Aviva’s pension plans offer you a wide variety of funds in which to invest your money. You’ll want to choose a fund or funds that reflect your attitude to risk and return. Here we help you identify the level of risk/return you’re comfortable with and find out which funds might be suitable for you.
Understanding your risk/return profile
Risk is one of the most important factors when it comes to investing your money for the future. The key is to find the right balance between the amount of risk you’re willing to take and the potential return you’re likely to get over your investment period.
If you have a long time before you retire, you might be prepared to take a bigger risk, but as you get closer to retirement you probably want to limit the amount of risk you take. With the help of your financial adviser, careful investment planning can help you to manage your risk/return effectively.
So what is meant by risk? All funds carry the risk that their value could drop below the original value you invest at. This risk can be measured by the ‘volatility’ of the fund, or the amount of ‘ups and downs’ in its value. Typically, the more the value of an investment fund fluctuates, the higher the potential may be for gains or losses – often referred to as its risk/return.
The risk/return ratings
We give each of our funds a risk/return rating, ranging from 1 (low) to 5 (high). Funds with a risk/return rating of 1 have a low risk of losing money but your money may not grow very much and may not even keep up with inflation. Funds with a risk/return rating of 5 have a higher risk of losing money but the potential for your money to grow is higher too.
You can spread the risk by investing in a range of funds with different risk/return ratings – this is called having a diversified portfolio. This means you’re less affected if one of them starts to perform badly than you would be if you invested in just one fund. But, if you don’t feel confident enough to choose a range of funds yourself, you can opt for one of our mixed investment funds, which invest in a range of assets to provide you with diversification from one fund.
Bear in mind that all investments can go down in value as well as up and the amount of investment return you get isn’t guaranteed. The value of your fund may be less than the amount paid in.
Here we list the types of funds in the different risk/return categories, along with an outline of the personal attitude to risk/return they are most suited to.
Type of fund: Funds which usually aim to provide returns similar to those available from deposit and savings accounts, although there is still a risk that the value of your investment could fall.
Type of investor
Where you are only prepared to take a small risk with your capital; although you should realise that the returns may not safeguard your pension fund against the effects of inflation. Risk is an unavoidable part of investing. Even the cautious investor saving in a bank or building society account is exposed to the risk that the interest they receive may not be enough to match the increase in the cost of living. However, with a bank or building society account, you know that your capital is secure, and any interest, once earned, is guaranteed.
Medium to low risk/return
Type of fund: Expected to provide better long-term returns than savings accounts. This may result in periods when capital values fall. Typically invest in high quality corporate bonds or provide a form of guarantee or capital protection, although there is still a risk that the value of your investment could fall.
Type of investor
Where your aim is to achieve greater returns over the longer term than interest paying accounts, you should be prepared to see small day–to–day fluctuations in the value of your fund and that its value could drop below the original value you invest at. You should consider funds that smooth the returns from a diversified mix of assets, but which aim to follow a relatively cautious approach to risk. Alternatively, you could consider a fund that invests in a range of fixed interest securities.
Type of fund: Typically do not offer guarantees but have potential for better long-term returns than lower risk funds, but there is a greater risk that the value of your investment could fall. Generally invest in a diversified mix of assets or in fixed income bonds issued by higher risk companies.
Type of investor
Where your aim is to achieve better returns over the longer term than are available on more cautious investments, you should be prepared to accept some day–to–day fluctuations in the value of your fund and that its value could drop below the original value you invest at. You should consider funds that invest in a diversified mix of assets, including company shares and property or funds that invest in assets such as commercial property or high yielding bonds.
Medium to high risk/return
Type of fund: Funds that invest typically in shares of companies in the UK or other major stockmarkets. Fund prices may fluctuate significantly but offer the potential for good returns over the long term.
Type of investor
Where your aim is to achieve better returns over the longer term than are available on less speculative investments, you should be prepared to accept wide day–to-day fluctuations in the value of your fund and that its value could drop below the original value you invest at. You should consider funds that invest in a narrow mix of assets, for example, company shares mainly within the UK or European markets or a wider mix of international companies’ shares.
Type of fund: Funds that invest in the higher risk sectors, typically emerging markets or specific themes, offering the greatest potential for long-term returns but the highest price fluctuations and risk to capital.
Type of investor
Where your aim is to maximise returns over the longer term, you should be prepared to accept significant day–to-day fluctuations in the value of your fund and that its value could drop below the original value you invest at. You should consider funds that invest in a narrow mix of assets, for example, company shares within specific geographical markets or industrial sectors.
Please note: We review the risk ratings we give to the funds regularly and they may change from time to time. Please always refer to the latest version of the fund’s factsheets, for the current risk ratings of our funds.
Your choice of Stakeholder Pension funds
See a full list of the funds you can invest in with an Aviva Stakeholder Pension.
What's the next step?
The first step is to talk it through with a financial adviser to make sure it's the right pension plan for you. If you don't have an adviser, you can find one in your area at unbiased.co.uk.
If you and your adviser agree that an Aviva Stakeholder Pension is right for you, your adviser will provide you with all the information you'll need to apply. This will include:
- A key features document, which explains the aims and risks of the plan and answers some frequently asked questions.
- A personal illustration, which gives you an estimate of what your investment in the pension plan may be worth at your chosen retirement age.
- An application form, which should take just a few minutes to complete.