Choosing investment funds Lifestyle Investment Programmes
Contents 1 Introduction Lifestyle investment programmes How do these programmes work? 5 Why the Retirement Protection Fund and the Halifax Fund? 6 Programmes Cautious programme Balanced programme Adventurous programme 12 Investment fund details 16 Important information
1 Introduction Lifestyle investment programmes Different people have different attitudes to risk versus rewards when it comes to investing. Your own attitude can sometimes change depending on your age, personal circumstances and many other factors. So, you might find that as you get near to retiring you want to switch your investment into lower risk funds. Pensions are a long-term investment. The retirement benefits you receive from your pension plan will depend on a number of factors including the value of your plan when you decide to take your benefits which isn t guaranteed, and can go down as well as up. The value of your plan could fall below the amount(s) paid in.
2 Lifestyle investment programmes Some people will want to handle the switching themselves. The lifestyle programme option could be ideal for those who don t. Why? If you choose this option or if it was chosen for you by trustees of your previous scheme when they set up your plan there will be a series of trigger points when we start monthly switches of some of your units into lower risk funds. So, immediately before your chosen retirement date, all your units are invested in lower risk funds. This helps to protect your plan from the impact of volatile investment markets, but can minimise growth potential. It does not guarantee the value of your plan, which can go up and down, and could fall below the amount(s) paid in. The lifestyle programme option doesn t guarantee the level of pension you can buy nor the cost of buying it. Changes introduced from April 2015 allow you greater flexibility in how you can take benefits from your plan. There are now three ways to use the value of your plan at age 55 or above to provide for your retirement. You could choose one or more of the following Annuity purchase buying one or more annuities to provide a regular and secure income for life. Pension encashment taking part or all of the value of your plan as a cash lump sum of which 25% will be tax-free, with the remainder subject to tax. Flexible access adopting a flexible approach by using a suitable product to keep your pension fund invested and then taking income as it is needed. The lifestyle programmes detailed in this guide are designed to prepare your pension fund for annuity purchase, and may not prepare it appropriately if you don t intend to use it to buy an annuity. Other investment programmes or approaches may suit your needs better and you should speak to your financial adviser for further information. Your adviser may make a charge. There are three* lifestyle programmes to choose from: Adventurous Balanced Cautious So you ll still have the flexibility to match the programme to your attitude to risk even if that attitude has become less risky. And, you can switch into a programme at any time up until two before you retire. *Stakeholder plans only offer the balanced lifestyle programme.
3 How do these programmes work? All three programmes start to reduce exposure to equities as you get closer to retirement. The reduction from equity to less risky investments is different for each programme to reflect the different risk profile. The reduction starts ten before retirement and will continue in differing degrees until two from retirement, when all three programmes will have minimal exposure to equities. From the ten year point until retirement, the main aim of all these programmes is to provide some protection against stockmarket movements by investing in the Retirement Protection Fund and the Halifax Fund. The programmes do not guarantee the value of your plan, which can still go up and down, and could fall below the amount(s) paid in.
4 How these programmes work The table below shows: the trigger point for each programme the funds that we make the monthly switches of your investment into, and the planned percentage that would be invested. As you can see, with each programme you will always end up with your investment split between the Retirement Protection Fund and the Halifax Fund both lower risk funds. It s just the route there that s different. (The percentage split shown is approximate, and due to movements in the stockmarket, there is no guarantee that this percentage split will be achieved). Trigger point ( to retirement) 75% 25% Adventurous programme 10 or more 5 to 10 2 to 5 Less than 2 UK Growth* Balanced Cautious Retirement Protection International Growth Balanced Cautious Halifax Balanced programme 10 or more 5 to 10 2 to 5 Less than 2 Balanced* Balanced Cautious Retirement Protection UK Growth Balanced Non-Equity Halifax Cautious programme 10 or more 5 to 10 2 to 5 Less than 2 Cautious* Cautious Non-Equity Retirement Protection Balanced Cautious Non-Equity Halifax *These funds are referred to as the destination funds (see page 16).
5 Investments Why the Retirement Protection Fund and the Halifax Fund? We invest in the Retirement Protection Fund because the amount of pension you can buy when you retire mainly depends on: the amount of fund value built up, and the annuity rates used by the insurance company you are buying your pension from. Annuity rates go up and down, mainly according to the investment performance of UK gilt-edged stocks and interest rates. By investing in these same UK gilt-edged stocks, the Retirement Protection Fund closely matches the movements of annuity rates, which means any investment in the fund should rise and fall broadly in line with changes in the cost of buying a pension (annuity) in retirement. There is no guarantee of the level of pension you can buy nor the cost of buying it. We invest in the Halifax Fund as it is a deposit-based investment, which is designed to help protect the value of your plan. Remember, you don t have to buy an annuity when you retire other options are available (see page 2 for more details). Please also remember that the value of an investment can go up or down and cannot be guaranteed. The following pages give you more detail about each of the programmes, their aims and how they invest.
6 Programmes Cautious programme Initially, investment will be in the Cautious and Balanced Funds. Ten from retirement date the investment mix will progressively be moved to the Cautious Fund. Five from retirement date the investment mix will be progressively moved to the Non-Equity Fund. Two from retirement date the investment mix will be progressively moved to the Retirement Protection and Halifax Funds. The graphs opposite show the progression from funds aiming to provide capital growth to lower risk funds near to retirement. Details of the various funds are shown on pages 12 15.
7 Cautious programme Asset distribution for new contributions Asset distribution 100% 80% 60% 40% 20% 0% 10 + 9 8 7 6 5 4 Term to taking benefits 3 2 1 year Date of taking benefits Cautious programme Asset distribution for existing contributions Asset distribution 100% 80% 60% 40% 20% 0% 10 + 9 8 7 6 5 4 Term to taking benefits 3 2 1 year Date of taking benefits Halifax Cautious Non-Equity Retirement Protection Balanced (The percentage split shown is approximate, and due to movements in the stockmarket, there is no guarantee that this percentage split will be achieved).
8 Balanced programme Initially, investment will be made in the Balanced and UK Growth Funds. Ten from retirement date the investment mix will be progressively moved to the Balanced Fund. Five from retirement date the investment mix will be progressively moved to the Cautious and Non-Equity Funds. Two from retirement date the investment mix will be progressively moved to the Retirement Protection and Halifax Funds. The graphs opposite show the progression from funds aiming to provide capital growth to lower risk funds near to retirement. Details of the various funds are shown on pages 12 15.
9 Balanced programme Asset distribution for new contributions Asset distribution 100% 80% 60% 40% 20% 0% 10 + 9 8 7 6 5 4 Term to taking benefits 3 2 1 year Date of taking benefits Balanced programme Asset distribution for existing contributions Asset distribution 100% 80% 60% 40% 20% 0% 10 + 9 8 7 6 5 4 Term to taking benefits 3 2 1 year Date of taking benefits Halifax Cautious Non-Equity Retirement Protection Balanced UK Growth (The percentage split shown is approximate, and due to movements in the stockmarket, there is no guarantee that this percentage split will be achieved).
10 Adventurous programme Initially, your contributions will be invested in the UK Growth and International Growth Funds. Ten from retirement date your investment mix will be gradually moved to the Balanced Fund. Five from retirement date your investment mix will be gradually moved to the Cautious Fund. Two from retirement date your investment mix will be gradually moved to the Retirement Protection and Halifax Funds. The graphs opposite show the progression from funds aiming to provide capital growth to lower risk funds near to retirement. Details of the each of these funds are shown on pages 12 15.
11 Adventurous programme Asset distribution for new contributions Asset distribution 100% 80% 60% 40% 20% 0% 10 + 9 8 7 6 5 4 Term to taking benefits 3 2 1 year Date of taking benefits Adventurous programme Asset distribution for existing contributions Asset distribution 100% 80% 60% 40% 20% 0% 10 + 9 8 7 6 5 4 Term to taking benefits 3 2 1 year Date of taking benefits Halifax Cautious International Growth Retirement Protection Balanced UK Growth (The percentage split shown is approximate, and due to movements in the stockmarket, there is no guarantee that this percentage split will be achieved).
12 Investment fund details The individual investment funds are unit-linked funds and therefore offer returns directly driven by the performance of stocks, shares and other assets in which they are invested. You should remember that the value of an investment can go up and down as a result of market and currency movements. Your plan value may be less than you invested. Risks The funds that you choose can make a substantial difference to the end result of your investment. And because funds have different risks, the returns are also likely to differ. Each fund invests in different asset classes in differing proportions. A particular fund could be invested in one or more of the following: UK equities Overseas equities Gilts and corporate bonds (also known as fixed interest securities) Index-linked gilts Property Cash The following risks may apply to the funds in this guide. All investments carry some risks and it s important that you understand these before making an investment. For more information, you should speak to your Financial Adviser. Equity risk factor: Investing in company shares (often referred to as equities ) generally has the potential for higher capital growth over the longer term than investing in, say, corporate bonds and other fixed interest securities. However, there might be considerable fluctuations in equity prices and there is a greater risk that the value of the investment will fall. Fixed interest/index-linked securities risk factor: Some funds invest in fixed interest or index-linked securities. These securities might default or their credit rating might fall. The value of those investments will usually fall should an issuer default or receive a reduced credit rating. Fluctuations in interest rates are likely to affect the value of the securities held by the fund. If longterm interest rates rise, the value of the units is likely to fall and vice versa.
13 Fixed interest/index-linked single government issuer risk factor: Some funds may invest more than 35% in government or public securities issued by a single issuer. There could be a risk, for example, that they can t repay the amount borrowed. If they don t repay, the value of the fund will fall. High-yield fixed interest securities risk factor: High-yielding fixed interest securities carry an increased risk of default and there is a higher risk that the issuer s credit rating may fall. The value of these investments will usually fall should an issuer default or receive a reduced credit rating, or should the likelihood of these events increase. Overseas risk factor: Exchange rate changes may cause the value of any overseas investment to go up or down. Select portfolio risk factor: Some funds have select portfolios, which hold a limited number of stocks. By investing in a select portfolio there might be greater fluctuations in the value of the units than with a wider portfolio. Emerging markets risk factor: Funds which invest in emerging markets might invest in stockmarkets which are generally less well regulated than those in the UK. This may result in a greater risk that the value of the units might go down. The investments in these markets might also be bought and sold infrequently, therefore resulting in large changes in their prices. Smaller companies risk factor: Some funds invest in smaller companies whose shares tend to be bought and sold less frequently than larger companies. There may be large changes in the prices of their shares and their value could fall by large amounts. The price variations of smaller companies might be greater than those of larger companies. Direct property risk factor: Some funds invest directly in property and land. This can be difficult to sell, so it may not be possible to cash in the investment when you want to. We may have to delay acting on your instructions to sell the investment. The value of property is generally a matter of a valuer s opinion rather than fact and values can go up or down. Property transactions tend to be larger and more complex than for other asset classes. As a result, the proportion of cash held while awaiting suitable investment opportunities could be greater than for other funds.
14 Indirect property risk factor: Some funds invest indirectly in property. Property is a less liquid asset than other assets such as fixed interest securities or equities and values could be affected if properties need to be sold in a short timescale. Property valuation is generally a matter of judgement by an independent valuer rather than fact and values can go up or down. Derivatives risk factor: Some funds use derivatives and forward transactions for specific investment purposes, as well as for hedging and other efficient portfolio management purposes. It s not intended that the use of derivatives in this way will cause the fund to have high volatility or otherwise cause its existing risk profile to change. Spreading the risk: Each asset class reacts differently to changes in economic circumstances, and trying to predict short-term moves in investment markets can be very difficult. All investments carry some risk, so the more you spread your risk across different forms of investment, the less vulnerable you are to any specific one performing badly. This might include equities, bonds, property or cash. It s also important that your portfolio reflects the level of risk you want to take. For further details about the investment funds, please see our website: www. clericalmedical.co.uk/funds You should read these details before making any investment decisions.
15 Fund Aims The Balanced Fund The Fund aims to achieve long-term capital growth by gaining exposure predominantly to UK and overseas equities, with flexibility to gain a minority exposure to commercial property and fixed interest stocks. The Cautious Fund The Fund aims to achieve long-term capital growth by gaining exposure to UK equities, commercial property and fixed interest stocks. The Fund will normally operate a broadly equal weighting between the equity and nonequity classes with flexibility to move over and underweight positions in any asset class to meet market circumstances. The Adventurous Fund The Fund aims to achieve long-term capital growth by gaining exposure almost exclusively to UK and overseas equities, but with some flexibility to gain a minority exposure to commercial property and fixed interest stocks. Non-Equity Fund The Fund aims to provide a long-term total return by gaining exposure almost exclusively to a range of commercial property, fixed interest and index-linked stocks. International Growth Fund The Fund aims to achieve capital growth in the long term by investing in a diversified global portfolio. UK Growth Fund The Fund aims to achieve long-term capital growth by investing mainly in UK companies. Retirement Protection Fund The fund aims to broadly match the performance of those UK gilt edged stocks which influence market yields for pension annuity rates by investing totally in long-dated stocks. Halifax Fund The fund invests in deposits within the Lloyds Banking Group. The rate of return varies in line with changes in interest rates which, together with the annual management charge, is reflected in the unit price. If interest rates fall below the level of the annual management charge the unit price will fall. The unit price will also fall if the bank holding the deposits becomes insolvent. You should remember that investing in this fund does not give the same security of capital or easy access as a bank or building society account.
16 Important information The terms and conditions in this guide are those which applied at the time it was published and could alter in the future. Please note the following: You can only have one programme in place at a time. If you are switching into a programme, you must switch all units from the previous funds (except any that are being used to fund for a guaranteed minimum pension). If you, or the trustees, take out a lifestyle programme part way between trigger points (as shown in the table on page 4), or you change your retirement date within ten of your original retirement date, we will invest all of your units in the destination fund and will not start switching until you reach the next trigger point. If you want to switch out of a lifestyle programme, then you have to switch out all units. The programme will then stop. There is no alternative choice of funds under lifestyle investment programmes. If you have a Clerical Medical Buy-Out Plan, the trustees of your previous scheme may have set up a special lifestyle programme for you, perhaps to reflect the current investment structure of your previous scheme. The funds may be different to those shown in this guide, but the way we make the switches will be the same. The funds will be shown in the illustration we issue with your policy certificate. If you switch out of this special programme, you can t switch back into it in the future, but you can choose one of the standard programmes described in this guide. If you have a Clerical Medical Individual Stakeholder Plan, only the balanced lifestyle investment programme is available. If you do not choose an investment fund then your contributions will automatically be invested in this programme. There may be delays in selling the value of certain types of investments, for example, property. This may delay the payment of benefits, switches and transfers. We can change the range of funds we make available. We don t currently charge for lifestyle investment switches, but may do so in future. We ll tell you of any changes.
17 The Impact of lifestyle switching on illustrations In most cases the personal illustration you ve received (and any future personal illustrations) will take account of your selected lifestyle investment programme and the future investment movements into lower-risk assets. However, in some instances, the personal illustration is based on the current investment split continuing until you retire and will not take account of the movement into lower-risk assets. We will make it clear when the personal illustration is calculated on this basis. For these personal illustrations you need to be aware that the final value will typically be lower than illustrated as a result of switching but should be less affected by market conditions close to your retirement date. The exact effect of the switching depends on a number of factors including the current size of your pension fund, the level of future contributions and the period remaining until your retirement. For example, if your personal illustration projects a final fund value of 100,000 in today s terms, allowing for the impact of lifestyle switching could reduce the illustrated final fund value to: Programme Time to retirement More than 5 Between 2 5 Less than 2 Adventurous 90,600 96,000 98,000 Balanced 94,100 97,800 98,700 Cautious 96,800 99,300 99,700 (The figures above are shown in today s terms. This means we have allowed for price inflation to give you an indication of how much the final fund value might be). In many cases the reduction in illustrated value could be less than this. The reduction would be in the same proportion for different illustrated values. Bear in mind that the original illustrated value will generally be higher if you have chosen the Balanced Programme than if you have chosen the Cautious Programme, and higher again if you have chosen the Adventurous Programme.
www.clericalmedical.co.uk Clerical Medical is a trading name of Scottish Widows Limited. Scottish Widows Limited is registered in England and Wales No. 3196171. Registered office in the United Kingdom at 25 Gresham Street, London EC2V 7HN. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 181655. X1678/0817