The Metal Box Pension Scheme and AVC Plan Investment Guide

Transcription

1 The Metal Box Pension Scheme and AVC Plan Investment Guide June 2007

2 A Glossary of special pension terms used in this booklet can be found on the fold-out flap at the back

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4 Contents Introduction 2 What you need to think about 3 What is investment risk? 4 Does my age matter? 5 Your attitude to investments 6 What choice of funds do I have? 7 Can the Investment Manager or investment funds be changed? 7 Are there any limits to my investment choices? 7 How do I decide which fund(s) to select? 8 What charges are made to my Account? 10 Can I follow how my Account is growing? 11 Can I vary or switch funds? 11 How can I find an Independent Financial Advisor? 11 Expected outcome 12 1

5 Introduction You will find this guide useful if you are about to join or you have already joined the DC Section of The Metal Box Pension Scheme or the Metal Box AVC Plan, and you are looking for more information about investing. In these types of pension arrangement, the amount of pension you will get depends both on how much has been invested and how the investment funds that you select have performed. Making the right investment decisions is important. Your investment decisions will affect how much money you have available to buy a pension when you retire. The better your chosen funds perform, the faster your pension Account will grow. With this in mind, please take the time to read this guide and make sure you have understood your choices. This guide explains the basics of investing, why you should consider investment risk, and why your age matters. Understanding more about how investments work will help in making investment decisions a less daunting and a more straightforward process. It also contains information about the options available to you. This guide is for general information. If you need advice you should speak to an Independent Financial Advisor. It is necessary for you to decide how the assets in your Account should be invested before you can become a contributing Member of either the DC Section or the AVC Plan. Once you have chosen the fund(s) in which you wish your Account to be invested, please complete the Contribution & Investment Choices form or the Investment Switches form, as applicable. These forms are available from your Human Resources Department. 2

6 What you need to think about It is important that you understand the basics of investment as well as the investment options that you have in your pension scheme, so that you feel confident in making decisions on where to invest. The investment funds available will broadly fall into four categories, known as asset classes :- Equities (often called shares ) Property Bonds Cash Equities These are shares in companies. By buying equities you are taking part-ownership in the companies concerned. The day-to-day market value of the equities you buy will go up and down largely depending on the performance of the company that you have part-ownership in, as well as general investment market conditions and the state of the economy. The rapid changes in the market value of equities is often called volatility. Property These funds typically invest in commercial property such as retail, office and industrial premises. Their market value can also fall as well as rise. Bonds and gilts These are loans to governments, companies and other institutions who need to borrow money. Generally speaking they pay a known rate of interest for the term of the loan, but their market value can still vary up or down from time to time, due to changes in general investment market conditions and the state of the economy. Cash Also known as deposit-based savings, a cash fund works very much like a building society or bank deposit account. Interest is paid based on market conditions and accumulates on a regular basis for as long as the money is invested. The accumulated sum of money invested will not reduce due to changes in general investment market conditions and the state of the economy. The nature of these basic asset classes can be slightly different. For instance, equities can be investments in UK companies or foreign-based companies. In addition, some investment funds may contain more than one asset class. For example, a fund may have both equities and bonds in it. Knowing the key characteristics of the different asset classes will help you understand the investment options available to you. Each asset class can be expected to deliver an investment return. However, each asset class also has risk characteristics. This concept is explained further on page 4. 3

7 What is investment risk? You may think that the only risk you need to consider is that investments can fall in value. But when it comes to investing your pension Account, you should consider four types of investment risk. Inflation risk This is the risk that the value of investments will not grow quickly enough to keep up with inflation (general price increases). Even if your investment grows in value, if it does not grow in line with inflation, the real value (or buying power) of your investment will be less. Most funds can be considered to grow broadly in line with inflation in the long run, but some funds carry more risk than others. The best way to reduce inflation risk would be to hold a particular type of UK Government bond, called an index-linked gilt, that protects against inflation. Annuity price risk When you retire, you can take part of your pension as a cash lump sum. If you are a Member of the DC Section, the balance of your Account will be used to purchase a pension with an insurance company of your choice. This is known as the Open Market Option. The pension bought is sometimes called an Annuity. How much this costs depends on the rates (or prices) set by the insurance companies who sell you the Annuity. If you are a Member of the AVC Plan, one of the options you will have is the Open Market Option. You will also have the option of purchasing a pension from the DB Section of the Scheme on terms set by the Trustee from time to time, which depends on underlying economic and demographic conditions. The higher the price of bonds, the more your Annuity costs and the less pension you can buy. However, if you are invested in bonds immediately before you retire, the value of your pension fund is linked to the price of bonds and to the price of annuities. So, to the extent that you buy bonds before you retire, you protect yourself against Annuity rates rising in the future and reducing the amount of pension you can buy. In other words, an appropriate bond fund provides a reasonable degree of protection against Annuity price risk. Equities, property, cash and all other non-bond investments on the other hand are open to Annuity price risk. Capital value risk This is the risk that the value of your investments can go down as well as up. This can happen with funds invested in equities (shares in companies) and to a lesser extent bonds such as loans to governments. If you invest in equities, the risk is that the value of your investments may fall, which can be particularly unwelcome just before you want to retire. Cash funds have very little scope for falling in value, whereas most other funds will suffer some degree of capital value risk, that is, the risk of losing value. Missed-opportunity cost risk In the past, higher risk investments such as shares in companies have performed better over the long-term than other long-term investments such as cash or bonds. Of course, increased returns are not guaranteed by taking on more risk. However, it is generally accepted that riskier funds such as equities can be expected to deliver greater long-term rewards than less-risky funds such as bonds or cash, but with greater volatility. The direct result is that you can generally expect a lower pension if you are not prepared to take some investment risk. 4

8 Does my age matter? Your age does matter because the relative importance of the four different risks we have just run through - that is inflation risk, annuity price risk, capital value risk and missed-opportunity cost risk - all become more or less important as you approach retirement. When you are a long way from retirement When you are young, you will probably be looking for good long-term investment growth and capital value risk and annuity price risk will probably concern you less. Inflation risk and missedopportunity cost risk are likely to be the most pressing to you at this time. This is because you have time to weather the ups and downs of changes in the markets and are likely to be able to target higher returns without undue concern. So you could consider investing in equity-based funds or other funds that you consider might generate high returns. As you approach retirement You will probably want to protect your investments from sharp falls in the markets. This will be more important if you are going to be buying an Annuity and / or take a cash sum. In other words annuity price risk and capital value risk are likely to be important to you, so you could consider investing in bond and cash funds which broadly track the cost of buying an Annuity and taking a lump sum when you retire. What s next? If you are about to join the DC Section of The Metal Box Pension Scheme, or the AVC Plan, you should carefully review the investment options available to you before deciding where to invest your Contributions and those made by the Company to the AVC Plan or Credits made by the Trustee to the DC Section. Regular review If you are already a Member, you should regularly review where your Contributions and the Credits / Company Contributions are currently being invested and review the fund options that are available to you. Your investment decisions should not be a once-and-for-all decision. You will be able to make changes if you choose, enabling you to switch your investments, especially in the years leading up to your retirement. If you are not sure what type of investor you are, there is a useful exercise on page 6 that may help you to understand your own attitude to investments and risks. 5

9 Your attitude to investments You need to consider how you feel about making investments. Understanding the different types of asset classes (equities, property, bonds and cash) should help you to decide how to invest your DC Section or AVC Plan Account. Doing this might help you to feel more comfortable with the investment decisions you make. The following exercise will enable you to check your attitude towards investing generally. Review the statements below and tick the box that best describes how you feel about them. If you strongly agree with Statement A, tick box 1, but if you strongly agree with Statement B, tick box 5. Tick box 2, 3 or 4 if you fall between the two statements. Tick where you fall between Statements A and B Statement A Statement B A I want to protect my savings. I d be worried if they fell in value, even temporarily I want to earn more on my savings. I am willing to take a risk that they may fall in value. B If the stock market crashed, I would cut my losses, sell my shares and put money in the building society If the stock market crashed, I would buy more shares at a lower price. C If I had a choice between a guaranteed payment of 1,000 or a one-in-five chance of a payment of 10,000, I d definitely take the 1, If I had a choice between a guaranteed payment of 1,000 or a one-in-five chance of a payment of 10,000, I d definitely take the chance. D I don t follow the stock market I follow the stock market and have a view on its prospects. E I don t like investing in shares, they are too risky I don t worry about short-term falls in share prices - shares are a way of making money over time. Now add up your score. See what your answers suggest about your attitude to investing and then measure them against our investment profiler. This will give you an idea of the types of assets you may want to consider investing in. Investment profiler Consider less equities (and property) and more bonds and cash Consider more equities (and property) and less bonds and cash 5 to 8 You are a very cautious investor 9 to 12 You are a fairly cautious investor 13 to 17 You are an investor who is prepared to take some investment risk to get higher rewards 18 to 21 You are an investor who will accept higher investment risk in return for the chance of higher rewards 22 to 25 You are an investor who is happy to take more investment risk to maximise growth Deciding how to invest your Account should not be a once-only decision Although you should take a long-term view, you should review how your Account is invested on a regular basis to make sure that your choice continues to suit your circumstances, particularly in the years shortly before you retire. 6

10 What choice of funds do I have? The Trustee, after taking appropriate advice, has appointed Standard Life to make available an appropriate range of different funds. Standard Life manages a wide range of funds with different investment characteristics. It is also possible to access funds from a number of other Investment Managers, via Standard Life. Members of the AVC Plan who joined prior to 1 January 2001 and were, at that time, already contributing to the Equitable Life With Profits or Managed Fund, may continue to do so. However, if you contribute to the Equitable Life With-Profits fund, it is recommended that you consult an Independent Financial Advisor and consider alternative funds for your future Contributions. The full range of funds available to you on the Standard Life platform can be found on the Metal Box website pages provided by Standard Life at From the What funds should I invest in? page on the website, you will be able to find information, fund factsheets and tools to help you make your investment choices. Can the Investment Manager or investment funds be changed? The Trustee reserves the right to select different investment managers or investment funds at any time, or to agree a different scale of charging for investment services and advice. The Trustee may do this without consulting you, as and when alternative suitable funds become available, or if it is felt prudent to do so. The Trustee or the investment manager will tell you if any of the investment funds are withdrawn. If this happens, you may have to make a revised election of the investment funds in which your Contributions and the Credits / Company Contributions are to be invested. You may also need to take independent financial advice, as you may wish to consider switching part or all of your accumulated Account into one or more of the selection of funds available at that time. Are there any limits to my investment choices? You may invest in not more than 12 of the Standard Life range of funds at any one time. The maximum number of different funds from the Standard Life range you can invest in during your membership is 20 funds. You may invest only in one Lifestyle Profile at any one time. If you elect to invest in one of the Standard Life Lifestyle profiles, the only other fund available from the Standard Life range is With Profits One if you first contributed to Standard Life before 10 July 2006, or With Profits One 2006 if your first contribution to Standard Life was after that date. 7

11 How do I decide which fund(s) to select? You must choose at least one fund before you can become a Member of the DC Section or the AVC Plan. By law, neither the Company nor the Trustee can give you advice, and the choice of funds for investing your Contributions and the Credits / Company Contributions, is your responsibility. To assist you in making your decision, you may wish to consider making use of one or more of the following:- Standard Life Helpline The Trustee has made available a Helpline service at Standard Life. Information provided by Standard Life will be limited solely to Standard Life s in-house fund options and will not include the funds available from the external providers or from Equitable Life. Separate factsheets are available from your Human Resources Department which describe how this service works. The helpline team can be contacted on , between 9am and 5pm Monday to Friday. Standard Life Website Metal Box website pages have been provided by Standard Life at From the What funds should I invest in? page on the website you will be able to find information, fund factsheets and tools to help you make your investment choices. Core Range Having taken advice from the Scheme s Investment Advisor, the Trustee has identified a core range of funds which you may wish to consider. You should be aware that, whilst this range may match the risk / reward profile of the majority of Members, you should remember to consider the full range of funds. There is no guarantee that these funds will perform better than other funds in the available range or that they are more suitable for you than the other funds available. The range of funds identified by the Scheme s Investment Advisor does not constitute individual financial advice and you may wish to obtain independent financial advice before making any decisions. The core range of funds is as follows:- SELF SELECT FUNDS Fund Code Description Cash / Money Market: Standard Life Pension Sterling One GS Invests in interest bearing deposits and other money market securities with the major London clearing banks. Aims to provide a short-term home for cash and to match the tax free cash profile on retirement. Bonds: Standard Life Pension Corporate Bond One HH Invests principally in the UK non-gilt fixed interest market (i.e. corporate bonds). Standard Life Pension Index-Linked One FL Invests principally in UK Government issued index-linked treasury stock. 8

12 Bonds (cont ): Fund Code Description Standard Life Pension Protection One F9 Invests primarily in long-dated UK Government Gilts. It offers plan holders approaching retirement the opportunity to switch into a fund which aims to minimise any changes in the level of pension income at retirement resulting from changes in the cost of purchasing an Annuity in the period before retirement. Equity: BGI UK Equity Index JP A passive fund which invests in the shares of UK companies and aims to achieve a return that is consistent with the return of the FTSE All Share Index. BGI Global Equity 50:50 Index JO A passive fund which invests mainly in Equities. It has approximately 50% invested in the shares of UK companies and 50% invested in overseas companies, split equally between the USA, Europe (excluding UK) and the Far East. The fund aims to provide returns consistent with the markets in which it invests and provides broad exposure to countries around the world. Invesco Perpetual High Income Fund K1 An active fund which invests primarily in companies listed in the UK, with the balance invested internationally. The fund aims to achieve a high level of income together with capital growth. Newton International Growth Fund 5V An active fund which aims to achieve capital growth from a portfolio of international securities. Property: Standard Life Pension Property One FM A fund invested primarily in prime quality commercial properties throughout the UK. LIFESTYLE PROFILE Fund Code Description BGI Global Equity 50:50 Index Profile 1BGI An investment profile where your investments are automatically altered by Standard Life, to reflect the changing risks as you approach retirement. In this profile, 100% of assets are invested in the BGI Global Equity 50:50 Index fund until you reach five years of your normal retirement age. In the final five years, the asset allocation is gradually switched until you reach your normal retirement age. At this point, 25% of the fund will be invested in the Standard Life Pension Sterling One fund and 75% in the Standard Life Pension Protection One fund. 9

13 What charges are made to my Account? Each of your payments will have an allocation rate of 100%. This means that, for each 100 you pay, Standard Life will invest 100 to buy Units in the funds you have chosen. A charge is made for managing the investments. For investment linked funds, this is known as a fund management charge and is set as an annual percentage of the value of your funds. The fund management charge varies from fund to fund and currently ranges between 1.00% and 2.00% a year of the value of your fund. There is a rebate each year on investment linked funds on the Standard Life platform, which is delivered by the monthly creation of additional Units in each fund. The rebate is 0.30% a year for the DC Section and 0.45% a year for the AVC Plan. No explicit fund management charge is taken from the With Profits funds you may select because Standard Life make deductions for their costs, including an allowance for the cost of guarantees provided by With-Profits business, and an appropriate profit margin to support their capital requirements. The rebate described above does not apply to the With Profits funds. All the charges are regularly reviewed, and may be changed to take account of changes in costs. The details of the charges that apply to specific individual funds can be found on the Metal Box website pages provided by Standard Life at Different rates apply to the Equitable Life Funds and further information regarding these can be provided on request. Unit price adjustment on With-Profit funds Standard Life reserves the right to apply a unit price adjustment on the With Profits fund. Equitable Life reserves the right to apply a financial adjustment on its With Profits fund. These adjustments vary from time to time, depending on underlying economic conditions. They may be varied with no notice. Further information regarding these adjustments can be provided by the Pensions Department, on request. 10

14 Can I follow how my Account is growing? Yes. You will receive an annual statement, which will show the Contributions made by you, the Credits / Company Contributions made in the year, and their current value. You may also check the value of your Account via the customer login on the Metal Box website pages provided by Standard Life at or by contacting the Pensions Department. Can I vary or switch funds? Due to the different types of risk, and the fact that the importance of each one to you can change over time, it is important to understand that the decisions you make on how to invest your Account are not set in stone. You should review your investment choices regularly to check that your investments are still appropriate - especially if you decide to change your planned retirement date, or if you vary your rate of Contributions. You may vary your investment choice for your future Contributions and the Credits / Company Contributions on a monthly basis, provided you give sufficient notice to the Trustee. Accumulated funds in whole or in part may also be switched to an alternative fund. Standard Life may make a charge for switches if it involves an externally managed fund and / or you make more than 20 switches in a 12 month period. Equitable Life may make a charge if you make an excessive number of switches in a year. To vary your investment choices for future contributions, you will need to complete a Contribution and Investment Choices form. To switch your accumulated funds, you need to complete an Investment Switches form. Both forms are available from your Human Resources Department. How can I find an Independent Financial Adviser? You can find the name of a local independent financial adviser through the Citizens Advice Bureau or your local telephone directory. Alternatively, you can contact Independent Financial Adviser Promotion Limited (IFAP) on telephone number or at They will provide you with a list of authorised local financial advisers. Neither the Company nor the Trustee can take responsibility for the quality of guidance that you may receive from Standard Life, any independent financial advice that you receive, or for any actions that you subsequently take. 11

15 Expected outcome The volatility of both equity and bond markets over the years has highlighted the fact that past performance is no guarantee of future performance. However, it is important to plan your investment strategy, and to take risk appropriate to your age and personal circumstances. As explained in the Scheme booklets, the more you contribute, the greater will be your benefits on your retirement or death. Disciplined planning for your retirement and making adequate and regular Contributions towards saving for your retirement over your full working career, are some of the most important financial decisions you will ever make. 12

16 Glossary of special pension terms used A number of words and phrases that are used in this booklet have special meanings. They are explained below, and are shown in bold purple type and begin with a capital letter when used in this booklet. Please fold out this page so that you can refer to it while reading this booklet. Account Annuity AVC Plan Company Company Contributions Contributions Credits DB Section DC Section Scheme Trustee The total accumulated assets separately identified to provide benefits for you. This is sometimes referred to as a fund value, or in the DC Section, your Personal Account. The pension you may buy from an insurance company on retirement. The Annuity is normally paid in a series of regular monthly instalments for the rest of your life. The Metal Box AVC Plan. Your employer, being a Company in the CROWN Group of Companies in the United Kingdom that participates in the Scheme/AVC Plan. The Contributions made by the Company to the AVC Plan. The Contributions you make to the AVC Plan or the DC Section. The Matching and Extra Credits made by the Trustee to the DC Section. The Defined Benefit Section of the Scheme. This Section is closed to new Members. The Defined Contribution Section of the Scheme. The Metal Box Pension Scheme. Metal Box Pension Trustees Limited.

17 Open this flap to see a Glossary of special pension terms used in this booklet

18 This booklet is published by Metal Box Pension Trustees Limited, the Trustee of The Metal Box Pension Scheme and the Metal Box AVC Plan June 2007