On your retirement date, your pension capital will become available. You will use that capital to purchase a pension. This page explains how we protect your investments against fluctuations in interest rates and equities. You can also find out which options you have when you’re close to retirement.
Fluctuations in interest rates
The amount of your pension depends on the interest rates at the time you purchase your pension, as well as the results of your investments. The lower the interest rates, the lower your pension will be. We use matching funds to protect your pension to a large extent against the effect of interest rates. If interest rates go down, the value of these funds rises. If interest rates go up, the value of these funds falls. However, you will still be able to purchase roughly the same pension. This better protects your pension against fluctuations in interest rates and gives you more certainty.
Fluctuations in equities
As you get older, we automatically reduce the risk associated with your pension capital investments. Less risky investments are less affected by sudden price drops. If you invest with a neutral risk profile, we invest up to 15% in return funds in the last year of your pension accrual. A decline in these return funds will therefore have a limited effect on your investments. We gradually reduce the proportion invested in return funds and increase the proportion invested in matching funds. NB: matching fund returns may still rise or fall with interest rate fluctuations. But don’t worry – matching funds are meant to do that. They keep the pension you are going to purchase stable. You can find more information on matching funds here.
You could consider one of the following options:
1. Rather not invest in risky categories such as equities? You could switch your risk profile to Very Defensive.
Complete the profile selector and see if that suits you. You will no longer invest in return funds but entirely in matching funds. These matching funds may still rise or fall in value but will ultimately give you more certainty about the amount of your pension. Your expected pension benefits will subsequently be influenced less by developments in the financial markets.
2. You could also opt for DIY investing – if your pension scheme allows it.
You could leave your pension capital in your pension account, in which case it will not be invested. In order to activate Do It Yourself investing, you will need to answer a number of questions correctly about investing on your personal pension page.
Remember that if you do not invest:
- You run interest rate risk on your pension capital. A change in interest rates will then affect your expected pension benefits. In lifecycle investing, we hedge this interest rate risk by investing in matching funds.
- You may miss out on rises in equity prices if the financial markets recover.
- Management fees will still be charged.
Immediately before your retirement date
Before you retire, you need to make the following choices:
- Fixed or variable pension
- A fixed pension gives you certainty regarding the amount of your pension, but you will no longer be able to benefit from any later appreciation in the stock market or rise in interest rates. With a variable pension, part of your pension capital continues to be invested, so you will still have the opportunity to benefit from a rise in the equity markets and interest rates for longer. A variable pension does not offer the certainty of a fixed pension, and may be higher or lower from one year to the next.
- Defer your retirement date
- While you are still employed, you do not have to purchase a pension and your pension capital can continue to grow. You can decide to do this if you have not reached your retirement date yet. You can defer your pension for up to 5 years after you reach the State Pension Age.
- Take partial (part-time) retirement
- In this case, you will receive pension benefits for that part. Your pension capital can continue to increase for the part that you continue to work.
For more information, take a look at your personal pension page. You can also compare different pension benefit providers on this page. Make sure you consult a pension advisor as well.