Why has my DC pension pot fallen in value?

If your DC pension pot is invested in either the:

• Annuity Purchase Strategy (and you are closer to retirement), or
• Freechoice annuity tracker funds - the Fixed Annuity Tracker- passive and/or the Inflation-linked Annuity Tracker – passive.

you will have seen a fall in the value of your DC pension pot over recent weeks.

Many members will know that this is because some of their DC pension pot is invested in a type of government bond, called a long gilt. Over recent weeks, the unit price of this type of investment has been very volatile (the prices have gone up and down a lot) and this may continue in the coming weeks and months. This reflects broader market volatility resulting from increases in the rate of inflation and other economic uncertainty.

Why does my DC pension pot invest in government bonds?

The Annuity Purchase investment strategy and the annuity tracker freechoice funds are designed for members who plan to buy an annuity (a regular income for life) from an insurance company, when they reach their Target Retirement Age (TRA). The aim is for the unit price of your investments to broadly change in line with the cost of buying an annuity. This is to give you some certainty about the amount of annuity you can buy as you approach retirement.

How does it work?

The annuity rate is the amount of annuity income that each pound of your DC pension pot can buy. Typically, when changes in the investment markets lead to a fall in the unit prices of long gilt investments, annuity rates go up (meaning you get more annuity income for your money). As a result, even if your DC pension pot falls in value just before you retire, there will be some protection because we expect the amount of pension you can buy to increase, although this is not guaranteed.

Do I need to do anything?

Your chosen investment for your DC pension pot should match your plans for the future.

If you are planning to use your DC pension pot to buy an annuity at your Target Retirement Age, you don’t need to take any action. These funds are designed to provide some protection by better matching the price of buying an annuity than other investment choices.

You don’t have to buy an annuity when you retire, you have additional choices, including taking a flexible income where you withdraw as much or as little as you need, when you need it. If you want to find out more about your retirement income options, a good place to start is the retirement pages on futurefocus here.

If you don’t plan to buy and annuity when you retire and you want to understand more about the range of investment options available in the Scheme, you can find out more on the futurefocus investment pages here, or you can read to the DC investment guide here.

If you need more help, we recommend that you consider speaking to a regulated financial adviser. To find a financial adviser, you can visit Money Helper, click  here to go to their find an adviser page.

What if my DC pension pot is not invested in the annuity purchase strategy? Do I need to do anything?

Members invested in other Targeted Investment Strategies may have also seen some falls in the value of their DC pension pots over recent weeks. It’s important to remember that your DC pension pot is being invested for the long term. Whilst investment markets can go up and down in the short term, the aim for the growth phase of all three of the Scheme’s targeted investment strategies is for your DC pension pot to grow over the long term. 
 
If you are in the default investment strategy ( the Flexible Income Strategy) and you are closer to your Target Retirement Age, your DC pension pot will have already been automatically switched into a diverse mix of investments including lower-risk investments such as cash. And don’t forget, if you are planning to take a flexible income at retirement, your DC pension pot will continue to be invested even after you decide to take an income. 
 
If you are invested in the freechoice range of funds, it’s worth checking that your DC pension pot is doing what you want it to, for example, that the investment risk is right for you. If you’re at the start of your savings journey, you might have more appetite for risk, with the aim of achieving higher growth for your DC pension pot. If you're close to retirement, you might want to take less risk, to lower the chances of any sudden falls in value as you get ready to take your DC pension pot.