If you are in DC Start, your account is automatically invested in the Lifetime Pathway fund with a Target Retirement Age of your State Pension Age at 1 August 2017 or at your date of joining if you joined the Fund after 1 August 2017. You do not have to make any investment decisions.
If you are in DC Core or making DC overcap contributions or AVCs to DC Core, you can choose how your contributions are invested. You have the option to direct all your contributions into either:
- the Lifetime Pathway fund; or
- any combination of nine other individual ‘self-select’ funds.
- If you do not choose how to invest your contributions, they will be invested in the automatic default option – the Lifetime Pathway fund. This is considered to be appropriate for most members. However, it may not suit everyone and you should consider if it is right for you and what Target Retirement Age to select.
The Lifetime Pathway fund
The Lifetime Pathway fund takes away both the decision about how to divide your contributions between each of the individual funds and also when to switch funds as you approach retirement.
In the Lifetime Pathway fund, your contributions are switched automatically over time into less volatile investments as you approach your selected Target Retirement Age (TRA). Your Target Retirement Age is the age at which you have stated you are intending to retire if you have chosen to invest in the Lifetime Pathway. It is purely to help us work out when we need to start switching you out of return-seeking assets. Your Target Retirement Age does not have to be the same as your Normal Pension Age (NPA) in the Fund.
In the Lifetime Pathway fund, the switching takes place in three phases:
|Phase||Aim||Made up of||Funds Used*|
Over 15 years from retirement
|To grow the value of your investment.||Higher-risk investment funds with the potential for higher returns.||Equities and Blended Assets|
5-15 years from retirement
|To keep a level of growth, and begin to protect the value of the Funds you have already built up.||Medium-risk investment funds with the potential for higher returns whilst aiming to protect the value of your account.||Blended Assets|
Less than 5 years from retirement
|To protect the value of your investment with the expectation that you will take 100% cash at retirement.||Lower-risk investment funds to further protect the value of your account.||Blended Assets and Pre-retirement to cash|
*See Self-select funds below for information about the Funds.
The graph below shows how the automatic switching starts to move you investments once you reach 15 years before retirement:
What does it cost?
An Annual Management Charge (AMC) which is a percentage of the total value, is automatically deducted from your DC account via an adjustment to the unit prices. This is to cover the cost of managing your investments. In addition, expenses, also known as Other Annual Charges (OAC), may apply to certain funds. The Total Expense Ratio (TER) is the AMC plus the OAC and on a quarterly basis it can vary slightly due to the different performance of the underlying funds and the expenses incurred by them. Always refer to the Fund factsheets to access the current TER.
During the three phases of the Lifetime Pathway, the charges currently are:
- TER: 0.33%
The TER increases from 0.33% to 0.65% between 15 and 10 years before retirement as your DC account gradually moves into the Blended Assets fund. The TER stays at 0.65% from 10 to 5 years before retirement.
The TER decreases from 0.65% to 0.34% from 5 years before retirement as your DC account gradually moves into the Pre-retirement to Cash fund.
If you prefer to select your own investment funds, you can choose from nine self-select funds. These funds do not automatically move your investments into lower-risk investments as you approach retirement, but you can move your investments yourself. For more information, see Changing your funds.
|Growth||This fund aims to provide stable long term returns.||High/Medium||0.32|
|Equities||To move in line with the global equity market.||High||0.20|
|Property||Invests in the UK and global property market.||High/Medium||0.50|
|Blended Assets||To grow the value of your investments whilst aiming to protect the value of your DC account. The underlying investments will be a mix of assets, actively managed, which can include, but are not limited to: equities, bonds, currency, hedge funds etc.||Medium||0.65|
|Corporate Bonds||To invest in bonds issued by companies.||Medium||0.42|
|Pre-retirement to annuity||For members who are likely to buy a regular income in retirement instead of taking cash.||Medium/Low||0.17|
|Pre-retirement to cash||To reduce the investment risk and protect the value of your DC account, presuming that you will take your entire DC account as cash.||Medium/Low||0.34|
|Cash||To provide protection for your DC account.||Low||0.18|
|Ethical Growth||To grow the value of your investments and invest in funds that are deemed to be ‘ethical’. The underlying investments include passive ethical equities and passive gilts.||High||0.24|
|Ethical Consolidation||To grow the value of your investments whilst aiming to protect the value of your DC account and invest in funds that are deemed to be ‘ethical’. The underlying investments include passive ethical equities and passive gilts.||Medium||0.16|