INVESTMENT GUIDE - Make a good decision today!

INVESTMENT GUIDE
UK Pensions
IT’S YOUR FUTURE...
...MAKE A GOOD DECISION
Contents
Helping you to make your savings work harder
3
Your options at a glance
4
Risk5
Control9
Need help?
2
14
HELPING YOU TO MAKE YOUR SAVINGS WORK HARDER
As a member of the Agilent Technologies LDA UK Limited
Pension Scheme (the Scheme) you’re already saving for
your future. That’s a great first step, but there’s more you
can do to make your money work for you.
By investing the money you save in your member retirement account
(your account), you can grow the value of your savings and get more
from your money during your working life. Then, with the increased
flexibility and choice you now have when you take your benefits
(following the 2014 Budget changes, which apply from 6 April 2015),
you can also ensure you get the best value for money by aligning your
investment choices with how and when you want to take your savings.
ABOUT THIS INVESTMENT GUIDE
It aims to set out everything you need to know about your investment
options in the Scheme and what you need to think about when making
your choices.
FIND OUT MORE ABOUT…
…your contribution choices and retirement options.
Read your Scheme guide available in the library section at
www.makeagooddecision.co.uk
…the investment option that may be right for you as
you approach retirement.
Use the decision tree at www.makeagooddecision.co.uk
WE’RE HERE TO HELP
By law, the Company, the Trustees and the administration team cannot
give you financial or investment advice. But we can explain your
options and point you in the right direction. You can find helpful
resources and contact details on page 14.
GET STARTED, THINK ABOUT...
what you want to achieve with your account
A NOTE ABOUT COSTS
what your investment priorities are, and
The Trustees pay for the set up fees and
administration costs that go with investing your
account. You just need to pay investment
charges which will depend on the funds you
choose to invest in. Find out more on page 12.
how your personal circumstances influence your
decision making.
There’s something for everyone: the Trustees have
designed the investment options with members’
individual needs in mind.
CHOOSE WHAT’S RIGHT FOR YOU.
Your investment decision will depend on your personal
circumstances. Make sure you understand your attitude to:
Risk
Control
Your attitude to risk and control is likely to
change throughout your life, so it’s important to review
your priorities (and your investments) regularly.
IT’S EASY TO MAKE A CHANGE...
If you’d like to make changes to your investments:
Log on to ePA at www.makeagooddecision.co.uk
> Take me to my account, or
Fill in an Investment switch form.
You can make changes to your investments at
any time.
3
YOUR OPTIONS AT A GLANCE
The Scheme provides a range of investment choices. Each of the options varies in its objective and potential for growth –
your choice will depend on your approach to risk and control.
YOU CAN CHOOSE ONE OF THE FOLLOWING:
FLEXIBLE LIFESTYLE
HELP ME DO IT
You choose a Growth phase and a Pre-retirement phase option.
Your investments will start to switch from the Growth phase to the
Pre-retirement phase seven years before your target retirement age.
1. Growth phase
a) High Risk and High Growth
• 100% L&G 40:60 Global Equity fund
b) Medium-High Risk and Medium-High Growth
• 50% L&G 40:60 Global Equity fund
• 50% Schroder Life Diversified Growth fund
DO IT FOR ME
DEFAULT LIFESTYLE
If you do not choose otherwise, you’ll automatically
be invested in this option.
This lifestyle option invests in the Medium-High Risk and
Medium-High Growth fund during the Growth phase.
From seven years before your target retirement age,
your investments start to automatically switch to the
Annuity option in the Pre-retirement phase.
SELF-SELECT
LEAVE ME TO IT
Choose the fund(s) you want to invest your account in and when.
There are different asset classes and management approaches.
L&G 40:60 Global Equity fund
L&G UK Equity fund
L&G Ethical UK Equity fund
Schroder Life Diversified Growth fund
L&G Pre-Retirement fund
L&G Over 5 Year Index-linked Gilts fund
L&G Cash fund
c) Medium Risk and Medium Growth
• 100% Schroder Life Diversified Growth fund
2. Pre-retirement phase
a) Annuity option
b) Income drawdown option
c) Cash option
4
REMEMBER...
… you can only choose one investment approach for your
account – either one of the lifestyle options or self-select.
But you can change between or within the options at any
time. See page 12 for details.
UNDERSTAND RISK
Your approach to risk will have an effect on your investment decisions and as
a result, the investment returns you receive. Everyone wants their retirement
savings to grow but it’s not always as simple as that; each type of investment
aims to deliver a certain level of return but it also has different risks attached.
Investment risk is the risk that your investments will fall in value. Different types of assets carry different
levels of investment risk. For example, equities have higher investment risk as returns are more likely to
fluctuate, compared to a more predictable investment like cash. The key thing to remember when
considering investment risk is that it also has a link to potential returns. As a general rule, the lower the
investment risk, the lower the potential return and vice versa. So, while cash or bonds may appear safer
in terms of investment risk, you could also be missing out on higher returns, especially if you are a long
way from retirement.
Missed opportunity risk is the risk that you are too cautious with your investments. This could mean
that you end up with less in your account at retirement than you could have had if you’d made a different
investment choice.
Inflation risk is the risk that your investment returns are lower than inflation, meaning the ‘real’ value
of your account goes down. Inflation risk is generally higher with investments that take lower investment risk,
like cash or bonds. That’s because they typically generate lower returns in the long term but generally offer
a higher level of protection in terms of the absolute value of your investments.
Conversion risk is the risk that your account will buy less than you expect when you come to take your
pension at retirement. This is especially relevant for annuities, but can also affect your savings if you take
income drawdown or a cash lump sum. You can help reduce conversion risk by investing in funds that
contain bonds as you approach retirement. Conversion risk is particularly important to consider as you
get closer to your retirement.
WHY NOT TRY TO DIVERSIFY?
Investing in different types of investments or asset classes helps to diversify or ‘spread’ investment risk.
This diversification means you are not ‘putting all your eggs in one basket’ and you are less
dependent on the performance of any one type of investment.
The lifestyle strategies offer diversification. Or you can choose a range of funds and/or the Schroder
Life Diversified Growth fund through self-select.
5
UNDERSTAND RISK
Please note that the value of your
investments can go down as well as up.
Each type of investment has the potential to deliver certain levels of return, but has certain risks attached.
Read more below.
DIFFERENT TYPES OF INVESTMENT FUNDS
ASSET CLASS
AIMS TO DELIVER
LONG-TERM
GROWTH
AIMS TO
PROVIDE
SECURITY
INVESTMENT
RISK RATING
L&G 40:60 Global Equity fund
Equities are stocks or shares in a company. Equities tend to generate higher returns than bonds or cash
in the long term, but carry a higher degree of investment risk because investments can go down as well
as up. They’re generally considered a good way to invest your money in the long term, since you’ve got
time to weather the ups and downs of the stock market before you reach your target retirement age.
****
*
High
Diversified Growth investments invest in different asset classes. These can include equities, bonds,
property, commodities, hedge funds, derivatives and cash. Diversified Growth funds are considered a
good way to invest your money in the long term. As they diversify investments, they carry less investment
risk, but may deliver a lower potential return than equities.
***
**
Medium
Bonds are loans to a company or government; UK Government bonds are called gilts. You typically
receive a fixed return on your investment, or ‘interest’ on the loan, except for index-linked gilts which pay
a return that increases with inflation. Bonds typically give lower returns over the longer periods than
equities, but they are generally more secure and predictable. The value of funds invested in bonds and
gilts move broadly in line with the market expectations of interest rates and inflation.
**
***
Low-Medium
Cash refers to deposits and short-term loans. They are typically very secure, but only offer standard rates
of interest. So although cash funds provide peace of mind in the short term, they may not get you great
long-term returns.
*
*****
Low
6
FUNDS AVAILABLE
L&G UK Equity fund
L&G Ethical UK Equity fund
Schroder Life Diversified Growth fund
L&G Pre-Retirement fund
L&G Over 5 Year Index-linked Gilts fund
L&G Cash fund
UNDERSTAND RISK
Hopefully the previous pages have helped you understand the different types of risk and levels associated with each type of investment.
It’s now time to turn to your personal circumstances and what risk means for you.
YOUR INVESTMENT RISK PROFILE
YOUR AGE
TARGET RETIREMENT AGE
Generally, the younger you are and the further you are from retirement, the more risk you are likely
to be able to take. If the value of your account falls in the short term, the younger you are, the longer
you’ll have to offset any loss. This could be achieved by reconsidering your level of contributions
and/or your investment risk profile, or the market may recover.
The earliest age at which you can take your savings is age 55 (57 from 2028). And you can delay
taking your savings until age 75. You just need to decide the right age for you – known as your target
retirement age.
On the other hand, the closer you are to retirement, your approach to investment is likely to change –
and to depend on how you’d like to use your savings. If you’re planning to buy an annuity (a secured,
regular income) or taking all of your savings as cash, you may want to consider protecting the value
of your account. If you’re keeping some money invested (through income drawdown) you may want
to continue to grow the value of your savings. The Scheme offers three Pre-retirement options which
target an annuity, income drawdown or cash. If you’ve decided how you’d like to take your retirement
savings, these options manage the level of risk for your chosen option.
YOUR AGE ISN’T THE ONLY FACTOR WHEN CONSIDERING YOUR APPROACH TO RISK,
YOU SHOULD ALSO CONSIDER:
The Scheme’s normal retirement age is 60. So unless you choose otherwise, this will automatically
be your target retirement age. For some members, this may be too early.
Choosing the right target retirement age for you is particularly important when it comes to your
investment choice. If you are invested in a lifestyle option, this age determines when your account
moves between investing in funds that aim to maximise growth (the Growth phase) and the
Pre-retirement phase, where your investments align with how you plan to take your savings
at retirement.
If your target retirement age is set too early for your circumstances, your investments will change too
soon, and you may lose out on potential growth. If it’s set too late, you would be exposed to a higher
level of investment risk just before you want to take your benefits, leaving you vulnerable to changes
in the market.
Your retirement savings as a whole
Your earnings and disposable income
Your contributions
How much flexibility you have about when you retire
Your attitude to investment risk
The table overleaf shows some circumstances that might indicate whether you have a high, medium
or low ability to take investment risk. These are broad categorisations but will get you thinking about
how much investment risk you are in a position to take.
Read more about your retirement options in the Scheme guide. And, if you are thinking
about your choices now, use the decision tree. Go to www.makeagooddecision.co.uk
to access these and other useful tools and resources.
7
UNDERSTAND RISK
Here are some circumstances that might help you
work out whether you have a high, medium or low
ability to take risk with your account.
HIGH, MEDIUM AND
REMEMBER TO CONSIDER YOUR AGE WHEN MAKING YOUR INVESTMENT CHOICES
Generally, the younger you are and the further you are from retirement, the more investment risk you are
likely to be able to take. Your pension savings should be viewed as a medium- to long-term investment
(unless you’re retiring soon) so review your investments with this in mind.
LOW INVESTMENT RISK
YOU MAY HAVE A HIGHER ABILITY TO
YOU MAY HAVE A MEDIUM ABILITY
YOU MAY HAVE A LOWER ABILITY TO
TAKE RISK IF SOME OR ALL OF THESE
TO TAKE RISK IF SOME OR ALL OF
TAKE INVESTMENT RISK IF SOME OR
POINTS APPLY
THESE POINTS APPLY
ALL OF THESE POINTS APPLY
Retirement savings: you have significant retirement
income from a source other than the Scheme.
Retirement savings: your Scheme pension will provide
a reasonable amount of income at retirement, but you’ll
have a few other sources of income too.
Retirement savings: your Scheme pension will be your
main source of income when you retire.
Earnings: you’re a high earner, or you predict your
earnings will rise quickly.
Contributions: you’re making high contributions and
you expect to keep doing so.
Flexibility: you don’t have your heart set on a particular
retirement age; if your savings fall you can delay taking
your savings and work a little longer.
Your attitude to investment risk: you feel comfortable
taking risks. You accept you could lose out at any time, but
you’ve weighed it up and the potential gains are worth it.
8
Earnings: you can’t predict how your earnings will rise;
you might take a career break or change your career
– who knows!
Earnings: you expect your earnings to increase slowly
over your career.
Contributions: you don’t have any dependants so you’ll
be contributing more of your income while you’re young.
Contributions: you’re committed to contributing
a steady amount throughout your career, but you can’t
pay extra contributions out of the blue if the value of
your account falls.
Retirement flexibility: you would like to retire at your
target retirement age of 60, but it’s not the end of the
world if you work a little longer.
Retirement flexibility: you don’t want to delay
retirement and wouldn’t want to work longer if the
value of your account fell.
Your attitude to investment risk: you like a little risk,
but you’re more comfortable spreading the risk. You know
you could lose out on some investment returns because
of this but you aren’t willing to forego the security that
goes with higher risk.
Your attitude to investment risk: you’re cautious and
would rather be sure what you’re on track to receive. If this
means losing out on potential investment gains because
you’re a low-risk investor, so be it.
CONTROL
Now you understand more about risk and have considered where you are on the risk ‘spectrum’, you need to consider:
How actively involved you want to be in investing your account.
How much time you are prepared to spend managing your investments.
How confident you are making the decisions.
FLEXIBLE LIFESTYLE
“HELP ME DO IT”
DEFAULT LIFESTYLE
“DO IT FOR ME”
SELF-SELECT
“LEAVE ME TO IT”
MEDIUM
LOW
HIGH
HOW IT WORKS
You choose a Growth phase and a Pre-retirement phase option,
depending on your approach to risk and how you plan to take
your savings.
Investment decisions are made for you, and your investments
automatically change as you approach your target retirement age.
You have full control over which funds you want to invest in.
There are seven funds to choose from, providing a range of
options depending on different members’ circumstances and
their approach to risk.
WHY IT MIGHT BE
RIGHT FOR YOU
You can choose which Growth and Pre-retirement phase to invest in.
From seven years before your target retirement age, your investments
start to automatically switch to your chosen Pre-retirement option.
You don’t need to make any choices – your account will follow
a pre-defined path.
You’re in control.
You’re limited to three options during the Growth and Pre-retirement
phases, so if you don’t think any of them suit you, then you may
want to consider self-select.
The default lifestyle strategy only offers funds for Medium-High
Risk and Medium-High Growth investors during the Growth phase.
LEVEL OF CONTROL
WHY IT MIGHT NOT
BE RIGHT FOR YOU
FIND MORE ON PAGE 10
From seven years before your target retirement age, your
investments start to automatically switch to the Annuity
Pre-retirement phase option, targeting the purchase of an
annuity at retirement (and a 25% tax-free cash lump sum).
The Pre-retirement Annuity option is suitable for those who want
to buy an annuity (pension) at retirement. If you want to take
all your savings as cash or take income drawdown, you’ll need
to choose a different Pre-retirement option through flexible
lifestyle “Help me do it”.
FIND MORE ON PAGE 10
You can choose the funds that are right for you and change
your investments whenever you want to.
Self-select demands a little more time and effort than the
lifestyle approach as you have to choose your funds and
monitor them regularly.
You may need to switch your investments in the lead up to retirement
– depending on how you wish to take your benefits.
FIND MORE ON PAGE 12
Whichever investment strategy you choose, you’ll be invested in one or a combination
of the seven funds available through self-select. Find out more on the next page.
9
LIFESTYLE
JACK
FLEXIBLE LIFESTYLE “HELP ME DO IT”
DEFAULT LIFESTYLE “DO IT FOR ME”
You have three choices within each of the two phases, depending
on your approach to risk and how you’d like to take your savings
at retirement.
Jack is 53 and has never felt comfortable making
investment choices – he prefers to leave it to the
‘experts’. So, he decided to invest his account in
the default lifestyle option and wants to retire at 60.
His Scheme pension will also be his main source
of income when he retires, so he plans to buy an
annuity to provide a secured and regular income for
the rest of his life. He is therefore comfortable that
his account will be invested in the Annuity option
during the Pre-retirement phase.
Your investments will automatically start to switch from the Growth
phase to the Pre-retirement phase seven years before your target
retirement age, preparing your account for how you’d like to take
your savings at retirement.
The graphic on the next page shows your options for each phase
and some pointers for things you may wish to consider when making
your choice.
DEFAULT LIFESTYLE ”DO IT FOR ME”
This lifestyle option invests in Medium-High Risk and Medium-High
Growth fund during the Growth phase.
From seven years before your target retirement age, your
investments start to automatically switch to the Annuity option
in the Pre-retirement phase.
If you do not choose otherwise, you’ll automatically
be invested in this option.
Think ahead
How you decide to take your savings at retirement will affect your
investment choice in the Pre-retirement phase.
See your Scheme guide for more information about your future choices
– go to www.makeagooddecision.co.uk for a copy.
10
JOE
FLEXIBLE LIFESTYLE “HELP ME DO IT”
Joe is 40. Although he has a higher ability to take
risk (primarily because he will have other savings
to lean on when he retires), he is not comfortable
making all of the investment decisions himself.
Joe has chosen the High Risk and High Growth
fund during the Growth phase of the flexible
lifestyle option. He is aware that by seven years
before his target retirement age, he needs to think
about how he plans to take his retirement savings.
So when his funds do start switching, they will
align and ensure he gets the best value for money.
His account will gradually start switching into bond
and cash funds over the next seven years to
protect him from the possibility that his account
value might drop as he approaches retirement.
By the time he retires, 75% of his account will be
invested in the L&G Pre-Retirement fund and 25%
in the L&G Cash fund.
LIFESTYLE
There are two phases in the lifestyle strategy; the Growth phase and the Pre-retirement phase.
GROWTH PHASE
PRE-RETIREMENT PHASE
Seven years before your target
retirement age your funds will begin
switching from the Growth phase
to the Pre-retirement phase.
The aim is to grow your account during this phase.
Your choice will depend on your attitude to risk and
your personal circumstances.
Your three options:
High Risk and High Growth
Medium-High Risk and Medium-High Growth
Medium Risk and Medium Growth
High Risk
and High
Growth
Medium-High
Risk and
Medium-High
Growth
(DEFAULT)
Medium Risk
and Medium
Growth
Your three options:
Annuity
Income drawdown
Cash
Read more about the importance of
your target retirement age (TRA)
on page 7.
GROWTH PHASE
Option
The aim of this phase will depend on your
choice – which in turn depends on how you
want to take your benefits.
You can take 25% cash
tax-free with whichever
option you choose
PRE-RETIREMENT PHASE
Underlying funds
100% L&G 40:60
Global Equity fund
Risk
Suited for
Option
High
Members who are comfortable
taking a higher level of investment
risk for potentially higher returns
Annuity
option
(DEFAULT)
Mix of funds at target
retirement age
Suited for
Members with
a lower ability
25% L&G Cash fund
to take risk
75% L&G Pre-Retirement fund and attitude to
investment risk
How does it work?
Transitions assets into lower-risk
funds to protect the value of
members’ accounts as they
approach retirement
32.5% L&G Cash fund
50% L&G 40:60
Global Equity fund
50% Schroder Life
Diversified Growth fund
MediumHigh
100% Schroder Life
Medium
Diversified Growth fund
Members who want to take some
investment risk but don’t want to
take the highest level, so they
won’t be subject to as much
potential volatility
Income
drawdown
option
Members with a lower ability to take
risk and attitude to investment risk
Cash
option
Continues to aim to grow the
Members planning
value of members’ assets,
to drawdown
whilst taking a lower level of
20% L&G Pre-Retirement fund income over time investment risk compared with
at retirement
the Growth phase
10% L&G Over 5 Year
Index-Linked Gilts fund
37.5% Schroder Life
Diversified Growth fund
100% L&G Cash fund
Members planning
Members planning to take
to take all of their
all of their savings as cash
savings as cash
at retirement
at retirement
11
SELF-SELECT
Self-select investors can decide:
1. What funds to invest in from the seven available,
2. How much of your account to invest in each fund, and
3. When to switch your investments.
FUND
ACTIVE
OR
PASSIVE
INVESTS IN
INVESTS FOR
DESIGNED TO
WHO IS IT AIMED AT?
L&G 40:60 Global
Equity fund
Passive
40% UK equities and
60% Overseas equities
Long-term growth
Capture global equity market returns
Investors with long-term investment horizons
High
who wish to diversify geographically
0.17%
L&G UK Equity fund Passive
100% UK equities
Long-term growth
Capture UK equity market returns
Investors with long-term investment horizons High
0.10%
L&G Ethical UK
Equity fund
Passive
100% UK equities of socially
responsible companies
Long-term growth
Capture UK equity market returns
of socially responsible companies
Investors with long-term investment
horizons who wish to adhere to certain
ethical, environmental or social principles
0.20%
Schroder Life
Diversified
Growth fund
Active
A wide range of asset classes
including equities, bonds and
alternative assets
Long-term growth
Deliver returns in excess of inflation over long term
Investors with long-term investment horizons
who wish to diversify both geographically
Medium
and by asset class
0.72%
L&G
Passive
Pre-Retirement fund
UK corporate bonds and UK gilts
Protection against changes
in prices of annuities not
linked to inflation
Capture bond market returns and provide
investment that moves broadly in line with
annuity prices
Investors approaching retirement age
Low-Medium
0.15%
L&G Over 5 Year
Index-linked
Gilts fund
Passive
100% index-linked gilts
Protection against changes
in prices of annuities linked
to inflation
Capture index-linked gilts market returns and
provide investment that moves in line with
inflation-linked annuities
Investors approaching retirement age
Low-Medium
0.10%
L&G Cash fund
Active
Cash deposits and
short-term investments
Short-term security of capital
Deliver competitive rates of return from cash
deposits and other short-term investments
Investors approaching retirement age who
hope to receive a cash sum when they retire
Low
0.125%
INVESTMENT
RISK RATING
High
TOTAL
EXPENSE
RATIO (TER)
Please note: The TER is the total cost of investing in the fund, which is automatically deducted from the fund price. The TER includes the Annual Management Charge (AMC – the annual fee charged by the investment manager) and any other additional fund expenses such as trading fees, legal fees, auditor
fees and other operational expenses.
12
SELF-SELECT
ACTIVE FUNDS
Aim to outperform a market benchmark. They are
managed by an investment manager who decides
which assets to buy or sell. They’ll generally choose
the ones they believe will perform better than the
market. Because of the investment manager’s active
involvement and skill, active funds typically have
higher investment charges. Although active funds
have the potential to deliver greater returns, they
can also be more volatile than passive funds.
PASSIVE FUNDS
Try to replicate a particular benchmark or index,
aiming to achieve the same return. Although they
typically have lower annual management charges
than active funds, they don’t offer the same
potential for investment return.
FUND PERFORMANCE
Find out fund performance by downloading the fund
factsheets from the individual managers website.
For L&G funds, go to www.lgim.com/clientsite
and enter ‘agilentlda_member’ (User ID) and
‘password’ (Password).
For the Schroder Life Diversified Growth fund, go to
www.schroders.com/en/uk/pensions/
fund-centre/fund-prices. Then select:
- UK Corporate Pension Scheme
- Click ‘continue’
- Search for Series 5 in the search bar.
LINDA
SELF-SELECT “LEAVE ME TO IT”
Linda’s only 30, a long way from retirement.
She’s quite comfortable with a degree of risk and
she’s keen to invest in equities as they have the
highest potential for high investment return. She also
believes the companies in which she invests should
behave responsibly. Linda has opted for self-select and
has invested most of her account in the L&G Ethical
UK Equity fund, with the remainder invested in the
L&G 40:60 Global Equity fund.
Linda plans to keep her savings invested when she
stops working (i.e. take income drawdown) so she
needs to keep her investment choices under regular
review. For example, she may decide to invest in funds
which take a lower amount of investment risk
as she approaches her target retirement age, if she
intends to access some of her savings immediately.
13
NEED HELP?
IF YOU NEED TO SPEAK TO SOMEONE, YOU CAN CONTACT:
For questions about your benefits
For questions about the Scheme
The administration team
The Pensions Department
email: [email protected]
Contact Heather Wright:
phone: 0113 390 7172
email: [email protected]
post: Agilent Technologies LDA UK Ltd
Pension Scheme
Towers Watson
PO Box 545
Redhill
Surrey RH1 1YX
phone: 0131 452 0613
post: Agilent Technologies LDA UK Limited
Pensions Department
5 Lochside Avenue
Edinburgh Park
Edinburgh EH12 9DJ
WANT ADVICE ABOUT CHOOSING YOUR INVESTMENTS?
Please note that by law, the Trustees, the Pensions Department and the administration team cannot
give you financial advice.
However, some organisations offer free financial advice; visit
www.moneyadviceservice.org.uk/en/articles/free-financial-advice-your-options
And if you want to speak with a financial adviser, you can find one near you at www.unbiased.co.uk
14
Find out more about the Scheme,
access other useful tools and resources and manage
your account online at www.makeagooddecision.co.uk
April 2015