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How do I make an Investment Choice? 
 

As explained earlier, in a defined contribution fund, such as the UCTRF, you carry the risk that the investment returns earned on your retirement saving contributions will be sufficient to provide you with a reasonable income at retirement.

Members have different needs and requirements when it comes to investments and the risks they can accommodate. Each portfolio has its own unique risk profile and you choose the portfolio that is more suitable for you and with a risk profile (need and expectation) that closely matches yours.
 
 
What are the risks I need to be aware of?
 
It is crucial that you understand what risks you are taking on and how best you can manage these risks. In this regard you are exposed to three main risks, namely:

• The risk of making contributions to the UCTRF that are too low in relation to your total remuneration; and
Inflation risk; and
Final payment risk.
 
Risk of insufficient contributions
 
This refers to the risk that the UCTRF contributions that you set aside monthly as your retirement savings are simply too low in relation to your total remuneration (CoE). These contributions are currently 20.48% of your deemed pensionable amount or 19.76% for contract staff whose current contract of employment started before 1 July 2017. Your deemed pensionable amount is between 50% and 100% of your CoE – the choice of what percentage to allocate as your deemed pensionable amount is your own.

Clearly, if you set your deemed pensionable amount at the lowest level of 50% of your CoE, this will have a material impact on your retirement savings (versus a higher allocation of perhaps 80% or 100%).

The Trustees cannot do anything to manage this risk other than to warn you of the consequences of saving too little, and to encourage you to increase your deemed pensionable amount to the maximum possible.

Inflation risk

This refers to the risk that the UCTRF contributions that you set aside monthly as your retirement savings (currently 20.48% of your deemed pensionable amount or 19.76% for contract staff whose current contract of employment started before 1 July 2017) do not earn sufficient investment returns to provide reasonable retirement benefits.

Typically, you need your investment returns to be some 5% per annum higher than inflation over the long term, to provide for reasonable retirement benefits.

As a general rule, the further you are from retirement, the more you are exposed to inflation risk.

Final payment risk

This refers to the risk that at the time when you leave the UCTRF and want to use your retirement savings, investment markets are weak, and so the value of your retirement savings is at a low point.

It is crucial that you understand that "final payment risk" mainly applies when you leave the UCTRF and want to use your retirement savings. For example, if you resign and decide to invest your retirement fund resignation benefit for your retirement, you should be less concerned about your "final payment risk".

As a general rule, the closer you are to your retirement age, the more you are exposed to "final payment risk".
 
How can I manage these risks?

Assessing your risk appetite

A key factor to consider when making your investment choice is your risk profile.

You need to understand that if you have a low appetite for risk you will probably need to contribute more for your retirement savings else you may end-up with inadequate retirement benefits. For example, if your money earns 1% per year less because you have a low "appetite" for risk, your retirement benefit (taken over your working lifetime) can be some 20% lower.