Lifestyle Option is the name given to a way of investing that is designed to manage the effects of inflation risk, matching risk and capital risk at the times in your life when these risks pose the greatest threat to the value of your investments.
There are three Lifestyle Options available in the Scheme. All three options have been designed by the trustees in conjunction with their advisers to increase the potential for good investment returns while you are young and to lock in these returns and provide some stability to the value of your Individual Account as you approach retirement. You can choose to invest in any one of the three options.
How do the Lifestyle Options work?
The Lifestyle Options incorporate two investment strategies. The first strategy operates throughout your life until you reach 10 years from your retirement date and it seeks to manage the effects of inflation risk by aiming to achieve good investment returns for your Individual Account.
The second strategy operates in the 10 years before retirement and it seeks to manage the effects of capital risk by aiming to lock in the value of your Individual Account, while still maintaining steady growth as a means of managing the effects of matching risk. These strategies mean that the Lifestyle Options invest in different types of investments as you reach different ages.
What do the Lifestyle Options invest in?
The Lifestyle Options are made up of the following funds which are available within the Scheme:
- UK Equity Tracker Fund
- Global Equity Tracker Fund
- UK Index-Linked Gilt
- UK Fixed Interest Gilt Tracker Fund
- Corporate Bond Tracker Fund
- Cash Fund
The mix of investments will differ depending on how far away you are from your retirement date and also on the Lifestyle Option chosen.
Company shares have historically produced higher investment returns than bonds and cash over the longer term, so the aim is to make the most of these better investment returns by investing in shares until 10 years before your retirement. Although shares have produced better returns over the longer term, their value can go up and down and they can give negative returns.
Therefore as you approach retirement, the aim is to protect the value of your Individual Account against short term fluctuations by switching your investments out of shares and into more stable, lower risk investments such as bonds and cash. This is done automatically by the investment manager, without you having to do anything.
Find Out More
To find out more about the different Lifestyle Options, click below:
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