Pension portfolios – what is my pension invested in?

Each time both you and your employer contribute to your pension, this is generally invested in a wide variety of assets with the aim of helping your pension pot grow and boosting your retirement savings. But have you ever wondered what exactly these investments are? 

There are a lot of ways that pension funds can be invested. Below is an example  of the most common: 

Equities (stocks and shares)  

An equity (or share) is a small stake in a company. If you hold shares in a company, you can be paid dividends (a share in the company’s profits). You can also make a profit by selling your shares for a higher price than you paid for them – or lose money by selling at a lower price. Investing in equities is generally ‘riskier’ than other types of investments, but the potential reward is greater. The reason being that share prices, both generally and for a single company, can change by a large amount (up or down) in a very short space of time.  

Bonds and gilts 

If companies or governments wish to raise money, they can borrow it from investors for a specific amount of time in return for a set rate of interest. Issuing bonds is a way companies raise money. A bond is effectively an ‘IOU’ from a company or government. UK government bonds are known as ‘gilts’. In return for the cash, borrowers usually make regular interest payments before repaying the initial amount borrowed at the end of the agreed term. Investing in bonds can generally be less volatile  than other types of investment, such as shares, although the potential rewards are lower. 

Cash 

A ‘Cash Fund’ deposits money with banks and similar organisations who repay the deposit, plus interest, after a set period of time. Cash is invested in many carefully selected financial institutions at the same time, in several different countries. This helps to reduce risk, with the aim of making investment in a cash fund less risky than depositing with a single financial institution. Investing in cash and cash-like assets is generally less risky than other types of investments, such as shares and bonds, but the potential rewards are lower, however this is not guaranteed. 

Property 

Property investments aim to generate a return from a range of freehold and leasehold interests in commercial and industrial property. Commercial property is property that is leased to businesses in return for rental payments. There are many different types of commercial property, such as offices, shopping shopping centres and industrial units. The investment manager uses their expertise to buy and sell properties with the aim of growing and protecting the value of the invested funds. 

Diversifying your portfolio to spread the risk 

Typically, a default fund (one you are auto-enrolled into by your employer) will invest in a wide range of options, rather than invest solely in any one option. This is to help smooth out, or ‘diversify,’ your investment by spreading the exposure to different risks and it means that if any one area performs badly, the impact to your pension will be minimised. 

At TPT, the default target date fund you are automatically invested in is also determined by the age you plan to retire. Each target date fund invests in a range of assets that the fund managers believe will provide you with good returns. These must also meet our responsible investment criteria and align with our climate action plan and decarbonisation targets. 

With our target date funds, the nature of your investments changes automatically based on where you are in your pension savings journey. In the earlier stages of your career, your money is invested in higher risk assets, to give it the potential to grow. As you get nearer to your target retirement age, your money is moved into more cautious assets that are less likely to fluctuate. These changes are made in order to protect the value of your pension pot from any sudden falls in the stock market in the run up to your retirement. 

Take control of your investments 

If you want to take a more active role in managing your pension investments, TPT offer a range of self-select funds that allow you greater freedom in how exactly your pension contributions are invested. 

With these self-select funds, you can tailor your pension to more heavily invest in cash, gilts, property and more. There are funds that focus on global investments, or UK-specific ones, as well as a range of Environmental, Social and Governance (ESG) options. Plus, you can choose how much of your pension to invest in each fund, meaning you can diversify your portfolio even more, or double-down on specifics areas to invest. 

To find out more about our self-select funds for DC members here.