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LET YOUR PENSION SCHEME MAKE YOU AN EVEN BIGGER RETURN
Your overall Retirement Account isn’t just made up of the contributions you and the Company have paid in. The performance of the funds you invest your money in will have a big impact on how much you’re building up in your Retirement Account over time.
Understanding Risk
All investments will naturally involve some risk, but not all risks are bad! When it comes to your Retirement Account, not having enough money to retire is the biggest risk you face. Thinking about these risks may seem complicated and make saving for your retirement difficult to manage. However, as you get closer to retirement, the importance of each kind of risk changes – understanding why will help you make your investment decisions.
Your Attitude to Risk
Your age matters and the risks you face change as you get older. Our lifestyle funds can help you manage these risks.
Starting out: When you are younger the main risk is that the investment return on your Retirement Account does not keep pace with inflation and the value of your benefits are eroded. Saving for retirement in a low investment risk/low return fund could mean that your pension might fall short of your expectations. On the other hand, a sudden fall in the value of the Retirement Account should be less of a concern. This is because it does not matter so much if your fund falls in value for a short while because there is plenty of time for the value to rise again. This means you may want to think about investing at least some of your savings in, for example, equities (shares in companies) when you are a long way from retirement.
Middle of the journey: As you get older, it is worth investing in a variety of asset classes, such as shares, bonds and cash. With less time until you retire, the aim is to protect your money by spreading it across a wider collection of assets. The value of diversity is that, if particular assets underperform, they could potentially be compensated for by the other assets in your portfolio.
Nearly there: A sudden fall in the value of your investments is more of a problem when you are closer to retirement. This is because there is simply less time available for your fund to recover from any fall in value. At this stage, it is worth investing in assets that match how you are going to take your benefits at retirement. For example, if you are planning on switching to an income drawdown arrangement in retirement, you may want to target a portfolio that is a balance of growth and lower risk investments. If you are considering purchasing an annuity at retirement, you may want to invest in bonds or the BGPS Pre-Retirement Fund, which are linked to the cost of buying a fixed income. If you are planning to take any part of your pension fund as tax-free cash, you will probably also want to think about investing that part of your account in a cash fund. This change of investments can be done automatically through one of the Lifestyle options.
How Much Risk Should I Take?
As we discuss above, the amount of risk you are willing to take will depend on three things: the amount of time until you retire; what you are personally comfortable with; and what your goals are in retirement (i.e. how much money you think you’ll need). Here are the main types of investment and their characteristics:
High potential risk, high potential return
These are company shares. Buying shares in a company gives the investor the right to share its profits. In the short term their value can go up and down, sometimes dramatically. But over the longer term they have the potential to increase significantly as the company grows and becomes more profitable. Of course, there is the risk that this might not happen.
Medium potential risk, medium potential return
Bonds are issued by governments (gilts) and companies (corporate bonds) that want to borrow money and will pay interest on them. They can either pay out the same rate of interest every year or vary the payments with inflation. Investors are not required to keep a bond until the repayment date. Gilts are backed by the UK government and are regarded as very safe investments, but their expected return is low. Corporate bonds are considered less safe but have a higher expected return.
Medium potential risk, medium potential return
These funds invest in a wider range of assets, including equities, property, bonds, cash and other commodities. The funds are focused on providing greater stability of returns through investing in a diversified range of investments. Property funds may close to investment and disinvestment for certain periods of time. For example, as a result of the Covid-19 pandemic, property funds across the market had to suspend trading in and out for broadly 6 months as a result of uncertainty in property valuations.
Low potential risk, low potential return
Cash funds are similar to a bank deposit account. They pay out interest but they may not be the best strategy for long-term retirement savings – the returns on cash have historically been low compared to inflation. It’s important to understand that, unlike a bank account, a cash investment is not guaranteed, and its value can do down, as well as up.
YOUR INVESTMENT OPTIONS
In the Baxi Pension Scheme, there are two types of investment options, lifestyle options and self-select options. These are explained below. The pensions modeller found here www.mybaxipension.co.uk can show you the impact on your Retirement Account of picking different investment options. Within the modeller you can change your target retirement age, expected future salary and salary growth, the employee and employer contribution rates (as well as Additional Voluntary Contributions (AVCs)), your investment strategy and even your target annual income post retirement. As a result, you can check how different decisions change your expected retirement outcomes and you can keep an eye on whether you are on track to reach your goals.
The Baxi Group Pension Scheme funds are invested with Legal & General, a leading investment manager, who provide the Scheme with access to their investment platform and a range of funds available to Baxi members.
Lifestyle Options
A Lifestyle option is a predetermined investment strategy, which means your investments will be decided for you. As you approach retirement, it automatically moves your investments into less risky funds to protect the value of your benefits. It reflects how many years you are from retirement, and how the Trustee expects you to take your benefits on retirement (e.g. cash, annuity or drawdown).
There are three Lifestyle strategies available for you to choose from: the BGPS Drawdown Lifestyle, the BGPS Annuity Lifestyle and the BGPS Cash Lifestyle. If you do not make a choice, the Trustee will automatically put you in the BGPS Drawdown Lifestyle (the default investment arrangement). The Trustee cannot know what is right for you on an individual basis so please review your investments regularly to ensure you are comfortable with where you are invested.
Each Lifestyle targets a retirement outcome:
- BGPS Drawdown Lifestyle – specifically designed to suit people who will withdraw their retirement savings gradually through their retirement
- BGPS Annuity Lifestyle – specifically designed to suit people who will withdraw their retirement savings by purchasing an annuity and choosing a regular income in retirement
- BGPS Cash Lifestyle – specifically designed to suit people who will withdraw their retirement savings as a one-off cash lump sum at retirement
For more information regarding what these Lifestyle’s look like in practice, please see Please see pages 8-9 of the Investment Guide.
You can only choose one of the three Lifestyle options to invest in, and you can change the Lifestyle you are invested in, if you wish, by completing an Investment Decision Form (under Downloads) or by logging in to the member portal www.mybaxipension.co.uk.
It is important that you set a target retirement date and you let the Trustee know what this is. That way, as you approach your target retirement date, the Scheme administrator will de-risk the part of your Retirement Account that is invested in lifestyle investments in-line with your retirement plans. If your target retirement date stated on the member portal is different to your retirement plans, you run the risk of being exposed to too much or too little risk as you approach retirement.
Self-Select Options
If you prefer to design your own investment strategy you can do this by selecting the BGPS (Baxi Group Pension Scheme) funds in which to invest yourself. Please note you cannot invest in both the Lifestyle option and the Self-Select option. There are 15 funds from which you can choose:
*NOTE: Each charge is expressed as a percentage of the value of the fund per year, and is automatically taken into account in the price of the units. Please note that charges can change. The charges are expressed as the Annual Management Charge (“AMC”) as at September 2020. For the Total Expense Ratio (“TER”) you should visit the Chair’s Statement at the following link. If you’re wondering what the difference between an AMC and a TER is, the AMC is the standard base charge for being invested in that fund and is usually fixed. The TER is equal to the AMC plus any additional charges incurred over the period, such as the fund’s custodian costs. The TER can vary slightly from day to day.
All fund charges are below the charge cap of 0.75% a year, which is required by the Government for auto enrolment default arrangements. Further details of the funds are available on the fund factsheets above.
Please review your investments regularly so that you remain comfortable with where you are invested. This is particularly important for members who choose the Self-select option. As explained above, your attitude to risk is likely to change over time, so it’s very important to keep an eye on your investments, and change them if necessary.
All funds
Your investment returns will depend on which investment strategy you choose (Lifestyle or Self-Select) and the performance of the investment funds. You should keep your investments under review, and consider taking financial advice, if you are not sure which investment choice to make. But you should also remember that no one can guarantee the movements of the market, and that the value of your investments can go down, as well as up.
BGPS Equity Fund
0.130% Charge per annum
BGPS Equity Fund BGPS UK Equity Fund
0.060% Charge per year
BGPS UK Equity Fund BGPS World Equity Fund
0.150% Charge per year
BGPS World Equity Fund BGPS Sterling Hedged World Equity Fund
0.130% Charge per year
BGPS Sterling Hedged World Equity Fund BGPS Islamic Equity Fund
0.350% Charge per year
BGPS Islamic Equity Fund BGPS Global (50:50) Equity Fund
0.110% Charge per year
BGPS Global (50:50) Equity Fund BGPS Emerging Markets Fund
0.210% Charge per year
BGPS Emerging Markets Fund BGPS Diversified Fund
0.405% Charge per year
BGPS Diversified Fund BGPS Future World Fund
0.200% Charge per year
BGPS Future World Fund BGPS Pre-Retirement Fund
0.150% Charge per year
BGPS Pre-Retirement Fund BGPS Retirement Income Fund
0.350% Charge per year
BGPS Retirement Income Fund BGPS Corporate Bond Fund
0.065% Charge per year
BGPS Corporate Bond Fund BGPS Gilts Fund
0.060% Charge per year
BGPS Gilts Fund BGPS Index Linked Gilts Fund
0.050% Charge per year
BGPS Index Linked Gilts Fund BGPS Property Fund
0.700% Charge per year
BGPS Property Fund BGPS Cash Fund
0.125% Charge per year
BGPS Cash Fund Contact us
Do you have a question about your Baxi Pension that this site hasn’t answered? If so, just email us or call us on the number provided.