University of Reading Pension Scheme

Transcription

1 Human Resources University of Reading Pension Scheme Investing for Retirement Introduction After deciding how much to save for retirement, where to invest the contributions that you and the University make into your Retirement Account is the most important decision you need to make. Your investment choices will have a direct impact on the ultimate value of your Retirement Account and consequently the amount of pension it can buy when you retire. Therefore, it is very important that you take time to consider what the right approach is for you, given your aims and objectives. This guide aims to help you to make those investment decisions. It provides you with some investment basics, details of the investment approaches you can take and information on the funds available under the Scheme. Investment basics All investment carries an element of risk. Successful investment involves balancing the different kinds of risk. Not taking enough risk (and consequently not achieving enough return) can be just as problematic as taking too much risk. In this section, we look at the various investment risks that you need to consider when investing for retirement: Capital Value risk This is the risk that the value of your Retirement Account can go down as well as up in the short term. This risk is most critical when you are close to your chosen retirement date but is less important if you are younger and so some way from retiring. Investments which carry this risk such as equities (company shares) and other growth assets (such as property) 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. Inflation risk 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 less volatile in the short term but, over the long term, inflation can eat away at their value and you risk 1

2 not being able to secure an adequate income in retirement. Because of this, a cash type fund tends to be used as a short-term investment only, particularly shortly before retirement when members are taking part of their Retirement Account as a tax free cash lump sum. Annuity price risk This is the risk that a sudden increase in the cost of buying an annuity (which is the typical way in which a retirement income is provided) just before you retire could take away some of the buying power of your account. Investments in the right type of bonds (loans to a company or the Government) can help to safeguard your Retirement Account against this risk, as the value of bonds tends to move broadly in line with the cost of buying pensions. The investment approaches There are two approaches that you can take: Route 1: you can choose the Lifestyle strategy. This approach automatically invests your account into appropriate investments at different times in your working life to manage the investment risks described above. If you were automatically entered into the Scheme, and/or did not select an investment option, this is the default investment that will apply. You can change this at any time. Route 2: you can Self-select your choice of individual investment funds and decide how much of your Retirement Account you would like to invest in each fund. Route 1: The Lifestyle strategy Under the Lifestyle strategy, contributions to your account are automatically invested in a mixture of funds that varies according to the number of years to your target 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 the Lifestyle strategy invests in a mixture of global equities (shares) and a Diversified Growth Fund. Equities and Diversified Growth funds are expected to give higher investment returns in the long term, helping to guard against inflation risk. Whilst equities have the potential to fall (and rise) in value quickly in the short term (the Capital Value risk mentioned earlier), the Trustees decided to use the Diversified Growth fund to reduce the effect of this potential volatility. As you approach retirement, both contributions and the accrued value of your Retirement Account are gradually switched more into bonds and cash type funds, to take advantage of their lower expected volatility and to guard against Annuity price risk. 2

3 If you choose the Lifestyle strategy, your Retirement 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 gradually start to be switched 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 Retirement Account will also start to be switched into the DC Cash Fund. By the time you reach your target retirement age (the assumed retirement age is 65 if you haven t selected a different age), approximately 75% of your Retirement Account will be invested in the Pre-Retirement Bond Fund and 25% in the DC Cash Fund as illustrated in the chart below. Ongoing contributions will be invested in the relevant Lifestyle funds, depending on your age. The Lifestyle strategy 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 strategy may not be appropriate for everyone. Lifestyle strategy and its constituent funds in the future. The Trustees may change the 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 strategy with a target retirement age of 65. Please note that the Trustees and the University are not making any recommendation that the Lifestyle strategy will be right for you; it is your responsibility to review and consider your financial position. Neither the Trustees nor the University can give you financial advice. As explained above, the Trustees can change the range of funds available. The Trustees can also change the way in which the Lifestyle Strategy works, including its constituent funds, switching 3

4 mechanisms and the date of switching. The Trustees can do this without prior notice to you although they would try to give as much notice as practicable. Important changing your retirement date The Lifestyle strategy is designed to work assuming 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 Scheme administrators, currently BlackRock, as soon as you decide, as your Retirement Account will need to be switched earlier than if you were retiring at 65. If you do not tell the administrators, your Retirement 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 Route 2: Self-selecting your investments 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 strategy, 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. The Scheme s Pension Provider The Trustees selected BlackRock as their pension provider after carefully evaluating several different providers with the help of their pension advisers, Mercer Limited. The Trustees have chosen a fund range of passively managed funds and actively managed funds. While BlackRock manages the majority of these funds themselves, one is being managed by HSBC. The Trustees will invest your Retirement Account in the funds you have chosen. The Trustees will also ensure the contributions are invested in a timely manner in accordance with the Rules and as soon as practicable after pay day. As part of their day to day management of the Scheme, the Trustees will review the range of funds regularly. The Trustees reserve the right to change and/or add additional investment managers and funds, and/or to change the range of funds available for both past and/or future contributions. The Trustees reserve the right to do any of these things without prior notice to you, although the Trustees would always hope to give you as much notice as possible. 4

5 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 managing an active fund and this is reflected in a slightly higher fee. Funds available Six investment funds are currently available under the Scheme. You can choose to invest in one or more of these funds. What does this mean for you and your Retirement Account? The range of investment options is intended to cater for individual members different attitudes to risk and their different requirements to balance risk with reward according to their needs and goals. The funds invest in a wide range of asset classes (types of investment), which carry different levels of risk. Dealing with the main asset sectors in order of risk:- Cash Type Funds are the least volatile but are likely to generate comparatively lower investment returns over the long-term; and historically cash savings have struggled to beat inflation. Bond Funds invest in a spread of bond investments, including government bonds and perhaps corporate bonds, and are primarily aimed at individuals who may be looking to buy an annuity to provide their retirement income. Diversified Growth Funds are a particular type of fund which invest in a broad range of asset classes. 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 historically tend to be less volatile than equity funds. 5

6 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 historically have provided higher long term growth prospects. The funds available to you are: DC Cash Fund DC Pre-Retirement Fund DC Aquila Over 5 yr Index Linked Gilt Index Fund DC Diversified Growth Plus Fund DC Aquila (30:70) Global Equity Index Fund HSBC Amanah Pension Fund Cash Type Fund Bond Fund Bond Fund Diversified Growth Fund Equity Fund Equity Fund (Islamic Shariah principles) Risk rating: In the table on page 8, BlackRock has classified each fund option with a risk rating from 1 to 7 in the fund table. 1 Very Low 3 Low-medium 6 High 7 Very high 2 Low 4 Medium 5 Medium-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 retirement savings Whichever Route you choose, Lifestyle or Self Select, it is important that you monitor your Retirement 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 a.m. to 5.00 p.m., except Bank Holidays. Alternatively you can send an to uk.ops@blackrock.com. 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 automatically be deducted from each fund s assets. The management charge for the Lifestyle strategy is calculated from the charges for the funds it uses. 6

7 The University will contribute towards the administration costs of running the Scheme while you are employed by them and contributions are being made to the Scheme, which will, in effect, mean that the charges are discounted whilst you work for the University. For example, an employee with a Retirement Account valued at 10,000, invested only in the Global Equity Fund, would have an annual management charge deduction of 47 ( 10,000 x 0.47%). If their Retirement Account was invested in the Lifestyle strategy (and therefore invested 50% in the Global Equity Fund and 50% in the Diversified Growth Fund), the annual management charge deducted from their Retirement 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 Trustees to deduct administration costs from your account. 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 contributions are being made to the Scheme, which will in effect mean that the charges are discounted whilst you are working for the University and an active Scheme member. Changing your investments From time to time, you should review your choice of investment to ensure that it continues 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 Retirement Account to a different investment fund (or funds). There are currently no explicit administration charges for switching between funds and you can switch at any time. BlackRock aims to complete a switch within 48 hours of receiving your instructions. However, depending on the other investments being bought and sold on the day that you undertake your switch, there may be costs associated with buying and selling your investments. Future changes The Trustees reserve the right to change and/or add additional investment managers, and/or to change the range of funds available for past and/or future contributions. The Trustees reserve the right to do this without prior notice to you, although the Trustees will always give you as much notice as possible. 7

8 Funds Fund name Fund Category Fund Objectives and Policies *AMC % p.a. Risk Type Active / Rating Deferred DC Aquila (30:70) Global Equity Index Fund (used in Lifestyle Strategy) 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 / HSBC Amanah Pension Fund Equity Passive Invests in company shares from around the world and is compliant with Islamic Shariah principles / DC Diversified Diversified Active This Fund targets a consistent investment 0.85 / Growth Plus Fund Growth return of 4.5% above the Bank of England base (used in Lifestyle Fund rate over rolling 3 year periods by utilising a Strategy) 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. DC Pre- Retirement Fund (used in Lifestyle Strategy) Bond Active 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 / DC Aquila Over 5 yr Index Linked Gilt Index Fund Bond Passive 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 / DC Cash Fund (used in Lifestyle Strategy) Cash Active Aims to produce a return in excess of its benchmark principally from a portfolio of Sterling denominated cash, deposits and money-market instruments / *Annual Management Charge (AMC) is discounted for an employee where regular contributions are being made (an active member) compared to someone who leaves the Scheme but has a Retirement Account (deferred member). 8

9 Taking advice Neither the University, nor its pension advisers, nor the Trustees are authorised to give you specific individual advice about your investment choices. If you want specific advice, you should contact an Independent Financial Adviser. The Money Advice Service 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. A fund s objectives and policies include a guide to the main investments to which a fund is likely to be exposed but 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 FCA s Conduct of Business Sourcebook which contains the rules by which investment of the funds is governed. The BlackRock Life Limited notional fund units have a single unit price. The unit prices are normally calculated on each business day. For performance reporting, notional units are valued at special closing prices on the last working day of each month to enable comparison with the relevant benchmark index. This document relates to the products of, and is issued by, BlackRock Life Limited, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. BlackRock Life Limited, 12 Throgmorton Avenue, London EC2N 2DL. Phone: Fax: Registered in England number BlackRock is a trading name of BlackRock Life Limited. 9