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HSBC World Selection
Personal Pension
Investment Guide
January 2011
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HSBC World Selection Personal Pension
Introduction
Your attitude to risk may vary over time, as your
One of the most important choices you make about your
circumstances change. For example, when you are many
pension plan is how your money is invested.
years from retirement, you may be more prepared to invest
This Investment Guide is designed to help you understand
the investment options available through your HSBC World
Selection Pension Plan. It contains information on the HSBC
World Selection Portfolios and explains the risks associated
with investing in each portfolio, a description about how each
portfolio is managed and where it is invested. The HSBC
World Selection Portfolios operate an investment strategy
where they primarily hold other investment funds rather than
investing directly in shares, bonds or other securities. In order
to meet the investment objectives in a cost efficient way, the
World Selection Portfolios will invest in other HSBC funds
where possible.
in riskier investments and accept that there may be short
term falls in the expectation of better long term gains. It’s
important to review your investment fund choices and your
level of contributions each year to ensure you are on track
to achieve your retirement income objectives.
Investment risk
All investments carry some risk and there is a chance that
your pension investment could lose some or all of its value.
Each HSBC pension fund, or portfolio, has been given one
of four risk ratings which are described below. These risk
ratings provide an indicator of the balance between the risk
of losses to your pension investment and potential gains.
There is a glossary at the back of this guide which defines a
In general a fund with a ‘Minimum’ rating has the lowest risk
number of terms used in this guide that might be unfamiliar
of losing value but has lower growth potential. A fund with
to you.
a ‘Higher’ rating has the highest risk of losing value but can
offer the best potential for investment gains.
Understanding the balance between risk
and reward
Minimum
Each type of investment carries a different level of risk and
bond or share investments and therefore may be more
you should only take as much risk as you are comfortable
with. A pension plan is a long-term investment and your
investment choices should target good performance over
the longer term rather than short term gains. Your money
invested in a pension plan is usually tied up until you reach
age 55, which is the earliest time that you can normally take
benefits from your pension.
The potential investment gains you may achieve is generally
linked to the amount of risk you are prepared to take.
Although the level of gains is by no means guaranteed,
you may for example choose to invest in higher risk
investments with the objective of achieving greater gains
when compared to investing in lower risk funds. You may be
able to minimise potential losses to your pension investment
by taking a low risk approach, but this is not guaranteed and
there is a risk that any investment gains you might make
may not keep pace with inflation.
The performance of these funds may be less volatile than
appropriate for those investors who want to minimise
potential loss in the value of money invested. However,
if gains do not exceed inflation, or the total ongoing charge
exceeds the gains made by the fund, it is possible for your
investment to lose value and result in the loss of capital.
The risk of this happening increases with the length of time
your money is invested in these funds.
Lower
Lower risk funds take a more cautious approach to investing,
than either medium or higher risk rated funds, generating less
potential for growth. These funds will hold investments that
are less volatile than shares and have a smaller risk of losing
capital although there is still a risk of capital loss. If returns do
not match inflation it is possible for your investment to lose
value in real terms.
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Medium
Early retirement
Medium risk funds have a less adventurous approach to
The earliest you will normally be able to retire and take your
investing than higher risk funds as they invest in a more
pension benefits is age 55. But you may be able to retire
balanced way. However the risk of capital loss is higher than
earlier than this if a medical condition of disability prevents
a fund with either a ‘Minimum’ or ‘Lower’ risk rating. These
you from working. If you think you would qualify for early
funds have historically produced good medium to long term
retirement you should contact us so that we can discuss your
growth potential although you should expect some volatility
options and make an assessment.
in the gains they produce. Remember that past performance
is not an indicator of future returns.
Serious illness
Higher
Customers who have a very serious illness and are not
Higher risk funds invest in the more ‘adventurous’ growth
opportunities. You must be aware that they can be more
volatile during the period you are invested and need careful
monitoring. Funds with a ‘Higher’ risk rating have the greatest
risk of capital loss. Higher risk funds are considered to have
the potential for the greatest returns over the long term.
Approaching Retirement
As you approach retirement, you may find that your
attitude to risk changes and you feel that investing in
funds that hold shares is too much of a risk to take with
your pension fund. Although the funds you are invested in
aim to achieve capital growth, there is always the risk that
a pension fund may reduce in value just before you come
to buy your annuity, particularly if there were a major fall
in global stock markets. You may wish to change the risk
profile of your HSBC World Selection Personal Pension
by investing in funds which are less susceptible to capital
loss as you approach your retirement age.
Enhanced and impaired life annuities
Enhanced life annuities are available for people with particular
lifestyles for example if you smoke. Impaired life annuities
may be available for people who suffer from certain health
problems that require to be individually assessed, for
example blood pressure. If you qualify for an enhanced or
impaired life annuity you could benefit from a higher than
normal annuity income in retirement. It is important when
you are shopping around for an annuity to see if the provider
offers these types of annuity, if you would qualify and the
annuity income they would pay.
expected to live more than 12 months might be eligible to
take their pension fund as a tax free payment. If you think
you would qualify you should contact us as soon as possible
to discuss your options. Our qualifies staff and underwriters
are trained to deal with serious illness claims sympathetically
and with urgency.
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The HSBC World Selection Portfolios
Overview of HSBC World Selection Portfolios
The HSBC World Selection Portfolios aims to provide capital growth through investment in a broad range of asset classes across
global markets. The combination of different asset classes, regions and currencies provides diversification.
The Portfolios
Overall Risk Rating: Lower
HSBC Pension World Selection Portfolio – Cautious
Annual Management Charge 1.25%
Additional Charges 0.26%
Total ongoing Charge 1.51%
Portfolio Objective
The portfolio aims to provide capital growth through cautious investment in a broad range of asset classes across the world.
Portfolio Bias
Investments will be in funds towards bonds, gilts and money market instruments.
Asset Allocation
The portfolio primarily invests in collective investment schemes that, in turn, invest in
• Bonds, gilts and money market instruments
• Shares
• Property
Investment Management Style: Active
Overall Risk Profile: Medium
HSBC Pension World Selection Portfolio – Balanced
Annual Management Charge 1.25%
Additional Charges 0.27%
Total ongoing Charge 1.52%
Portfolio Objective
The portfolio aims to provide capital growth through balanced investment in a broad range of asset classes across the world.
Portfolio Bias
Investments will be towards a balance of all asset classes.
Asset Allocation
The portfolio primarily invests in collective investment schemes that, in turn, invest in
• Bonds, gilts and money market instruments
• Shares
• Property
Investment Management Style: Active
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HSBC Pension World Selection Portfolio – Dynamic
Annual Management Charge 1.25%
Additional Charges 0.27%
Total ongoing Charge 1.52%
Portfolio Objective
This Fund aims to provide capital growth through dynamic investment in a broad range of asset classes across the world.
Portfolio Bias
Investments will be in funds that focus towards shares.
Asset Allocation.
The portfolio primarily invests in collective investment schemes that, in turn, invest in
• Bonds, gilts and money market instruments
• Shares
• Property
Investment Management Style: Active
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Other types of risks
Investing in any of the HSBC World Selection Portfolios will
Interest Rate Risk
expose your pension investment to a number of different risk
The risk that the value of your pension investment will fall as
areas which you should consider before deciding where to
a result of falls in the value of bonds. The coupon or interest
invest your pension fund.
earned by bonds and fixed rate deposits is normally fixed,
Stock Market Risk
The risk that the value of your pension investment will fall due
to a downturn in stock market(s) either in the UK or globally
which affects the value of shares held within the pension fund
or funds in which you are invested in. There is a risk with a
stock market investment that all capital could be lost.
Inflationary Risk
The risk that the value of your pension investment will grow
by less than price inflation and your pension investment
will buy you less retirement income in real terms when you
come to take benefits from your pension plan.
but the value of bonds can go up or down, such as when
interest rates are expected to rise and bond values fall.
The value of pension funds invested in bonds may also fall
if the credit worthiness of the gilts or bonds held within them
fall, or default or if the income from gilt or bond yields is less
than expected.
Exchange Rate Risk
Where a pension fund invests in overseas securities its value
may fall due to a weakening of the pound sterling exchange
rate. This risk also extends to UK based companies that have
overseas earnings.
Diversification Risk
Annuity Conversion Risk
The risk your pension investment might suffer from large
The risk that pension income will be less than expected due
rises and falls in value if it is not invested in a range of
to a fall in annuity rates. A fall in annuity rates is normally
different types of assets. A pension fund that invests in a
caused by a lowering of the income paid on long term fixed
single share-based investment will have a typically more
rate securities, such as Gilts. Annuity rates may also fall if the
volatile performance than a fund that invests in a range of
insurance companies that provide them expect that people
different types of investments.
will live longer. Where income is paid directly from the
Derivative Risk
The value of derivative contracts is dependent upon the
performance of an underlying asset. A small movement
pension fund (ie, income drawdown) a fall in annuity rates
will also reduce the maximum income that may be
withdrawn each year.
in the value of the underlying asset can cause a large
The table overleaf shows which of the risk factors,
movement in the value of the derivative. This mean the value
explained above, each of the HSBC World Selection
of your fund can fall as well as rise and you may not get back
Portfolios is exposed to.
the amount you invested.
Low absolute return
The risk that the performance of your pension investment
may be less than the total ongoing charge of the fund and
consequently the value of your pension fund will fall in value.
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HSBC Pension World Selection Portfolio –
Cautious
HSBC Pension World
Selection Portfolio –
Balanced
Stock Market
The portfolio predominantly invests in funds
that in turn invest in bonds, gilts and money
market instruments and performance is
therefore less affected by changes in global
stock market levels.
Both portfolios mainly invest in funds that in turn invest
in shares, and performance will be affected by changes in
global stock market levels. Shares typically represent
a higher risk investment than other stock market
investments such as fixed interest.
Inflation
The real value of an investment in each of the portfolios will be reduced by future rates of inflation. Funds that
invest in money market instruments and bonds have a lower risk of capital loss, but a lower expectation of
future growth and therefore are most likely to be affected by future rates of inflation.
Diversification
The portfolio aims to manage risks through
a diversified investments approach and
predominantly invests in funds that in turn
invest in bonds, gilts and money market
instruments, with some diversification in
other assets classes. The risk of capital loss is
expected to be lower than a fund that invests in
a single asset sector. But this is not guaranteed.
These portfolios aim to manage risk through a diversified
investment approach but there remains a risk of capital loss
given the predominant investment in shares, although this
is expected to be less than a fund that invests exclusively
in one asset sector. But this is not guaranteed.
Low absolute
return
The portfolio predominantly invests in funds
that in turn invest in fixed interest and money
market instruments and there is a risk the
returns from these will be less than the charges
applied to this portfolio.
Both portfolios mainly invest in funds that in turn invest
in shares, and performance will be affected by changes
in global stock market levels. Shares typically represent
a higher risk investment than other stock market
investments such as fixed interest.
Interest rate
The portfolio has a significant allocation to funds
that in turn invest in bonds and gilts and the
performance will be affected by changes in
interest rates.
Both portfolios have a small allocation to funds that in turn
invest in bonds and gilts and so changes to interest rates will
have a minimal impact on performance.
Exchange rate
Each portfolio invests in funds that in turn hold both UK and overseas investments and performance will
therefore be affected by fluctuations in exchange rates.
Annuity rate
The income you get from your pension fund at retirement will depend on annuity rates at that time. If annuity
rates fall, then the income available to you will be less. Although, some investment may potentially increase in
value to at least in part offset this impart. However, if you have already purchased an annuity, your rate will not
be affected by subsequent rate changes.
Please note that our pension plans are unit linked. The value
of investments can go down as well as up and you may get
back less than the amount you originally invested.
HSBC Pension World
Selection Portfolio –
Dynamic
Fund Performance
If you would like additional information about how each
pension fund has performed or where it is currently invested
please contact the Pensions Helpdesk on 08457 456 127
(textphone 08457 660 391). They will send you the HSBC
World Selection Portfolio Factsheets which contains this
information.
Past performance is not a reliable indicator of future
returns. The value of investments in the HSBC World
Selection Portfolios can fall as well as rise and you may
not get back what you invested.
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Important Notes
Switching and redirection
You may change the funds in which your pension investment
is currently invested and/or redirect future contributions to new
funds. We make no charge for switching or redirecting future
contributions between funds. If you wish to switch or redirect
your future contributions into your existing portfolio this can be
done online via personal internet banking or alternatively, you
can write to us with your switching or redirection instructions
or give our Pension Helpdesk a call; and they will take them.
Please refer to “further information” below.
How much should I invest?
The amount you can invest will depend on your personal
circumstances and HM Revenue & Customs allowances.
You can use HSBC’s online ‘Planning your Retirement Tool’
to help you understand how much you should invest. This is
available on our website at financialplanning.hsbc.co.uk.
Further information
If you require further information on the HSBC World
Selection Personal Pension please contact our Pensions
Helpdesk on 08457 456 127 (textphone 08457 660 391).
Lines are open 8am to 6pm Monday to Friday (excluding
Public Holidays). To help us continually improve our service
and in the interests of security, we may monitor and/or
record your communications with us.
HSBC Life (UK) Limited provides the World Selection
Personal Pension.
HSBC Global Asset Management (UK) Limited provides
the HSBC World Selection Portfolios.
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Glossary of Investment Terms
Absolute Return
Asset Allocation
An investment strategy that seeks to generate a positive
Some pension funds invest in a range of different asset
return as a percentage of money invested rather than relative
classes, such as company shares, bonds and property.
to an index or benchmark.
The allocation of funds to different assets is decided by
the fund manager within the broad objectives of the fund.
Active Management
The fund descriptions in this guide contain details of the
A style of investment management that makes specific
assets which may be held by each pension fund available
investment decisions which aim to outperform an index
in your pension plan.
or benchmark. This approach can be associated with a
higher degree of volatility than passive management but
Benchmark
it also has the potential for greater returns. It also requires
A standard against which the performance of a pension
close monitoring from the fund manager. In the case of the
fund is measured. Funds usually choose an index to be the
World Selection Portfolios the fund manager takes an active
performance benchmark and the index will match the region
management approach which aims to maximise performance
or sector the fund invests in. For example, a Fund investing
without highly volatile returns.
in companies listed on the FTSE 100 will often use the FTSE
100 Index as a benchmark.
Additional Charges
There are other expenses borne by the portfolios to cover
Collective Investments
the costs such as depositary, registrars and auditors fees
Each of the HSBC World Selection Portfolios is a type of
and dealing costs. In addition you should be aware that each
pooled investment. This means that the total of all the
of the HSBC World Selection Portfolios invests primarily in
pension contributions and tax relief from many different
other collective investment schemes. The managers of these
investors is pooled together to form a fund which is then
schemes also make Annual Management Charges. Where
managed on the same basis for all individual investors
relevant, we have negotiated reduced Annual Management
holding shares in the fund.
Charges for all the funds we select for the HSBC World
Selection Portfolios. These underlying Annual Management
Commodities
Charges are included in the other expenses for the HSBC
Commodities are raw materials such as food, grains, and
World Selection Portfolios .
metals, which a fund manager is able to buy or sell, usually
through futures contracts which are agreements to buy or
Annual Management Charge (AMC)
A charge made to cover the expenses associated with
the management of a fund and the administration of your
pension policy. In the case of the HSBC World Selection
Personal Pension, the AMC is 1.25%.
sell at an agreed upon price on a specific date.
The price of a commodity is subject to supply and demand.
Commerical paper
An unsecured, short-term debt instrument issued by a
Annuity
An annuity is a secure, regular income purchased on
retirement from an insurance company using a pension
corporation, typically for the financing of accounts receivable,
inventories and meeting short-term liabilities.
fund. The insurance company is then responsible for paying
Corporate Bond
a secure income for at least the rest of a policyholder’s
A bond issued by a company to raise money. In return for
life. Income from an annuity is taxed at the policyholder’s
lending the company money the investor will receive interest
marginal rate.
payments (coupon) plus the return of the original investment
when the bond matures.
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Deposit
Floating Rate Notes (FRN)
A certificate of deposit entitling the fund to receive interest.
A debt instrument with a variable interest rate. Mainly
issued by financial instiutuions and governement, that
typically have a two to five year term to maturity.
It has a maturity date, a specified fixed interest rate and can
be issued in any currency. They are generally issued
by commercial banks.
Derivatives
Unlike stocks and bonds, a derivative is usually a contract
rather than an asset. It is a promise to convey ownership of
the asset, rather than the asset itself. Futures and options are
two commonly traded types of derivatives. An options contract
gives the owner the right to buy or sell an asset at a set price
on or before a given date. On the other hand, the owner of
a futures contract is obligated to buy or sell the asset.
Diversification
A method by which a fund’s investments are spread,
for example, across different types of investments and
countries. By doing so the fund’s volatility can be minimised
by the impact of a loss to any one investment being reduced
by the rise of another.
Dividend
A financial distribution made by a company to its shareholders,
often in the form of cash. Whether a company pays a
dividend and the size of the payment is usually determined
by the size of the company’s profits.
Equities/Shares
A share is a stake in the company that has issued it. Equities
is another name for shares. The value of the shares will
depend on a number of factors including how well the
company is performing financially. A pension fund that
invests in shares will hold a stake in a range of companies
and the value of this stake is often dependent upon the
Fixed Interest
Usually used to refer to a bond where the interest is
calculated as a fixed percentage of the original amount
of money borrowed.
Fund
A fund pools together the money from many individuals
enabling a fund manager to invest in a broad range of assets.
The fund manager will invest in different asset types such
as money market instruments, bonds, shares and property
– exactly what the fund manager buys depends on the
investment objective of the fund.
Fund of Funds
A Fund of Funds is a fund which invests in other funds rather
than investing directly in company shares (equities), bonds
or other securities. The HSBC World Selection Portfolios are
managed on a fund of funds basis.
Government Bond or Gilt
A loan to a national government in return for which the
pension fund receives regular payments, (known as
the coupon) and a promise that the original investment
(principal) is paid back at a specified date. Gilts are loans to
the UK government.
Inflation
The rate of increase in the price of goods and services as
measured by the Consumer Price Index (CPI) or Retail Price
Index (RPI).
expectation of the future profits those companies will make
RPI and CPI both measure movement in the average price
as well their historical profitability.
of a ‘shopping basket’ of goods and services as a way of
gauging price inflation. RPI includes certain items that are not
Exchange Rate
part of the Consumer Price Index (CPI), including council tax
The price of one country’s currency expressed in another
and mortgage interest payments.
country’s currency. In other words, the rate at which one
currency can be exchanged for another.
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Money Market Instruments
Tracker Funds
A term that includes various instruments, such as deposits,
An Index Tracker aims to replicate the returns of a given
index as closely as possible, by investing in financial
instruments that will closely replicate the characteristics of
the given index.
commercial paper and floating rate notes (FRN). These
instruments, or types of investment, typically have very short
term maturity dates and are used by institutions and the
government to manage short term cash needs.
Passive Management
A passive approach to investment management where a
Fund tracks a specific index or set of indices, such as the
FTSE All-Share Index. This approach can be less volatile than
actively managed funds that invest in shares in the same
index. However, passive funds are not free of risks and still
exhibit the return and risk characteristics of investing in a
large number of company shares.
Portfolio
Whereas a fund typically invests in shares, bonds and money
market instruments, the HSBC World Selection Portfolios
invest in a range of funds selected by the fund manager.
Real terms
Real value removes the effects of general price level changes
over time. The effect of inflation is the biggest factor in
expressing a real value. For example, inflationary effects will
mean that in real terms £1 today will be worth less,
and have a lower purchasing power in the future.
Security/Securities
A term used to describe stocks, shares and bonds.
Stock Market
A place where stocks and shares are bought and sold,
for instance the London Stock Exchange.
Total Ongoing Charge
The ongoing charge figure is a measure of what it costs you
to invest in a fund on an ongoing basis. It is made up of the
annual management charge (AMC) and other costs incurred
in running a fund, such as custodian, auditor and regulatory,
and which are paid directly out of the fund – these are also
known as additional fund expenses. The total ongoing charge
figure also includes the costs of buying and selling (or trading)
the stocks in which a fund invests.
An Index Tracker fund may not exactly replicate an index for
a number of reasons, including:
} Charges will have an impact on the performance of
tracker funds
} It may not be economic for a fund manager to purchase
shares in a particular territory and the manager may
choose to gain exposure to a region of the world through
a specialised financial instrument
} The effect of dividend payments are normally reflected
immediately in the index and often some weeks later in a
tracker fund.
Volatility
Volatility is a measure of how much a fund’s price goes up
or down as a percentage of its total value. For example the
price of a money market fund will typically change very little
from day to day and has low volatility. A fund investing in
shares is exposed to stock market variations and has a higher
volatility. The higher the volatility of a fund, then generally the
greater the investment risk.
HSBC Life (UK) Limited is incorporated in England and is a company limited by shares.
HSBC Life (UK) Limited is authorised by the Prudential Regulation Authority and regulated
by the Financial Conduct Authority and the Prudential Regulation Authority. Our firm reference
number is 133435. You can check this on the Financial Services Register by visiting the Financial
Conduct Authority website www.fca.org.uk or by contacting the Financial Conduct Authority on
0800 111 6768. HSBC Life (UK) Ltd is a member of the Association of British Insurers.
Registered office: 8 Canada Square, London E14 5HQ.
Registered in England (United Kingdom) number 88695.
The main business of HSBC Life (UK) Limited is writing life policies.
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