BeFrank PPI administers defined contribution pension schemes. This means that a pension capital is accrued for each participant by means of investments. On the retirement date, the value is used for a lifelong pension benefit for the participant. The result of these investments is extremely important for a good pension. BeFrank is responsible for how the capital is invested and has established an investment policy. The principles of this policy are explained below.
The defined contribution plus the investment return determines the amount of pension
Taking a considered investment risk is expected to lead to a higher pension over the long term. The pension consists of contributions and the returns realised on the accrued capital. Participants therefore benefit from taking considered investment risks to keep the pension contribution manageable with the prospect of a good pension.
Controlled investment risk at all times
One guiding principle is the use of lifecycle investing. This means retaining an optimal risk-return ratio from the start of participation through to the retirement date. In the accrual phase, investments are diversified with the aim of realising return. In the risk reduction phase, the investment and interest-rate risk are gradually reduced. This prevents a situation in which sudden market movements could have a disproportionate effect on the final pension. However, there is still a risk of poor returns over the long term.
Appropriate risk profile and freedom of choice
We are aware that people have various attitudes with respect to risk. A group of participants or an individual may have a particular preference with respect to risk depending on specific circumstances. For this reason, BeFrank offers different lifecycles. Various risk profiles are available, for both the application of a default lifecycle in the pension scheme and at individual level. Both employers and employees are thus in a position to choose the risk profile that suits them. Establishing the risk appetite of the participants is part of the annual investment process.
Active, passive and sustainable investing
We believe that our customers should be able to choose a passive, active or sustainable investment style, whether they are an employer or an employee.
We offer a lifecycle with passive management for customers who prefer simplicity, do not believe in active management and/or do not want to have any surprises, and/or prefer low costs with the greatest possible sustainability. These customers do not want to be surprised by returns that deviate from the index return. For this we select the best index funds in the institutional market on the basis of objective criteria. We only use an active allocation in asset categories if this adds value.
We offer a lifecycle with active management for customers who believe in active management based on knowledge and experience of NNIP and accept returns that deviate from the index return. Where possible, we offer actively managed funds if we believe that this will add value. Tactical asset allocation is also applied in this lifecycle, based on valuation of asset categories or market sentiment. We also include more asset categories and the funds may have a more sustainable character in order to contribute to the aim of active management.
We offer a lifecycle with a very strong focus on sustainable investing. This involves much more targeted investment in sustainable companies and uses a strict exclusion policy. Best-in-class selection, engagement and voting are important elements here. Asset categories that do not qualify as highly sustainable under our selection criteria are not included. Customers who are prepared to pay higher costs and accept returns that may deviate substantially from the standard benchmark return in the short term may choose this style.
We see socially responsible investing as a useful element in our investment policy. Making conscious choices in our investment selection can contribute to a sustainable and better future. Sustainable investing can also add value by mitigating risk.
Sustainable Finance Disclosure Regulation
BeFrank is covered by the Sustainable Finance Disclosure Regulation (SFDR) of the European Union. This scheme is intended to make more transparent how financial market parties integrate ESG risks and opportunities in their investment decisions. Click here for more information.
Costs and tax-efficient investing
Cost control is important to us. Besides return, costs are a determining factor for the amount of pension to be attained and thus should be kept as low as possible. Cost control is in practice an important means of determining the return on the investments. Where possible, we avoid tax leakage by choosing a selection that avoids the withholding of dividend tax and reclaim this tax where possible. This produces an extra benefit for participants every year.
BeFrank strives to follow the best possible SRI policy, appropriate to each investment style. For the passive style, the criterion is that the effect on return and costs must be extremely limited. In the active style, sustainable investing may lead to a greater divergence in return. For the very sustainable investment style, large deviations from the benchmark are accepted, along with a simplified strategic mix and higher investment costs.
Diversification, simplicity and liquidity
We strive to keep our investments straightforward and avoid unnecessary complication. As far as possible, we use investments, instruments and investment strategies that are understandable and explainable with a predictable outcome. Diversification is important but is not unlimited. Diversification can be a means of reducing the risk of a portfolio. We strive to achieve an optimal balance between effectiveness and simplicity in the portfolio. An investment category will only be included if it is useful and appropriate to the character of the lifecycle. We avoid concentration risks in terms of sectors, regions or countries. The investments must be liquid and tradable on a daily basis. The investment capital must after all be at the disposal of the participants at all times.
Governance concerns the structure of the investment process. BeFrank has structured its investment process so that the board is engaged and fully in control at all times, supported by the risk managers and other experts. BeFrank has ultimate responsibility for its investment policy and has established a framework of objectives and preconditions in full independence.