The Defined Contribution Scheme Improvement Act (Wet verbeterde premieregeling) that came into effect on 1 September 2016 has created the possibility of continuing to invest after the retirement date. With a variable pension benefit, all or part of the pension capital continues to be invested after the retirement date. Continued investments offer members a chance of a higher pension and reduce the dependence of pension benefits on the market interest rate at any given time.
Why develop new lifecycles?
If an employee chooses the option of continued investment, it is a good idea to take account of this during the pension accrual period. This choice after all affects the investment horizon. This means that the investment mix will continue to reflect the risk profile.
What are these lifecycles?
Tapering of risk can be applied as you approach your retirement date in all the current lifecycles. The following methods are available:
• No continued investment after retirement date
In this lifecycle, the proportion invested in marketable securities is reduced to nil one year before the retirement date
• Defensive continued investment after retirement date
In this lifecycle, the proportion of marketable securities is reduced to 20% on the retirement date
• Neutral continued investment after retirement date
In this lifecycle, the proportion of marketable securities is reduced to 30% on the retirement date
• Offensive continued investment after retirement date
In this lifecycle, the proportion of marketable securities is reduced to 40% on the retirement date
For the Neutral lifecycle, it looks like this:
The new lifecycles offer many opportunities for employees to design their pension accrual according to their individual preference with respect to risk. It may well be the case that an employee has an offensive risk profile prior to their retirement date, but wishes or has to take less risk after their retirement date. At the same time, there is the desire to be able to profit from favourable market developments to some extent after the retirement date. In this situation the employee can choose an offensive lifecycle that includes defensive or neutral continued investment.
The choice for continued investment can be made at any time. This is also useful for younger employees, as they will obtain insight into their potential return on their retirement date. It is advisable to make the choice in good time, in any case before the beginning of risk tapering in the lifecycle. From then on, the risk tapering will actually be different. An employee may purchase the desired pension benefit from a provider of their choice on the retirement date. BeFrank does not offer pension benefit products.
Guidance to employees
To help make this choice, questions with respect to risk appetite after the retirement date have been added to the profiling tool on the personal pension page. In addition to a risk profile for the pension accrual, the tool will generate a risk profile for after retirement and the most suitable lifecycle. The pension planner can moreover be used to calculate the effect of continued investment on the expected pension. The employee’s choice can be registered directly online.
The new lifecycles are available from the end of January 2017. An announcement will be placed on your employees’ personal pension pages. A newsletter highlighting this will also be sent to employees in the following week. Important communication moments are also immediately prior to the date when the risk tapering begins and before retirement.