Workplace Pensions Suitability Assessment Questionnaire

These are referred to as ‘Passive’, ‘Active’ and ‘Hybrid’ which we explain below. Investing in Passive, Active or a Hybrid approach doesn’t guarantee better investment returns or risk outcomes.

Passive investment funds track certain market indices, for example, the FTSE AllShare index (UK Equities) or the S&P 500 (US Equities). A ‘good’ passive fund will achieve performance very close to that of the indices it is designed to follow, and typically is provided at low cost, depending on the structure of the workplace pension scheme. Passive investments are also known as ‘Tracker’ funds and are managed through an IT system which buys and sells stocks and shares (equities) in an effort to mirror the performance of the indices it is following.

Actively managed investment funds are run by professional fund managers who aim to beat the performance of the investment markets, whether this is in a period when the values of investment markets are rising or when they are falling. Active fund managers believe markets are inefficient and it is therefore possible to profit from the stock market by identifying stocks and shares they believe will deliver better value and therefore outperform the benchmark index.

A hybrid approach is a blend of active and passive management.

This is designed to provide members with some protection against falls in the investment market in the months and years leading up to their selected retirement date.

There are different methods that can be used for this de-risking process, including;

- The higher risk assets in the fund are gradually sold and replaced by lower risk assets over a defined period in the lead up to the members selected retirement date (or the default retirement date, if the member has not selected an alternative)

- The de-risking process can target specific outcomes at the members selected retirement date. There will be a default outcome that would apply to all members, but this can be changed to reflect an individual employees objectives at retirement. Examples of the outcomes that can be targeted at retirement include;

The funds remain invested and are drawn down, as required The funds provide a tax-free lump sum and the balance purchases an annuity The funds are held entirely in cash

These outcomes would look different at retirement and the investment path for moving from the default investment funds used in the growth phase to the target outcome would also be different

This is achieved through investing primarily in companies that prioritise environmental, social and governance (ESG) factors in their operations. These ESG funds are seeking to invest exclusively in companies that demonstrate responsible behaviours and ethics. These would include commitments to minimising environmental harm through their business operations, managing employees, suppliers, customers and the communities in which they work in a fair, caring and supportive manner and have a clear and transparent culture with focus on auditing, internal controls and shareholders rights. ESG however does not mean pure ethical/sustainable investing – Ethical investing tends to avoid certain industries (i.e tobacco, weapons, animal testing) whilst some ESG funds may choose to continue to invest in these areas.

In the past, there was little choice with members having to take part of the fund as cash with the balance being used to purchase an annuity. The member’s now have the choice to purchase an annuity, take all or part of the fund as cash or draw income and lump sums from the fund, when they want, rather than as set monthly amounts. Currently, not all workplace pension schemes provide the members with access to all these options within the scheme. This doesn’t mean they cannot take advantage of the flexibility these options provide at retirement but in some cases, it is necessary for the employees to transfer their funds to a different plan or provider to access these options which may need personal advice and therefore cost to the member