How do retirement products actually work?
Retirement products wrap around investments that grow over time. Understanding the underlying asset classes helps you understand what you’re actually invested in.
Pension funds, provident funds and retirement annuities all wrap around investments, usually held through unit trusts — your money is pooled with other investors, and the fund uses that pool to buy underlying assets such as equities, bonds, cash and property, depending on the unit trust’s objective.
The main asset classes
- 1Equities — shares in a company. Over the long term they tend to outpace other asset classes, though they can be volatile in the short term.
- 2Property — typically held through listed property companies, which earn their income from managing and owning property.
- 3Bonds — effectively IOUs, with a structured interest rate and a set repayment schedule.
- 4Cash — short-term loans to institutions such as banks and governments, at a modest premium over an ordinary bank account.
Moving down that list, assets get more conservative but less likely to beat inflation over time. Staying in a single asset class for an entire working life can mean missing the growth a mix would have captured — but knowing when to move between asset classes is genuinely difficult, and getting the timing wrong can cost more than standing still would have.
This article is general information and not advice. Silke Financial Services is an Authorised Financial Services Provider, FSP No. 12462.