Let’s take a look at how our scheme investments work and how they’ve been impacted by recent world events …

 How the Scheme’s investments work 

Pension funds like ours rely not only on the contributions paid in by members, and their employers, but also on successfully investing this money to give strong, long-term returns. 

These investments typically generate up to three-quarters of the total pensions paid out to members and are managed extremely carefully by the Scheme’s investment manager, RPMI Railpen. 

The Scheme invests in a varied mix of assets, including shares, bonds, property and other types of investments. This diversified approach to investment (i.e. not having all your eggs in one basket) helps to reduce the impact of any short-term stock market instability on the Scheme. 

While 2020 proved to be a particularly volatile year in the financial markets, the investments of the Scheme achieved positive returns over the year as whole. And we (RPMI) were able to carry on supporting the Scheme and making payments to our members. 

The impact of Coronavirus on pensions

In the first few months of the 2020 there was a sharp fall in the value of many investments as markets responded to the financial impact of Coronavirus on businesses.

However, the value of Scheme investments had broadly recovered by the summer and values rose further towards the end of the year, as the financial markets were reassured by news of a vaccine. 

The impact of Brexit on pensions 

The UK officially left the EU on 31 January 2020. 

Due to our diversified approach to investment, any volatility in the financial markets caused by Britain’s departure should have little impact on members’ pensions.  

For British citizens living abroad who are taking a pension income, UK law still allows workplace pensions to be paid overseas, and the Government currently does not expect that to change. 

However, some UK banks have started closing accounts belonging to British people who now live in the EU. We’re encouraging members to please check with their bank to find out if this affects them and to let us know of any changes as soon as possible to make sure they can continue getting their pension. 

We will also try to keep you and our members updated on any regulatory changes, which may affect pensions now we have left the EU. 

How world events could affect pensions moving forward 

For members of a defined benefit pension (DB), or those already taking a pension from one, then the amount they get isn’t affected by the rise and fall of the stock market or share prices, which can be caused by major world events. 

Members of a defined contribution pension (DC) or anyone making additional voluntary contributions (AVCs), who have no immediate plans to retire, should have time to recover any reduction in their pot caused by fluctuations in the stock market or share prices. Although, they may decide to pay in more if they can. 

Members who are close to retirement might want their DC pension or AVC pot to be moved out of stocks and shares altogether and in to ‘less risky’ funds such as cash and bonds instead. This is known as lifestyling. 

It is typically done over the five to 10 years before they retire, to protect their pot from any major decreases which wouldn’t have time to recover. Lifestyling is done automatically in many cases, however members will need to make the change themselves if they’ve chosen to self-select funds. 

It’s important for members to review their fund choices regularly.