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Pension Scheme AVC Investment Funds Guide AVC Investment Funds provided by The Royal Bank of Scotland Group Common Investment Fund AVC Investment Funds Guide Understanding your investment options For members of the Ulster Bank Pension Scheme Contents Page 2. Investing in your future 4. The different types of risk 5. Long-term investment returns 6. Managing risk 7. Active and passive fund management 8. The twelve investment options 9. Final things to note 10. Disclaimer

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Investing in your future Whenever you or the Group make pensions savings on your behalf, you’re contributing to your own personal account, which builds up until you retire – at which point you can buy benefits in return. The savings in your personal account are invested in the RBS Group Common Investment Fund (CIF). Through this, you can choose to invest in a range of nine different funds, depending on your particular priorities. This guide is designed to tell you all about those investment options and how to choose the right ones. You can also get a more detailed fact sheet on each individual fund – just contact Group Pension Services for more details. What is the Common Investment Fund? This is a trust in which pension contributions from a number of different RBS group pension plans are pooled together – in a very similar way to the way that investments are pooled in a unit trust. The contributions paid into the CIF are invested by a Trustee (in this case RBS CIF Trustee Limited) who is responsible for selecting the range of investment options and relevant investment managers. The Trustee of your own pension plan remains responsible for deciding whether to provide investment options through the CIF, and which options under the CIF are available to you. The Trustee of your own pension plan can also withdraw from the CIF at any time. Several of the UK pension plans in the RBS group use the CIF for their Additional Pension Contributions and Additional Voluntary Contributions. You remain a member of your current pension plan – this is unaffected by the Trustees’ decision to participate in the CIF. There are some technical differences between how the CIF operates and how investment matters would work if your Trustee did not invest through the CIF. However, these will have no practical effect on you.

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Choosing the right approach Ultimately, it’s up to you to choose the investment options that are right for you. This will depend on your circumstances and your personal attitude to risk and reward. Whatever your decision, it’s important to understand the risks involved, as well as the potential returns. If you are unsure about which investment options are right for you, you should consider taking independent financial advice. Making pensions savings is usually a long-term commitment. This is a good thing, because it means you have a long time to build up a personal account that can provide a decent pension. However, there will always be a level of risk along the way. This applies to any successful investment, from a deposit account to a stockmarket fund – they all have risks attached to them, as well as potential benefits. There are two main things to remember when it comes to risk: Choosing the right approach • As a general rule, the higher the potential returns, the greater the degree of risk. So if you want to maximise your potential rewards, you need to accept a greater level of risk. For most people, it’s a matter of striking the right balance. • If you need to access your savings in a few years’ time – for example, if you’re approaching retirement – then shares may be too risky for you. You may prefer a lower-risk investment such as bonds or cash. But if your retirement is several years away, short-term falls in the stockmarket may be less of a risk than inflation – and bonds and cash may not offer the returns you need. Again, it’s a judgement call you need to make.

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The different types of risk Once you understand the risks and how they apply to you, you’ll be in a much better position to make your investment decision. There are three main types to weigh up: Inflation risk If your personal account doesn’t grow sufficiently, you may find your retirement isn’t as comfortable as you’d like. So you need to invest in funds that have the potential to achieve the level of growth you have in mind. Equally, your savings will lose value if they don’t earn enough to stay ahead of inflation. This is important to bear in mind if you’re attracted by the security of a cash investment. You may not lose money, but the value of your savings in real terms will be affected. Investment risk It’s important to remember that prices can go down as well as up. So your investments may actually fall in value – and the value of your personal account could end up being less than you originally contributed. This is particularly relevant if you’re considering a fund that invests in sensitive areas like shares or property. Of course, it’s only natural to be disappointed if you see the value of your investments going down over a period of weeks or months. But it’s all part and parcel of being a long-term investor. The idea is that, in the long term, your investment will have time to recover from short-term setbacks and go on to grow overall. However, this can never be guaranteed. If you’re approaching retirement, investment risk will be a more significant factor for you - because if the markets fall just as you’re planning to buy your pension, your savings may not have time to regain their value. Pension conversion risk The price of buying a pension changes all the time. So the amount of income you can buy with each £1000 in your personal account can change from one year to the next. The risk here is that, when you reach your retirement date, the price of buying a pension may just have risen, which will reduce the amount of income you have to live on. There’s little you can do about this in the early years of your working life, apart from doing all you can to invest as much as possible in your personal account. However, in the years just before you retire, you may want to consider investing in the Pre Retirement or Index-Linked Gilt Funds, which move in similar ways to the prices of pensions. This table shows the types of risk that are likely to be most relevant to you at different times in your life. The table uses a period of seven years to give an approximate idea, but this is a gradual process and will change from one investor to the next.

More than 7 years

to retirement Less than 7 years to

retirement

Inflation Risk x

Investment Risk x

Pension conversion risk x

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Long-term investment returns

Source: Fidelity. Based on data from Standard & Poor’s, 31.12.76 to 31.12.06, with income reinvested net of basic-rate tax. Remember, past performance is not a guide to future returns. This graph shows how various types of investment have performed for a UK pension fund over the thirty years up to 2006. You can see that, for most of the time, shares have done much better than other investments – but this is no guarantee that they will do the same in future. It’s also worth noting that the lines representing shares and property fall sharply at times, which highlights the greater degree of risk involved. Cash and bonds may produce steadier returns, but have tended not to grow as much – which means they may be less suitable for a longterm investment.

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Managing risk It’s impossible to avoid risk altogether, but you can manage it by choosing investments that are suitable for your goals, circumstances and age. It might also help to spread your investment across a number of different countries (so it doesn’t depend on the fortunes of just one stockmarket and currency) and a mixture of investment types. For example, you could invest some of your savings in shares, giving them a good opportunity to grow, and the rest in bonds and cash, so you don’t expose all your savings to the risk of a sudden fall in the stockmarket. These examples may help you decide on the best investment strategy for you – although these are just broad illustrations and your particular situation may be different.

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Active and passive fund management As well as deciding what types of investment to go for, you can also choose between funds that are either actively or passively managed. Active Several of the available funds are actively managed – which means they have fund managers who take responsibility for choosing which investments to buy and sell. The manager may well have to do this within certain boundaries – for example, keeping at least 0% of the holdings within the UK. But within those restrictions, the manager can still exercise his or her judgement. Because of this extra hands-on involvement, the management charges for active funds tend to be higher than those for passive funds. The theory is that you are paying for the fund manager’s expertise, which will hopefully bring better returns than the market average. Passive These essentially try to mirror the performance of a stockmarket index – and are sometimes referred to as ‘tracker’ or ‘index’ funds. For example, a passive fund that aims to track the FTSE All-Share Index will hold a basket of shares reflecting the overall composition of the UK stockmarket. There’s no need for ongoing company analysis – and day-to-day decisions on which shares to buy and sell are usually made by computer, rather than a fund manager. For this reason, the charges on passive funds are usually lower. People who choose them are generally happy to accept returns reflecting the market average and don’t feel it’s worth paying extra for the expertise of an active fund manager. The nine investment options Now here’s a detailed list of the nine investment options. For more information on each individual fund and the current fund managers, contact Group Pension Services and ask for a factsheet. As you’ll see, the range of funds covers all the main investment types – equities, bonds, property and cash – as well as all the main financial markets. There’s a selection of passive and active funds, managed by one or more investment managers. You can choose any combination of the funds to invest in – whether it’s a single fund, or a combination of several. All this information is up-to-date as at 1 July 2007. However, having selected these funds and the underlying investment managers, the Trustee may change them in the future. ‘Other charges’ refers to fees and expenses of the Trustee or Depository, along with the Registrar and Auditors, and certain other expenses. These charges are typical of deductions made on investment funds offered in the pensions industry – and charges are reviewed annually.

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Final things to note There are three final areas to highlight as you think about your decision The role of the Trustee The Trustee of the Common Investment Fund has selected the range of nine funds and the underlying investment managers. The Trustee will continue to monitor the performance of these funds, as well as reviewing other investment options – and may make changes to the fund selection or the managers used within each fund at any time. If the Trustee decides that a particular fund will no longer be available, then any amount you have in that fund will be transferred to an alternative fund. Remember that neither the Group nor the Trustees of the Common Investment Fund or your own pension plan can offer you financial advice. If you’d like specific advice on your situation, you need to contact an Independent Financial Adviser. Fund charges There are no initial charges for the funds – so if you invest £100, £100 goes into the fund. However, there are annual management charges, which are shown on the list – and funds also incur expenses such as auditing and registry fees. Along with the annual management charge, these are deducted from each fund’s assets. As a result, they are reflected in the quoted price for the fund, rather than being taken from your personal account. Performance figures for the funds take account of all charges, which are reviewed regularly. Details of the changes can be found on the factsheets for each fund, available from Group Pension Services

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Disclaimer A reminder about the risks It’s worth underlining that the value of your investments can go down as well as up, and you may not get back as much as you invest. The value of cash investments may be adversely affected if any of the institutions involved encounters financial difficulties. Also, if a fund you choose invests in overseas markets, then changes in exchange rates may cause the value of your investment to fall. Investments in small and emerging markets can be more volatile than those in established markets. And finally, due to the greater possibility of default, an investment in corporate bonds is generally less secure than one in government bonds. Thanks for taking the time to read this guide. It’s worth keeping hold of a copy to refer back to as you review your investment strategy in the future. In the meantime, if you have any more questions, please feel free to contact Group Pension Services. Contact Details Ulster Bank Pension Scheme RBS Group Pension Services PO Box 1 90 Croydon, Surrey CR9 5WP, UK Freephone: 08 08 100 40 40 Email: ubgpensions@rbs.co.uk