How defined contribution (DC) works
DC Start and DC Core are our defined contribution (DC) sections of the Nestlé UK Pension Fund. Even if you’re not a DC Core of DC Start member, you may still save into a DC Core account. This may be because you pay ‘overcap contributions’ to DC Core once you earn over the pensionable earnings cap for the scheme year. Or, you may make additional voluntary contributions (AVCs) to DC Core either as regular or as one-off payments from your salary.
No matter how you save into our DC sections, they work in the same way – you have an account that you save into and the money that you save into this account is invested.
If you’re a member of DC Start, we invest your savings in the Lifetime Pathway (more about this in a minute), and if you are a member of DC Core or make AVCs or overcap contributions, you have a choice of where your savings are invested. You can either choose to invest in the Lifetime Pathway, or you can choose to invest in our self-select funds. And you can change how your DC Core account is invested throughout the year if you want to. We process these requests every three months so your change will take effect from the next May, August, November or February.
Your savings stay invested until you retire, or until you transfer them into a similar type of pension fund.
The value of investments can go down as well as up
As with any investments, the value of your account depends on the performance of the things, or ‘assets’, that your money is invested in. If these assets perform well, then you may receive good ‘investment returns’ which means that the value of your pension savings account could increase. If the assets don’t perform well, then you may receive poor investment returns which means that the value of your pension savings could decrease.
The Lifetime Pathway fund
If you are a member of DC Start we’ll automatically invest your savings in the Lifetime Pathway fund. You can also choose to invest your DC Core savings in the Lifetime Pathway if you don’t want to make active investment decisions yourself.
The Lifetime Pathway fund assumes that as you get older, your attitude towards risk is likely to change. You may, for example, want to reduce the chance of losses because if your investments don’t perform well you won’t have as long for your pension savings to recover. The Lifetime Pathway takes this into account and starts to move you towards lower-risk funds the closer you get to retirement.
If you are invested in the Lifetime Pathway fund, we ask you to set a target retirement age so we know when we need to start moving your investments. You can change this age very easily if your plans change by filling out a Target Retirement Age Change Form.
The graph below shows how the automatic switching starts to move your investments once you are fifteen years away from your target retirement age:
Read more about the Lifetime Pathway fund.
The self-select funds
If you are a member of the DC Core section, you can choose which investment funds your pension savings are invested in. So, if you have a particular interest in investing in funds with a focus on integrating sustainability issues for example, this might be something that you want to explore.
Read more about the different self-select funds.
Changes to the Blended Assets fund
In September 2021 we replaced one of the underlying funds in the Blended Assets fund. This was because it wasn’t performing as well as we expected.
If you are in the Lifetime Pathway, or have invested your pension savings in the Blended Assets self-select fund, this will affect you.
The Blended Assets fund was previously made up of:
- 50% Invesco Global Targeted Returns Fund
- 50% Schroders Diversified Multi Asset Fund
Following the review, the Blended Assets Fund is now made up of:
- 37.50% Schroders Diversified Multi Asset Fund
- 12.90% SSGA Global Multi-Factor Strategy
- 2.10% SSGA Emerging Markets Equity Index Fund
- 38.13% PIMCO GIS Income Fund
- 9.37% L&G All Stocks Gilt Index Fund
As result of this change we hope to deliver better outcomes for our members, by providing:
- Lower investment fees – so that you pay less costs and charges during the time that your pension savings are invested in the Fund.
- Investment returns that are the same or better but that have a lower risk profile.
The fund factsheet for the new Blended Assets fund isn’t available yet. It should be available in early March 2022.
How we measure how our funds have performed
Defined contribution pensions are designed to be long-term investments and generally speaking, this is how we measure investment performance. In fact, to get a true idea of their performance, we need to see results over a longer period – typically between five to ten years.
The long-term view is important as some of our funds are more volatile than others. When a fund is volatile it means that the value of its assets can change quickly and quite dramatically. Over the shorter term this can mean that funds invested in volatile assets might appear to make sudden gains or losses. However, over the longer term these movements in either direction tend to even out. Generally, we expect more volatile funds to provide higher investment returns over time.
With the support of our specialist investment advisers and fund managers, we carefully measure how our funds perform using ‘benchmarks’.
What is a benchmark?
A benchmark is an index that we use as a reference point for fund performance. In a similar way to how the consumer prices index works, a benchmark will also look at a basket of different things. But rather than these being consumer goods and services, a benchmark will measure the performance of the types of assets in that fund.
Each investment fund has a specific strategy in place which sets out what it aims to achieve. The benchmark helps us to measure how well it does that, as well as the risk and volatility levels that the fund might be exposed to.
Our governance structure
As the Trustees who look after the Fund, we are confident that we have a robust structure in place that carefully monitors the performance of our funds. We review fund performance every three months, through the Defined Contribution Committee (a sub-Committee of the overall Trustee Board with a specific role to look at the DC arrangements), and with the support of our investment advisers.
If we were concerned about past or future fund performance, or felt that our funds were unlikely to meet their benchmarks long term, we would consider investing in different funds.
The following fund factsheets from Fidelity give more information about the available funds.Growth Equities Property Blended Assets Corporate Bonds Pre-retirement to annuity Pre-retirement to cash Cash Ethical Growth Ethical Consolidation