Unlike other types of investment and savings products such as property and ISAs, it can be hard to know where your money’s going with a pension. You don’t have the tangible bricks and mortar that you’d get with a property, and most people aren’t in the habit of checking their pension statement as they might their savings account statement. It’s no surprise then that there’s a disconnect, with savers left wondering where exactly the money they pay into their pension goes.
How a pension works
Instead of your money languishing somewhere until you reach your 50s or 60s, it’s invested in a range of different assets in the hope that you’ll get a good return on your investments by the time you come to retire. Professional money managers make all of the decisions about how a fund’s money is invested, in line with how much risk investors like you are happy to take. It may come as a surprise to learn that pension funds are among the major investors in private companies and some bigger companies too, which are listed publicly on the stock market.
How your pension’s invested
The majority of pension funds are invested in a wide range of assets to minimise your exposure to risk. These are likely to include a mixture of shares, property, bonds and cash spread across global markets, from North America to Asia Pacific.
Most of these assets are traded on stock markets so it makes sense that when the markets are strong a pension can perform well, and when the markets are weak a pension can underperform. For better or worse, any impact on your pension should be relatively low due to how your investments have been diversified and spread, but you may still notice some occasional fluctuations to your balance.
From some of the falls across the pond in February to the FTSE flying high in May, it should be fairly easy to draw a parallel between fluctuations in your pension balance and 2018’s key socio-political events.
The beauty of investing in lots of different things is that it brings diversity. The more diverse a pension fund’s investments, the more insulated your savings will be and the more opportunities they’ll have to grow. For instance, following the Brexit referendum some share prices fell, but bonds and non-sterling investments made gains, so overall many pension savers enjoyed a boost.
Another great thing about pensions is that they’re long-term investments which means short-term fluctuations are unlikely to cause any lasting damage, so you can usually wait out any downturns and look forward to the next upturn. Most downturns don’t usually last longer than a few months so you shouldn’t worry too much if you notice the stock market negatively impacting your pension.
To find out more about how your pension’s being invested, check the details in your paperwork or speak to your scheme’s administrator.
How PensionBee plans invest your money
Transparency means simplicity, not hundreds of funds with exotic names + a multi-layered "fee structure". What about one simple low fee, 4 funds to choose from and a live balance so you can see what you've got? 💥 #fintech #pensions #tech capital at risk. https://t.co/oiEY7V0rld pic.twitter.com/nlZu7xLYsW— PensionBee (@pensionbee) 7 September 2018
While all of PensionBee’s pensions are diversified, each plan invests in a different mix of assets from stocks, shares and cash to property and commodities. There are several investment location options too. Here’s how three of our plans are structured:
- Tracker plan
The ‘Tracker’ is a simple plan that invests the majority of your money in global shares, with the rest going to bonds and cash. It’s managed by State Street Global Advisors and investments are located mostly in the UK, followed by North America, Europe (excluding the UK), Asia Pacific (excluding Japan) and Japan.
- Tailored plan
The ‘Tailored’ plan is our most popular plan and invests your money differently as you get older, moving your money to safer assets as you near retirement. It’s managed by BlackRock and is predominantly invested in global shares, with some going to bonds, property and commodities. Geographically this plan invests primarily in North America, with the rest of your investments split across a mix of territories.
- Future World plan
The ‘Future World’ plan is our eco-concious option, that aims to invest your money in a way that brings positive change. It’s managed by Legal & General and is invested solely in shares, predominantly in North America, followed by Europe (excluding the UK), Japan, UK and Asia Pacific (excluding Japan).
You can find out more about these pensions on our plans page, and can download a factsheet for each plan outlining its past performance.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.