investment guide - bp...this guide outlines your fund options, things you might consider when making...

investment guide

BP Retailing Pension & Life Assurance Scheme

betterprepared

August 2017

Why do I have to invest my money?04How do I choose where to invest?06What are my investment options?11Can I change my mind about where I invest? 19Is there anything else I should know?21

The Scheme gives you as much or as little control over your investments as you’d like. This guide outlines your fund options, things you might consider when making investment decisions and explains the risks associated with investing. All in all, the aim is to help you understand how to make the most of saving for your retirement.

Words in italics are explained in the separate jargon buster.

investment guide August 2017 page 2

to invest my money?

Why do I have

Why do I have to invest my money?

The contributions you pay into your retirement account, along with those from the company, are invested in a range of funds.

The aim is to increase the value of your retirement account during your working lifetime to provide you with benefits in retirement – this can’t happen unless you invest. The amount of pension you can buy at retirement will depend on a number of factors including:

• How much you pay into your retirement account

• How much the company pays into your retirement account

• How long you pay into your retirement account

• The performance of the funds you invest in

• How much you might have to pay in investment charges

• What pension benefits you choose at retirement

• How much it costs to buy a pension when you retire

When should I start thinking about saving for retirement?

The answer is now, and if you’re reading this then you’re already taking the first important steps. You just need to keep up the good work by reviewing your savings and investment choices on a regular basis.


where to invest?

How do I choose

How do I choose where to invest?

How you choose to invest the contributions paid into your retirement account will determine the level of benefits you receive when you retire.

Your investment decisions are very important, but don’t let that scare you. Read on to understand more about investing and start to take control of your saving for retirement.

When choosing your investment funds, you need to:

• Understand the different types of funds available

• Consider the level of risk associated with the funds

• Consider your own attitude to risk

• Think about whether or not you want to control your investments yourself

What are the different types of investment fund and how risky are they?

Broadly, the main types of investment are equities, gilts, bonds and cash. These are explained below and on page 7 in a little more detail.

An equity is another name for a share. Basically, it’s a ‘share’ in the ownership, and therefore the profitability and growth, of a company.

If the company does well, the value of an equity should increase, but if the company does less well, the equity could also see a decrease in value. Historically, over the longer term, equities have provided a higher level of return than other investments, but are subject to relatively large, short-term fluctuations in value.


A bond is a type of loan which companies issue to make money. The companies pay interest on the loan for an agreed period, and then the loan is paid back to the lender.

A gilt is a bond issued by the government. Gilts generally provide marginally higher returns than a cash fund.

The main attraction of gilts and bonds is that their value typically keeps pace with fluctuations in the cost of buying pensions, providing you with a level of protection against changes in these costs close to retirement.

Cash will earn interest and help to protect the capital value of the

money you invest, but the growth of the fund is normally much less in cash than in other funds. This form of investment is used to put aside part of your retirement account to provide the tax-free cash sum available at retirement.

Are there other key risks I should be aware of?

What goes up may also come down

Stock markets occasionally fall abruptly in value. When you are younger, this risk may not be as important to you because the stock markets should have plenty of time to recover before you have to use your retirement account to buy a pension. In fact, you could benefit from continuing to invest in such stock markets while they are at depressed prices. However, if you are nearing retirement, this risk can be crucial because there may not be enough time for stock markets to recover before you retire.

Be careful not to be too cautious

If you are too cautious with your investment choices when retirement is a long way off, and invest very little in equities for example, there is a chance that your retirement account will not grow as much as it could have done if you had invested in funds considered to be higher risk. Aiming to achieve a balance between risk and return is one way to minimise this risk.

Shopping for your pension

When you retire, the part of your retirement account not taken as a lump sum can be used to buy an annuity (your pension).

Lots of things can influence the cost of buying an annuity, including your age when you retire, the benefits you choose to take, and interest rates at your retirement date. The result is that any increase in cost will reduce the amount of pension you can receive from your retirement account. Or, if costs are less, you could receive a higher pension.


What else should I think about when making my decisions?

Now you understand the risks involved and know a bit about the different types of funds, you need to consider how your attitude to investing, your individual circumstances, and your goals for retirement will impact your decision making.

Set goals – what are your plans for retirement?

Think about how much you will want to live on when you retire, and whether you are saving enough to achieve your goals. Remember to take into account any State or other pension scheme benefits you may be entitled to.

Know yourself

Do you like to live life on the edge or are you more reserved? Think about how much investment risk you want to take. The rule of thumb with investing money is the higher the expected return, the higher the likely risk – if you prefer stability, investing in equities for the whole time you invest is probably not right for you.

How long do you have left until you retire? Do you still have time to take a risk, or has the time come to be more sensible? This will change throughout your working lifetime:

Younger members During the earlier years of your working life, the idea is that your retirement account should grow as quickly as possible. The level of risk is less important, since there should be plenty of time for your retirement account to recover if the value of your investment falls. Equities are generally seen as the best vehicle for achieving good investment growth, although they can be subject to short-term fluctuations in value – this means they can go up or down in value depending on how the investment markets are performing.

Older members Retirement is suddenly a reality and avoiding risk begins to become a more important consideration. While your retirement account still needs to increase in value, it’s also important that the retirement account you have already built up should be protected from large fluctuations in the stock market.

page 8

Make a check list

Make a list of the long-term savings you have already, both from the Scheme and from previous employers’ plans, the State pension, and your spouse’s/partner’s assets. You may also have short-term savings, such as cash in the bank and other assets such as your home; although you should think carefully before deciding whether these should form part of your pension savings. If you have other sources of income for your retirement, this may affect how much risk you’re willing to take.

Learn about investments

We know you may not think it’s the most exciting topic, but if you learn a bit about investing you’ll be amazed at how quickly it will all begin to make sense! This will help you to feel more confident if you do decide to manage your own investments. Remember to talk to an independent financial adviser (IFA) if you’re unsure about your investment choices. And don’t forget that you do have to pay investment management charges.

It’s important to get it right!Please consider seeing an IFA for advice about your investment choices whenever your circumstances change.


investment options?

What are my

What are my investment options?

Variety is the spice of life – that’s why the Scheme has fund options to suit every member. The Scheme provides you with 13 different funds to invest in so you have choice and flexibility.

However, there is also a lifestyle option for those of you who are less keen to control your investments and are happy for the Scheme to manage your funds for you. You can:

Self-select

Take the plunge and choose the way your retirement account is invested. If you choose this option, you will be responsible for selecting your own investment funds and keeping an eye on how your funds perform. This will involve reviewing your investments regularly and switching as and when you see fit. You also need to be careful that your investments are managed in line with your normal retirement date.

All funds are managed on a passive basis. This means that they aim to track the performance of a similar specific index.

Or

Lifestyle

This option is designed to track your changing needs throughout your working lifetime up to age 65 and, at the same time, to achieve a balance between risk and return. This is also the Scheme’s default investment option. If you don’t choose how you want your retirement account to be invested when you join the Scheme, it will automatically be invested in this option. However, the trustee is not making any recommendation about the suitability of the lifestyle option. When making your investment decisions, you must consider what is most appropriate for you and your circumstances.

The funds available, and the level of risk associated with each, are shown on pages 12 to 16. You should also refer to the previous section ‘How do I choose where to invest?’ to understand how the different types of funds work.


Fund name Description of fund Level of risk

UK Equity Index Fund This fund aims to match the returns of shares listed on the UK stock exchange.

The current benchmark is the FTSE* All Share Index.

8

Europe (excluding the UK) Equity Index Fund

This fund aims to capture the returns of the equity market in continental Europe.

The current benchmark is the FTSE Developed Europe (ex-UK) Index.

9

North America Equity Index Fund This fund invests in a broad mix of US and Canadian securities with the aim of achieving as much long-term capital growth as possible.

The current benchmark is the FTSE World North America Index.

9

*FTSE is the Financial Times Stock Exchange.



Asia Pacific (excluding Japan) Developed Equity Index Fund

This fund provides the potential for long-term growth by investing directly or indirectly into a portfolio of Far Eastern securities.

The current benchmark is the FTSE World Asia Pacific (ex-Japan) Index.

10

Japan Equity Index Fund This fund aims to capture the returns of the equity market in Japan.

The current benchmark is the FTSE Japan Index.

10

Global Equity Fixed Weights (50:50) Index Fund

This fund aims to capture the sterling returns of the UK and overseas equity markets with fixed asset allocations between the UK (50.25%) and several overseas markets (49.75%).

The current benchmark is 50% of the FTSE All Share Index, 17.5% of the FTSE World North America Index, 17.5% of the FTSE Developed Europe (ex-UK) Index, 8.75% of the FTSE Japan Index and 6.25% of the FTSE World Asia Pacific (ex-Japan) Index.

7



All World Equity Index Fund This fund aims to capture the sterling returns of the North American and other equity markets with fixed asset allocations of North America (55.5%), Europe (ex-UK) (14.9%), World Emerging Markets (9.2%), Japan (8.2%) and UK, Asia Pacific, Middle East and Africa (12.2%).

The current benchmark is the FTSE All-World Index.

7

Ethical UK Equity Index Fund This fund is invested so that its performance, beforecharges, aims to mirror that of a filtered version of theFTSE 350 Index with income reinvested.

The current benchmark is the FTSE 4Good UK Equity Index.

9

Multi-Asset (formerly Consensus) Fund

This fund combines the long-term growth potential offered through UK and overseas equities, including emerging markets, real estate and private equity, with the relative security provided by gilts, bonds and cash, including emerging sovereign debt and high yield bonds.

The fund does not track a specific benchmark. However, it is expected to produce a lower return than a fund invested solely in developed market equities, but with a lower associated risk.

4



Over 5 Year Index-Linked Gilts Index Fund

This fund aims to get the best return from a portfolio of mainly index-linked securities issued by the UK government.

The current benchmark is the FTSE A Index-Linked (Over 5 Year) Index.

2

Corporate Bonds All Stocks Index Fund This fund aims to get the best return from a portfolio of corporate bonds issued by a range of companies.

The benchmark is the Markit iBoxx £ Non-Gilts All Stocks Index.

2

Pre-retirement Fund This fund is a mixed bond fund.

The current benchmark is 90% of the iBoxx £ Non-Gilt (ex-BBB) Over 15 Year Index and 10% of the FTSE A Government (Over 15 Year) Index.

2

Cash Fund This fund provides capital protection with growth at short-term interest rates. The fund invests in short-term money markets such as bank deposits and Treasury Bills.

The current benchmark is the UK 7-Day LIBID.

1

Lifestyle This fund invests 100% in global equities up to 15 years before retirement when there is a gradual move away from equities into a mix of equities, gilts, bonds and cash. See the diagram on page 17 for more details.

4**

**The level of risk in the lifestyle option gradually reduces from 7 to 1 as you approach age 65.


The level of risk for each fund is shown in the risk indicator key below.

Risk Description10 Highest risk

9

8

7

6

5 Average risk

4

3

2

1 Lowest risk

I’ve thought about it and I don’t want to manage my investments directly

That’s no problem, simply choose the lifestyle option. This option works by automatically switching your investments from 100% in equities to a mix of equities, gilts and bonds, and then cash as you approach age 65. This way, you are lessening the level of risk and increasing the security of your benefits. This is important as you will wish to avoid large falls in the value of your retirement account as you approach retirement. The lifestyle option may not be the most appropriate option for you and your circumstances. The trustee recommends that you consider all investment options before choosing this.

How is my money invested if I select the lifestyle option?

The lifestyle option invests 100% in the All World Equity Index Fund with the aim that your retirement account grows during this time (the growth phase), and then gradually switches into a diversified portfolio of five funds over a 15 year period leading up to your retirement (the glidepath phase). During the last five years of this switching period, part of your retirement account will be gradually switched into the Cash Fund. When you retire, the aim is that your retirement account will be split over the five funds as follows:

• 25% in the Cash Fund

• 25% in the Multi-Asset (formerly Consensus) Fund

• 20% in the Corporate Bonds All Stocks Index Fund

• 20% in the Over 5 Year Index-Linked Gilts Index Fund

• 10% in the All World Equity Index Fund


The chart below shows how this is done and where your money will be invested at retirement.%

of

fun

d in

vest

ed

Years until age 65

20%

0%

40%

60%

80%

100%Cash

IL Gilts

Corp Bonds

MAF

Global Equity

15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0

All World Equity Index Fund

Multi-Asset (formerly Consensus) Fund

Over 5 Year Index-Linked Gilts Index Fund

Cash FundCorporate Bonds All Stocks Index Fund


about where I invest?

Can I change my mind

Can I change my mind about where I invest?

Don’t worry if you’re feeling indecisive. The funds you choose now can be altered later. In fact, it’s important that you review your investments on a regular basis, especially if you are not in the lifestyle option, and especially if your personal circumstances change.

If you want to switch funds in the retirement account you have already built up or change the investment of your future contributions, you can do so at any time by using Hartlink online or by completing the investment switching form. Links to Hartlink and the form can be found at https://pensionline.bp.com, or you can contact BP UK pensions and benefits.

Will the fund options change?

The choice of funds can be changed from time-to-time by the trustee. The trustee and its advisers also monitor the performance of the investment managers.

The trustee has chosen Legal & General Investment Management (LGIM) as the investment manager, but can appoint an alternative investment manager, or additional investment managers, if it feels this would best suit the requirements of members. You will be told if the trustee changes the investment managers.


else I should know?

Is there anything

Is there anything else I should know?

This guide is not meant as advice or guidance – if you would like more information or advice about your investment options in relation to your specific circumstances, you should seek independent financial advice.

Where can I get more help?

The PensionLine website contains a wealth of information, including the investment factsheets for all the fund options.

If you still need help after looking at PensionLine, BP pensions and benefits is always happy to help. You can contact the team at:

BP UK pensions and benefits Chertsey Road Sunbury-on-Thames Middlesex TW16 7LN

Phone: 0345 602 1063 If calling from overseas: +44 1932 767730 Email: [email protected] Website: https://pensionline.bp.com

The trustee, the company and BP pensions and benefits are not authorised to give you advice about your benefits. You can find an independent financial adviser (IFA) in your local area by visiting www.unbiased.co.uk. An IFA may charge for their advice, so you should check this with them first.


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investment guide - bp...this guide outlines your fund options, things you might consider when making...

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