DC Members
Freestyle
With FreeStyle, you choose how your account is invested from the DC Choice fund range.
When making your decision, you should be aware of the risks involved in investing in the different funds. To help you understand the relative risk values each fund has been given a risk level of Low, Medium, Medium to High or High.
Higher-risk funds are more volatile. They can produce higher returns on your investments but, in adverse circumstances, could significantly reduce the value of your savings. Higher-risk funds are considered a particularly risky investment if you are nearing your retirement age.
Lower-risk funds can help protect the value of your savings. This is important when you are close to retirement. If you are some years away from retiring, lower risk funds may not produce the returns you need to build up your retirement savings.
With FreeStyle you can change how your account is invested at anytime by calling the Helpline or registering with BlackRock and making your request on-line.
Asset Classes
When it comes to making your investment choice, you don't have to be a stockmarket genius to make an informed decision.
Investments fall into different asset classes. Each asset class has different characteristics - some are more risky to invest in but offer potentially better returns, while others are a safer bet but don't offer such high returns.
The asset classes available in DC Choice fall into five categories – equities, corporate bonds, property, gilts and cash. The risk involved in each asset class and the role it plays in investing for your retirement is shown below.
What are they?
Company shares
How do they work?
By investing in a company, you own part of that company. If the value of the company increases so will the value of the company shares. If the company drops in value, so will the value of your shares.
Risk profile
While some equity funds are less volatile than others, all tend to fluctuate in value. This means they can rise or fall in value quite sharply from day to day. The past performance of equities shows that over longer investment time horizons, equities have a better chance of outpacing inflation than other types of investments. However, for some savers equities have not proved a good investment even over relatively long periods. Equities are more unpredictable in the short term.
Main role
To build up the value of your retirement savings over the long term.
What are they?
Loans issued by the UK government
How do they work?
Gilts are loans to the government. In return the government promises to pay back the money on a certain date and, in the meantime, they pay interest on your investment at a fixed rate or linked to the Retail Prices Index.
Risk profile
Gilt funds can fluctuate in value but this is likely to be in line with changes in the cost of buying a pension.
Main role
To protect your savings against changes in the cost of providing a pension as you approach retirement.
What are they?
Physical assets such as buildings and land
How do they work?
By investing in Property, you own part of a physical asset such as an office block, a piece of land or a shopping centre. The value of your holding depends on how property prices change and any rental income generated.
Risk profile
Property prices can fluctuate in value, increasing or falling by large amounts over relatively short periods of time and can be affected by new developments and changes in business patterns. Property is costly to buy and sell, and deteriorates over time requiring refurbishment and maintenance which impacts returns.
Main role
Rental income is only paid if a building is let and the tenant is solvent, and leases need to be periodically renewed. Historically property has shown good returns but with periods of downturns.
To build up the value of your retirement savings over the long term.
What are they?
Loans issued by companies
How do they work?
Corporate Bonds are loans to companies. The bond represents money loaned to the company, which it promises to repay to the bondholder at the end of the loan. In addition, interest is payable on the loan until the loan is repaid.
Risk profile
Corporate Bonds fluctuate in value in a similar manner to Gilts. There is the additional risk that the company that has received the loan defaults on the loan ('credit risk') and the loan and any future interest are not paid. To compensate for this additional risk, Corporate Bonds tend to offer an additional return over that available on Gilts. Corporate Bonds are rated on the likelihood of default and the higher the risk, the higher the return offered.
Main role
To build up the value of your retirement savings over the long term.
What are they?
Simply cash.
How do they work?
Money is deposited with a bank, building society or a similar organisation or used to buy cash investments such as bank deposit certificates. You receive interest on your investment.
Risk profile
Cash funds do not normally fall in value but the rate of interest you earn can vary and may not keep up with inflation over the long term.
Main role
To protect your savings against any short-term falls in value just before your retire.
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BlackRock
If you have any questions about pensions please contact the pensions administrators:
Mitchells & Butlers Pensions,
BlackRock Pensions Administration Centre,
PO Box 704,
Peterborough,
PE1 1WL.
Telephone: 01733 353416
Email: uk.ops@blackrockpensions.co.uk
