How much risk to take when investing for your pension?
A new pension system is set to be introduced in the Netherlands. When it is, we will need to make some changes to our pension scheme. So, what better time to see what our participants’ wishes and preferences are? For example: how much risk are participants willing to take when their pension capital is invested? We conducted an online survey to gain an answer to this question.
The APF Pension Fund (APF) wants to offer a pension scheme that reflects your wishes and preferences as much as possible. With this in mind, an important part of the survey was about the risks that apply when investing pension capital. Are you happy with a high level of risk or would you like to minimise the level of risk? We also asked whether you would like to have more control over investments or would prefer to leave them to the pension fund’s experts. We presented the survey - containing questions like those above - to 31,000 participants; more than 10% completed the questionnaire.
Level of risk wanted
Investment is a must for pension funds. If we did not invest, the pensions ultimately paid out to participants would be much lower. However, investing does involve taking well-considered risks. The higher the risk, the greater the chance of a bigger (but perhaps smaller) pension. The question is how much risk is acceptable to you? Our survey shows that young people in particular feel that investments could be more high-risk. However, the majority would prefer to play safe and limit the level of risk - even if they could actually afford to take a higher level of financial risk in many cases.
The most important results:
- The majority want the pension fund to invest their pension capital for them. A small percentage would prefer to make decisions about investments themselves;
- The majority want to continue to invest collectively, even after the new system is introduced;
- What will we do with the pension capital accrued on the basis of the ‘old’ rules? The majority want a pension pot of their own with all their pension capital in it;
- Our pension scheme offers all kinds of options. The majority feel it is most important to retire early or carry on working longer;
- Retirees want their pension benefit to be as stable as possible.
Findings and conclusions
The survey shows that the majority of participants do not know enough about the risks that exist when saving for a pension. For example, the longevity risk and exactly what a fixed benefit entails. The survey results reveal the need for a pension benefit that is both ‘fixed’ and as stable as possible. However, it is impossible to achieve an inflation-proof pension without deliberately opting for a certain level of risk when investing pension capital. A variable pension - that fluctuates slightly in response to investment results - would be the best option. APF will offer a variable pension in the new system. The fund is healthy and, as the last 50 years have shown, has proved its ability to effectively manage the capital invested and offer participants a stable pension. If you want to opt for a pension that is 100% fixed, you will be able to arrange this with an insurer in the future. As a fund, it’s our duty to inform you that, in the new system, the term ‘fixed’ will refer to a type of pension that decreases in value over time (and is not subject to indexation). The benefit amount you receive stays the same, but its purchasing power decreases.
The survey outcomes will help us establish a new investment policy for people in work (the accrual phase) and retirees (the benefit phase). Thank you for taking part in the survey!