Defined Contribution Investment Strategies
There are two investment styles adopted for defined contribution
occupational pension schemes, namely Lifestyle and
Freestyle.
Lifestyle
|
Lifestyle is a process, which
recognizes that as you move closer to retirement, it is
likely your tolerance to investment risk will reduce.
Lifestyle strategies are designed to move you automatically through
different asset classes through the various stages of you
working life. This process is automatic, and once chosen,
means you don't need to make any further investment decisions.
When you are some years away from
retirement, Lifestyle aims to increase the value of your account by
investing in equities. As you approach retirement, Lifestyle
gradually switches your investments into gilts to protect the
purchasing power of your retirement savings.
|
|
When you retire, you can take part of your account as a tax-free
sum. Therefore, Lifestyle invests in a cash fund to protect part of
your account from any short-term falls in value in the last few
years up to retirement
|
|
|
 |
Freestyle
Freestyle allows you choose
how your funds are invested within the range of funds offered
by the scheme. Generally the range of investment managers and
funds offered cater for the different attitudes to investment risk,
namely high, medium and low. When making your
decision, you should be aware of the risks involved in investing in
the different funds.
Higher-risk funds are more
volatile. They can produce higher returns on your investments but,
in adverse circumstances, could significantly reduce the value of
your savings. Higher-risk funds are considered a particularly risky
investment if you are nearing your retirement age. Lower-risk
funds can help protect the value of your savings. This is important
when you are close to retirement. If you are some years away from
retiring, lower risk funds may not produce the returns you need to
build up your retirement savings.
With FreeStyle you can change how
your account is invested at anytime by calling the Helpline on 01
2063010 or via your on-line pension
account.
Risk Profiling Tool
Simple steps to consider when choosing an investment
strategy
Each person has their own level of
comfort with investment risk and should choose their strategy
accordingly. This is one of a number of factors, along with your
specific circumstances and needs, that you should take into
account when deciding on an investment strategy.
Step 1: Fill in the questionnaire to learn about your
indicated risk tolerance level
The key to choosing an investment
strategy is deciding the level of return you want relative to how
comfortable you are with investment risk. 'Risk' simply means the
chance that the actual investment return will be different from the
expected investment return. This can be a positive or negative
outcome.
Step 2: View your score and check it against the risk
profile descriptions
This may help you to clarify
whether you are currently likely to be more comfortable with
low, moderate or high-risk investment strategies.
Lower-risk options will generally be expected to provide relatively
consistent but lower returns over time. Pursuing high long-term
returns may mean investing in more volatile options at a greater
risk of negative returns in some
years.