You will have probably seen in the press many articles regarding the pensions industry and the impact of current market volatility on government gilts.

This note is issued on behalf of the Trustee of the Babcock International Group Pension Scheme and is intended for members who are in the Babcock Retirements Savings Scheme - the Defined Contribution (DC) section (BRSS).

The benefits in the DC section are based on how much you and your employer contribute to the Scheme and then the performance of your chosen investments during your membership of the Scheme. If you haven’t made an investment choice, the Trustee will have invested contributions in the default investment fund which is called the Target Lump Sum Lifestyle Fund.

You can find more information in the Investments section and individual fund fact sheets in the Document library.

The Target Lump Sum Lifestyle Fund will have some exposure to bonds and gilts through the diversified growth fund (assuming you are within 20 years of retirement) but this fund also invests in other assets and, as the name suggests, it is diversified to spread risk.

There has naturally been some volatility in equity markets aligned to the wider market issues so this will have an impact on some of the equity funds but these should be viewed as long-term investments. If you are contributing to the Scheme on a regular basis then this can be an effective way of smoothing out any market volatility over periods of time. If you contribute a fixed amount of salary, you will purchase more units when the unit price is low and, as markets improve, the value of your fund will improve. This does of course also work the other way.

The two funds that are mainly invested in bonds and gilts, are more subject to this recent volatility are the Target Increasing Annuity Fund and the Target Level Annuity Fund. These funds should mainly be used by people who are targeting the purchase of an annuity from an insurance company at retirement.

The Target Flexibility Lifestyle Fund also has some exposure to the Target Level Annuity Fund in the final five years before a member reaches their Target Retirement Age.

Whilst the value of these funds has gone down in recent months, the price of annuities has also fallen, and that's why these funds are used because they follow movements in annuity pricing although they will not be an exact match.

What you will have seen in the press regarding pensions in general mainly relates to defined benefit (DB) pension schemes. Some of these DB schemes purchase government gilts as they provide natural protection against inflation and interest rate changes.

However, the sudden changes in yields on these gilts has meant that many DB pension schemes are having to place additional collateral to ensure this protection stays in place. In some cases this has led to pension schemes having to sell other assets to place collateral. The DC section does not work in this way and is entirely separate to the DB section.

In summary, we are closely monitoring investment performance and taking professional advice on the continuing suitability of the BRSS’ investments for the long-term. Further communications will follow if required. You are free to switch your investments at any time by logging onto your Personal Account or you can get in touch with Aviva.

Finally, Aviva has produced this short video explaining the current situation, which you may find helpful.