The Personal Range. Choosing your investment funds

Transcription

1 The Personal Range Choosing your investment funds

2 Choosing your investment funds 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 Individual Personal Pension or Individual Stakeholder Pension are invested into investment funds. The aim is to increase the value of your plan over time. 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. This document was produced in July 2015 and is accurate as at that date. You ll find some funds are available under the Individual Personal Pension but not the Individual Stakeholder Pension and we ve made this clear in the investment fund tables. With our Individual Stakeholder Pension you don t have to make a decision about which funds to invest in. If you don t want to make a choice, we ll invest your contributions in the FL Managed Fund with a 5 Year Lifestyle Investment Programme. You ll find more about the FL Managed Fund in the Fund descriptions, their charges and risk warnings document, and more about the 5 Year Lifestyle Investment Programme on page 16. When reviewing your fund choices you should refer to up to date information, available online at or by calling the helpdesk on If you are not confident in making investment decisions, you should contact a financial adviser. You may have to pay for this advice. 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. 2

3 Contents Introducing investment funds page 4 What you need to think about page 5 Choosing your investment funds page 13 Looking after your pension plan page 16 Further information and help page 18 This brochure should be read together with: The Fund descriptions, their charges and risk warnings document, available online at at You should also read the Key Features document, the Key Features illustration and the Terms and Conditions with this pack. If you do not have all this documentation, please call

4 Introducing investment funds Why do I need to know about investment funds? The total contributions paid into your pension plan 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 plan 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. Once you ve made these decisions you will then be better prepared to make your investment choices with your retirement goals in mind. 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 this pension scheme, 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. 4

5 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 type of investments to choose from and how these 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 changes 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 see the Terms and Conditions. 5

6 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

7 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 helps 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 asset classes 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 asset class. 7

8 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. 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 (explained below) or both. The underlying funds will be selected by an external fund manager or Friends Life. 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. 8

9 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

10 Approaches to investment risk Friends Life calculates its risk ratings using historical performance data, based upon the methods set by European Union rules. We also carry out further research using information from the fund s investment manager(s). We review each fund s risk rating annually and these may change over time. The timing of your investment decisions is very important and you should consult a financial adviser. Past performance is not a guarantee of future performance. Our risk ratings go from 1 to 7, with 1 being the lowest and 7 the highest. As a point of reference, a fund with a risk rating of 4 (medium volatility) would typically experience the volatility you would expect from a fund invested in a range of different investments (for example shares, property and bonds) without any bias to a particular investment type. Remember that all investment funds carry some element of risk but this varies from fund to fund. Risk rating 7 Highest volatility 6 High volatility Risk rating description The historical performance of funds with this risk rating has typically experienced the highest volatility of all the funds Friends Life has rated. This means that these funds have the highest potential for substantial changes in value compared with other Friends Life funds. The historical performance of funds with this risk rating has typically experienced high volatility compared with other funds Friends Life has rated. This means that these funds have a high potential for substantial changes in value compared with other Friends Life funds. 5 Medium to high volatility The historical performance of funds with this risk rating has typically experienced medium to high volatility compared with other funds Friends Life has rated. This means that these funds have a medium to high potential for substantial changes in value compared with other Friends Life funds. 4 Medium volatility The historical performance of funds with this risk rating has typically experienced medium volatility compared with other funds Friends Life has rated. This means that these funds have a medium potential for substantial changes in value compared with other Friends Life funds. 3 Low to medium volatility 2 Low volatility 1 Lowest volatility The historical performance of funds with this risk rating has typically experienced low to medium volatility compared with other funds Friends Life has rated. This means that these funds have a low to medium potential for substantial changes in value compared with other Friends Life funds. The historical performance of funds with this risk rating has typically experienced low volatility compared with other funds Friends Life has rated. This means that these funds have a low potential for substantial changes in value compared with other Friends Life funds. The historical performance of funds with this risk rating has typically experienced the lowest volatility of all the funds Friends Life has rated. This means that these funds have the lowest potential for substantial changes in value compared with other Friends Life funds. Please note: These investment risk ratings 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 ratings and approach to investment risk remain the same. Can you choose funds from more than just one risk rating? 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 a lifestyle investment programme, which aims to reduce exposure to risk as you get closer to your investment programme retirement date. Please pages 15 and 16 for more information. 10

11 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 you can find at If you do not have access to the internet, please call

12 Annual management charge The level of annual management charge (AMC) will depend on which fund or funds you invest in. Please see the Key Features document for more information on charges. Additional expenses Most fund managers have to pay expenses, such as fees to auditors, trustees and valuers. Any additional expenses are taken from the underlying fund and are reflected in the unit price. They are reviewed regularly and can change. Changes to fund charges Please note there may be circumstances when the fund managers may decide to make a change which may affect the level of AMC. If this leads to an increase, 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. Please see the Terms and Conditions for more information. Because you are able to switch your funds or redirect future contributions with no charge, you can ensure that your fund choices match your personal circumstances as they change through life. In certain circumstances we may delay this switching. For more information on switching please see your Terms and Conditions. 12

13 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 this. The tables on this page and the next show the funds available to the Individual Personal Pension (IPP) or the Individual Stakeholder Pension (ISP). Full fund descriptions and all the fund risk warnings are available online at doclib/mpen11j.pdf. If you do not have access to the internet please call Some fund names are subject to revision and may appear differently within other information sources. For details about fund name changes, please contact us using the details on page 10. Funds Fund 7 Highest volatility Fund type Available to IPP Available to ISP FL JPM Natural Resources Actively managed 0.75% 0.18% 6 High volatility FL BlackRock UK Smaller Companies Actively managed 0.75% 0.17% Fund AMC Additional expenses FL European Actively managed 0.00% 0.00% FL First State Asia Pacific Leaders Actively managed 0.75% 0.04% FL Lazard European Alpha Actively managed 0.35% 0.08% FL Old Mutual UK Mid Cap Actively managed 0.70% 0.18% FL Pacific Basin Actively managed 0.00% 0.00% FL Schroder Tokyo Actively managed 0.75% 0.17% FL UK Smaller Companies Actively managed 0.00% 0.00% 5 Medium to high volatility FL Artemis UK Special Situations Actively managed 0.75% 0.05% FL Baillie Gifford International Actively managed 0.20% 0.04% FL Baillie Gifford North American Equity Pension Actively managed 0.45% 0.00% 13

14 Funds Fund Fund type Available to IPP Available to ISP Fund AMC Additional expenses FL Baillie Gifford UK Equity Core Pension Actively managed 0.30% 0.00% FL BlackRock (50:50) Global Equity Index (Aquila C) Index 0.00% 0.00% FL BlackRock UK Equity Actively managed 0.20% 0.02% FL BlackRock UK Equity Index (Aquila C) Index 0.00% 0.00% FL BlackRock UK Special Situations Actively managed 0.75% 0.17% FL BNY Mellon Long-Term Global Equity Actively managed 0.63% 0.06% FL Global Equity Actively managed 0.00% 0.00% FL Global Equity Fund of Funds funds of funds 0.30% 0.05% FL HSBC Amanah Global Equity Index Index 0.30% 0.00% FL Invesco Perpetual High Income Actively managed 0.75% 0.19% FL Lazard Multicap UK Income Actively managed 0.30% 0.06% FL Newton Global Equity Actively managed 0.35% 0.12% FL North American Actively managed 0.00% 0.00% FL Schroder European Opportunities Actively managed 0.75% 0.10% FL Schroder UK Opportunities Actively managed 0.75% 0.07% FL Stewardship Actively managed 0.00% 0.00% FL Stewardship Income Actively managed 0.00% 0.00% FL UK Equity Actively managed 0.00% 0.00% 4 Medium volatility FL Baillie Gifford Managed Actively managed 0.20% 0.06% FL Balanced Fund of Funds funds of funds 0.30% 0.04% FL Balanced Index Enhanced Fund of Funds funds of funds 0.00% 0.02% FL Balanced Index Fund of Funds funds of funds 0.00% 0.02% FL Cautious Managed Actively managed 0.00% 0.00% FL Henderson Fixed Interest Monthly Income Actively managed 0.50% 0.20% FL Investec Cautious Managed Actively managed 0.75% 0.10% FL Managed Actively managed 0.00% 0.00% FL Property Actively managed 0.00% 0.00% FL Stewardship Managed Actively managed 0.00% 0.00% 3 Low to medium volatility FL Cautious Fund of Funds funds of funds 0.30% 0.04% FL Cautious Index Fund of Funds funds of funds 0.00% 0.02% FL Fidelity Moneybuilder Income Actively managed 0.40% 0.19% FL Fixed Interest Actively managed 0.00% 0.00% FL Index-Linked Actively managed 0.00% 0.00% FL Invesco Perpetual Corporate Bond Actively managed 0.50% 0.18% FL Kames Sterling Corporate Bond Actively managed 0.30% 0.07% FL M&G Feeder of Property Actively managed 0.65% 0.16% FL Pre-retirement Fixed Interest Actively managed 0.00% 0.00% 1 Lowest volatility FL Cash Actively managed 0.00% 0.00% 14

15 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 15

16 Looking after your pension plan 16 The lifestyle investment programmes are 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. Each 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. There are three programmes to choose from: 10 Year 5 Year 3 Year The charts below show how each 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 below. 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 each programme are at no extra cost. You may have already selected one of the funds used in a lifestyle investment programme as a pre-lifestyle investment programme fund. If this happens, your total holding in that fund will be 10 Year Programme Target % invested in fund Target % invested in fund IPRD Years to retirement IPRD IPRD Years to retirement Years to retirement Target % invested in fund Pre-lifestyle investment programme funds FL Pre-Retirement Fixed Interest Fund FL Cash Fund 5 Year Programme 3 Year Programme 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 charts below. 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 programmes, please see the Fund descriptions, their charges and risk warnings document, which is issued with this brochure. You can choose a 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. C B A

17 Features and considerations 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 aims to 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. You can choose to leave the investment programme at any time. 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. 17

18 Further information and help Further information If you want more information about the funds in this brochure, you can find fund fact sheets at or you can phone our helpdesk on 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: Institute of Financial Planning: or at GOV.UK provides impartial UK Government information on pensions at workplace-personal-pensions Contact details If you have any questions, you can: Call us on 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 us at [email protected]. Write to us at Friends Life, PO Box 1550, Salisbury, SP1 2TW. 18

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20 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 Friends Life and Pensions Limited An incorporated company limited by shares and registered in England and Wales, number Registered office: Pixham End, Dorking, Surrey RH4 1QA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Telephone calls may be recorded. Friends Life is a registered trade mark of the Friends Life group. MPEN11/B (41853) IB v2.10 Oct 2014 (44320)