Your investment options University of Reading Pension Scheme

Transcription

1 Human Resources Your investment options University of Reading Pension Scheme Introduction If you are a member of the University of Reading Pension Scheme (the Scheme) you and your employer pay contributions to your pension account. These contributions are invested, and the investment returns generated are reinvested, and so the money in your account should grow. The investment options you choose will have a direct impact on the value of your pension account when you retire. It is very important that you make the long-term investment choices that are right for you. This guide aims to help you to choose how to invest the contributions to your pension account. It provides you with some investment basics, details of the investment approaches available, and background on the types of fund available through the Scheme. Investment basics All investment carries an element of risk. Successful investment involves balancing the different kinds of risk. There are three main kinds of investment risk: Account movement This is the risk that the value of your investments can go down as well as up in the short term. Investments which carry this risk such as equities (company shares) have tended in the past to provide a good level of investment growth over the longer term. Because of this, you may be prepared to accept this risk over a large part of your working life in order to aim for higher investment returns. Pension adequacy This is the risk that your investments may not grow faster than inflation over the long term. Investments which carry this risk, such as cash type funds, tend to be secure in the short term but, over the long term, inflation can eat away at their value and you risk not being able to secure an adequate benefit. Because of this, a cash type fund tends to be used as a short-term investment only. Pension movement This is the risk that a sudden increase in the cost of buying pensions just before you retire could take away some of the buying power of your account. Investments such as bonds (loans to a company or the Government) can help to safeguard your account against this risk as the value of bonds tends to move in line with the cost of buying pensions.

2 Your investment approaches There are two approaches that you can take: Option 1: you can choose Lifestyle. This approach automatically switches your account into appropriate investments at different times in your working life. If you were automatically entered into the Pension Scheme, or did not select an investment option on your application form, this is your default investment choice. You can change this at any time. Option 2: you can choose Self-select where you select individual investment funds and the proportion of your account you would like to invest in each of these funds. Alternatively, you can allocate some of your investments to option 1 and the rest to option 2. Option 1: choosing Lifestyle With Lifestyle, the contributions to your account are automatically invested in a mixture of funds that vary according to the number of years to your normal retirement age. Lifestyle aims to take advantage of the way different investments behave, and to balance different types of investment risk. In the early to middle part of your career Lifestyle invests mainly in equities (shares) and diversified growth funds. Equities and Diversified Growth funds are expected to give higher investment returns in the long term, helping to guard against pension adequacy risk, though they can lose value quickly in the short term (account movement risk). As you approach retirement, your account is gradually switched more into bonds and cash type funds, to take advantage of their greater expected stability and guard against pension movement risk. If you choose the Lifestyle option, your pension account will be invested initially in the Global Equity Fund (50%) and the Diversified Growth Fund (50%). When you reach 8 years from your target retirement age, your account will start to be gradually transferred from the Global Equity Fund and the Diversified Growth Fund into the Pre-Retirement Bond Fund. Three years from your target retirement age, another part of your account will also start to be transferred into the DC Cash Fund. By the time you reach your target retirement age (the assumed retirement age is 65 if a target age hasn t been selected), approximately 75% of your account will be invested in the Bond Fund and 25% in the Cash Fund as illustrated in the chart. Ongoing contributions will be paid into the relevant Lifestyle funds, depending on your age. Lifestyle option % invested 100 Cash type fund Bonds 75 Diversified growth Global equity Years to retirement 2 University of Reading Pension Scheme Investment options

3 The Lifestyle option will not necessarily produce higher benefits than other approaches to investment. Future stock market conditions may mean that for some periods of time, equities do not give better returns than other types of investment. The Lifestyle option is designed to produce a sensible mix of investment returns and risks for the majority of members. It may not be appropriate for everyone. The Trustee may change the Lifestyle option and the funds in it in the future. If you do not make an investment choice, or if you have been automatically entered into the Scheme and have not amended your investment choices your contributions will be invested in the Lifestyle option with a target retirement age of 65. Please note that the Trustee and the University are not making a recommendation that the Lifestyle option will be right for you; it is your responsibility to review and consider your financial position. Neither the Trustee nor the University can give you financial advice. As explained above, the Trustee can change the range of funds available. The Trustee can also change the way in which the Lifestyle Option works, including available funds, switching mechanisms and the date of switching. The Trustee can do this without prior notice to you although the Trustee would try to give as much notice as practicable. Important changing your retirement date The Lifestyle option is designed to work with a normal retirement date of 65 and therefore if you intend to retire earlier or later than this you will need to change this age. If you want to retire earlier than age 65 for example, you will need to tell the administrators as soon as you decide, as your account will need to be switched earlier than if you were retiring at 65. If you do not tell the administrators, your account might be in an inappropriate mix of investments when you retire. You can make these changes online at or via uk.ops@blackrock.com or telephone Option 2: choosing Self-select There is a choice of six funds available for you to choose from. You can choose just one fund, or select any combination you wish, in any proportion. Four of these funds are used in the Lifestyle option, but you can also use them as part of your own selection. It is up to you to decide which investment option you should choose. University of Reading Pension Scheme Investment options 3

4 Your investment manager The investment manager for the University of Reading Pension Scheme is BlackRock. The Trustee selected BlackRock after carefully evaluating several different managers with the help of their pension advisers, Mercer. At 31 December 2010, it was estimated that BlackRock managed over 2.3 trillion assets for a wide range of clients around the world. The Trustee has chosen a fund range of passively managed funds and actively managed funds from BlackRock, and will invest your pension account in the BlackRock funds you have chosen. The Trustee will ensure the contributions are invested in a timely way in accordance with the Rules and as soon as practicable after the contributions are deducted epresentation of the corporate brand. The visual impact istent and from considered your salary. use of this logo and related graphic The Trustee will review with BlackRock the range of funds k. The white regularly. logo option The should Trustee be used reserves only against the right black. to change and/ or add additional providers, and/or to change the range of funds available for past and/or future contributions. The Trustee reserves the right to do any of these things without prior notice to you, although the Trustee would always hope to give you as much notice as possible. Passively managed funds Passively managed means that the investment manager aims to follow or track the returns of a market index (which is why this approach is also known as index tracking ). This approach does not aim to achieve higher returns than the market index. It does aim to minimise the risk of achieving lower returns than the market index. You should remember that the market index can go down as well as up. Actively managed funds Actively managed means that the investment manager aims to achieve higher returns than the market index. Actively managed funds carry a slightly higher risk than passively managed funds as the returns could be lower than the market index. There is more work involved in running an active fund and this is reflected in a slightly higher fee. 4 University of Reading Pension Scheme Investment options

5 Funds available Six funds are currently available. You can choose to invest in one or more of these funds. What does this mean for you and your pension account? The range of investment options is intended to cater for different attitudes to risk and the requirement to balance risk with reward according to an individual s needs and goals. The funds invest in a wide range of asset classes (types of investment), which carry different levels of risk, including: cash type funds, bonds and equities. Dealing with the main asset sectors in order of risk:- Cash Type Funds are the safest but are likely to generate comparatively lower investment returns over the longterm; and historically cash savings have struggled to beat inflation. Fixed Income Funds invest in a spread of fixed income investments, including government bonds and perhaps corporate bonds, and are suitable for lower risk investors, particularly where individuals may be looking to buy a pension income (or an annuity ). Diversified Growth Funds are a special type of fund which invest in a broad range of investments. The manager has the discretion over how much is invested in different types of asset according to the economic outlook at a particular time. As a result, diversified growth funds aim for positive returns in all market conditions over the medium term. They can still be volatile, but tend to be less volatile than equity funds. Equity Funds are invested in shares of companies, which can be based in the UK or overseas. There is greater volatility than the other funds described above, but improved long term growth prospects. Risk rating: BlackRock have classified each fund option with a risk rating from 1 to 7 in the fund table. 1 Very low 2 Low 3 Low-medium 4 Medium 5 Medium-high 6 High 7 Very high Remember that the higher the risk score, the greater the potential for good long-term growth. However, the higher risk funds are also likely to display greater volatility over the shorter term. Keeping a check on your pension Whichever option you choose, Lifestyle or Self-select, it is important that you monitor your pension account from time to time. There s every chance that your circumstances and attitude to risk are likely to change as you progress through your working life, which means you might want to adjust your investment choices over time. How to find out more If you would like to find out more about your investment options, then please go to: You can also call the BlackRock helpline on The office is open Monday to Friday 9.00 am to 5.00 pm, except Bank Holidays. Alternatively you can send an to uk.ops@blackrock.com University of Reading Pension Scheme Investment options 5

6 Fund investment charges Each of the investment options is subject to an Annual Management Charge (AMC). This will vary according to the fund(s) chosen and will be deducted from each fund s assets. The management charge for the Lifestyle option is calculated from the charges for the funds it uses. The University will contribute towards the administration costs of running the Scheme while you are employed by them and making contributions to the Scheme, which will, in effect, mean that the charges are discounted whilst you work for the University. For example, an employee with an account valued at 10,000, invested in the Global Equity Fund, would have an annual management charge deduction of 47 ( 10,000 x 0.47%). If the account was invested in the Lifestyle option, the pension account was valued at 10,000 and was invested 50% in the Global Equity Fund and 50% in the Diversified Growth Fund, the annual management charge deducted from your pension account would be 66 ( 5,000 x 0.47% + 5,000 x 0.85%). These charges can be varied at any time without prior notice. The University may vary the policy at any time and reserves the right to require the Trustee to deduct administration costs from your account. Changing your choices From time to time, you should review your investment choices to ensure that they continue to meet your needs, and make changes if necessary. There are two changes you can make: You can re-direct future contributions to a different investment fund (or funds) and/or You can switch your accumulated pension account to a different investment fund (or funds). There are currently no administration charges for switching between funds and you can switch at any time. BlackRock aim to complete a switch within 48 hours of receiving your instructions. Future changes The Trustee reserves the right to change and/or add additional providers, and/or to change the range of funds available for past and/or future contributions. The Trustee reserves the right to do this without prior notice to you, although the Trustee will always give you as much notice as possible. From time to time other administration expenses may arise. The University will contribute towards the administration costs of running the Scheme while you are employed by them and making contributions to the Scheme, which will in effect, mean that the charges are discounted whilst you are working for the University and paying into the Scheme. 6 University of Reading Pension Scheme Investment options

7 Funds Fund name DC Aquila (30:70) Global Equity Index Fund used in Lifestyle Option HSBC Amanah Pension Fund DC Diversified Growth Fund used in Lifestyle Option DC Pre-Retirement Fund used in Lifestyle Option DC Aquila Over 5 yr Index Linked Gilt Index Fund DC Cash Fund used in Lifestyle Option Fund type Category Fund objectives and policies Equity Passive Invests primarily in equities, both in the UK and overseas markets. Approximately 30% is invested in the shares of UK companies, 60% of the assets are invested at market capitalisation weights into developed equities with the currency exposure hedged back to Sterling and the remaining 10% is invested into Emerging Market Equities. Equity Passive Invests in company shares from around the world and is compliant with Islamic Shariah principles. Multi- Asset Fixed Income Fixed Income Active Active Passive This Fund targets a consistent investment return of 4.5% above the Bank of England base rate over rolling 3 year periods by utilising a multi-asset flexible investment approach. The focus on getting the asset mix right in order to achieve the target means this Fund will generally hold a variety of different assets at any one time. Invests mainly in long dated UK government bonds (around 50%) and long dated UK corporate bonds (around 50%) and aims to produce a return in excess of its benchmark. Invests in index-linked UK government bonds with a maturity period of 5 years or longer and aims to produce a return in line with its benchmark. Cash Active Aims to produce a return in excess of its benchmark principally from a portfolio of Sterling denominated cash, deposits and moneymarket instruments. Annual Management Charge* (AMC) % p.a. Active / Deferred 0.47 / / / / / / Risk Rating If BlackRock considers it necessary for whatever reason it may delay accepting any request for the cancellation of units in any fund for a period of up to one year from when the the units would have otherwise been cancelled; or up to two years in relation to funds that primarily invest in property (of assets that derive their value from property). * The Annual Management Charge (AMC) is discounted for an employee paying regular contributions (active member) compared to someone who leaves the Scheme but has a retirement account (deferred member). University of Reading Pension Scheme Investment options 7

8 Taking advice Neither the University, nor its pension advisers, nor the Trustee are authorised to give you specific advice about your investment choices. If you want specific advice, you should contact an Independent Financial Adviser. The Financial Services Authority (FSA) website has guidance on finding financial advice at You can also ring their helpline on IFA Promotion can put you in touch with financial advisers in your area. You can visit their website at Past performance is not a guide to future performance. The value of investments and the income from them can fluctuate and are not guaranteed. Investors may not get back the amount invested. Rates of exchange may cause the value of investments to go up or down. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Any objective or target will be treated as a target only and should not be considered as an assurance or guarantee of performance of a fund or any part of it. The fund objectives and policies include a guide to the main investments to which a fund is likely to be exposed. A fund is not necessarily restricted to holding these investments only. Subject to a fund s objectives, a fund may hold any investments and utilise any investment techniques, including the use of derivatives, permitted under the FSA s New Conduct of Business Sourcebook which contains the rules by which investment of a fund is governed. URPS Your investment options Helpline: uk.ops@blackrock.com