Our Default investment proposition for auto-enrolment pension schemes. A guide for employers. Retirement Investments Insurance Health

Transcription

1 Our Default investment proposition for auto-enrolment pension schemes A guide for employers Retirement Investments Insurance Health

2 About this guide This guide explains the default investment options you can use for Aviva s Company Pension and Company Stakeholder Pension schemes. Please be aware that this document does not provide a personal recommendation and does not constitute a personal recommendation. If a personal recommendation is what you re looking for, please speak to a financial adviser. If you don t already have one, you can find an adviser near you at A financial adviser may charge a fee for their service. 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 default investment proposition 4 Ready-made default approaches 6 Introducing our Future Focus range 7 The approaches in detail 9 More information 18 Governance of auto-enrolment defaults 19 Next steps 20 Introduction Ready-made approaches More info 3

4 Introducing our default investment proposition for auto-enrolment pension schemes Our range of ready made auto-enrolment default options is designed to help you meet your auto-enrolment responsibilities. What our proposition includes: A selection of lifestage approaches: You can choose from our range of 5 Future Focus ready-made lifestage approaches (ready to use with any auto-enrolment scheme). For details please see pages A selection of lifestage outcomes: Our Future Focus range offers ready-made lifestage approaches that target drawdown, annuity and cash lump sum retirement outcomes. Designed by Aviva s investment experts. Flexibility over default choice: Any of our Future Focus approaches can be used as an auto-enrolment default, giving you plenty of flexibility. In addition, you can arrange a bespoke investment option, or options for your scheme. Strong governance: Our fund governance team handles all 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 to ensure they re performing in line with their objectives. Aviva has also established an Independent Governance Committee. Please see page 19 for details. Plus literature for employees: Once you ve set up your 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. If you don t choose a default, we will automatically select Aviva Future Focus 2 Drawdown Lifestage Approach for your schemes. You will need to speak to a financial adviser to choose any of our other Future Focus lifestage investment approaches and to arrange a bespoke investment option, or options for your scheme. 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 manages a members pension pot 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 More info 4

5 You can offer different defaults to different categories of employee. For instance, you could give your office-based staff a separate default from your sales force. You ll need to speak to a financial adviser to arrange this for you. If you don t have a financial adviser you can visit unbiased.co.uk to find an adviser in your area. Please note that no matter which option is chosen the value of the employees pension pots can go down as well as up and they could get back less than has been paid in. Scheme members also have a range of investment options to choose from and can change their investments at any time. You can find out about them by visiting aviva.co.uk/pension-essentials/investment-centre/investment-options/ 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, you can feel confident you re offering your 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 Introduction Ready-made approaches More info 5

6 Ready-made default investment approaches Introducing our Future Focus range 7 The approaches in detail 9 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 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 We can only offer this approach if you are taking financial advice to set up your scheme. This is Aviva s standard default option. If an alternative default isn t selected this approach will be used. We can only offer these approaches if you are taking financial advice to set up your scheme. 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 income 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. Our full Future Focus range is available for all employees to select in addition to any other investment options you choose for your scheme. Employees can only invest in one approach at a time. Specially designed as auto-enrolment defaults Our Future Focus approaches are all designed to be used as auto-enrolment default options. They are designed for those employees most likely to end up in their scheme s default. Every aspect of each approach has been created with this in mind from the funds used, right through to how the investments change as your employees using these approaches near their chosen retirement age. Which means you can use any of them right off-the-shelf as the default option for your auto-enrolment scheme. However, if you re thinking of using any options other than the Future Focus 2 Drawdown Lifestage approach you must seek financial advice. Strong governance What s more, if you use one of our Future Focus range for your auto-enrolment default, we ll handle all the governance required right from day one. Please see the governance section on page 19 for full details. All governance is handled by Aviva. 7

8 Low cost The Financial Conduct Authority (FCA) 2 regulations means that the default fund charges cannot exceed 0.75%. Good news then, that our Future Focus range is specifically designed not to breach this cap. 2 FCA Handbook - Conduct of Business Sourcebook (COBS) Restriction on charges in qualifying schemes. 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 a 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 you don t select an alternative default, 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 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 Aviva Future Focus 3 Drawdown Lifestage Approach This approach offers the potential for positive 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. 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 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 target 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. 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 Fund 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 Fund. 2 The purpose of this stage is to move towards an outcome that aims to rise and fall in value broadly in line with the cost of purchasing an annuity at their chosen retirement age. Stage 3 begins three years from the employee s retirement age. 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 Fund. 3 This stage is designed to target the tax free cash lump sum the employee can choose to take when they take their benefits whilst continuing to move towards an outcome that aims to rise and fall in value broadly in line with the cost of purchasing an annuity with the rest of their pension pot. 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 Fund. 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. 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 lower volatility Aviva Diversified Assets Fund I. 2 The purpose of this stage is to move the investments into a lower risk fund as employees 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 target a cash lump sum, which assumes the employee is considering taking their entire pension pot 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. 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 I 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 target 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. 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% (+/ 2%)* 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: Please see the fund factsheet for the most up to date asset allocation and more information on the fund. Aviva Diversified Assets Fund II (used for Future Focus 2) Aviva Life risk rating: 3 (medium) Target volatility: 10% (+/ 2%)* 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: Please see the fund factsheet for the most up to date asset allocation and more information on the fund. Aviva Diversified Assets Fund III (used for Future Focus 3) Aviva Life risk rating: 3 (medium) Target volatility: 13% (+/ 2%)* 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: Please see the fund factsheet for the most up to date asset allocation and more information on the fund. Additional information Our Diversified Assets Fund range is managed by Gavin Counsell of Aviva Investors. He has been the manager of this fund range since September *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. 15

16 For the de risking/consolidation stages (stages 2 and 3) Aviva Diversified Assets Fund I Aviva Life risk rating: 2 (low to medium) Target volatility: 7% (+/ 2%)* 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. Fund manager: Gavin Counsell, manager of this fund since September Asset allocation: Please see the fund factsheet for the most up to date asset allocation and more information on the fund. 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: This fund is managed by BlackRock on behalf of Aviva. Asset allocation: Please see the fund factsheet for the most up to date asset allocation and more information on the fund. 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. Asset allocation: Please see the fund factsheet for the most up to date asset allocation and more information on the fund. *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. 16

17 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 there might not be very much growth. Funds with a rating of 5 have a higher risk of losing money, but the potential for growth over the long term is higher too. You can find the latest fund information here. 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 price 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/pension-essentials/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 auto-enrolment scheme, we ll take care of the governance required. So you don t have to. Please see page 19 for more details. 17

18 More information Governance of auto-enrolment defaults 19 Next steps 20 Introduction Ready-made approaches More info 18

19 Governance of auto-enrolment defaults The Department for Work and Pensions (DWP) guidance 3 explains how auto-enrolment default options ought to be governed. When you choose an Aviva company pension scheme, we handle these tasks. In fact, if you use one of our Future Focus range as your default, we handle 100% of the governance recommended by the DWP. Aviva s Future Focus 2 Drawdown Lifestage Approach is Aviva s standard default option. If you don t select an alternative default, our Future Focus 2 Drawdown Lifestage Approach will be used. Who s responsible for what? Who handles it? Governance task Aviva You Ensure the approach is suitable for auto-enrolled employees and meets regulatory standards. 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 Communicate information about the default option to scheme members. 4 *The DWP recommends reviewing the default option at least once every three years. However, we review all our Future Focus approaches once every two years. Relatively low cost In addition to the DWP guidance, default fund charges cannot exceed 0.75% under the rules of the Financial Conduct Authority (FCA) 4 and we ensure that this charge cap is not exceeded. 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. 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 your scheme. We will also update scheme literature. 3 Guidance for offering a default option for defined contribution automatic enrolment pension schemes, DWP, May FCA Handbook - Conduct of Business Sourcebook (COBS) Restriction on charges in qualifying schemes. Introduction Ready-made approaches More info 19

20 Go to our website today We hope you ve found this guide useful. If you are interested in setting up an investment solution then visit our auto-enrolment site which tells you how you can auto-enrol with Aviva aviva.co.uk/auto-enrolment/ Introduction Ready-made approaches More info 20

21 Aviva Life Services UK Limited. Registered in England No Aviva, Wellington Row, York, YO90 1WR. Authorised and regulated by the Financial Conduct Authority. Firm Reference Number aviva.co.uk SP /2018 Aviva plc