Annex 3

Example illustrations of cumulative effect of costs and charges on member’s accrued rights

Annex 3 – Example illustrations of cumulative effect of costs and charges on member’s accrued rights

The costs and charges in the pension scheme have been assessed on an overall basis as very good value by the Trustees and are typically a very small % of your fund value. However, it’s important that you understand how costs and charges can affect the amount in your pension pot. To help you do this we’ve produced a range of illustrations which show the effect that costs and charges can have on a pension pot over time.These have been produced in line with the FCA rules on illustrations.When looking at the illustrations it’s important to remember some key things:

These are just illustrations, they are not guaranteed. What you will get back from your pension will depend on the actual amount you pay in, when you pay it in and how long it's invested. It will also depend on the costs and charges you pay and the amount the funds you invest in actually grow.

There is no guarantee that a high return fund will perform well over the period you are invested in it. High return funds come with a greater risk that you could make losses, investment growth is not guaranteed.

What matters is the amount your fund grows after costs and charges have been taken. This is why the Trustees look to assess the value for money provided by your pension, rather than simply choosing the cheapest funds.

The range of illustrations we’ve shownWe’ve chosen to illustrate a representative sample of the funds available to members of the Aviva Master Trust and in doing so have paid appropriate regard to statutory guidance. We have included the default investment options for the range of employer sections within the pension scheme which make up the most popular funds within the Scheme. We’ve also included the additional default investment options and the highest and lowest charge funds available in the scheme and the funds made up of investments which we expect to have the highest level of risk (and growth potential) and those we expect to have the lowest level of risk (and growth potential).We’ve chosen these funds so you can see the effect that different rates of return might have on a pension pot over time. Please note that the illustrations are based on reasonable assumptions about future growth and are not based on actual past performance, neither is future performance guaranteed.To show the effect of charges we’ve illustrated funds on a range of total costs and charges. For high or low return funds, and the My Future and My Future Focus default investment options, we’ve illustrated the funds with high, low and typical costs and charges within the Scheme.There are a broad range of employers who use Aviva Master Trust to provide their workplace pension, and a broad range costs and charges, as shown in Annex 2. It hasn’t been possible to show an illustration for total costs and charges for all funds within this document, so to see the costs and charges that apply to the funds available to you, and illustrations of the effect of those costs and charges you should search “<your pension scheme's name> pension charges”. This will take you to a web site specific to your workplace pension.We’ll include a link to the website in your annual benefit statement too. We recommend that you try different search engines such as Bing and Yahoo as well as Google given that searches will be optimised differently by search engine providers.

Example scheme membersYou’ll notice that the illustrations are based on two example members. These are:Example contributing member

This example corresponds to a member who joins the pension scheme aged 18 and contributes at a typical contribution rate for the Aviva Master Trust (total contribution of £300 per month including employer contributions) through to retirement at age 68 (current state pension age for anyone aged under 41 years old). As the member joins at age 18 we haven’t assumed they start with a fund value as to do this would overstate the projected value at retirement

Where we have illustrated a bespoke default investment option within the Scheme the assumed member is as detailed above, with the exception that the typical contribution rate for that employer’s section is shown

Additional Default Investment Option examples use the assumed member detailed above, with a difference of using the typical contribution value and charges that reflect those employers that have members that have been defaulted into that Additional Default Investment Option.

Example non-contributing member

This example corresponds to a member who has accumulated a fund value that’s typical of members who’ve left their employer (£3,150). As they’ve left their employer we’ve assumed they don’t make any more contributions. We’ve illustrated the fund value and the effect of charges over 50 years, so that regardless of how young you are you can get some idea of how charges might impact your pension pot

Where we have illustrated a bespoke default investment option within the Scheme the assumed member is as detailed above, with the exception that the typical fund value for that employer’s section is shown

Additional Default Investment Option examples use the assumed member detailed previously, with a difference of using the typical fund value and charges that reflect those employers which have members that have been defaulted into that Additional Default Investment Option.

What the illustrations showFor each investment, and each example member there are two columns.

Column 1 shows the projected pension pot assuming no costs and charges are taken

Column 2 shows the projected pension pot after costs and charges are taken

By comparing the two you can see how much the costs and charges over the years will impact your pension pot. So, for example, if you started your pension at age 30 and expect to retire at 65, the figures at the end of year 35 would give you an idea of the impact of costs and charges on your pension pot.You can also work approximate figures taking into account your own contribution. For example, if your monthly contributions are £200 you should divide the numbers shown by the typical contribution amount associated to the investment option and then multiply by £200 to give you an idea of what your pension pot might be with and without costs and charges.

Illustration assumptions

Because we can’t predict exactly what will happen in the future we’ve had to make some assumptions when producing our illustrations. The values shown are estimates and are not guaranteed.

These assumptions are:

Contributions are assumed to increase in line with assumed earnings inflation of 2.5% pa
The figures illustrate the pension pot value in ‘today’s money’ which means they take inflation into account by discounting values by 2.5% a year. Seeing the figures in this way shows you what they could be worth today. It’s important to note that inflation reduces the worth of all savings and investments. The effect of this is shown in the illustration and could mean the fund may reduce as well as grow in ‘today’s money’
As default investment options often move your investments to lower risk funds when you’re approaching retirement, the growth rate and total costs and charges within the strategy may change. We’ve modelled these expected changes within the default investment option projection. The growth rate and charges shown in the default investment option illustration are weighted averages and are for information only. Full details of the individual funds that make up the default investment option are shown below the default investment option illustrations
Transaction Costs have not been included where data was not available from the fund managers

Some important things to rememberA personal projection of your pension pot is included in your annual benefit statement and you should read that to get an individual view of your projected pension benefits. You’ll also find details of the actual charges applicable to you in your scheme literature.The figures shown here:

shouldn’t be used to make investment decisions. If you need to do that, we recommend that you take financial advice

may not be relevant to your personal circumstances. Your money may be invested in different funds, for example

Illustrations of the effect of costs and charges

Standard and Alternative Default Investment Options

My Future Default Investment Option

My Future Focus Default Investment Option

Bespoke Employer Specific Default Investment Options

L’Oreal – Default Investment Option

Mott MacDonald Default Investment Option

Morrisons Default Investment Option

Clarks Default Investment Option

Additional Default Investment Options

Aviva Pension MyM BlackRock Sterling Liquidity Fund

Aviva Pension MyM My Future Growth Fund

Aviva Pension MyM My Future Consolidation Fund

Aviva Pension MyM My Future Focus Growth Fund

Aviva Pension MyM My Future Focus Consolidation Fund

Aviva Pension Cash Fund

Aviva Pension MyM Baillie Gifford Managed Fund

Aviva Pension MyM BlackRock Corporate Bond All Stocks Index Tracker Fund

Aviva Pension MyM BlackRock All Stocks UK Gilt Index Tracker Fund

Aviva MyM BlackRock Emerging Markets Equity (Aquila C) Fund

Aviva Pension MyM BlackRock (Aquila C) Market Advantage Fund

Aviva Pension MyM BlackRock UK Equity Index Tracker Fund

Aviva Pension MyM BlackRock World ex UK Equity Index Tracker Fund

Example High Growth Fund

Example Low Growth Fund

Highest and lowest charge funds

Notes

As the assumed rates of growth for the Aviva Pension Cash Fund, Aviva MyM BlackRock Sterling Liquidity Fund, Aviva Pension MyM My Future Annuity Fund and Aviva Pension MyM BlackRock All Stocks UK Gilt Index Tracker Fund are lower than the rate of inflation assumed in our illustrations the projected value of your investment is shown to fall or not change over time. This is because the assumed investment return doesn’t keep pace with inflation.

The amount shown invested at the end of year one will be often shown as less than the amount paid in. This is because the average investment return on contributions paid throughout the year is assumed to be less than the assumed annual rate of inflation. The result is that, in real terms, the value of fund at the end of the year is less than the total contributions paid in. As figures are rounded to three figures the reduction in value may appear larger than otherwise would be the case.