Coats Pension Plan Choosing your investment funds
Choosing your investment funds Choosing your investment funds doesn t have to be complicated. In this brochure we aim to help you get a better understanding of what it s all about, and the things you will need to consider. To enable you to do more of the things you enjoy in your retirement, your pension savings will need to work hard for you. This is why the contributions into your account are invested into investment funds. The aim is to increase the value of your account over time. You should be aware that the value of investments can go down as well as up, and is not guaranteed. You could get back less than you have paid in. You can find more help by logging on to www.friendslife.co.uk/membersite For specific help and information about choosing investment funds you can look at our online tool, evaluate with Friends Life. This helps you to consider things like your attitude to investment risk, and how to choose your investment funds. This document was produced in January 2015 and is accurate as at that date. When reviewing your fund choices you should refer to up-to-date information, available online at www.friendslife.co.uk/customer/funds or by calling the helpdesk on 0845 602 9221. If you are not confident in making investment decisions, you should contact a financial adviser. You may have to pay for this advice.
Contents Introducing investment funds page 4 What you need to think about page 5 Choosing your investment funds page 13 Looking after your pension account page 15 Your next steps page 17 Further information and help page 18 This brochure should be read together with: The Fund descriptions, their charges and risk warnings document, which is issued together with this document or found online at www.friendslife.co.uk/doclib/bpen918c.pdf. The Key features illustration, which is issued together with this document or found online at www.friendslife.co.uk/doclib/mpen19m.pdf. If you do not have all this documentation, please call 0845 602 9221. 3
Introducing investment funds Why do I need to know about investment funds? The total contributions paid into your pension account are invested in one or more investment funds. An investment fund pools together the money paid by many individual investors. Investment specialists manage these funds with the aim of increasing the value of the money invested in the fund over time. Why do I need to choose an investment fund? Choosing investment funds is a very important decision. This is because the performance of the funds you choose helps determine the value of your pension account at retirement. You want to get the best return for your investment but this has to be balanced against the level of risk you are prepared to take. You ll find more information about risk and reward on pages 9 to 11. Where do I start? When choosing funds, you will need to consider a number of factors. Firstly, you will need to decide when you want to retire, because a pension is a long-term investment and usually the longer you save for, the better. You will also need to consider the amount of pension you are aiming to retire with. Investment governance At Friends Life we have a dedicated investment team who have a clear objective to develop and maintain a robust investment proposition. They proactively monitor and review all the funds that are offered through all our pension schemes, adding new funds that are worthy of inclusion. The fund range may change from time to time. As a result, funds that are available now may not be available in the future. If you are invested in a fund that is withdrawn, we will write to you and offer an alternative investment fund at that time. What happens if I don't make a choice? If you don t make an investment choice, the scheme trustees have taken professional advice and have chosen the FL BlackRock (50:50) Global Equity Index (Aquila C) Fund with an 11 Year Lifestyle Investment Programme, where contributions will be invested. Lifestyle investment programmes are explained in more detail on page 15. Although the scheme trustees have made this selection for those who don t make an investment fund choice, there are no guarantees that this arrangement is the most suitable for your own personal circumstances. Once you ve made these decisions you will then be better prepared to make your investment choices with your retirement goals in mind. 4
What you need to think about This section explains what you need to think about when choosing your investment funds and gives more information about: The main type of investments to choose from and how funds are managed. Your attitude to risk and how this may affect your investment decisions. The charges for different types of investment fund management. Reviewing your funds and switching As the value of your investments change and as you get older, so your attitude to risk or willingness to invest in a particular fund may change as well. That s why we recommend you review your fund choice at least once a year. We aim to make it as easy as possible for you to change your fund choice at any time. You can switch your existing investments from one fund choice to another, or redirect future contributions into different fund choices, whenever you choose. There is currently no charge for switching between funds but we may introduce one in the future in accordance with the Terms and conditions. From time to time there may be a reason why we cannot fulfil your request, such as when certain circumstances affect the markets in which you may be invested. If you want more information on switching your funds, please ask the scheme trustees for a copy of the Terms and conditions. 5
Explaining investments What can I 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 below. 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. 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
A balanced approach Some investors like to spread their investments across funds that invest in shares, fixed interest, commercial property and money market, as well as across different parts of the world. This may help to reduce the overall risk of their total investments and is known as diversification. It s all about maintaining the right balance and similar to the expression not putting all your eggs in one basket. If you need help doing this you should contact a financial adviser. To make life easier for you, we offer some funds that blend together different types of investment to create managed fund solutions. This means that these funds offer a range of assets in which they are invested, so are diversified. Please remember that there are no guarantees with a balanced approach or any particular investment type. 7
How the funds are managed How will my fund be managed? Not only do funds invest in different types of investments, they are also managed in different ways. All of the funds in this brochure have been categorised into fund types which are based on the way they are managed. Index funds An index fund aims to copy the performance of a particular index of a specific financial market, such as the FTSE All-Share Index. It does this by aiming to invest in the vast majority of securities in a particular market in such a way as to track the return of that market as closely as possible. This type of fund doesn t aim to outperform the index it tracks, only to follow it. These are often referred to as passive funds as there is no active management of the fund beyond tracking the index. Actively managed funds The fund manager actively buys and sells investments with the aim of achieving higher returns than the fund s benchmark. Fund of funds A fund of funds invests in a number of different funds, rather than directly in shares, bonds or other securities. Funds of funds aim to provide the investor with greater diversification, enhanced returns, lowered risk or a combination of all three which could not be achieved through a single fund alone. This type of fund may invest in actively managed funds, index funds or both. The underlying funds will be selected by an external fund manager or Friends Life. 8
Working out your attitude to risk Why do you need to do this? It s important to establish your attitude to risk before you start investing, to ensure that the funds you choose are right for you. As far as investing in funds is concerned, risk tends to be associated with potentially higher volatility: this means the ups and downs in the returns of an investment in relation to its value over a fixed period. The higher the risk levels, the more likely it is that the value of a fund may go up and down from day to day. Each fund is risk rated to demonstrate this. Investment funds that are right for you How much risk you are prepared to take will depend on your own personal circumstances. For instance, if you only have a short period of time until you retire, it may not be appropriate to invest in funds that are classed as high risk as these are more volatile. This is because the value of your investments may fall and you may not have the time to make up any losses. You should regularly review your investments to ensure they still meet your needs. Deciding your own approach The next step to consider is your own personal views and opinions on money. If you are the type of person who would be very concerned if your investment went down in value, you would probably feel more comfortable choosing funds that are considered lower risk. If you are not confident in making investment decisions, you should contact a financial adviser. Further information can be found on page 18. 9
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 Your approach to investment risk High + High High Medium + Medium 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 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 in to www.friendslife.co.uk/ membersite 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 financial adviser. Medium Low + Low 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 our 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. 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. This includes the funds within the lifestyle investment programme, which aims to reduce exposure to risk as you get closer to your investment programme retirement date. Please see page 15 for more information. 10
Fund risk warnings You should be aware that there are risks associated with investing in funds, or types of funds. We recommend that you read through these before making your fund choice. Some types of funds may have particular risks associated with investing in them. These have been specified and linked to each fund description in the 'Fund descriptions, their charges and risk warnings' document which is issued together with this document or found online at www.friendslife.co.uk/doclib/bpen918c.pdf. If you do not have access to the internet please call 0845 602 9221. 11
Annual management charge The level of annual management charge (AMC) is taken from each fund over the lifetime of your account. This charge covers expenses such as administration costs and investment charges and may change over time. The AMC is made up of two parts: a scheme annual management charge which is taken out of the value of your pension account over its lifetime to cover administration costs and investment charges and may change over time. for certain funds, an annual fund manager charge applied by fund managers for managing the fund. The charge varies according to the funds you invest in. The total charge is shown in the fund table on page 13. Additional expenses There are additional expenses associated with some funds, and these are reflected in the unit price. The additional expenses reflect the cost of managing the assets and include fees to auditors, trustees and valuers. They are reviewed regularly and can change. Changes to funds Please note there may be circumstances when the fund managers decide to increase the level of AMC. If this happens, you can switch to another fund with an AMC at or below the previous level at no extra cost. We may even choose to close the fund concerned, but please be assured that whatever action we take, we will write to you to inform you and explain the choices you have at the time. 12
Choosing your investment funds The funds you can choose from To help you get a better understanding of the funds available to choose from we have outlined some high level details below. Please take note of the following points before reading the table: The risk band is an indication of how volatile the fund is likely to be, and how much the value of the fund may vary from day to day. The AMC that applies to your funds is based on regular contributions. If the AMC of your chosen fund changes, we will notify you. The additional expenses charge is shown as a fixed percentage, but this will normally vary from day to day. The percentage shown is to give you an indication of the additional expenses that may be incurred by a particular fund, but you should be aware that on any given day it may be slightly more or less than this percentage. We have also included the appropriate fund type alongside each fund. Please see page 8 for details of these. Full fund descriptions and all the fund risk warnings are available online at www.friendslife.co.uk/doclib/bpen918c.pdf. If you do not have access to the internet please call 0845 602 9221. Funds Additional Risk band Fund Fund type AMC expenses High FL BlackRock Pacific Rim Equity Index (Aquila C) Index 0.59% 0.00% High High High Medium + Medium + Medium + Medium + Medium Medium Low + Low + Low + Low FL BlackRock European Equity Index (Aquila C) Index 0.59% 0.00% FL BlackRock Japanese Equity Index (Aquila C) Index 0.59% 0.00% FL BlackRock US Equity Index (Aquila C) Index 0.59% 0.00% FL BlackRock (50:50) Global Equity Index (Aquila C) Index 0.59% 0.00% FL BlackRock UK Equity Index (Aquila C) Index 0.59% 0.00% FL BlackRock World (Ex-UK) Equity Index (Aquila C) Index 0.59% 0.00% FL Stewardship Actively managed 0.59% 0.00% FL Balanced Index Fund of Funds Fund of funds 0.59% 0.00% FL Cautious Index Fund of Funds Fund of funds 0.59% 0.00% FL BlackRock Over 15 Year Gilt Index (Aquila C) Index 0.59% 0.00% FL BlackRock Over 5 Year Index-Linked Gilt Index (Aquila C) Index 0.59% 0.00% FL M&G Feeder of Property Portfolio Actively managed 1.24% 0.15% FL Cash Actively managed 0.59% 0.00% 13
Award-winning pensions Friends Life is an award-winning pensions provider. Below is a title we have achieved over the past year. This award highlights our success and proves our commitment to providing you with excellent pension services. Incisive Media Gold Standard Awards 2013 We have attained a Gold Standard Award for group pensions for ten years in a row. The Gold Standard Awards aim to identify financial services companies that excel in all five key areas: financial strength, capability, service, fair value and trust. Winner Group Pensions 14
Looking after your pension account The lifestyle investment programme is designed to reduce your exposure to investment risk as you approach retirement. However, there is no guarantee that any investment programme will benefit your retirement pot when you come to retire. The lifestyle investment programme gradually moves a percentage of your retirement pot and any future contributions from higher risk (or more volatile) funds into lower risk (or less volatile) funds during the run-up to your retirement. The following chart shows how the programme aims to move your money as you approach your investment programme retirement date (IPRD). The movements are made on a monthly basis and are set at the percentages shown on the following chart. The proportions invested in each of these funds will vary slightly according to financial market movements and where future contributions are invested. All movements of funds into and within the programme are at no extra cost. You may have already selected one of the funds used in the lifestyle investment programme as a pre-lifestyle investment programme fund. If this happens, your total holding in that fund will be used to calculate the movements of money into and within the programme. This approach means that we don t reduce your fund holdings in the pre-lifestyle investment programme funds too quickly. You can change your IPRD which can be different from your selected retirement date. The IPRD coincides with your chosen birthday. If you continue to make contributions after your IPRD, these will be invested in the proportions shown at the IPRD on the following chart. As your investments are moved to different funds within the programme, your AMC may change as well. For more information on the funds in the lifestyle investment programme, please see the 'Fund descriptions, their charges and risk warnings' document, which is issued with this brochure. You can choose the lifestyle investment programme either when you join the scheme or at any time while you are a member. You will be informed before the lifestyle investment programme starts so that you can change your decision if you wish. Please be aware there is no guarantee that this programme will benefit your retirement pot when you come to retire. This programme has been created by the scheme s financial adviser. 11 Year Programme Target % invested in fund 100 90 80 70 60 50 40 30 20 10 0 11 10 9 8 7 6 5 4 3 2 1 IPRD Years to retirement FL BlackRock (50:50) Global Equity Index (Aquila C) Fund FL BlackRock Over 5 Year Index-Linked Gilt Index (Aquila C) Fund FL BlackRock Over 15 Year Gilt Index (Aquila C) Fund FL Cash Fund This is the lifestyle investment programme that will apply if you do not make a fund choice. 15
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. 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. You can choose to leave the investment option at any time. 16
Your next steps 1 Read all the information provided and decide how much you can afford to pay. 2 If you are not sure the account is right for your needs, you should contact a financial adviser. You may have to pay for financial advice. Please see the next page for further details. 3 Join by applying online. Starting your journey Thank you for reading the information in this brochure. The following page shows where you can find further help and support for making your decision to join your pension scheme. Remember, the sooner you start saving for your future, the better. Start your journey to a brighter future now. 17
Further information and help Further information If you want more information about the funds in this brochure, you can find fund fact sheets at www.friendslife.co.uk/customer/funds, or you can phone our helpdesk on 0845 602 9221. If you feel you would like advice, you can pay for financial advice from a financial adviser. If you don t have an adviser, you can contact the following organisations: Unbiased: www.unbiased.co.uk Institute of Financial Planning: 0117 945 2470 or at www.financialplanning.org.uk GOV.UK provides impartial UK Government information on pensions at www.gov.uk/browse/working/ workplace-personal-pensions Contact details Please remember the scheme trustees will normally be your first point of contact. If you have any questions, you can: 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: www.friendslife.co.uk/membersite 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. Call us on 0845 602 9221 at the following times: Monday to Friday between 8.30am and 6pm. We may record calls to improve our service. Calls may be charged and these charges will vary; please speak to your network provider. Fax us on 0845 600 0624. Email us at ngp.questions@friendslife.co.uk. Email is not a secure form of communication and you should not email us with any personal information about you or personal details about your pension with us. For similar reasons, we will not reply by email if to do so would compromise your security. Write to us at Friends Life, PO Box 1550, Salisbury, SP1 2TW. 18
At Friends Life we want you to feel confident about your financial future, ready to face life s challenges and take its opportunities too. We know that everyone has their own individual outlook so, wherever we can, we use our knowledge and experience to offer products, services and options that suit your particular needs. And we aim to make it as easy as possible for you to deal with us. For our complete range of products and services visit www.friendslife.co.uk Friends Life and Pensions Limited An incorporated company limited by shares and registered in England and Wales, number 475201. 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 0845 602 9189 calls may be recorded. www.friendslife.com Friends Life is a registered trade mark of the Friends Life group. BPEN918/B 01.15 IB v2.10 Oct 2014 (44320)