Investing your account
In DC Start and DC Core, you have an individual account, which is invested with the aim of growing its value (through investment returns). If you are in DC Core, or make DC overcap or Additional Voluntary Contributions to DC Core, you can choose how your account is invested. If you are in DC Start, your account is automatically invested in the Lifetime Pathway fund so you do not have any investment decisions to make. If you don’t make an investment decision, your DC monies will be defaulted to the Lifetime Pathway with a Target Retirement Age of your State Pension Age at 1 August 2017 or at your date of joining if later.
Risk and reward
When deciding how to invest your DC account, you need to think about your attitude to risk.
In general with investments, the higher the risk, the greater the potential return. However, higher-risk investments also have a greater potential to lose value, and go down especially in the short term. Lower-risk investments usually give more predictable returns. However, over the long term these are likely to be lower than returns from higher-risk investments.
There are different types of investment risk, which include:
- the risk that your investments will fall in value or not perform as well as expected;
- the risk that the rate of return on your investment will be worse than the rate of inflation over the same period, so your investment will actually lose value in real terms;
- the risk that any overseas investments will lose value due to the currency they are held in. For example, if the Pound gets stronger against the Euro, European investments will lose value to a UK investor; and
- the risk that the rate of return on your investment will be lower than the investment management charge applied over the same period. Your age and how close you are to retirement could also play a part in your attitude to risk:
- If you are many years from retirement, you may be prepared to accept a higher level of risk in the hope of higher investment returns over the long term, as you will have time to wait for markets to recover if the value of your investment falls.
- If you are approaching retirement, you may be more interested in protecting the value of your account, rather than trying to grow it, so lower-risk funds might be more suitable.
If you would like advice about your investment choices, you should contact an Independent Financial Adviser (IFA). The Money Advice Service has a directory of advisors who are authorised by the Financial Conduct Authority and can be found at: www.moneyadviceservice.org.uk.