Target volatility: 10%* Annual management charge: 0.0% Fund objective: To provide long-term growth through exposure to a range of asset classes, that can include, but is not limited to equities, fixed interest, cash, property and commodities. The fund may also use derivatives. This fund is part of a range of funds that have been designed to offer different risk options. Asset allocation: International Equities 54.8% UK Gilts 8.5% UK Corporate Bonds 7.1% International Bonds 5.9% UK Equities 4.4% Property 1.3% Alternative Trading Strategies 0.0% Managed Funds 0.0% Other 0.4% Cash and Equiv 17.5% Please note: This is the fund s asset allocation as at 30/05/2017. Introduction Ready-made approaches Bespoke approaches More info 15

16 Aviva Diversified Assets Fund III (used for Future Focus 3) Aviva Life risk rating: 3 (medium) Target volatility: 13%* Annual management charge: 0.0% Fund objective: To provide long-term growth through exposure to a range of asset classes, that can include, but is not limited to equities, fixed interest, cash, property and commodities. The fund may also use derivatives. This fund is part of a range of funds that have been designed to offer different risk options. This fund is designed to provide a higher risk option, with the expectation of greater potential for growth, than Diversified Assets Fund II. Asset allocation: International Equities 73.4% UK Equities 5.4% UK Gilts 2.6% UK Corporate Bonds 2.1% International Bonds 1.8% Property 1.7% Alternative Trading Strategies 0.0% Managed Funds 0.0% Other 0.1% Cash and Equiv 12.9% Please note: This is the fund s asset allocation as at 30/05/2017. Additional information Fund manager profile (for the three funds above): Our Diversified Assets Fund range is managed by Gavin Counsell of Aviva Investors. Gavin has managed this fund range since December How the funds are managed: Under normal conditions, Aviva Investors will review the strategic asset allocation of the funds every six months, in line with long-term asset class risk expectations. Tactical asset allocation will also be allowed on an ad-hoc basis if there is a clear valuation argument for doing so. *As a reference point, a reasonable long-term volatility assumption for developed global equities would be 16%. At the other end of the scale, a reasonable long-term volatility assumption for cash would be 0.5% or less. Introduction Ready-made approaches Bespoke approaches More info 16

17 For the de risking/consolidation stages (stages 2 and 3) Aviva Diversified Assets Fund I Aviva Life risk rating: 2 (low to medium) Annual management charge: 0.0% Benchmark: No benchmark applicable Fund objective: To provide long term growth through exposure to a range of asset classes, that can include, but is not limited to equities, fixed interest, cash, property and commodities. The fund may also use derivatives. This fund is part of a range of funds that have been designed to offer different risk options. This fund is designed to provide a lower risk option, with the expectation of less potential for growth, than Diversified Assets Fund II. Fund manager: Gavin Counsell: Manager of this fund since December Aviva BlackRock Over 15 Years Corporate Bond Index Tracker Fund Aviva Life risk rating: 3 (medium) Annual management charge: 0.0% Benchmark: iboxx Non-Gilts Over 15 Years Index Fund objective: This fund invests in investment grade corporate bonds denominated in sterling. The fund aims to achieve a return consistent with the iboxx Non-Gilts Over 15 Years Index. This index consists of bonds with a maturity period of 15 years or longer. Fund manager: Team managed by BlackRock. Aviva Deposit Fund Aviva Life risk rating: 1 (low) Annual management charge: 0.0% Benchmark: LIBID GBP 7 Days Fund objective: The fund aims to protect capital by investing typically in deposit investments and similar assets with governments, first class banks and major companies. Although the fund aims to provide a lower risk return, the value can fall. Fund manager: Richard Hallet, Aviva Investors. Richard joined the firm in 1998, and was appointed Cash Fund Manager following the merger of Commercial Union and General Accident. Introduction Ready-made approaches Bespoke approaches More info 17

18 Aviva s risk and return ratings defined We give each of our funds a risk rating, ranging from 1 (low) to 5 (high). Risk is the possibility of losing money and return is how much it could grow. Risk and return are linked. This means funds with a rating of 1 have a low risk of losing money, but it might not grow very much. Funds with a rating of 5 have a higher risk of losing money, but the potential for it to grow over the long term is higher too. The funds used in these approaches are all between risk rating 1-3. Risk Rating Fund type 1 Low Funds with this rating usually aim to provide returns similar to those of deposit and savings accounts, although there s still a risk the value of the investment could fall. 2 Low to Medium Expected to provide better long-term returns than savings accounts. Typically invest in high quality corporate bonds or provide a form of guarantee or capital protection, although there is still a risk the value of the investment could fall. 3 Medium Typically don t offer guarantees, but have the potential for better long-term returns than lower risk funds, although there s a risk the value of the investment could fall. Generally invest in a diversified mix of assets or in fixed income bonds issued by higher risk companies. 4 Medium to High Funds that typically invest in shares of companies in the UK or other major stock markets. Fund prices may fluctuate significantly but offer the potential for good returns over the long term. 5 High Funds that invest in the higher risk sectors (typically emerging markets or specific themes), offering the greatest potential for long-term returns but the highest prices fluctuations and risk to the scheme member s money. Get the latest fund information For the latest performance data, fund factsheets and other information about each of these funds, visit the Fund Centre at aviva.co.uk/adviser/fund-centre Governance and review for auto-enrolment defaults If you use one of our Future Focus lifestage approaches as a default option for your client s auto-enrolment scheme, we ll take care of the governance required. So you or your client don t have to. Please see page 26 for more details. Introduction Ready-made approaches Bespoke approaches More info 18

19 Bespoke investment approaches Take the tailored route 20 How to create your own approaches 21 Introduction Ready-made approaches Bespoke approaches More info 19

20 Take the tailored route creating bespoke investment approaches With our create-a-bespoke option, you can devise your own, tailor-made lifestage investment approaches in a few simple steps. This option gives you the opportunity to provide an even more valuable advice service to your employer clients. Using your investment expertise, you can create investment approaches designed to fit your client and their scheme members perfectly. Key benefits: Devise a single approach or several: Design as many bespoke approaches as your client requires. Create just a single approach or several, to give employees greater choice. You can even create approaches to use as auto-enrolment defaults. Choose from 200+ quality funds: Your approaches can use as many underlying funds as you want from our range of over 200, including many from the world s top investment companies. The only funds you can t use are with-profits and any that invest directly in property. Create your own investment glide-paths: You decide how the investment mix should look at each stage. Giving you the freedom to devise your own strategies for providing growth in the earlier years, before consolidating that growth in the run-up to retirement. Keep risk consistent: Like all the approaches in this guide, any approaches you design come with automatic rebalancing at no extra cost. Choose from monthly or quarterly rebalancing, starting when you want it to. Name your approach(es): Not only can you design your own approaches; you also get to name them. The name you choose could incorporate your client s company name, for instance. A little personalisation can make a big difference. A perfect combination Bespoke approaches can work well as a supplement to our Future Focus range. See page 15 for details of this range. Important notes Any bespoke approaches you design must meet our suitability criteria. See page 22 for details. There is a charge of 1,000 for creating a bespoke investment approach/approaches. The employer is responsible for ensuring their default bespoke lifestage approach and any alternative bespoke lifestage approaches are reviewed by a financial adviser every 3 years, failure to do so is a breach of their auto enrolment responsibilities. Add value for your client and exercise your investment expertise. Introduction Ready-made approaches Bespoke approaches More info 20

21 How to create your own approaches The process for creating your own lifestage approaches is very straightforward. When you re ready to begin, simply follow these six steps. Step 1: Design your approaches First things first, you need to design your approaches. This means identifying which funds you want to use, devising your investment glide paths, deciding when to auto-rebalance and giving each approach a name: Choosing your funds You can pick from our range of 200+ carefully selected investment funds. The only funds you can t use are with-profit funds and any that invest directly in property. Research and pick your funds at aviva.co.uk/ adviser/fund-centre. DWP command paper better workplace pensions In March 2014 the Department for Work and Pensions announced a set of measures to make workplace pensions fairer for employees. One of these changes is the introduction of a default fund charge cap of 0.75% from April This means that we will no longer accept a bespoke default investment approach that brings the overall scheme charge above 0.75%, or could risk bringing the charge over 0.75% with market fluctuations. All new bespoke default lifestage approaches will now be checked to make sure that they will not breach the cap. Designing your investment glide paths You decide what the investment glide path for each of your approaches should be. You ll need to choose how many phases you want and when you want them to start (eg 10 years from retirement). And you ll also need to decide how you want the fund mix to change during each phase. Setting automatic rebalancing You ll need to decide when you want auto-rebalancing to start, and whether you want it to take place monthly or quarterly. When it takes place, the rebalancing moves all the funds in your approach back to their original benchmark weighting. Naming each approach You ll have to give each of your approaches a name, keeping to 40 characters or less. For instance, you could call it the Company X 5-year lifestage, the Company X lifestage 1 or simply the Company X Default. Top tip Please avoid using lifestyle, lifestyling or your company name in the name you give your approach. Please also avoid using approach, as this will automatically appear at the end of the name you choose in scheme literature. Step 2: Send us the details Once you ve designed your approach(es), get in touch with your Aviva consultant. They ll help you fill in the forms you need to complete. In addition to the details of your approach, we ll need to know: how you intend to use each approach (eg as an auto-enrolment default, a nominated approach, or simply as an alternative investment option) your FCA number. Introduction Ready-made approaches Bespoke approaches More info 21

22 Step 3: Confirmation Once you ve submitted your approach we ll play back the details to you. This is your chance to make sure we ve captured everything correctly. If something isn t right, we ll update your approach and play the details back to you again. When you re happy, just send us an to confirm. Step 4: Governance checks Our governance team will check your proposed approaches to make sure they meet our suitability criteria. Our suitability criteria 1. We ll check the funds you propose against our latest watchlist. If a fund is on the watchlist but not earmarked for closure, we ll inform you and give you the opportunity to change the fund but if you choose not to, we won t reject your approach on this basis alone. If a fund is to be closed then we ll inform you and you ll need to choose another fund. 2. We ll check the funds you want to use for any pending corporate actions (eg a fund merger). If an action is pending, we ll assess the approach as though the action has taken place, but will also give you the option to alter your fund choice. 3. The name you choose mustn t give an unfair reflection of its risk/reward profile, or use terminology that s inappropriate for scheme members. 4. The total charge a scheme member has to pay (including scheme charges and fund charges) shouldn t normally exceed 1%p.a. at any point in the approach (or risk exceeding 0.75% for default approaches). If the charges involved in your approach exceed this, we ll need you to justify it. 5. The maximum number of funds you can use in any phase is 10. Default approaches only 6. Your approach must include at least one accumulation phase and at least one de-risking/consolidation phase. 7. In line with DWP changes to regulation, we will no longer accept a bespoke default investment approach that brings the overall scheme charge above 0.75%, or could risk bringing the charge over 0.75%. All new bespoke default lifestage approaches will now be checked to make sure that they will not breach the cap. 8. The de-risking/consolidation phase(s) should normally feature a smooth glide path aiming to either reduce volatility or help protect the level of income the employee s pension plan could buy when they retire (eg by moving the investment into long-dated gilts or corporate bonds). We will consider each approach on a case by case basis. We aim to tell you if we ve accepted your approach within five working days of you confirming we ve captured your requirements correctly. If our governance team has any concerns, we ll offer you guidance on what changes you can make to ensure your approach meets our criteria. Introduction Ready-made approaches Bespoke approaches More info 22

23 Step 5: Sign-off Once your approaches have been accepted by our governance team, you ll need to sign them off. We ll also ask you to sign a form on behalf of the employer you re acting for. When you ve done this, we ll upload your approaches to our systems. Step 6: Bespoke lifestage brochure Once your approaches have been accepted, we can produce a brochure to explain your approaches to the employee. Requesting changes in future You can request two types of changes to your approach after it s been accepted and uploaded to our systems: 1) Changes to any of the funds used; and 2) Changes to the name of your approach. We ll consider your suggested changes using the same review process as when we first accepted your approach (above). But please note that we re not bound to accept any changes you request. Using a bespoke lifestage approach as a default? If you re creating your own approach to use as an auto-enrolment default, you ll need to ensure it s suitable for the particular employee category it will be used for. Our governance team will assess this when you submit your approach (see step 4, above). The employer is responsible for ensuring their default bespoke lifestage approach and any alternative bespoke lifestage approaches are reviewed by a financial adviser every 3 years, failure to do so is a breach of their auto enrolment responsibilities. Introduction Ready-made approaches Bespoke approaches More info 23

24 More information Recommending a core fund range 25 Governance of auto-enrolment defaults 26 Next steps 27 Introduction Ready-made approaches Bespoke approaches More info 24

25 Recommending a core fund range Give your client an even more valuable service by recommending a number of investment funds to include in a core fund range. Having a core fund range can be a great idea for clients who want to give their employees a little extra choice. It gives their employees the chance to pick their own investment funds, but without having to root through our full range of over 200. Instead, they choose from a handpicked selection, recommended by you. These core funds are for recommendations only, and we will not restrict customer access to our full range of funds on our systems. Tools to help you choose The Fund Centre on our website for advisers includes plenty of research tools to help you decide which funds to recommend. There, you can search for specific funds, view and compare performance statistics, view fund factsheets and more. Visit the Fund Centre at aviva.co.uk/adviser/fund-centre Making your selection Once you and your client have decided which funds to include, simply speak to your Aviva consultant. If you have chosen to use a bespoke lifestage approach, we can include reference to your core fund range in the bespoke lifestage brochure. There s no limit on the number of funds you can include in a core range, but most clients tend to choose around 10. Why recommend a core range? Ideal for employers who want to offer a range of investment options. A good accompaniment to our lifestage investment approaches. Add more value for your client. Makes it easier for employees to pick their own funds. Give your client and scheme members the benefit of your investment knowledge by recommending some core funds. Introduction Ready-made approaches Bespoke approaches More info 25

26 Governance of auto-enrolment defaults The Department for Work and Pensions (DWP) has issued guidance 2 explaining how auto-enrolment default options ought to be governed. When you choose an Aviva company pension scheme, we handle most of these tasks. In fact, if your client uses one of our Future Focus range as their default, we handle 100% of the governance recommended by the DWP. And even if they use an approach of your design, we handle all the ongoing governance once you ve established it s suitable for scheme members. Who s responsible for what? Future Focus approaches Bespoke approaches Who handles it? Governance task Aviva You Aviva You Ensure the approach is suitable for auto-enrolled employees and meets regulatory standards. For bespoke approaches we require you to check whether it s still suitable for scheme members every 3 years. Review the approach at least every three years* to make sure it still meets regulatory standards. Review the performance of underlying funds to check whether they re performing in line with their objectives Replace any funds that are not performing as they should with alternatives. 4 4 Communicate information about the default option to scheme members. 4 4 *The DWP recommends reviewing the default option at least once every three years. However, we review all our Future Focus approaches on a biennial basis, for any bespoke approaches you decide to use as a default we will conduct our reviews once a year. Independent Governance Committee Aviva has established an Independent Governance Committee which helps govern both Aviva and bespoke default investment strategies. For more information on the Independent Governance Committee and the work that they do please visit aviva.co.uk/pension-essentials/your-pension-scheme/igc If changes are needed If we find that an investment approach or fund isn t performing as it should, we ll make changes. We can replace an underlying fund with an alternative. We can change the name of an approach in conjunction with you should the name no longer be suitable. And we can alter the volatility target of a fund. We ll notify you and scheme members if we make any changes to a default approach used by any schemes you ve set up (with the exception of alterations to the volatility target, in which case we may not notify scheme members). We will also update scheme literature. 2 Guidance for offering a default option for defined contribution automatic enrolment pension schemes, DWP, May Introduction Ready-made approaches Bespoke approaches More info 26

27 Speak to your Aviva consultant today We hope you ve found this guide useful. If you re interested in setting up an investment solution for a client s scheme, get in touch with your usual Aviva consultant. They ll help you submit your solution and will be able to answer any queries you have. You can also visit aviva.co.uk/adviser for more information about our corporate pension products. Introduction Ready-made approaches Bespoke approaches More info 27

28 Aviva Life & Pensions UK Limited. Registered in England No Aviva, Wellington Row, York, YO90 1WR. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Firm Reference Number SP /2017 Aviva plc