Your Investments
The default fund
When you joined the scheme, your contributions were automatically invested in our scheme default fund, the Aviva Mixed Investment 40-85% Shares Drawdown fund. This fund is designed specifically to provide members with growth during the majority of their working lives and then greater security as they approach retirement.
How does the default work?
The scheme default fund uses a ‘lifestyle’ mechanism that works by initially investing in the main growth fund - the Aviva Mixed Investment (40-85% Shares) fund. Then ten years from your selected retirement age (this is set to 65 as default, but you can change this at any time) your pension pot is automatically switched into different funds designed to imitate the use of drawdown as a mechanism to provide you with an income in retirement.
Lifestyling is a tried and tested investment technique that should provide most of our employees with a suitable investment platform to support their retirement income goals. However this approach, specifically targets funds that mirror the use of drawdown in retirement and may not be suitable for everybody, we would therefore encourage you to consider if this strategy is appropriate for you.
You can find out more about the default fund, the underlying funds it invests in on page 7 of this guide from Aviva. This document also provides details of the alternative strategies that might better suit your retirement plans.
Performance
Investment performance is one of the key factors in building a worthwhile retirement fund. The following figures highlight the returns of the Aviva Mixed Investment 40-85% Shares fund, the main component of the default fund, alongside its respective benchmark*. These figures are annualised to 31th December 2020.
If you're interested in reading more about investment market volatility in recent times due to the outbreak of Covid 19, please continue to scroll down.
* the bechmark used is the ABI Mixed Investment 40-85% Shares.
1 Year
2.65%
4.21% benchmark*
3 Years
3.56%
3.86% benchmark*
5 Years
7.10%
6.85% benchmark*
Investment market volatility in recent times
Following the outbreak of Covid 19, global markets have been impacted by the threat to the global economy of the coronavirus and the fall in oil prices (triggered by a price war between Russia and Saudi Arabia). This has led to some equity markets falling by around 25-30% in value and could still fall further. However, evidence from the past suggests that in time they should recover.
What impact has this had on my fund value?
Pension default funds are long-term investments that typically invest in a spread of asset classes such as equities, property, bonds and other types of investment. As a result, values can go down as well as up, in response to market movements.
Since March 2020, global equities, amongst other asset classes, have fallen in value and the value of your plan will therefore have fluctuated. The degree of movement will depend on the underlying assets within your fund.
Will equity markets go up again?
Equities have historically been the best asset class for generating returns over the long-term, but prices can often fall sharply. Whilst it is impossible to say for sure, these markets typically recover over time and as the causes of the recent falls start to diminish, markets should begin to normalise.
Should I be concerned?
Market volatility is a natural part of a long-term investment strategy and for those with a long investment horizon (e.g. 15 years or more), and making regular contributions, this can be potentially be advantageous, on the basis that more units can be bought in the fund. Assuming that the unit price increases again in future, this may result in a gain on those contributions.
Most default funds tend to invest a higher proportion in equity markets, relative to other asset classes. This changes when members are at least ten years away from their selected retirement age, when exposure to equities and other ‘growth’ assets is automatically reduced, in favour of more defensive assets (such as government and investment grade bonds).
If you’re still some years from retirement, your pension investments should have time to recover from any short-term losses.
What if I’m close to my selected retirement age?
Depending on how close to retirement you are, your retirement income needs and your other savings, you might need to take some action. Each individual’s circumstances are different and therefore we would always suggest obtaining financial advice. If you do not have an independent Financial Adviser, then you can find one on the Financial Conduct Authority website here.
Should I switch out of the default fund into cash or a low risk fund?
You have the option to do this, however, whilst this might be the right course of action for one person, it may not be for another. You should also be aware that moving out of your existing investments after markets have fallen could mean that you miss out on any recovery in those markets. It would therefore be best to seek financial advice.
To help their customers in these unprecedented times, Aviva has provided further information which can be accessed by clicking here.