Investment policy Group pension

Each month your employer makes contributions to your personal pension account with Brand Newv Day. This money serves one purpose only: the largest amount of pension possible. But we would like to add the following: at an acceptable risk. Because unnecessary risks shouldn’t be part of a pension.

It’s a commonplace idea for pensions: investment. Why is that? On average, investments yield higher profits than savings do. Because your pension capital is usually put aside for a long period of time, that is no problem whatsoever. The long period of time is important, because your can be sure of one thing when it comes to investing… You are going to have to deal with a crisis (or more) in which the exchanges take a nose-dive. Oil crisis, dotcom bubble or credit crunch, whatever their name might be. But equally you know that following those trying years of crisis will be plenty of years with upward trends. If you have a long-term perspective, these good years can compensate the bad ones and on average you’ll come out on top. Especially if you put aside money each month, because you’ll buy ‘cheap’ (during crises) as well as ‘expensive’ (when the rates are high). When you make contributions each month, you’re a lot less susceptible to temporary ups and downs in the exchange rates.

Is all that actually true?

For an illustration, see the sidebar. You can view the average returns of savings and investment starting from 1928 up until 2013 for every conceivable 20-year period. The year 1950 shows the average returns per year of saving or investment for the period 1930-1950. And the year 1980 the average returns for 1960-1980. That means there are 66 of these 20-year periods. For these periods all of the crises and bubbles have been taken into account.

Small print: Average returns per 20-year period from 1928 to 2013, based on a one-time payment of contributions. Investing: Data S&P (from 1928 onward), MSCI World Index (from 1969 in USD and euro-hedged from 2004). Saving: Data for US 3-month interest rate (from 1928 onward) and 3-month cash Libor interest rate (from 2004 onward). As you know, while past performance may teach us some valuable lessons, it does not guarantee future results. .

IIt turns out that in just 1 of these 66 periods savings yielded (slightly) higher returns than investment.And in 65 out of these 66 periods investments yielded (significantly) higher returns. If you have the time – like the period of time until your retirement – investment could be a smarter choice than saving.

Why would you invest anyway?

Why not just put your money into a savings account? You won’t have anything to do with good and bad trading years nor do you have to bother reading what’s on this page. We’ve illustrated the answer on the right: because saving often doesn’t accumulate enough capital for a decent pension. When you save, you can be pretty much certain you won’t or will hardly be able to make ends meet with the pension payments. The difference between (for example) 2.5% interest on savings and 6% returns on investments each year is enormous.

Small print: Assets at maturity based on annual returns of 2.5% for saving and 6% for investing. Suppose you set aside 500 euros a month over a 30-year period, after deducting all investment fees, without rebalancing and risk reduction. This merely serves as an example, to demonstrate the long-term effect of returns on investment – this means the information is for illustrative purposes only and that we accept no liability for any errors or omissions. .

Read more about the risks involved

Building up a pension pot also entails certain risks. These are unavoidable. Which is why it’s very important to deal with these risks sensibly and avoid the unnecessary risks. We think it’s very important for you to understand these risks and to know that we will do everyting in our power to manage these risks. Which are the most important ones?

Market risk

The exchange rates of shares and bonds go up and down. This is called ‘market risk’. It’s a risk as nobody knows what the exchange rates of such investments will do tomorrow. The exchange rates are subject to countless general and specific factors. A selection of these factors: interest, inflation, current state of the economy, unemployment numbers, oil prices, political decisions. The list is endless.

The market risk is not identical for each investment

For bonds the market risk is (much) lower than it is for shares. For bonds from the Netherlands and Germany, the risk is lower again than it might be for bonds from, say, Cameroon. Bonds running for a period of 5 years carry lower risks than bonds running for 30 years. And for shares from Shell or Unilever the market risk is lower than it might be for a small start-up.

Additionally, there are risks that may vary per share or bond:
a company’s profit, creditability, competitors, strikes, publications. That list is endless as well.

Brand New Day limits the market risk in a number of ways:


    You can see this in the graph contained in the “Why do we invest?” tab: investing over a longer period of time significantly reduces market risk. The longer the period, the more time there is available for the bullish years to offset the bearish years.

    If you invest in equities from a single company, for example, your risk is substantially larger than when you invest in equities from 10 different companies, and if you invest in IT alone, your risk is significantly greater than if you invest in a variety of sectors. Similarly, if you limit your investments to the Netherlands, you expose yourself to greater risk than if you were to spread your investments all over Europe, and if you decide to invest only in Asian stock, your risk is far greater than when your investment portfolio covers all continents. In other words: the greater the diversification, the lower the market risk, because every country, sector and industry comes with its own highs and lows. That’s why every euro you transfer to your Brand New Day retirement account is invested in no fewer than 6,700 different shares and approximately 7,000 different bonds: worldwide, in a wide variety of sectors, across all continents and in roughly 60 different countries. We will provide details on these investments below.

    When your retirement date is still many years away, it is advisable to assume a great deal of market risk by investing more in equities (shares) than in bonds. This is an appealing option, because the risk may be rewarded by a higher return on investment than you would receive for bonds. Higher-risk investments also yield higher expected returns, but as you know, risk and return are fundamentally linked: the greater an investment's potential to achieve higher returns, the greater the risk associated with it.

    If you invest in equities, the likelihood of significantly lower returns is approximately the same as that of significantly higher returns. This is especially the case for shorter periods of time; for longer periods, the chance of the return being lower than bonds is very small, because you have sufficient time to experience the impact of both strong and weak years on the stock markets.

    That’s why it makes sense for your retirement to invest substantially in equities at the beginning and increasingly in bonds as you approach the retirement date.

Interest-rate risk

Blindly aiming for the largest possible pension capital isn’t everything. Because on the retirement date, your employees will use their accrued pension capital to purchase a monthly pension income. However, this can also be done every quarter or year. In doing the latter, employees can choose either a variable or a fixed pension. A variable pension determines the pension payments for one year, while the amount that has not yet been paid out remains invested. As a result, the pension payments will be different each year. A fixed pension provides your employees with a steady life-long pension income. The amount of this fixed income is dependent on two things:

  • The amount of the accrued pension capital on the retirement date.
  • The interest rate at that particular moment.

The interest rate determines the amount of the fixed pension income. The lower the interest, the lower the income. We take this into account. How? By reducing the risk of a low interest rate on the retirement date. Free of charge. All of your employees will receive a tailor-made bond portfolio, taking into account their age and gender.

Brand New Day reduces interest-rate risk by investing in bonds:

If interest rates go down, the value of the bonds (and, by extension, of your pension assets) will increase. This higher value of bonds if interest rates are lower therefore roughly offsets the negative effect of the lower interest rates on your pension payments. In the period leading up to your retirement, we therefore reduce our investments in stocks and increase our investments in bonds, including long-term bonds. We do this because the extent to which interest rates affect bond prices also depend on the maturity of the bond. We therefore adjust the remaining term of your bond portfolio during the last stage of your retirement date to the term of the pension benefits. This means you will have an individual, tailored portfolio and that the interest-rate risk is gradually reduced as you get closer to the retirement date. Shortly before your retirement, interest rates therefore have only a minor effect on your retirement income.


  • If interest rates fall, the value of your bond portfolio increases and this offsets the lower paymen
  • If interest rates increase, the value of your bond portfolio declines and this offsets the higher payment (since this is also the case...)

Investment risk

To minimize the impact of a stock market crash, we automatically reduce the investment risk prior to the retirement date. This is what’s known as life-cycle investment. Each year, a small amount of shares is swapped out for more secure bonds. With a fixed pension, investments will consist of 100% bonds by the time there is one year left until retirement. After reaching the retirement date no more investments will be made. This happens automatically and at no extra charge, nor are there any hidden purchase or selling charges.

With a variable pension, we also reduce investment risks, but to a lesser extent. Part of the pension capital remains invested in shares, because your employees keep investing even after the retirement date.

Currency risk

With the stock and bond funds in the life-cycles, your employees invest in equity from around 50 different countries, and thus also in the currency – for example the American dollar and Japanese yen – in which the equity is listed. That means there are effectively two investments being made: in the equity itself as well as in the currency in which the equity has been listed. That means double the risk.

Shares are expected to increase in value in the long term, as companies make profit and grow. The expected returns compensate for the risks. However, currency exchange rates are not expected to yield returns, although they do fluctuate. The chances of the dollar being worth 20% more in ten years is just as big as it being worth 20% less. Consequently, the expected returns of currency exchange rate are 0%. Yet fluctuations in currencies do still carry risks. If, for example, the exchange rates for the dollar drop sharply prior to the retirement date equities listed in the dollar will also be worth less.

Shares are inherently volatile. Because of this, currency risk is less of an influence. However, in order not to turn it into a gamble, we still hedge half of the currency risk. With bonds, the currency risk has much greater impact. Here, fluctuation of the currency is undesirable. That is why we completely hedge the currency risk for bonds. Free of charge.

Bankruptcy risk

An important risk for your pension is bankruptcy. Of course that also includes a potential bankruptcy of Brand New Day. We could say this will never happen, but there are no guarantees.

Moreover, bankruptcy of a company or a country in which you have stocks or bonds may have consequences for your pension. That is also why a good spread is so important.

Brand New Day limits the risk of bankruptcy:

  1. When Brand New Day goes bankrupt
    Your pension pot is legally separated from Brand New Day. The capital is placed with a separate depository. If we would ever go bankrupt, you retain 100% of your investments. And you’ll be able to continue building up your pension pot with another provider. Any bankruptcy for Brand New Day will never affect your pension.
  2. When a whole country or the company in which you invest goes bankrupt
    We limit this by spreading investments. Your pension will be invested in around 7,300 stocks and 5,000 bonds. Any country or company going bankrupt will have only marginal consequences for your pension. With bonds, furthermore, we avoid very risky bonds and we exclusively invest in bonds of countries and companies with good credit ratings.

Read more about life-cycle investing

What is life-cycle investment?

The closer you get to your retirement date, the less you want to run any risks. That is why we gradually reduce the market and interest risks. With life-cycle investment. We adjust your investment portfolio to the number of years you have remaining until your retirement. Long before your retirement date you mostly invest in higher-risk equity (i.e. shares) in order to profit from the higher expected returns. And when your retirement date approaches, the high-risk investments are gradually swapped for lower-risk investments (i.e. bonds) in order to reduce the market risk and possibly the interest risk.

Investment for a variable or fixed pension

As of 1 September 2016 Wet verbeterde premieregeling (Improved defined contribution scheme Act) has become effective. This means you have choices when you retire: You can purchase fixed or variable pension benefits.

With a fixed pension, on the moment of purchase your life-long pension income is determined. The amount of the pension payments depends mainly on the amount of accrued pension capital on the retirement date as well as on the interest rate at that particular moment.

With a variable pension, only part of the pension capital on the retirement date is used in order to purchase pension benefits for one year. You subsequently keep investing the remaining capital. This is what’s called continued investment. Each year – depending on the investment results – the pension benefits for the coming year are determined. Because of this, you are less dependent on the interest rate on the retirement date. In other words, continued investment provides you with a chance of higher pension payments, but you also run the risk of lower pension payments.

More information about the choice between investing for variable or fixed pension payments can be found here.

The various life-cycles

The purpose of a life-cycle is to provide the largest possible pension at a risk that is acceptable for you. How much risk is acceptable? That will differ from one person to the next. Which is why we offer 3 separate life-cycles for both variable and fixed pensions – each with a different risk profile:

Defensive, Neutral and Offensive. The neutral life-cycle for a fixed pension is the standard life-cycle with Brand New Day. On your personal pension page, MyBND, you can review what investments options are available to you.

If your employer allows for it in the pension scheme, you can choose a personalized life-cycle. You get to pick the initial ratio between shares and bonds yourself.

Rebalancing

With lifecycle investment you might for example start 25 years before your retirement date (with a neutral life-cycle) with 85% shares and 15% bonds. But that ratio could change as a result of fluctuations in the exchange rate… and a year later you might end up with 89% shares and 11% bonds. That is why we ‘rebalance’ the ratio between shares and bonds each year. We bring back the balance as described in the life-cycle. In this example we would sell some of the shares and in return buy bonds, until the ratio returns to 85% shares and 15% bonds. We rebalance annually, on full years prior to the retirement date.

Herbalanceren

How did we develop these life-cycles?

How did we determine the Neutral, Defensive and Offensive life-cycles? We periodically evaluate the attitudes of our customers towards risk, we ran thousands of simulations, and we have assessed the risks for each risk profile… Not just the risk for the expected pension income in pessimistic scenarios, but also for intervening fluctuations of the value of the investment portfolio in pessimistic scenarios. With the resulting knowledge we have put together the life-cycles. These do not only differ in the ratio between shares and bonds in the beginning (the more offensive, the more shares) but also in the moment upon which the gradual reduction of risk begins (the more offensive, the later the start of the reduction).

Read more about index investing

The way in which we invest results from our ‘investment beliefs’: index investment. There are broadly speaking 2 ways of investing. One way is by just responding to ‘the market’. This is what’s known as index investment. You follow a certain index (for instance the AEX or MSCI) and you invest in its stocks. You make no choices, but you purchase a representative part of all of the shares in the index.

Indexbeleggen

The other way is ‘active’ investment: you make deliberate choices for certain shares, sectors, countries, et cetera. Of some stocks you buy a lot, while others you intentionally pass up. Another way, is to time the market; you try to find the perfect moment to get in or out. The purpose of active investment, of course, is to beat the market. It only makes sense to put in all of the effort and research costs if it helps you get more profit than the market you’re investing in (i.e. the index).

Why did we choose for index investment

We choose index investment because we think the expected returns are higher at low costs and lower risks. As far as we’re concerned, you cannot beat the market in the long run, because the markets are efficient: all of the information are already contained within the exchange. The expectations for certain shares, sectors and regions included. As a consequence, the extra costs you take on to beat the market (research, transaction fees, et cetera) will eat into your profits.

Beating the market is hard

In practice, it turns out beating the market is very difficult… See the illustration on the right. You can see the percentage of active funds that outperform a comparable index over a period of 10 years: about 80% of the active funds yield lower returns over a period of 10 years. And if that period gets longer, for example 30 years, virtually none of the active funds manage to beat the market.

They do exist; active investment funds that beat the market. There are always exceptions. However, the problem is you never know in advance which of the funds is going to be that exception. And yesterday’s winning funds become tomorrow’s losers. In short: if you invest actively on a long-term basis, there is a slight chance for more and a really big chance for less. We think it doesn’t make any sense.

Small print: The percentage of actively managed funds, adjusted for closed or merged funds, which outperform the average returns of index funds with lower fees (0.2% or less). Source: Vanguard calculation, 2015, based on Morningstar data.

The advantages of index investment are a broad spread, low costs, market compliant returns and above all transparency. Active management usually involves higher charges and more risks, such as management risks, timing risks (getting in or out at the wrong moment), selection risks and underperformance risks. We are certain that active investment on a long term basis will lead to higher risks (especially because of timing and selection risks) and lower returns (mainly because of the extra charges for active management). That is why we choose index investment.

Investment funds that beat the market do exist. While there are always exceptions, the problem is that you never know in advance which fund will make the difference, and today’s winning funds are tomorrow’s losers. In other words, if you have a longer-term investment horizon, active investment gives you a very small chance of higher returns and a very significant chance of lower returns, which is certainly something we seek to avoid.

The benefits of index investing are greater diversification, lower costs, market-level returns and, in addition, transparency. Active management generally entails higher costs and greater risk, including management risk and risk of timing: getting on board or exiting at the wrong time, selection risk, and underperformance risk. We firmly believe that active investing in the long term results in higher risk (especially as a result of the risk of timing) and lower returns (primarily as a result of the additional expenses associated with active management). This is why we opt for index investing.

Read more about our investment methods

How does Brand New Day invest?

We’ve said it many times before, so it’ll come as no surprise: we opt for a mixture of shares and bonds to build up your pension pot. A refined mix, but we’ll get to that later. It is one of our most important ‘investment beliefs’: a portfolio containing, on the one hand a broad spread of shares and on the other, bonds with a dependable credit rating. In practice, we’ve found this to be the most efficient portfolio in terms of risks and returns.

Why doesn’t Brand New Day make any other types of investments?

In addition to shares and bonds, there are plenty of other types of investments: listed real estate, commodities (natural resources, like oil, gold and copper), high yield bonds (bonds with very low credit ratings, but very high coupon payments) and hedge funds (investment funds that try to achieve positive results in both rising and falling markets). There are a number of reasons why we choose not to do this.

    In order to reduce the risk of an investment portfolio, other kinds of investments are often added. In practice that doesn’t work very well… As you can see in the illustration below. Often in times of stress – a crisis – all types of investment go down significantly, except for bonds with good credit ratings. In times of crisis, alternative investments (listed real estate, natural resources, et cetera.) behave similarly to shares: they all go down fast. These alternative investments go down just as quickly as shares, yet they have lower expected returns. That is why it’s no use adding these alternatives. Want to take more risk? Just add more shares.


    Large businesses, for example, own lots of real estate. Among the largest listed businesses in the world – in which you are investing – are businesses that trade in natural resources. Furthermore, there’s a large chance you own your own house (or will buy one in the future)… That way you’re also already investing in real estate.

    We prefer the strength of simplicity: shares and bonds with proper credit ratings. These categories together make up 85% of the ‘market portfolio’ (the total of worldwide investments).

The standard life-cycle

For all life-cycles there are three profiles: Defensive, Neutral and Offensive. Within these life-cycles there is additional choice between life-cycles with a focus on fixed pension benefits, and life-cycles with a focus on variable pension benefits, in which part of your pension capital remains invested after reaching the retirement date. The distribution of the funds for the neutral profile can be found below.


    Which shares are chosen?

    Spreading stocks as broadly as possible is a key notion. If we could, we’d invest in all of the listed stocks in the world (‘total market capitalisation’). Of course, that’s not very practical, because many very small shares are hard to trade – which can be costly as well. To make sure we achieve the largest spread possible, we invest in large listed stocks (‘large caps’), medium stocks (‘mid caps’) as well as smaller listed stocks (‘small caps’). We do this in developed markets, but also in developing ones.


    BND Wereld Indexfonds C-Hedged

    • Invests in around 2,100 of the largest listed businesses, listed in 24 countries, with hedging of the currency risk.

    BND Wereld Indexfonds C-Unhedged

    • Invests in around 2,100 of the largest listed businesses, listed in 24 countries, without hedging of the currency risk.

    BND Emerging Markets Indexfonds-C

    • Invests in around 900 of the largest listed businesses in developing markets, listed in 24 countries.

    BND Small Cap Wereld Indexfonds-C

    • Invests in around 4,300 relatively small listed businesses, listed in 23 countries.

    With these 4 stock funds you’re investing in over 7,300 stocks, listed in 48 countries worldwide. With these you’re approaching total market capitalisation, because those 7,300 stocks represent 95% of the value of all listed businesses in the world. All of the BND funds invest, one to one, in a Vanguard fund, one of the founders of index investment and the second largest investment management companies in the world.

    Life-cycle stocks

    On the right you can view the distribution of the stock funds over the running time for the neutral life-cycle. The distribution of large, mid and small caps is based on market capitalization, i.e. based on the actual value of all stocks of one categorie compared to the value of all stocks of the other category.

    Fees

    Fees
    Purchase fee
    (one-time fee)    		 0.50% for each contribution transferred
    Ongoing investment fee
    (annual)    		 0.40% of capital invested

    Costs stock funds

    For every contribution made, we charge a one-off 0.50% purchase fee.

    The total running investment costs are made up of the fund management fees (expressed as ‘total running expenses’) and the fees for managing the life-cycles (‘portfolio management fees’) . The total expense ratio (i.e. both expenses combined) for the life-cycles are always 0.40% of the invested capital per year (unless your employer chose sustainable investment, see bottom of the page). That means € 40.00 per € 10,000.00 of invested capital.

    Which bonds are chosen?

    For bonds we aim for the largest possible spread as well: worldwide, across as many businesses in as many countries as possible. Our precondition is high creditability. For example, we only invest in ‘investment grade’ bonds. These are bonds from countries and businesses with a relatively high credit rating (minimum BBB-, such as the credit rating for Heineken), to make sure the risk of bankruptcy or defaulted payments is small. We distinguish the following categories:


    BND Wereld Obligatie Indexfonds-C

    • Invests in around 3,400 company and non-government bonds (40%) as well as in around 5,100 government bonds (60%), listed in 51 coutries worldwide.

    BND Euro Investment Grade Obligatie Indexfonds

    • Invests in around 800 in company and non-government bonds from 43 countries, listed in Euros.

    BND Euro Staatsobligatie Indexfonds

    • Invests in around 700 government bonds listed in Euros, issued in 14 countries from the Euro-zone.

    BND Euro Staatsobligatie Indexfonds Lang

    • Invests in around 27 long-term government bonds from 6 countries in the Euro-zone with a minimum credit rating of AA-.

    Life-cycle bonds

    On the right you can view how the bond funds for the neutral life-cycle are made up across the duration for both fixed and variable pensions. In the beginning of the life-cycle we invest on the one hand in worldwide business and bond funds, and on the other in business bonds from the Euro-zone. The mixture for both these groups is the same (of the total investments half are made in bonds for both).

    Fees

    Fees
    Purchase fee
    (one-time fee)    		 0.50% for each contribution transferred
    Ongoing investment fee
    (annual)    		 0.40% of capital invested

    Costs bond fund

    For every contribution made, we charge a one-off 0.50% purchase fee.

    The total running expenses for the standard life-cycle are always 0.40% of the invested capital per year, just like the stock funds. That means € 40.00 per € 10,000.00 of invested capital.


Savings fund

As an ‘opt out’ service, Brand New Day offers the BND Savings fund. The capital in this fund is placed with the savings fund of a bank governed by a regulatory authority within the European Union, with a long term S&P credit rating of at least A. At this moment this is ABN AMRO bank. The total expense ratio of this fund is 0.01% and the portfolio management charges are 0.14% of the invested capital per year.


The total life-cycle

The total neutral life-cycle with all of the funds for a fixed and a variable pension looks as follows:

The graph above shows the distribution for the neutral profile. Click here for all life-cycle tables.

 

Duurzaam beleggen

Sustainable investment

Sustainable investment is only available if your employer opted to include it. The available investment options can be reviewed on your personal pension page, MyBND. The sustainable life-cycle is made up of 3 bond funds: investment grade government bond funds from the Euro-zone (BND Euro BND Euro Government Bond Index fund), long term Euro-zone government bond funds with a minimum rating of AA- (BND Euro Government Bond Index fund Long) and other non-government bonds issued in Euros (BND Euro Investment Grade Bond Index fund). The stock allocation is made up of the BND Sustainable World Index Fund C. This fund invests its capital one-to-one in Vanguard SRI FTSE Developed World II CCF. These funds only invest in shares and bonds that meet specific criteria regarding collective responsibility. These are based on principles determined by the United Nations regarding human rights, labour, environment and corruptions (UN Global Compact Rules). Click here for more information.

Read more about the options available

Options with Brand New Day

Your employer decides – usually in agreement with employee representatives – which investment options you receive for building up your pension. You can find an outline of these options below. Within the first three options your employer can decide to choose a sustainable variant. With all of the available options you can choose a fixed or a variable pension.

The investment profiles

Support when choosing a risk profile

As standard, i.e. when you set up your pension account, you’re investing according to the neutral fixed life-cycle. If your employer decides to provide you and your coworkers with total freedom of investment, you get to decide how offensive or defensive you wish to invest. Of course, we’ll help you make this decision. On your personal pension page, MyBND, you can fill out the profile questionnaire. The result of this questionnaire is a recommendation: defensive, neutral or offensive. Do you prefer to do it differently? You can opt for a different risk profile, or create your own life-cycle by putting together your own mixture of shares and bonds. The risk will be gradually reduced automatically as the retirement date approaches. Consequently, it’s impossible to invest entirely in shares shortly before the retirement date - not even if you wish to choose a variable pension.

Read more about continued investment

As of 2016 Wet verbeterde premieregeling (Improved defined contribution scheme Act) has become effective. What does this mean for you? Because of this act you are allowed to keep investing (part of) your accrued pension capital - after your retirement date. Which is a great development. Find out why below.

Life-long guaranteed pension payments

During the period of your employment, you are building up pension with Brand New Day, through your employer. Your employer makes monthly contributions to your personal pension account. Brand New Day invests these contributions for you. On the next page you can find out more about how we invest.

Are you about to retire? In that case you had a single option up until September 2016. You had to swap your pension capital for life-long guaranteed pension benefits. As standard, this is a fixed pension. The amount of the payments remain the same for the rest of your life. The amount of your retirement income mainly depends on two aspects:

  • The accrued pension capital on the retirement date.
  • The interest rate at that particular moment.

The lower the interest rate, the lower your monthly pension income. And vice versa. At this moment, the interest rates are historically low. This in turn leads to a relatively small pension.

Variable pension payments

Because of the Improved pension scheme Act, you get to keep investing (part of) your accrued pension capital when you reach the retirement date. You don’t fix the applying interest rate for all of your capital, but you continue to invest with the part of the capital that hasn’t been paid out. This is what’s known as a variable pension. Each year part of your pension capital will be used for the pension payments that year. The amount of your pension payments is determined annually. Your remaining pension capital (including investment results), the applicable interest rates and life-expectancy are taken into account.

As a result, the amount of your pension payments is a lot less dependent on the market rates of a single moment. As a consequence, continued investment provides you with a chance for a higher pension, but also puts you at risk for a lower one.

How does continued investment work?

The closer you get to your retirement date, the fewer risks you wish to take. That is why we reduce the market risk. We gradually swap high-risk investments (shares) for investments with a lower risk. In the investment community we call this life-cycle investment.

If you opt for continued investment, risk-reduction is applied differently. The risk is reduced later and less quickly. Depending on your investment profile, reduction of the amount of shares starts 14, 12 or 10 years prior to your retirement date, eventually reaching amounts of 30, 40 and 50% respectively, one year before the retirement date.

The graph above shows the distribution for the neutral profile. Click here for all life-cycle tables.

When do you decide on continued investment?

You decide whether or not to keep investing before starting the gradual reduction of risk in the normal life-cycle. Depending on the chosen life-cycle, this is 22, 20 or 18 before the retirement date. That way, we can optimize your investments and match them to your future pension. Of course, you can decide or reconsider later. We will then rebalance the mixture of shares and bonds at the moment of this decision.

We’ll inform you well in advance, when you approach the beginning of the gradual reduction. And of course, we’re happy to help you make your decision… On your personal pension page, MyBND, you can fill out the Continued investment guide. This guide will reveal whether or not continued investment suits you.

Continued investment might be a good fit if you…

  • Would like to have a chance of higher pension benefits;
  • Understand your pension benefits will turn out lower if investment results fall short of expectations;
  • Don’t want to end up with a permanently lower pension because of a low interest rate;
  • Have experience and knowledge regarding investment;
  • Don’t get nervous if you receive different payments each year;
  • Can still meet financial demands if your pension income changes annually;
  • Are not entirely dependent on your pension benefits.

Continued investment might not be such a good fit if you…

  • Don’t like to invest;
  • Like to be certain of the amount of your pension payments;
  • Prefer security over the chance of higher pension payments;
  • Have no other source of income in addition to these benefits and your old age pension;
  • Are at risk of financial trouble in case of lower variable pension benefits, for example because you can no longer pay regular expenses;
  • You don’t like the uncertainty of potentially lower pension benefits.