The transition from London Interbank Offer Rate (LIBOR) to Sterling Overnight Index Average (SONIA)

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Over the course of 2021, the Bank of England has been phasing out the use of the London Interbank Offer Rate (LIBOR). 

Some of our insured funds use LIBOR, either on its own or as part of a composite, as performance benchmarks.

For any of our insured funds that use LIBOR as a benchmark, (either on its own or part of a composite) we intend to change to use the Sterling Overnight Index Average (SONIA) as an alternative.

These changes will take place gradually over the remainder of 2021.

More about the Sterling Overnight Index Average (SONIA)

The Bank of England administers and publishes SONIA daily, based on the cost of overnight, unsecured borrowing between UK financial institutions.

The most significant difference between SONIA and LIBOR is how each is calculated. LIBOR is a forward-looking term rate which is fixed at the beginning of an interest period, whereas SONIA is an overnight rate, and is calculated on a backwards looking basis using historical overnight rate data at the end of that period. SONIA is considered to be a better measure of the general level of interest rates than LIBOR.

Funds affected by this change

The list of funds affected by this change and the old and new benchmarks for each fund are listed in the below tables:

Pension & Life funds

Fund name Old benchmark New benchmark
Aegon BlackRock Retirement 75% FTSE Actuaries UK Conventional Gilts Over 15 Years / 25% ICE LIBOR LIBID GBP 1 Week 75% FTSE Actuaries UK Conventional Gilts Over 15 Years / 25% SONIA Overnight Rate
Scottish Equitable Retirement 75% FTSE Actuaries UK Conventional Gilts Over 15 Years / 25% ICE LIBOR LIBID GBP 1 Week 75% FTSE Actuaries UK Conventional Gilts Over 15 Years / 25% SONIA Overnight Rate
Cash LIBOR LIBID GBP 1 Week SONIA Overnight Rate
Scottish Equitable AON Retirement LIBOR LIBID GBP 1 Week SONIA Overnight Rate
Aegon Interim Retirement (Cash Target) LIBOR LIBID GBP 1 Week SONIA Overnight Rate
Aegon Interim Retirement (Ethical Target) LIBOR LIBID GBP 1 Week SONIA Overnight Rate
Aegon Interim Retirement (Flexible Target) LIBOR LIBID GBP 1 Week SONIA Overnight Rate

Source: Aegon UK

Aegon Retirement Choices (ARC) funds

Fund name Old benchmark New benchmark
Aegon BlackRock Retirement (ARC) 75% FTSE Actuaries UK Conventional Gilts Over 15 Years / 25% ICE LIBOR LIBID GBP 1 Week 75% FTSE Actuaries UK Conventional Gilts Over 15 Years / 25% SONIA Overnight Rate
Aegon Retirement II (ARC) 75% FTSE Actuaries UK Conventional Gilts Over 15 Years / 25% ICE LIBOR LIBID GBP 1 Week 75% FTSE Actuaries UK Conventional Gilts Over 15 Years / 25% SONIA Overnight Rate
Scottish Equitable Retirement (ARC) 75% FTSE Actuaries UK Conventional Gilts Over 15 Years / 25% ICE LIBOR LIBID GBP 1 Week 75% FTSE Actuaries UK Conventional Gilts Over 15 Years / 25% SONIA Overnight Rate
Aegon BG PP Default Retirement Fund (ARC) 75% UK Base Rate + 3.5% per annum/ 25% 7 Day LIBID (London Interbank Bid Rate) 75% UK Base Rate + 3.5% per annum / 25% SONIA Overnight Rate
Aegon Interim Retirement (Cash Target) (ARC) LIBOR LIBID GBP 1 Week SONIA Overnight Rate
Aegon Interim Retirement (Ethical Target) (ARC) LIBOR LIBID GBP 1 Week SONIA Overnight Rate
Aegon Interim Retirement (Flexible Target) (ARC) LIBOR LIBID GBP 1 Week SONIA Overnight Rate
Cash (ARC) LIBOR LIBID GBP 1 Week SONIA Overnight Rate

Source: Aegon UK

There’s no guarantee the fund will meet its objectives. The value of an investment can fall as well as rise and isn’t guaranteed. Investors could get back less than they have paid in.

Investors will start to notice the changes in our literature and on our website. The changes will be implemented gradually across our material, so you may notice both the old and new names in use for a time.

For more information on the fund you can view the fund factsheet via the ‘Fund prices and performance page’ and viewing either ‘Other fund ranges’ or ‘Aegon Retirement Choices (ARC)’.

What current investors need to do

Existing investors don’t need to do anything. We’ll be updating our literature with the changes gradually, so investors may notice both the old and new benchmarks in use for a while.

Please speak to a financial adviser if you’re unsure about what these changes mean for you. If you don’t have a financial adviser, you can find one in your area at moneyhelper.org.uk