With HorizonBeleggen, DynamischBeleggen and ProfielBeleggen, we invest according to a lifecycle.
Lifecycle investing
A lifecycle is a particular mix of different types of investment funds, such as equity funds and bond funds. We ensure that the investment risk of your asset mix is reduced as you approach your retirement date. This means that we change the mix of funds in order to reduce your investment risk.
First of all, this investment risk obviously concerns sharp price fluctuations in the (mainly) equity funds that we use in the lifecycle. The closer you get to retirement, the less you want to invest in these funds. Another risk is interest-rate risk. This becomes increasingly important as your retirement date approaches. This is because your pension capital has to be converted into a lifelong pension income. You do this by using your pension capital to purchase a pension income. For example a Zwitserleven Fixed Pension or a Zwitserleven Variable Pension.
The pension rate is used to set the cost of purchasing a purchase price for a Zwitserleven Vast Pensioen and the fixed portion of the Zwitserleven Variabel Pensioen. According to this rate, every € 1,000 of pension capital purchases a certain monthly pension income. For example, on one day it might be € 10 a month for life, but a few months later it might have changed to € 11. The pension rate is affected mainly by capital market interest rates. If capital market interest rates rise, the pension income you can purchase with € 1,000 of capital will also rise. If interest rates fall, the pension income per € 1,000 capital will be lower. The rate at which you purchase your pension income changes in line with the interest rate. If the capital market interest rate rises sharply just before your retirement date, the pension rate will fall sharply. If the interest rate falls, the rate rises: you then receive less pension per € 1,000. Interest-rate movements can significantly affect the amount of your pension benefit. We call this interest-rate risk.
We protect your retirement income from interest-rate risk by investing in funds that invest in long-term bonds. Long-term bonds are also very sensitive to changes in capital market interest rates. They increase in value when interest rates fall and decrease in value when interest rates rise. The value of the bonds moves in line with the rise or fall of the pension rate. Investing in bonds makes your pension income more stable. We give two examples explaining how interest-rate risk works. These examples do not relate to the overall situation or other risks.
Example 1 Capital market interest rates fall
A fall in interest rates is favourable for long-term bonds, which increase in value. As you get closer to your retirement date, we increase your investments in long-term bonds. The more bonds you hold with your pension capital, the more your capital will increase. Meanwhile, the rate for purchasing a pension rises due to the increase in capital market interest rates. Pension becomes more expensive with lower interest rates, so for every €1,000 of capital, you get a lower pension income. The closer you are to your retirement date, the more the increase in your capital and the increase in the pension rate will cancel each other out. So your monthly pension income is more stable.
Example 2 Capital market interest rates rise
An increase in interest rates is unfavourable for long-term bonds, which decline in value. As you get closer to your retirement date, we increase your investments in long-term bonds. The more bonds you hold with your pension capital, the more your capital will decline. Meanwhile, the rate for purchasing a pension also falls due to the increase in capital market interest rates. Pension becomes cheaper with higher interest rates, so you get a higher pension income for every € 1,000 of capital. The closer you are to your retirement date, the more the decline in your capital and the decline in the pension rate will cancel each other out. Also in this case, your monthly pension income will be more stable.
Major changes in interest rates
Every now and then, there are major changes in capital market interest rates. Interest-rate hikes or cuts by the European Central Bank or other central banks around the world are then in the news. These sudden short-term changes can cause your capital to suddenly rise or fall just before your retirement date. With interest matching, you will not be affected, or will be less affected, just before your retirement date.
Disclaimer
We cannot prevent your pension income from falling. But we can reduce the risk of this as far as possible with the investments in our lifecycle. Such as interest-rate risk.