At BeFrank, we invest your employees’ pension contributions using the lifecycle method. That means we take their age into account. It allows us to ensure increased certainty about their final pension. Here’s how we go about it.
How lifecycles work at BeFrank
When your employees are young, we want to get a lot of returns from their investments. We invest with a bit more risk.
The closer your employees come to their retirement age, the less risk we take when we invest. We gradually change the investment mix each year, reducing both the investment risk and interest rate risk. The ‘interest rate risk’ is the risk that investments fall in value as interest rates fall.
So your employees do not need to be anxious that we will sell all of their investments in one go for a bad price. We only go for returns where we can. And, as an employee’s retirement age approaches, we also go for certainty.
We also spread investments across different countries and sectors in order to reduce the investment risk. If there is a problem in a particular sector or country, it will have less impact on the total value of your employees’ pensions.
Which lifecycles do we have?
In addition to different levels of investment risk, there are also different forms of investment. You select the standard form of investment for the lifecycle. Your employees can change the form of investment at any time.
The three forms are:
1. Passive investments
If you opt for passive investing, We will mainly invest your employees’ pension contributions in funds that aim to follow the market as closely as possible (index trackers). These funds follow the stock market development as closely as possible without deviating from the market. The only exceptions are deliberate exclusions in the context of responsible investment.
2. Active investments
If you opt for active investing, we invest your employees’ pension capital in funds that are actively managed with the aim of outperforming the market. Appointed asset managers respond to market developments. In doing so, they try to get better returns in the long run.
3. Sustainable investments
The name says it all: we have selected the funds in this lifecycle based on sustainability. This lifecycle consists of funds from Triodos Investment Management. We invest exclusively in companies, governments and organisations that have demonstrated their positive impact on the world. Good to know: we invest as sustainably as possible in all three lifecycles. Want to find out more? Discover which sustainable choices we make throughout each lifecycle.
Investing involves risks. We limit your employees’ investment risk as much as possible and provide insight about the risks.
At BeFrank, it is important to us that your employee has a say in their investments. As an employer, you set your employees’ standard risk profile. After that, they can decide whether that profile still suits them. After all, it’s their future at stake.
At BeFrank, your employees choose between five risk profiles: neutral, defensive, very defensive, offensive and very offensive. Curious to know which other decisions you can make on behalf of your employees? Take a look at our page on investment choices.
Some employees are already aware that their actual retirement age will be later than the age specified in their pension scheme. In that case, we advise that they shift their risk reduction moment to their expected State Pension Age. That way, the accumulation of their pension is better adapted to their personal situation. We call this ‘age styling’.
Continued investment after employees reach the retirement age
Your employees can continue to invest after their retirement date. This is specified in the Premium Schemes (Improvements) Act.
How does it work? Your employees can continue to invest part of their pension capital after their retirement date. This increases their chance of a higher pension. The amount of their pension benefits is also less dependent on interest rate at one point in time.
If your employee already knows that they want to continue investing, it’s wise to factor this in while they are accruing pension as it broadens their investment horizons. In other words: they spread their risk over several years.
You can also choose to include continued investments as a standard option in the pension scheme under the Future of Pensions Act.
BeFrank has developed lifecycles with customised risk reduction. That way, the investment mix aligns with the risk profile throughout the period.