Choosing investment funds. 1of24

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1 Choosing investment funds 1of24

2 2of24 Contributions paid into a pension plan are used to buy units in one or more of Clerical Medical s investment funds. The amount of pension eventually received will depend on how much these investments have grown in value over the. Investors all have different attitudes to investment risk and reward, and will want to balance their wish for safe, secure investment with the need to see their chosen investment funds grow as much as possible.

3 3of24 Clerical Medical therefore offers a wide range of investment funds to suit virtually every need. The funds are managed in London by Insight Investment Management Limited, their team of investment managers and analysts have a clear mission to help people and companies make their money grow. The investment approach aims to achieve consistent returns over the long term, without exposing the investment to unnecessary risk. To help make the selection of the right fund easier, we have given each of our funds a relative risk classification based on their investment objectives and composition. Investors may want to review their investment choices from time to time perhaps when market conditions or circumstances change. As retirement approaches, they may prefer to move investments into more secure, low-risk funds to give protection against any sudden fall in investment values. With Clerical Medical this is very easy to do, as we allow investors to switch investments between funds, or to direct future contributions into different funds, as often as they like and at no charge. As retirement approaches, it is likely that attitudes to investment risk will have changed, with investors perhaps preferring not to be actively switching investments. It is for this reason that we have designed a Lifestyle Investment Programming facility which provides an automatic programme of fund switches as retirement approaches. More details are on page 12. Clerical Medical Investment Group Limited 1

4 4of24 What are the investment options? There is a range of different types of investments to choose from: The With-Profits Fund* Shares in the long-term performance of Clerical Medical s With-Profits Fund Managed Funds Fully managed unit-linked funds Specialist Funds Unit-linked funds which specialise in particular markets Lifestyle Investment Programmes Automatic, staged fund switching programmes Please remember the value of an investment may fluctuate and cannot be guaranteed. *Please note: The With-Profits Fund is not available to members of the Group Stakeholder Pension Plan 2 Clerical Medical Investment Group Limited

5 5of24 With-Profits Fund Fund objective With-profits investments aim to deliver performance based on a mix of assets including company shares, whilst smoothing through some of the peaks and troughs of stockmarket values. an element of guaranteed performance. We share out the performance (the profits ) of our With-Profits Fund to its investors, by paying bonuses. In this way, the investors share in the fortunes of the fund. What is a with-profits investment? The with-profits package is made up of three related features: investment in a mix of assets, including company shares smoothing of the investment performance to reduce the investment risk The mix of assets in the fund The fund is made up of shares in companies in the UK and overseas, property and fixed interest investments, together with a small proportion in other types of investment, including cash. Company shares and property are higher risk than fixed interest investments, and their value tends to fluctuate more. But over longer periods they also tend to produce better returns, so we can hold a high proportion of the fund in these types of assets. Clerical Medical Investment Group Limited 3

6 6of24 What affects how much I might get? The main factor is the investment performance of the assets that make up the With-Profits Fund. Other factors are: how we share out the investment returns from the fund between different investors through the smoothing process our charges, which are summarised in the illustration document the guaranteed minimum value, if the guarantees apply when you take money out of the With-Profits Fund a deduction that may be made to support the guarantees on policies of other groups of investors, for example if investment returns are below guaranteed levels. This is an example of how the different groups of with-profits investors collectively share in the fortunes of the whole With-Profits Fund. What are the bonuses? There are two types of bonus: A regular bonus (sometimes called bonus interest ), which increases your investment s value over time. We decide the rate once a year, but we can change it mid-year in exceptional circumstances. We add it to your investment by increasing the value of the units you have in the With-Profits Fund (the unit price) throughout the coming year. The unit price is guaranteed not to decrease over time. A possible final bonus (sometimes called terminal bonus ), which we add when you take money out of the With- Profits Fund. We normally review this twice a year, but we can change it at short notice if investment conditions change significantly. Details of the regular bonus interest rate is shown in the Technical details leaflet. 4 Clerical Medical Investment Group Limited

7 7of24 What are the guarantees? If you die or take money out of a with-profits fund at Normal Retirement Age, any bonus interest added to the value of the units will be guaranteed. If you take money out of a with-profits fund other than on death or at your selected retirement date, we may need to make a reduction to the money taken out of the fund, called a market value reduction (formerly known as a market value adjuster), and we may pay out less than the value of the units. For further details, please refer to the leaflet With-profits summary (reference X1331). The ultimate value of an investment in a with-profits fund depends on the level of future bonuses, which cannot be guaranteed. Clerical Medical Investment Group Limited 5

8 8of24 Managed funds These are fully managed, unit-linked funds. The investment managers select from a specified range of investment markets and sectors to achieve the objectives of the fund. Unit-linked funds offer returns directly driven by the performance of stocks, shares and other assets in which the funds are invested. These funds can show s but less stability than the With-Profits Fund. Please remember the value of an investment may fluctuate and cannot be guaranteed. The Balanced Managed Fund The fund is a managed fund in which the manager has full discretion to invest in a range of UK and overseas equities, fixed interest, index-linked stocks, property and cash investments. It aims to provide long-term capital growth. The Cautious Managed Fund The fund aims to achieve long-term growth by re-investing the income generated by the underlying assets. The manager invests predominantly in UK equities, fixed interest, index-linked stocks and cash. 6 Clerical Medical Investment Group Limited

9 9of24 The Adventurous Managed Fund The fund may invest in an unrestricted range of global equities, with the aim of providing higher long-term growth than the average balanced managed fund. The fund is suitable for those who accept a higher degree of risk. International Fund The manager may invest in UK and overseas equities, with the aim of providing long-term capital growth. The fund generally aims to have a higher exposure to overseas equities than the average balanced managed fund. Non-Equity Managed Fund The fund invests in a range of commercial property, cash investments, fixed interest and index-linked stocks and aims to provide a long-term total return in excess of returns offered by high interest savings accounts. Clerical Medical Investment Group Limited 7

10 10 of 24 Specialist funds These are unit-linked funds. The investment managers select from a specified range of investment markets and sectors to achieve the objectives of the fund. Unit-linked funds offer returns directly driven by the performance of stocks, shares and other assets in which the funds are invested. These funds can show s but less stability than the With-Profits Fund. Please remember the value of an investment may fluctuate and cannot be guaranteed. UK Equity Fund The fund invests in a range of UK equities with the aim of providing long-term growth. UK Equity Tracker Fund The fund aims to achieve long-term growth by investing in a representative sample of UK equities, and for these assets to match the capital performance of the FTSE All-Share index. Equity High Income Fund The fund aims to provide an above average and increasing income, together with long-term capital growth by investing primarily in shares of UK companies. 8 Clerical Medical Investment Group Limited

11 11 of 24 Ethical Fund The fund aims to achieve long-term capital growth by investing primarily in shares of UK and/or European companies that meet a range of ethical criteria. European Fund The fund aims to achieve long-term capital growth by investing primarily in shares of European (excluding UK) companies. North American Fund The fund aims to achieve long-term capital growth by investing primarily in shares of US companies. Japan Fund The fund aims to achieve long-term capital growth by investing primarily in shares of Japanese companies. Clerical Medical Investment Group Limited 59

12 12 of 24 Specialist funds (continued) Pacific Fund The fund aims to achieve long-term capital growth by investing primarily in shares of Asian (excluding Japan) and Australasian companies. Property Fund The fund invests in retail, office, industrial and agricultural properties, and may also finance developments and acquire land for development. It aims to provide long-term growth. Retirement Protection Fund The fund aims to preserve the level of retirement income by providing protection against changes in the cost of pension annuity purchase, through investment in long-dated UK gilt edged stocks. Gilt and Fixed Interest Fund The fund invests in a range of fixed interest assets with the aim of providing long-term growth. 10 Clerical Medical Investment Group Limited

13 13 of 24 Index-Linked Fund The fund invests in a range of securities where the capital value and/or interest payments are linked to a specific index. UK Smaller Companies Fund The fund aims to achieve long-term capital growth by investing primarily in UK smaller companies. The Cash Fund The fund invests in deposits and other short-term money instruments with the aim of providing the best return consistent with protection of capital. Halifax Fund The fund s assets are wholly placed on deposit within the HBOS Group. The rate of return is a variable rate, which moves in line with the Bank of England base rate. Please note: External fund links may be available on your plan. If you would like further information, please contact your financial adviser. Clerical Medical Investment Group Limited 11

14 14 of 24 Lifestyle Investment Programming Some investors may not wish to actively manage their investment funds as they get closer to retirement. It is for this reason that we offer Lifestyle Investment Programming which allows for automatic, staged movement towards less risky investments. Clerical Medical has designed three programmes to choose from the Cautious option, the Balanced option and the Adventurous option. The Lifestyle Investment Programmes automatically move investments to less risky funds as retirement approaches. The programmes aim to give a fund value at retirement that has not been reduced by the long-term effects of inflation. Clerical Medical has designed three programmes to choose from the Cautious option, the Balanced option and the Adventurous option. All three programmes invest in equities to some extent, as equities have historically outperformed inflation over the long term. Please note: Past performance is not necessarily a guide to future performance. By investing in equities in different proportions, the three programmes offer different investment growth to fit different attitudes on investment risk. The Adventurous option is for those people who wish to invest exclusively in equities, both UK and overseas, for the majority of their retirement savings period. The Balanced option invests approximately 80% in equities, whilst the Cautious option invests approximately 55% in equities. As retirement approaches, the need to protect against the effects of inflation reduces and is replaced by 12 Clerical Medical Investment Group Limited

15 15 of 24 the need to protect the fund from the impact of: a reduction in the capital sum that has been built up volatile investment markets which can see the value of the fund fluctuate suddenly a rise in the cost of buying the pension at retirement. Therefore, all three programmes start to reduce exposure to equities as retirement approaches. The reduction from equity to more secure investments is different for each programme to reflect the different risk profile and is shown in more detail in the tables on pages 14 to 19. This reduction will start ten before retirement date and will continue in differing degrees until two from retirement, when all three programmes will have minimal exposure to equities. From this point until retirement, the main aim of all three programmes is to protect the amount of pension that can be bought with the fund value, and also to increase its value by investing in more secure deposit based investments. We do this by investing in the Retirement Protection Fund and the Halifax Fund. We invest in the Retirement Protection Fund because the amount of pension that can be bought at retirement depends on: the amount of fund value built up, and the annuity rates used by the insurance company from which the pension is bought. Annuity rates go up and down according to the investment performance of UK gilt-edged stocks. By investing in these same UK gilt-edged stocks, the Retirement Protection Fund closely matches the fluctuations of annuity rates, which means that approximately the same amount of pension can be bought, regardless of whether annuity rates go up or down. We invest in the Halifax Fund, as it is a deposit-based investment, which will help protect the value of the fund saved so far. Clerical Medical Investment Group Limited 13

16 16 of 24 Cautious option The Cautious option aims to provide long-term capital growth, combined with security near to retirement. Initially, investment will be in the Cautious Managed and Balanced Managed Funds. Ten from retirement date the investment mix will progressively be moved to the Cautious Managed Fund. New contributions will be invested in the Cautious Managed Fund. Five from retirement date the investment mix will be progressively moved to the Non-Equity Managed Fund. New contributions will be invested in the Non-Equity Managed Fund. Two from retirement date the investment mix will be progressively moved to the Retirement Protection and Halifax Funds. New contributions will be invested in the Retirement Protection Fund (75%) and the Halifax Fund (25%). The graphs opposite show the progression from funds aiming to provide capital growth to those aiming to offer security near to retirement. Details of the various funds are shown on pages 6 to Clerical Medical Investment Group Limited

17 17 of 24 Cautious option Asset distribution for new contributions 100% Asset distribution 80% 60% 40% 20% 0% year Retirement date Term to retirement Cautious option Asset distribution for existing contributions 100% Asset distribution 80% 60% 40% 20% 0% year Retirement date Term to retirement Halifax Cautious Managed Non-Equity Managed Retirement Protection Balanced Managed Clerical Medical Investment Group Limited 15

18 18 of 24 Balanced option The Balanced option aims to provide long-term capital growth, combined with security near to retirement. Initially, investment will be made in the Balanced Managed and UK Equity Funds. Ten from retirement date the investment mix will be progressively moved to the Balanced Managed Fund. New contributions will be invested in the Balanced Managed Fund. Five from retirement date the investment mix will be progressively moved to the Cautious Managed and Non-Equity Managed Funds. New contributions will be invested in the Cautious Managed Fund (75%) and the Non-Equity Managed Fund (25%). Two from retirement date the investment mix will be progressively moved to the Retirement Protection and Halifax Funds. New contributions will be invested in the Retirement Protection Fund (75%) and the Halifax Fund (25%). The graphs opposite show the progression from funds aiming to provide capital growth to those aiming to offer security near to retirement. Details of the various funds are shown on pages 6 to Clerical Medical Investment Group Limited

19 19 of 24 Balanced option Asset distribution for new contributions 100% Asset distribution 80% 60% 40% 20% 0% year Retirement date Term to retirement Balanced option Asset distribution for existing contributions 100% Asset distribution 80% 60% 40% 20% 0% year Retirement date Term to retirement Halifax Cautious Managed Non-Equity Managed Retirement Protection Balanced Managed UK Equity Clerical Medical Investment Group Limited 17

20 20 of 24 Adventurous option The Adventurous option aims to provide long-term capital growth, combined with security near to retirement. Initially, investment will be made in the UK Equity and International Funds. Ten from retirement date the investment mix will be progressively moved to the Balanced Managed Fund. New contributions will be invested in the Balanced Managed Fund. Five from retirement date the investment mix will be progressively moved to the Cautious Managed Fund. New contributions will be invested in the Cautious Managed Fund. Two from your retirement date the investment mix will be progressively moved to the Retirement Protection and Halifax Funds. New contributions will be invested in the Retirement Protection Fund (75%) and the Halifax Fund (25%). The graphs opposite show the progression from funds aiming to provide capital growth to those aiming to offer security near to retirement. Details of the various funds are shown on pages 6 to Clerical Medical Investment Group Limited

21 21 of 24 Adventurous option Asset distribution for new contributions 100% Asset distribution 80% 60% 40% 20% 0% year Retirement date Term to retirement Adventurous option Asset distribution for existing contributions 100% Asset distribution 80% 60% 40% 20% 0% year Retirement date Term to retirement Halifax Cautious Managed International Retirement Protection Balanced Managed UK Equity Clerical Medical Investment Group Limited 19

22 22 of 24 Who chooses the investment funds? Groups of individual personal and stakeholder pension plans Individual members can make their investment choices from the Clerical Medical Performance Pensions fund range and switch funds whenever they like during the life of the plan. Conventional company pension plans and plans designed to take additional voluntary contributions The trustees of the plan can choose how the contributions will be invested and which funds will be made available. They may also allow members to make their own selection from these funds. Important notes All funds listed in this booklet have an annual management fee. The fee is taken daily from the unit price. The fee for with-profits is reflected in the regular bonus rates paid. For groups of individual personal and stakeholder pension plans we will provide you with a personal illustration of all the charges based on the actual pension payments to be made, when you join the plan. For employees of conventional company pension plans and plans designed to take additional voluntary contributions we will provide the trustees with sample illustrations of all the charges. You can ask the trustees for copies of the sample illustrations. Clerical Medical Investment Group Limited Clerical Medical Investment Group Limited is part of the HBOS Group, one of the largest financial services groups in Europe. Insight Investment Management Limited Insight Investment Management Limited is the asset management business of the HBOS Group and were formerly known as Clerical Medical Investment Management. The terms and conditions in this booklet are those which applied at the time it was published and could alter in the future. 20 Clerical Medical Investment Group Limited

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24 24 of 24 Part of the HBOS Group Issued by Clerical Medical Investment Group Limited. Registered Office 33 Old Broad Street, London EC2N 1HZ. Registered in England and Wales, Registered No Authorised and regulated by the Financial Services Authority. E995/1103