phillips 66 uk pension plan db section additional ... · you can change how your account is...

Benefits for Today.

Benefits for Tomorrow.

Benefits for the Unexpected.

Phillips 66 UK Pension Plan DB Section Additional Voluntary Contributions Investment Guide

What’s insideYou are in control ..........................................................................................................2

Investment basics ........................................................................................................3

Types of investment .....................................................................................................3

Types of investment risk...............................................................................................4

Why diversification matters ..........................................................................................4

Creating a diversified portfolio......................................................................................5

Choosing your AVC investments .................................................................................6

How does the self-select strategy work? .....................................................................6

Risk versus return ........................................................................................................7

How does the lifecycle strategy work? .........................................................................8

Plan charges ................................................................................................................10

Keeping track of your account ..................................................................................10

Other information .......................................................................................................10

Independent Advice ...................................................................................................10

Future changes ..........................................................................................................10

Other AVCs ................................................................................................................10

Some legal notes ....................................................................................................... 11

Copies of the Trust Deed & Rules and Legal & General policy documentation ........... 12

Fund Fact Sheets ........................................................................................................12

Phillips 66 UK DB Section Additional Voluntary Contributions Investment Guide


2

You are in controlWhen it comes to deciding how to increase

the value of your pension, Additional

Voluntary Contributions (AVC’s) under the

Defined Benefit Section of the Phillips 66 UK

Pension Plan gives you additional flexibility.

It lets you decide how much extra

contributions you want to pay to your

account and how your money is invested.

In short, it gives you choice and flexibility.

You choose how your account is invested.

Your decisions will have a direct effect on the

value of the additional benefits you build up.

That’s why it’s so important that you ‘invest’

some of your time now so that you make

the best possible investment decisions for

your future.

Although investment returns will change

from time to time, the better your investments

perform, the faster your account will grow

and the higher your ultimate account value

will be.

Choosing what to invest in may seem like

a daunting prospect. This guide can help.

It aims to explain your investment choices

in simple terms and to outline the things

you’ll need to think about when investing

your account.

This guide will give you an overview of the

investment options available for Additional

Voluntary Contributions (AVC’s). Although

written in everyday language, some technical

terms have been used. If you have any

questions about the information in this guide

you can contact the Scheme’s administrators

at [email protected] or on

0800 587 7336.

3

Investment basics When it comes to investing for your future, there are a few fundamental strategies that experts recommend following:

• Create a diversified portfolio that gradually becomes more conservative over time.

• Keep your costs as low as possible. The plan includes several extremely low-cost investment options.

• Rebalance your portfolio once or twice a year. (‘Rebalancing’ simply means that you bring your portfolio back to your desired asset mix — for example, 60% equities and 40% bonds.)

• Remember that you’re investing for the long term. Don’t make frequent changes in your investment strategy in reaction to short-term changes in the market.

TYPES OF INVESTMENTEach of the available investment funds is made up of different investment types, known as ‘asset classes.’ The percentage of each class used in a fund depends on whether the fund is designed for growth, balance or protection. Some common classes include:

Cash investments

Cash funds invest in a variety of money market instruments as well as deposit accounts. The aim is to produce, in total, interest-rate like returns. Cash investments provide a reasonable level of protection against your capital value reducing. However, in certain market conditions, investments in cash funds can fall.

Bonds These are loans to organisations or governments. Bonds provide investment returns either at a fixed rate (fixed-interest), or at a rate that is linked to inflation. Bonds can also be issued for different lengths of time. Bonds are traded in a similar way to equities so their value rises and falls, but not usually as sharply as the value of equities. Corporate bonds are bonds issued by public companies. Bonds issued by the UK Government are also called gilts.

Equities These are company shares. The value of a share changes, largely depending on the performance of the issuing company and market conditions. Historically, shares have produced good returns in the long term — better than bonds or cash — but they can fall as well as rise in value, sometimes quite sharply.

Alternative assets

Alternative assets (such as private equity, commodities, currency, infrastructure and others) are similar to shares (equities) in that they are long-term investments that tend to deliver higher returns with a higher degree of risk. However, their appeal is that they tend not to move in the same direction as each other or as traditional assets (equities and bonds), therefore acting as a ‘diversifier’ in a portfolio of investments. It’s like not having all your eggs in one basket.

Please note that the above is only general information about various types of investments. Specific information on the Plan’s AVC investment options can be found beginning on page 5 and in the Fund Fact Sheets. The most up-to-date fund information is available on the pensions section of the Phillips 66 intranet at: http://hr.phillips66.net/EN/ukireland/benefits/ukpension/Pages/index.aspx.

http://hr.phillips66.net/EN/ukireland/benefits/ukpension/Pages/index.aspx


4

TYPES OF INVESTMENT RISKEach type of investment has the potential to deliver certain levels of return (profit) but also has certain risks.

Investment risk This is the risk that the value of your investments will fall in value. It’s what most of us think of when we think of ‘risk,’ and it’s the risk that’s shown in the chart on page 7.

Inflation risk If your investment returns are lower than inflation, the ‘real’ value of your account goes down. This is inflation risk.

Conversion risk This is the risk that your account will buy less pension at retirement.

When you convert part of your account from a pot of money into an annual income, you’re buying an ‘annuity’ from an insurance company. The price of annuities is calculated by the insurance company, taking into account your life expectancy and the price of certain types of bonds supplied by issuers who are considered to be highly creditworthy. At this time, creditworthy bonds include bonds issued by the UK Government.

As you approach retirement, you can help reduce conversion risk by investing in bonds of the type used by insurance companies to calculate the price of annuities.

Currency risk This is the risk that the fund you invest in holds cross-border assets and the currency those assets are stated in declines in reference to the GBP.

Opportunity cost risk

The risk that you invest too conservatively for long-term growth.

WHY DIVERSIFICATION MATTERSAs the saying goes, ‘don’t put all your eggs in one basket.’ This is especially true when investing for retirement. Maintaining a mix of equities, bonds, alternative assets and cash investments in your account can help manage your investment risk.

This ‘diversification’ is a key principle of sound investing. The idea is that when one type of asset is doing poorly, another may be doing well. For example, if your equity funds are losing value, your bond funds may be going up or holding steady. Of course, the opposite may also occur, where your bond funds lose value while your equity funds are going up. And there may be times when it seems that every type of investment is losing value.

How much of your account you should allocate to the different asset classes depends on you — your financial goals, your tolerance for risk, the value of your Pension from the Defined Benefit Section of the Plan, your other assets and needs, and how much time you have until retirement.

5

CREATING A DIVERSIFIED PORTFOLIOTo help you build a diversified portfolio, the plan investment options are classified into three groups.

Lifecycle Fund Investing in a Lifecycle Fund is a simple way to build a diversified portfolio.

• Your account is invested according to a strategy set by the Trustee based on your ‘Target Pension Date,’ which is the first day of the month after your 65th birthday.

• If you wish, you can choose a different Target Pension Date between ages 55 and 75.

• The lifecycle strategy aims to invest in growth funds when you’re a long way from retirement, and then gradually switch to protection funds to protect the value of your account as you approach retirement.

Single Asset Class Index Funds

If you want to be more involved in the management of your plan investments, you can also build a low-cost diversified portfolio by investing in the plan’s single asset class index funds.

• To do so, decide on your asset mix (the mix of stocks, bonds and more conservative investments you want in your portfolio), and allocate your money among the applicable index funds.

• Remember to rebalance your portfolio once or twice a year to keep your desired asset mix.

Multi-Asset Funds The plan’s multi-asset funds are actively or passively managed funds that can help you to further diversify and fine tune your portfolio to your specific needs.

• The Multi-asset fund offers globally diversified exposure to a wide range of asset classes in a cost-efficient manner.

• The fund targets lower volatility than typical equity funds, while still aiming to provide a long-term rate of return broadly similar to that of developed market equities.

• As with the index funds, you can allocate all or part of your investments into multi-asset funds. Again, you need to decide on the overall asset mix and periodically rebalance your portfolio.


6

Choosing your AVC investmentsDepending on how much control you want over your investments and how much time you want to spend managing them, you can choose one of two investment strategies:

Self-select strategy

You choose your own investments from a range of funds selected by the Trustee, shown below. You’re responsible for making any changes in how your account is invested.

Lifecycle strategy

Your account is invested according to a strategy set by the Trustee based on your ‘Target Pension Date,’ which is the first day of the month after your 65th birthday. If you wish, you can choose a different Target Pension Date between age 55 and 75.

The lifecycle strategy aims to invest in growth funds when you’re a long way from retirement, and then gradually switch to protection funds to protect the value of your account as you approach retirement.

Please note that you must choose either lifecycle strategy OR the self-select strategy. You can’t choose a combination of the two.

HOW DOES THE SELF-SELECT STRATEGY WORK?With the self-select strategy, you can build your investment portfolio using one or more of the funds shown below. These options have been selected in order to allow you to build a diversified portfolio that’s right for you. You can change how your account is invested as often as you like.

If you choose the self-select strategy, you’ll need to take a more active role in managing your investments and will need to consider changing your investment mix as you move through your career. An example of how this will work for the lifecycle strategy is shown on page 9.

Fund Name Index Fund Type

Sterling Liquidity Fund 7 Day LIBID Cash

Pre-Retirement Fund Composite (mixture of gilts, index-linked gilts and corporate bonds to reflect manager’s view on annuity pricing, and reviewed at least quarterly)

Fixed or Index Linked Income

Over 15 Year Gilts Index Fund FTSE A Government (Over 15 year) Index Fixed Income

Investment Grade Corporate Bond (All Stocks) Index Fund

Markit iBoxx £ Non-Gilts (All Stocks) Index Fixed Income

LGIM Diversified Fund Composite Index Multi-Asset

LGIM Dynamic Diversified Fund Bank of England Base Rate + 4.5% p.a. over a market cycle

Multi-Asset

World Equity Index Fund – GBP Currency Hedged

FTSE AW – World Index GBP Hedged (excluding the advanced emerging markets)

Equity

World Emerging Markets Equity Index Fund

FTSE AW – All Emerging Markets Index Equity

Note: Before investing in a fund, please refer to the Fund Fact Sheets that are available on the pensions section of the Phillips 66 intranet at: http://hr.phillips66.net/EN/ukireland/benefits/ukpension/Pages/index.aspx. The Fund Fact Sheets also include information about the indices referred to in the table above.


7

RISK VERSUS RETURN‘Risk versus return’ is the idea that your potential investment return rises if you’re willing to take on more investment risk.

As shown in the chart below for the funds available in the Self-Select Strategy, individual stocks (equities) generally have the highest risk, and the highest potential return. Keeping your money in cash may seem like a safer bet, but that can be risky as well since cash investments are subject to the ‘inflation risk’ and ‘opportunity cost risk’ shown on page 4.

The key is finding the level of risk versus return that’s right for you. In general, that means taking on more risk early in your career and less as you near retirement. Of course, everyone’s situation is different, and you might want to consult with an independent financial advisor before making your investment choices.

Risk vs. Return

Dynamic Diversified

Fund

Diversified Fund

World Emerging Markets Equity Index Fund *

Investment Grade Corporate Bond

Index Fund

UK Gilts

Sterling Liquidity Fund

RE

TUR

N

RISK

World Equity Index- Fund – GBP

Currency Hedged

Pre-Retirement Fund

* Provisional and subject to market changes.


8

HOW DOES THE LIFECYCLE STRATEGY WORK?The lifecycle strategy may be for you if you’re nervous about choosing your investments or don’t want to be bothered with rebalancing your account each year. This strategy uses four of the investment options described on the previous page:

• The World Equity Index Fund.

• The LGIM Diversified Fund.

• The Pre-Retirement Fund.

• The Sterling Liquidity Fund.

During the lifecycle strategy, your account is invested in up to four of these funds, with the investment mix gradually becoming more and more conservative as you approach retirement. An example of how this works is shown on the next page.

What are the advantages of the Lifecycle Strategy?The main advantage of the traditional lifecycle approach is that investments are switched to less risky or volatile investments at a time when any losses incurred would be hard to make up. It has the added advantage that this process happens automatically without you needing to remember to switch investments so it’s very much ‘hands off’. However, you will need to remember to take into account when you intend to take your pension benefits and advise Capita if you are planning to change your Target Pension Date so that the switching happens at the right time.

What are the disadvantages of the Lifecycle Strategy?Lifecycle switching is linked to the Scheme’s Normal Retirement Date or your own Target Pension Date if you have selected one. It is very important that you consider when you want to take your benefits and let us know if this changes in future because expectations about retirement often change over time.

If a lifecycling strategy starts switching someone out of growth assets too early, it will limit the amount of growth that may be made. This could have a major impact on your fund and ultimately your pension benefits. Similarly, if a lifecycling strategy starts switching someone out of growth assets too late, then the fund will have been exposed to market fluctuations at a time where it may be difficult to make up any losses.

Lifecycling will not suit everyone because it very much depends on the lifecycling strategy adopted and your own attitude to risk. In particular, it may not be suitable for you if you prefer to actively manage and switch your own investments or if the lifecycling strategy does not suit your own risk tolerance.

9

To illustrate how the lifecycle strategy will work, we look at Julie, a Phillips 66 employee who plans to retire in 30 years.

• Currently and for the next five years (until Julie is 25 years from retirement), 100% of her account will be invested in the World Equity Index Fund (as shown in the first column of the chart above). Julie understands that the value of this fund may vary greatly from day to day. But she also knows that, over the long term, this fund may generate a higher return than the plan’s more conservative investment options.

• Then, over the next 15 years, Julie’s investments will gradually shift from the World Equity Index Fund into the more conservative LGIM Diversified Fund. For example, when she’s 20 years from retirement, her investment mix would be about 66% in the World Equity Index Fund and about 34% in the LGIM Diversified Fund. By the time Julie is 10 years and 1 month from retirement, 100% of her account will be invested in the LGIM Diversified Fund. With this change, Julie has diversified her investments and lowered her risk.

• Julie’s investments will continue to become more conservative. Over the next 7 years, a portion of Julie’s investment will gradually shift from the LGIM Diversified Fund and into the Pre-Retirement Fund. As shown in the chart above, when Julie is 3 years and 1 month from retirement, her investment mix will be 30% in the LGIM Diversified Fund and 70% in the Pre-Retirement Fund. By shifting away from equities and into bonds, Julie has further reduced her investment risk. She’s also reduced the annuity conversion risk described on page 4.

• Finally, in the 3 years leading up to Julie’s retirement, her investment mix will slowly become even more conservative. When she is 1 month from retirement, the mix will be 75% in the Pre-Retirement Fund and 25% in the Sterling Liquidity Fund (a cash fund). This investment mix is designed to reduce risk and protect Julie’s account value. However, as with any investment, there are no guarantees.

You can opt-out of the lifecycle strategy at any time. If you do so, you can either keep your investment mix as is, which by default becomes your self-selected option, or you can move all of your assets to one or more of the available self-selected options (see page 6 for the current options).

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

25 years until retirement

10 years & 1 month until retirement

3 years & 1 month until retirement

1 month until retirement

Pre-Retirement Fund

Sterling Liquidity Fund

LGIM Diversified Fund

World Equity Index Fund

Here’s a ‘snapshot’ of the lifecycle investment strategy investment mix at four points in your career


10

Plan chargesCurrently, there is no charge to cover the cost of administration. However, you may be charged a fee in the future to cover these administration charges.

However, there is an investment management charge. These charges are built into the price of the investments you buy and sell. Charges vary for each fund. Details of the individual investment charges can be found on the pensions section of the Phillips 66 intranet at: http://hr.phillips66.net/EN/ukireland/benefits/ukpension/Pages/index.aspx.

Keeping track of your accountCapita, the Pension Plan administrator, acts as an intermediary on behalf of the plan Trustee, managing the processing of the investments.

The investment funds themselves are provided by Legal & General Assurance (Pensions Management) Limited under a unit-linked life policy held by the Trustee and managed by Legal & General Investment Management Ltd. (See ‘Some legal notes’ on page 11 for more details about unit-linked life policies.)

Later on in 2014, you will be able to view your account balance and monitor and change your investments. Capita will provide you with logon information on-line as soon as this functionality becomes available.

On the Capita website you will be able to:

• View your account balance

• Change your investments

• Model your account growth

• Get detailed fact sheets that have additional details concerning your investment options.

Other information

INDEPENDENT ADVICEThis guide is designed to give you a summary of your investment options so you can choose what might be right for you. It’s not intended as investment advice and should not be regarded as advice. If, after reading this guide, you want to find out more about your pension account, you can talk to an Independent Financial Adviser (IFA). You can find an IFA local to you at www.unbiased.co.uk. Please note an IFA may charge for their advice.

FUTURE CHANGESThe guide tells you about the funds currently on offer under the plan. The Trustee who manages the plan keeps these under review and may change them from time to time. If the Trustee makes changes, you may be transferred into a different fund for the future. The Trustee will aim to notify you of any changes it makes to the funds. Remember to keep your contact details up-to-date! Otherwise, any such notice may not reach you.

In addition, the investment fees and how you pay for them may change in the future.

OTHER AVCsThis guide provides information on AVC’s invested with Legal & General. If you invested AVC’s prior to 1 April 2014, you may have AVC’s invested with Standard Life and/or Santander. Please refer to the Standard Life GAVC Investment Guide for further information.



11

SOME LEGAL NOTESPlease remember that:

• All statements about future investment performance or the aims or objectives of any particular investment fund are not guarantees that that performance or aim or objective will be achieved.

• Where statements about future performance are based on past experience or performance, there is no guarantee that that past experience or performance will be repeated in the future.

• In terms of legal structure, the Trustee of the Phillips 66 UK Pension Plan holds a unit-linked insurance policy issued by Legal & General Assurance (Pensions Management) Limited. Legal & General Assurance (Pensions Management) Limited is an insurance company and is the plan’s first investment provider.

• Capita, on behalf of the Trustee, maintains an AVC retirement account (an ‘account’) for each member who has AVC’s invested with Legal and General.

• Contributions that are paid into your account are paid by the Trustee as premiums under the unit-linked insurance policy to the first investment provider.

• Legal & General Assurance (Pensions Management) Limited credits ‘policy units’ (see below) to the policy in respect of those premiums received from the Trustee. (These policy units are, in turn, allocated to each member’s AVC account.)

• Every time the Trustee pays a premium to the first investment provider, the premium purchases policy units linked to the particular investment fund or funds into which the Trustee has instructed Legal & General Assurance (Pensions Management) Limited to pay the premium. Those instructions reflect the instructions you have given to the Trustee (or Capita on behalf of the Trustee) as to how you wish your AVC account to be invested.

• The investment funds referred to in the ‘How does the self-select strategy work?’ section are not unit trusts. Instead, they are separate internal sub-funds of the first investment provider.

• The economic interest of the Trustee in the investment fund, is calculated from the number of ‘policy units’ (linked to that investment fund) allocated to the policy.

• In contrast to a unit trust, the Trustee has no ownership interest in the assets of the investment fund (those assets are owned by the insurance company). Instead the rights of the Trustee are rights conferred by the policy (in other words, they are contractual rights).

• If an insurance company becomes insolvent, the value of the policies issued by it will be reduced. If the issuer of any equities or bonds or the deposit taker of any deposit becomes insolvent, the value of those equities, bonds or deposits held in the insurance company’s fund or sub-fund will be reduced (as will be the value of the associated policy units).

• Where the investment provider has sub-funds that invest in reinsurance policies issued by one or more other insurance companies, if that reinsurance company becomes insolvent, the value of the reinsurance contract between the investment provider and that reinsurer will be reduced. That reduction in value will, in turn, be reflected in the value of the sub-fund to which that reinsurance contract or any part of it is allocated and, in turn, the value of the policy units linked to that sub-fund will be reduced.

• Any description of any charges relating to switching the way in which amounts credited to your AVC account are invested or to any charges levied on your AVC account or on any investment fund in which any such amounts are invested is subject to change in accordance with the provisions of the Trust Deed & Rules of the Phillips 66 UK Pension Plan and the terms of the investment agreement or insurance contract or policy between the Trustee and the investment provider in question.


12

• No liability is accepted by the Trustee, Phillips 66 Limited or the Trustee’s investment advisers for any error or omission in any information provided by or on behalf of any investment provider whether about its policy or investment products or otherwise and whether in this guide, via any website or otherwise.

• No liability is accepted by the Trustee or by Phillips 66 Limited for any delay in investing or disinvesting any amounts contributed or credited to your account, where such delay is caused by circumstances outside the control of, as the case may be, the Trustee or of Phillips 66 Limited when acting on behalf of the Trustee or Phillips 66 Limited.

• No liability is accepted for any loss arising from any delay or failure by the Trustee to achieve its target for giving effect any instructions for investing or disinvesting all or any part of your account. But, where the Trustee has failed to arrange for an investment or disinvestment instruction to be given effect to by the time provided for in the Trust Deed & Rules, no liability is accepted for any loss sustained by your account to the extent that the amount of the loss is less than £10 (or the equivalent amount as increased in line with the increase in the Retail Price Index from time to time). For further information, please consult the Trust Deed & Rules.

• References in these notes to ‘this guide’ include all other documents enclosed with or attached to it and to the information on any website.

COPIES OF THE TRUST DEED & RULES AND LEGAL & GENERAL POLICY DOCUMENTATIONA copy of the Trust Deed & Rules of the Phillips 66 UK Pension Plan is available on request from Capita. You can contact the Scheme’s administrators at [email protected] or on 0800 587 7336.

A copy of the Legal & General policy documentation is available on request from Capita.

Fund Fact SheetsThe most recent fund information is available on the pensions section of the Phillips 66 intranet at: http://hr.phillips66.net/EN/ukireland/benefits/ukpension/Pages/index.aspx.



Edition 1 – March 2014

phillips 66 uk pension plan db section additional ... · you can change how your account is...

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