If you are in a defined contribution arrangement (the Industry-Wide Defined Contribution Section, BRASS or AVC Extra), you can choose how your contributions are invested.
The funds you invest in heavily influence how much your pot is worth when you come to retire.
A fund is a collection of different underlying investments. Each fund has a different risk and return profile, which determines how much your pension pot could go up, or down, in value.
There are a range of investment choices available to you, and we have recently updated them to give you some new options to help support your retirement plans.
The money (or ‘contributions’) that you and your employer pay into your pension every month is invested.
Each investment option has a different level of risk, and therefore growth potential. Growth simply means the profit or loss from an investment, although in general we would expect higher risk funds to have a higher return over the long term. So the choices available to you range in terms of how they could change the value of your pension pot.
As an example, let’s say you and your employer expect to contribute a total £100k over the course of your career. You may have ambitions to retire with a retirement pot of £120k but you don’t want to work longer to get there.
You can make choices throughout your journey towards retirement to try and achieve this goal. What you contribute from your pay each month is invested, and over the long term you would expect a positive return from it. This can help you meet your retirement ambitions.
However, investments can go up and down and you may or may not achieve your goal. The degree to which this can happen depends on:
Your appetite to taking risk: Higher-risk investment options have greater potential for growth but could also drop in value to a greater degree. In general, high-risk investments should be seen as a longer-term investment.
External factors: Despite careful decision-making, investment values can fall due to factors we can’t always predict and which aren’t in our control. That’s an underlying risk with a defined contribution pension. There are lots of things happening in the world that could impact your investments negatively. Interest rates and inflation increasing, for instance, or world events such as political unrest or war.
We know that investments can be difficult to understand and managing them can be daunting, particularly if you are not used to making these types of choices.
We have a lot of information available on the member website to help you, and switching your investment options has never been easier. The best place to learn more about the fund options is in our fund factsheets.
We offer two different ways to invest: Lifestyle strategies and investment funds.
If you don’t feel comfortable looking after your investments, and would prefer the Trustee to do it for you, you can opt for a more ‘hands-off’ approach with Llifestyle strategies. You decide how you might want to use your pension pot when you retire, and choose the Lifestyle strategy that meets your goals. The Trustee then invests your money in accordance with the selected strategy.
Our Lifestyle strategies aim to build pension savings when you still have a long way to go until you retire, and reduce the risk of a fall in value as you near retirement. They use a combination of underlying funds. For example, the Full Cash Withdrawal Lifestyle Strategy is made up of 3 separate sub-funds - the Long Term Growth, Corporate Bond and UK Government Fixed Interest Bond funds.
Each sub-fund has a different risk rating. This provides information on how much your pension pot would be expected to change in value in the short term, and grow over the longer-term. Within each sub-fund, there are several investments which meet the overall sub-fund risk and return profile.
When you are in a Lifestyle strategy, your pension pot is split between these sub-funds depending on your Target Retirement Age. Your Target Retirement Age is when you are planning to retire. You can change it on our member website, but think about it carefully as it will influence your investments.
The closer you get to your Target Retirement Age, the more the Lifestyle strategy will move from high-risk funds, with potentially higher growth, to less risky ones. However, even low and medium-risk funds can fall substantially in value.
As an example, let’s take a member who is in a Full Cash Withdrawal Lifestyle strategy and set their Target Retirement Age to 60.
Up to age 50, the underlying investment fund is the Long Term Growth Fund.
This gradually changes so that at age 55 the split consists of 55% in the Long Term Growth Fund, 7.5% in the Corporate Bond Fund and 37.5% in the UK Government Fixed Interest Bond Fund.
At age 60, the member has changed so the member is 10% invested in the Long Term Growth Fund, 15% in the Corporate Bond Fund and 75% in the UK Government Fixed Interest Bond Fund.
You can also take a ‘hands-on’ approach by making your own choices from the full range of investment funds and Lifestyle strategies. You decide which you want to invest in and how much you wish to contribute to each. Our investment funds include:
Socially Responsible Equity Fund
Corporate Bond Fund
UK Government Fixed-Interest Bond Fund
UK Government Index-Linked Bond Fund
Global Equity Fund
Taking the Deposit Fund as another example. This fund may be suitable for members near retirement, who want to protect the current value of their investments. The fund invests in money market funds and UK government treasury bills, which are considered very low risk. The aim is to protect – rather than grow – the value of your savings over the short term.
Our fund factsheets provide more detail about each of the funds, and we recommend you read them carefully before making any changes.
Pension scheme investments are designed to support your retirement, which may be some time away. This means you can invest it differently from money you’ll need in the short-term.
The Trustee, supported by Railpen’s investment and risk experts, makes careful decisions about the strategies and funds available, aiming to achieve the best outcomes for members.
However, just because a Lifestyle strategy may be suitable for many members, it may not be suitable for you and we do advise you consider your options.
As with any investment, short-term market unpredictability can affect how funds perform. When we talk about ‘the market’ we simply mean the financial marketplaces where investors buy and sell investment assets. Assets are bought with the goal of generating income or gaining value.
Investments are priced daily and can go down, as well as up. But traditionally the markets do recover from such downturns. It is important to remember that the price you see today will be different to what you will get at retirement.
There is no right or wrong way to manage your investment options. Ultimately, it comes down to whatever you are most comfortable with, your retirement goals, and what works best for you.
Whatever option is right for your needs, it is important that you understand which funds you are invested in. The easiest way to do that is by logging in to (or registering for) the member website.
Once you know which funds you are invested in and have read more information about the options available, you can make an informed decision. Think carefully before making any changes and ensure you have read all of the information available to you on the website.
If feel you need more support, you may wish to take financial advice.
Our advice partner Liverpool Victoria (LV) can offer members access to financial advice to help you make the right choices for your circumstances.
You can contact LV on 0800 023 4187. This service is authorised and regulated by the Financial Conduct Authority. Alternatively, you can find independent financial advisers in your local area at Unbiased.co.uk.
Remember, your pension pot is not guaranteed. Your money is invested and can go and down.
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