Lloyd s Register Superannuation Fund Association Defined Contribution Section. Investment guide for members

Transcription

1 Lloyd s Register Superannuation Fund Association Defined Contribution Section Investment guide for members

2 This document is a guide to the scheme as at December 2014.

3 Contents Introduction page 4 Understanding how your investments work page 5 Investment Risk page 7 Charges page 9 Managing your pension investments for you page 10 Other investment options page 12 Funds available under the scheme page 13 Further information and help page 16 3

4 Introduction This Investment Guide has been approved and issued by Friends Life and Pensions Limited on behalf of the trustees to provide you, the member, with information about your investment choices. It details the points we, the trustees of the Lloyd s Register Superannuation Fund Association Defined Contribution Section ( scheme ) feel you need to understand when deciding how you would like to invest your personal fund. It should be read together with the Lloyd s Register Superannuation Fund Association Defined Contribution Section Member Guide. This Investment Guide and all other literature in your membership pack does not contain advice regarding which investment funds are suitable for you. However, we hope that we have given enough information to help you to decide which investment funds meet your needs. If you need advice, we strongly suggest that you contact your professional financial adviser. If you do not have a professional financial adviser, you can obtain details of one by visiting Remember, if you use a professional financial adviser they may charge you for their services. 4

5 Understanding how your investments work The money that you and/or your employer pay into your personal fund is invested in one or more investment funds that invest in different assets such as stock markets and property. An investment fund is simply a way of pooling together the investments of a large number of smaller investors. Your contributions are used to buy units in the investment fund(s) that you choose from the range of funds made available to you by the trustees. Each fund is run by a professional fund manager. As the value of the investment funds can fall as well as rise, so will the value of your personal fund. The value is not guaranteed and you may get back less at retirement than has been invested. We appreciate that some people do not like to choose investment funds. In this case, when you join the scheme, you could let the decision be made for you by having your personal fund invested in the default investment solution for your scheme. If you do not tell us where you want your money to go, this is where we will automatically invest your personal fund. See pages 10 and 11 of this Investment Guide for more details. Whether or not you want to make your own investment decisions, we have included some information in this section to cover the different types of assets you can invest in, the risk and potential reward. Before you decide which option is right for you, you may wish to consider your attitude towards investments in general as well as risk and reward. Once you understand this, you can make your decision on which option is best for you based on your personal circumstances and your attitude to investment risk. Whether you plan to make your own investment decisions or not, make sure you read the Member Guide which gives full details of how the scheme works. The different types of assets you can invest in You choose which funds you invest your money in. The fund manager uses this money to buy the assets that make up the fund s investments. Generally, each fund offered by Friends Life invests in one of four main asset classes which are described on the next page. Please note that although your money is invested in a fund, you do not own any of that fund s underlying assets. For example, you won t receive a dividend from shares in an equity fund or rental income from a property held by a property fund. These are reflected in the value of the fund itself. 5

6 Money Market The money market is a mechanism for short-term borrowing and lending between organisations. Money market investments typically include what are described as near cash instruments, such as certificates of deposit, floating rate notes and treasury bills. They are not to be confused with deposit accounts with bank or building societies. Although less risky than other asset classes, there could be circumstances where these investments fall in value, for example if an organisation defaults. Their value could also be eroded over time due to the effects of fund charges, product charges and inflation. Fixed interest Referred to as bonds, these are loans to a government or a company which pay a fixed interest rate for a set period until the loan is repaid to the investor. The most common bonds are government bonds (known in the UK as gilts) and corporate bonds (issued by companies). If a government or company defaults on the loan, then the interest will not be paid. For this reason UK gilts are seen as less risky than corporate bonds as the UK Government is less likely to be unable to repay them. Property Property investment usually means commercial property, such as offices and retail, leisure and industrial developments. It can also include residential property. As well as the potential increase in their value, property investments can also produce rental income. Property can be subject to heavy falls and sharp increases in value. It can also take more time to buy and sell property than investments in other asset classes. Shares Shares are also known as equities. Shareholders have a share in a company s assets. Shares are bought and sold on stock markets and their value can go up and down depending on the fortunes of the company and stock markets in general. Companies may also pay a share of profits to shareholders, known as dividends. While there is more opportunity for potential gains with shares than some asset classes, there is also greater risk that they will fall in value. 6

7 Investment Risk Approaches to investment risk Each risk band is shown below with an explanation of the relevant approach to investment risk. Remember that all investments carry some element of risk, but this varies from fund to fund. Risk band High + High High Medium + Medium Medium Low + Low Your approach to investment risk As a very adventurous investor, you will accept much higher risk for the prospect of much higher returns You re an adventurous investor willing to accept high risk for the prospect of high returns As an adventurous investor you will accept above-average but below high risk for the prospect of high returns You prefer a balanced approach to investment and are willing to accept above-average risk in the hope of higher returns You prefer a balanced approach to investment and are willing to accept average risk to achieve more attractive returns You will accept below-average risk to achieve more attractive returns Although a cautious investor, you re prepared to accept low levels of risk for the prospect of slightly higher returns You re a very cautious investor and are willing to take a minimal amount of risk only Please note: These investment risk bands are based on Friends Life s interpretation of investment risk and are only meant as a guide. These levels of investment risk are not guaranteed and may change in the future. The colours in this table may be different to those used online, however, the bands and approach to investment risk remain the same. evaluate help Our online tool, evaluate with Friends Life, offers you more help in working out what level of risk is right for you. Log on to lloydsregister to register. The tool can help you to understand how to make your choice but it cannot give you advice on which funds to choose. If you are unsure about whether a fund is right for you, you should speak to a professional financial adviser. Can you choose funds from more than just one risk band? Yes, you can diversify your risk by choosing a range of funds. This ensures that you are not too exposed to problems in one market or sector. You are able to invest in up to ten funds at any one time. If you are invested in a lifetime investment programme it cannot be combined with any other funds listed (please note lifetime investment programme has previously been referred to as lifestyle arrangements ). Your entire policy fund will be invested in the lifetime investment programme if you choose this option. Please see pages 10 and 11 for more information on the lifetime investment. 7

8 Fund risk warnings There are risks associated with investing in funds, or types of funds. In this document we show which risk warning or warnings apply to each fund. These are all explained below. Please note that not all of these warnings apply to each fund and there is no direct relationship between the number of fund risk warnings and the investment risk banding for each fund shown on the previous page. Risk warning type Investment is not guaranteed Price Suspend trading Income Currency risks Emerging markets Smaller companies Fixed interest Specialist Derivatives Risk warning code A B C D E F G H I J Risk warnings The value of an investment is not guaranteed and can go up and down. You could get back less than you have paid in. At times, a fund may need to change the way its price is calculated, to ensure that those moving into and out of the fund are treated fairly. This can have a negative effect on a fund s price and performance. Fund managers have the ability, in exceptional circumstances, to suspend trading in their funds for as long as necessary. When this occurs we will need to delay the cashing in or switching of units in the relevant fund. You may not be able to access your money during this period. Where a fund aims to generate an income, we reinvest any income back into the fund to increase the value of the units. Where a fund invests overseas, the value can go up and down simply because of changes in currency exchange rates. Where a fund invests in emerging markets it is likely to be more volatile than one that invests in developed markets. These markets can be unstable and less liquid, so the fund may carry more risk. Some funds invest in the shares of smaller companies. These shares can be more volatile and less liquid than larger company shares, so the fund may carry more risk. Where a fund invests in fixed interest securities, such as company or government bonds, the value may go up and down as interest rates change. If interest rates rise, the value is likely to fall. Some high yielding bonds are known as junk bonds. These carry an increased risk that the issuer of the bond will be unable to continue the interest payments or return the capital at maturity. Funds that invest in specific industry sectors may carry more risk than those spread across several sectors. These funds can be more volatile and higher risk due to their limited exposure. Derivatives are complex and funds that use them for investment purposes may be more volatile. These funds are considered to be higher risk than funds that invest only in shares. Money market (cash) K Money market funds and funds with the word cash in their names are not cash deposit accounts, but invest in money market assets and can fall in value. In a low interest rate environment the charges applied to the fund may be greater than its return, so you may not get back all of your original investment. Direct property Stock lending Index linked Property securities High cash levels L M N O P Property funds mainly invest in commercial properties which are not easy to sell. In exceptional circumstances, we may need to delay the cashing in or switching of units in the fund. You may not be able to access your money during this period. Where a fund is involved in the temporary transfer of securities, there is always the risk that the borrower may not be able to return the security to its owner. This may have a negative effect on the performance of the fund. Where a fund invests in index linked bonds, the value may go up and down as the rate of inflation changes. If inflation falls, the value is likely to fall. Some funds invest in the shares of property investment trusts, which may own commercial and residential properties. Property investment trusts are stock market listed companies, and their shares can be affected by the performance of global stock markets. Due to the way some funds are managed there may be periods when they have large cash holdings. This can be a deliberate asset allocation decision or while suitable investment opportunities are researched and selected. A fund s growth potential may be less during this period. 8

9 Charges Charges reduce the potential for growth, are regularly reviewed and can change. Annual management charge The level of annual management charge (AMC) will depend on which fund or funds you invest in. It accrues daily over the course of the year and is taken monthly by deducting units from each fund. The charges are shown in the fund table on page 13. Charges are taken to pay for the cost of setting up the scheme, the advice provided, fund management and policy administration. Fund expenses Most fund managers have to pay expenses, such as fees to auditors, trustees and valuers. Any fund expenses are taken from the underlying fund and are reflected in the unit price. These expenses are included in the AMC. 9

10 Managing your pension investments for you Default investment It is important to decide how you want your contributions to be invested. However, for those who do not want to make their own investment decisions, the employer has selected the Flexible Retirement Strategy as the default investment. Please note this Lifetime fund has previously been referred to as Lifestyle. While the default investment is designed to be broadly appropriate for most members, you may still want to consider whether it best suits your circumstances. If, at a later date, you wish to make your own investment decisions, you can switch into any other fund at any time. It is important if you are considering switching funds that you read the Switching your investment choice on page 12. Lifetime investment programme The lifetime investment programme is a process where your policy is invested in different investment funds, in different percentages, as you get closer to your selected retirement date (the date you have selected at which you expect to take retirement benefits from the scheme). Your investments are switched between funds on a monthly basis. This process aims to reduce the risk of large swings in the value of investments by moving to funds with lower volatility as you near retirement. A lifetime investment programme is made up of different investment funds, each of which attracts their own AMC. This means that as the lifetime investment programme progresses, and you get closer to your selected retirement date, the AMC will change depending on which fund or funds you are invested in. The Funds available under this scheme section on page 15, shows the AMC for each of the investment funds. It also gives full details of the funds including the aims, risk bands and risk warnings appropriate to each fund. Any changes in your selected retirement date once the lifetime investment programme has begun may mean that the investment programme is no longer suitable for your individual circumstances. If you plan to take your retirement benefits either before or after your original selected retirement date, please contact Friends Life for further information on how this will affect your policy. For Friends Life s contact details, please see Further information and help. Please note that selecting the lifetime investment programme does not necessarily mean you will receive a higher return on your policy value than through any other programme or fund. The value of an investment is not guaranteed and can go down as well as up. This means you could get back less than you paid in. This option may not be the most appropriate for your circumstances. If you are in any doubt about the suitability of this default option, please contact a professional financial adviser. There are potential advantages and disadvantages to investing in an investment programme. The advantages of investment programmes are: The investment programme offers an alternative to changing your investment funds independently as you head towards retirement. During the period leading up to your retirement, your pension fund is moved from investments with a greater exposure to the stock market into more cautious investments. This helps reduce your exposure to risk from stock market fluctuations. Your investment programme can be amended if you choose to take your benefits earlier or later than planned. You can choose to leave the investment option at any time. The disadvantages of investment programmes are: There is no guarantee that the investment programme will prove beneficial to your pension fund. The value of your investments, even in lower risk funds, can fall as well as rise and the value of your pension fund is not guaranteed. Taking your retirement benefits earlier or later than planned may have an impact on your investment programme, and may mean that it is no longer suitable for your individual circumstances. 10

11 Flexible Retirement Strategy The Flexible Retirement Strategy has been provided by Friends Life and selected by the trustees as the default investment for the Lloyd s Register Superannuation Fund Association Defined Contribution Section. It may not be suitable for everyone. The chart below shows the profile of investment allocations during the period before your selected retirement date. Your investments are moved automatically once a month during the ten-year period preceding your selected retirement date and the process uses funds described in the Funds available under this scheme section on page 13. The chart below shows how the programme aims to move your money to specific investment funds. These movements take place on a monthly basis as you approach your selected retirement date. The lifetime investment programme cannot be combined with any other funds listed. Your entire policy fund will be invested in the lifetime investment programme if you choose this option. As an alternative to the default investment, you are able to choose from the funds listed on page 13 or the other investment options on the following page. For further details of the funds, please refer to the Funds available under this scheme section on page 13. Flexible Retirement Strategy Target % invested in fund Years to retirement IPRD Lloyds Register Adventurous Fund FL Standard Life Global Absolute Return Strategies IE FL BlackRock Market Advantage (Aquila C) XE FL BlackRock Over 5 Year Index-Linked Gilt Index (Aquila C) IE 11

12 Other investment options About external funds If you invest in Friends Life external funds, you are not investing directly into the fund managed by the external investment manager. Instead you will invest in a Friends Life version of the fund, which will then invest in the external fund, which is called the underlying fund. Please note that external funds generally attract higher charges. The performance and unit price of Friends Life s version of a fund may not exactly match that of the underlying fund. This is partly because it might not be wholly invested in the underlying fund or that it may hold a greater amount of cash assets for a certain amount of time. The unit price will not be the same due to different levels or charge and also because of the pricing basis used and the time taken to buy or sell units. In exercising their discretion Friends Life will take into account the policyholder s trading history in a particular fund or across all funds, the value of their overall holding in a fund, and whether the policyholder is a trustee acting for one or more policyholders. We may give you authority to request your own fund switches between the available funds. If we do, the same conditions and restrictions that apply to us will also apply to you. Please therefore contact Friends Life for more information if you are considering switching funds. Switching your investment choice We, the trustees, can request a switch between the available funds, which can be requested at any time. In some circumstances Friends Life may apply restrictions on switching funds. These are explained in the Policy Conditions which we hold. The member can request a copy of these from us at any time. There is currently no charge for switching between funds, but Friends Life may introduce one in the future in accordance with the Policy Conditions. Friends Life reserves the right to delay the switching of funds. Friends Life reserves the right to refuse any switch request or delay it indefinitely. Friends Life may also limit the number of switches and/or impose a charge for switching. Friends Life may take these actions where they have reasonable grounds to suspect a switch request: arises from aiming to take unfair advantage of market timing opportunities; fits a pattern of excessive short term trading; displays a trading pattern Friends Life thinks will be disruptive to the pricing of the funds involved. 12

13 Funds available under the scheme Funds Risk band Fund AMC High + Lloyd s Register Emerging Markets Equity - Active 0.70% High FL BlackRock (30:70) Currency Hedged Global Equity (Aquila C) IE 0.35% High Lloyd s Register Global Equity - Active 0.60% Medium + FL BlackRock (50:50) Global Equity Index (Aquila C) IE 0.25% Medium + FL BlackRock UK Equity Index (Aquila C) IE 0.25% Medium + Lloyd s Register Adventurous 0.48% Medium + Lloyd s Register Sustainable Investments 1.15% Medium FL BlackRock Market Advantage (Aquila C) XE 0.58% Medium FL BlackRock Over 15 Year Corporate Bond Index (Aquila C) IE 0.25% Medium Lloyd s Register Diversified Growth 0.92% Medium Lloyd s Register Moderate 0.48% Medium FL Standard Life Global Absolute Return Strategies IE 1.02% Medium FL BlackRock Over 15 Year Gilt Index (Aquila C) IE 0.25% Medium FL BlackRock Over 5 Year Index-Linked Gilt Index (Aquila C) IE 0.25% Medium Lloyd s Register Fixed Income 0.25% Medium Lloyd s Register Pre-Retirement 0.28% Medium Lloyd s Register Property 1.00% Low FL BlackRock Cash (Aquila C) IE* 0.35% Important Note All the funds marked with a * primarily invest in Money markets. Please note that securities lending may take place on the unit-linked funds that are directly invested in by Friends Life. Securities lending aims to generate additional income for the funds involved. It is a common practice in financial markets whereby securities are temporarily lent by one financial institution (on behalf of the ultimate owner of the securities), to another financial institution for a fee. The borrowing financial institution provides acceptable collateral (e.g. gilts, other securities) equal to the market value of securities borrowed plus a margin to cover any drop in the value of collateral provided relative to the securities borrowed. Checks on collateral are made daily and further collateral demanded if required. This occurs until the securities are returned. In extreme situations the fund may experience a loss if the borrower breaches its agreement with the lender, and the collateral held, when sold, is insufficient to cover the cost of purchasing the securities lent. Securities lending will not affect any transactions you wish to make on your policy. 13

14 Funds Lloyd s Register Emerging Markets Equity High + Active The aim of the Emerging Markets Equity Fund is to maximise long-term total return (the combination of income and growth of capital). Risk warnings A, B, C, E, F, G FL BlackRock (30:70) Currency Hedged High Global Equity (Aquila C) IE This fund invests primarily in equities, both in the UK and overseas markets. The fund has approximately 30% invested in the shares of UK companies. 60% of the assets are invested at market capitalisation weights into developed equities with the currency exposure hedged back to Sterling and the remaining 10% is invested into Emerging Market Equities. Risk warnings A, B, C, E, F, G, M Lloyd s Register Global Equity Active High The aim of the Global Equity Active Fund is to maximise long-term total return (the combination of income and growth of capital). Risk warnings A, B, C, E, F, G FL BlackRock (50:50) Global Equity Index Medium + (Aquila C) IE To provide returns consistent with the markets in which it invests and it achieves this through investment in other BGI passively managed funds. The Fund invests primarily in equities, both in the UK and overseas markets and has approximately 50% invested in the shares of UK Companies. The remaining 50% is invested in overseas companies, split equally between the US, Europe (ex UK) and the Far East. Risk warnings A, B, C, E, F, G, M Lloyd s Register Adventurous Medium + The aim of the Adventurous Fund is long term capital growth through investment in a diverse range of asset classes including a significant allocation to equities around the world. Risk warnings A, B, C, E, F, G, H, J, M Lloyd s Register Sustainable Investments Medium + The aim of the Sustainable Investments Fund is long-term capital growth through investment in equities meeting certain sustainable requirements. Risk warnings A, B, C, D, E, G, I, M, P FL BlackRock (Aquila C) Market Medium Advantage XE BlackRock state that the fund aims to follow a diversified, risk-controlled investment process to achieve returns on par with a global 60% equity/40% bond portfolio over a market cycle, approximately 40% less risk than the 60/40 comparator and less downside exposure during extreme market conditions. The fund invests in a highly diversified mix of asset classes based on target exposures to fundamental economic risk factors. By managing exposure during market extremes, the fund seeks to deliver long-term returns in line with its target while reducing downside risk. Risk warnings A, B, C, D, E, G, J, L, N FL BlackRock Over 15 Year Corporate Bond Medium Index (Aquila C) IE The 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 fifteen years or longer. The Fund is passively managed. Risk warnings A, B, C, D, H, M, N FL BlackRock UK Equity Index (Aquila C) IE Medium + To achieve a return consistent with the return of the FTSE All Share Index by investing in the shares of UK companies. The Fund is passively managed. Risk warnings A, B, C, G, M Lloyd s Register Diversified Growth Medium The aim of the Diversified Growth Fund is long-term capital growth similar to that of a long-term equity investment but with a lower level of risk. Risk warnings A, B, C, E, F, G, H, J, M, N, O Risk warning codes (see page 8) A Investment is not guaranteed B Price C Suspend trading D Income E Currency risks F Emerging markets G Smaller companies H Fixed interest I Specialist J Derivatives K Money market (cash) L Direct property M Stock lending N Index linked O Property securities P High cash levels 14

15 Lloyd s Register Moderate Medium The aim of the Moderate Fund is long term capital growth through investment in a diverse range of asset classes including a significant allocation to UK bonds and global equities. Risk warnings A, B, C, D, E, F, G, H, J, M, N FL Standard Life Global Absolute Return Medium Strategies IE Standard Life state that the objective of the fund is to deliver a positive absolute return in the form of capital growth over the medium to longer term in all market conditions. The current policy of the fund is to invest in permitted derivative contracts (including futures, options, swaps, forward currency contracts and other derivatives), transferable and fixed interest securities, cash and other collective investment schemes. The fund may use derivatives to meet its objective and for efficient portfolio management. Risk warnings A, B, C, D, E, G, J, K, N, O FL BlackRock Over 15 Year Gilt Index Medium (Aquila C) IE To achieve a return consistent with the FTSE UK Gilts Over 15 Years Index by investing in UK government fixed income securities (gilts) that have a maturity period of fifteen years or longer. The Fund is passively managed. Risk warnings A, B, C, D, H, M Lloyd s Register Fixed Income Medium The aim of the Fixed Income Fund is steady growth ahead of inflation in the medium term through investment in a mixture of inflation-linked UK Government Bonds and Corporate Bonds. Risk warnings A, B, C, D, H, M, N Lloyd s Register Pre-Retirement Medium The aim of the Pre-Retirement Fund is to vary in value in a similar way to changes in variable annuity rates through investment in inflation-linked Government Bonds and cash to allow you to take your tax free lump sum at retirement. Risk warnings A, B, C, D, H, K, M, N Lloyd s Register Property Medium The aim of the Property fund is long-term capital growth. Risk warnings A, B, C, L, O FL BlackRock Cash (Aquila C) IE Low To achieve an investment return that is in line with the wholesale money market short term interest rates. The underlying investments of the Fund are a diversified portfolio of money market instruments which are of a high quality and have a minimum credit rating of A1 or an equivalent standing. Risk warnings A, B, C, D, K FL BlackRock Over 5 Year Index-Linked Medium Gilt Index (Aquila C) IE To achieve a return consistent to the FTSE UK Gilts Index Linked Over 5 Years Index by investing in UK Government index linked gilts that have a maturity period of five years or longer. The Fund is passively managed. Risk warnings A, B, C, D, H, M, N Risk warning codes (see page 8) A Investment is not guaranteed B Price C Suspend trading D Income E Currency risks F Emerging markets G Smaller companies H Fixed interest I Specialist J Derivatives K Money market (cash) L Direct property M Stock lending N Index linked O Property securities P High cash levels 15

16 Further information and help Further information If you want more information about the funds in this brochure, you can find fund factsheets at or you can phone our helpdesk on If you feel you would like advice, you can pay for financial advice from a professional financial adviser. If you don t have an adviser, you can contact the following organisations: Unbiased: Institute of Financial Planning: or at GOV.UK provides impartial UK Government information on pensions at workplace-personal-pensions Contact details Please remember your employer will normally be your first point of contact. If you have any questions, you can: Call Friends Life on at the following times: Monday to Friday between 8.30am and 5.30pm. Friends Life may record calls to improve their service. Calls may be charged and these charges will vary; please speak to your network provider. Friends Life has developed interactive online tools, known as etools, to help you make sense of your pension planning. They can help you to decide which funds to invest in and how much to contribute. Log on to: lloydsregister to register online for access to these useful tools: evaluate with Friends Life helps you to consider your attitude to investment risk and forecast your possible future retirement income by looking at a range of scenarios. It also shows you the funds available on your scheme. efinance enables you to manage your personal finances online and gives you access to: Financial Toolbox which allows you to view a snapshot of your financial position, including any investments you may have. Financial Portfolio which allows you to input information about any investments you may have. etutor is an interactive online learning programme, which can help you further with your retirement planning and decisions. Fax Friends Life on Friends Life at ngp.questions@friendslife.co.uk. Write to Friends Life at Friends Life, PO Box 1550, Salisbury, SP1 2TW. 16

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20 Friends Life and Pensions Limited An incorporated company limited by shares and registered in England and Wales, number Registered office: Pixham End, Dorking, Surrey RH4 1QA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Telephone calls may be recorded. Friends Life is a registered trade mark of the Friends Life group. EMLLOYDSR/B (44275) CIMP IG WT v1.1 July 2014 (44126)