Still, when setting up or evaluating a group insurance plan, the main focus is often on the contribution being paid in. However, at least as important is how these pension reserves are managed and invested.
That very choice can have a significant impact on the final pension capital of your employees in the long run.
Not every group insurance plan is managed in the same way
Traditionally, group insurance policies were mainly structured using Class 21 solutions, in which a guaranteed return is central.
Today, more and more employers are choosing to invest (part of) the pension reserves through Class 23 funds. In these, returns are linked to the performance of the financial markets. This approach comes with more fluctuations, but also often offers a greater potential for growth in the longer term. The difference can be considerable. With identical employer contributions, different investment strategies can result in vastly different pension outcomes.
The age composition of your staff plays an important role
Not every employee is in the same stage of their career. Younger employees generally have a longer investment horizon. As a result, temporary market fluctuations can be absorbed more easily, so a more dynamic investment approach is often justifiable. For employees nearing retirement, the situationis different. They have less time to recover from potential stock market downturns, making a more cautious risk profile often more appropriate. This makes itimportant, when structuring a group insurance plan, not only to look at returns but also at the composition of your workforce.
What is a lifecycle strategy
To take these differences into account, more and more employers are opting for a so-called lifecycle strategy. With this approach, the investment profile is automatically adjusted as the employee’s retirement age approaches. Younger employees initially build up their pension reserves more through growth-oriented investments. As they get closer to retirement, the risk is gradually reduced and a larger proportion of the reserves is shifted into more stable investments. The aim is to combine the long-term growth potential with better protection of the accrued reserves right before retirement.
More than just a pension plan
A group insurance plan today is much more than a legal requirement or a fringe benefit. It is an important part of your HR policy and can help attract, motivate, and retain employees. That’s why it pays to regularly consider whether your current group insurance structure still matches both your company’s objectives and the profile of your employees.
Is your group insurance still aligned with your organization? Many group insurance plans continue unchanged for years, even though both the financial markets and the makeup of the workforce evolve.
A periodic review can help determine whether the chosen investment strategy still matches your expectations and your employees’ pension build-up.
After all, it is not only how much you invest in supplementary pensions, but also how those reserves are managed, that helps determine tomorrow’s pension outcome.
