Lifecycle and Lifecycle Plus

From 6 May 2012, you will have access to two new long-term investment strategies - Lifecycle and Lifecycle Plus.

 

How it works

Lifecycle and Lifecycle Plus invest your Retirement Account according to the length of time until your Target Retirement Age (TRA). Your Retirement Account will switch to be invested in line with the pre-set strategy, as follows:

  • When you are further away from your TRA, your Retirement Account is invested in funds with the potential for long-term growth.
  • As you approach your TRA, your Retirement Account is invested in lower risk, lower growth funds with the aim of protecting the value of your Retirement Account. 

You can find out more about Lifecycle and Lifecycle Plus by clicking on the links opposite.

The graphs below show the switching process of a Retirement Account over the period to TRA under Lifecycle and Lifecycle Plus. You can see the individual funds used and the proportion of the Retirement Account invested in each fund as TRA approaches. 

 

As you can see, when you are more than 25 years away from your TRA, your Retirement Account will be invested entirely in equities (the All World Equity Index Fund) . Between 25 and 5 years, your Retirement Account will be invested in Growth Plus or Growth funds (as detailed below). Over the 5 years leading up to your TRA, your Retirement Account will be switched into bonds (the Pre-Retirement Bond) and The Money Fund.

At TRA, members normally use 25% of their Retirement Account to provide a tax-free cash sum and the remaining 75% to purchase an annuity. These investment strategies have been set up with this in mind, so at TRA, 25% of your Retirement Account is invested as cash instruments and the remainder in bonds.

 

The difference between Lifecycle and Lifecycle Plus

The two new investment strategies have been created so that you have the choice of the level of risk your Retirement Account is exposed to. The current Lifestyle strategies do not offer this choice. 

As you can see from the graphs, Lifecycle is invested in both the Growth Plus and the Growth funds between 25 and 5 years from your TRA, but Lifecycle Plus only invests in the Growth Plus fund.

The Growth Plus and Growth funds both aim to provide returns that outperform inflation by target amounts set by the Trustee. They invest in a wide range of assets, such as global equities, real estate securities, government bonds (including emerging markets) and company bonds, with the aim of providing you with higher returns than a bond fund, while providing less volatility than investing in an equity fund. Both funds invest in broadly the same wide range of underlying assets but the Growth fund is mostly invested in bonds and the Growth Plus fund is mostly invested in equities, as shown in the graphic on the right.

This means that with Lifecycle Plus, your Retirement Account stays invested in higher risk funds for longer than with Lifecycle, so it is considered to be a higher risk investment strategy than Lifecycle. 

With both Lifecycle and Lifecycle Plus, the move from higher to lower volatilty funds is more gradual than in the current Lifestyle strategies. This aims to balance the opportunity for growth of your Retirement Account with gradually increased protection from the volatility as you approach your TRA. 

 

Who Lifecycle and Lifecycle Plus might be suitable for

Lifecycle and Lifecycle Plus have been designed specifically for members of the M Plan and those with Defined Benefit additional contributions. 

Lifecycle is primarily designed for members who have only defined contribution retirement savings and would prefer to run their Retirement Account and/or additional contributions with lower levels of capital risk in the years approaching retirement.

Lifecycle Plus is primarily designed for members who feel they can 'afford' higher levels of capital risk in the last 15 years before they retire. This could be members who have a significant level of retirement income in the form of a defined benefit pension or anyone who has other investments which are likely to provide them with an income or financial cushion in retirement.  


Whether you choose Lifecycle, Lifecycle Plus or Freestyle, you are responsible for your investment choices and should keep checking that your choices are appropriate for your circumstances.

 

Find out more about Lifecycle, Lifecycle Plus and Freestyle using the links on the right. 

If you are still invested in the Lifestyle strategies, click here to find detailed information on these options.