Let’s take a look at how our scheme investments work and how they’ve been impacted by recent world events …
How the Scheme’s investments work
Pension funds like ours rely not only on the contributions paid in by you, and your employer, but also on successfully investing this money to give strong, long-term returns.
These investments typically generate up to three-quarters of the total pensions paid out to members and are managed extremely carefully by the Scheme’s investment manager, RPMI Railpen.
The Scheme invests in a varied mix of assets, including shares, bonds, property and other types of investments. This diversified approach to investment (i.e. not having all your eggs in one basket) helps to reduce the impact of any short-term stock market instability on the Scheme.
While 2020 proved to be a particularly volatile year in the financial markets, the investments of the Scheme achieved positive returns over the year as whole. And RPMI were able to carry on supporting the Scheme and making payments to our members.
The impact of Coronavirus on pensions
In the first few months of the 2020 there was a sharp fall in the value of many investments as markets responded to the financial impact of Coronavirus on businesses.
However, the value of Scheme investments had broadly recovered by the summer and values rose further towards the end of the year, as the financial markets were reassured by news of a vaccine.
The impact of Brexit on pensions
The UK officially left the EU on 31 January 2020.
Due to our diversified approach to investment, any volatility in the financial markets caused by Britain’s departure should have little impact on your pension.
If you’re a British citizen living abroad and are already taking a pension income, then UK law still allows workplace pensions to be paid overseas, and the Government currently does not expect that to change.
However, some UK banks have started closing accounts belonging to British people who now live in the EU. Please check with your bank to find out if this affects you and let us know of any changes as soon as possible to make sure you can continue getting your pension.
We will also try to keep you updated on any regulatory changes, which may affect your pension now we have left the EU.
How world events can affect your pension moving forward
If you’re a member of a defined benefit pension (DB), or are already taking a pension from one, then the amount you get isn’t affected by the rise and fall of the stock market or share prices, which can be caused by major world events.
If you’re paying into a defined contribution pension (DC) or making additional voluntary contributions (AVCs), and have no immediate plans to retire, then any reduction in your pot caused by fluctuations in the stock market or share prices should have time to recover. Although, you may decide to pay in more if you can.
If you are close to retirement then you might want your DC pension or AVC pot to be moved out of stocks and shares altogether and in to ‘less risky’ funds such as cash and bonds instead. This is known as lifestyling. It is typically done over the five to 10 years before you retire, to protect your pot from any major decreases which you wouldn’t have time to recover. Lifestyling is done automatically in many cases, however you will need to make the change yourself if you’ve chosen to self-select funds.
It’s important to review your fund choices regularly. Please click here to find out more.
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