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Investment: risk and reward

Investment risk

Pension fund investment risk comes from three main sources: risk that the fund will fall in value, risk that the pension fund's returns will not keep pace with inflation (real returns are negative), and risk that the pension fund does not perform well enough to keep pace with the growth in the cost of providing pension benefits.

Your tolerance for investment risk will generally depend on your type of pension arrangement and how far you are from retirement.

Members bear the investment risk in defined contribution schemes, personal pensions and PRSAs. Generally, employers bear the risk in funded defined benefit schemes, although if the employer cannot fund the scheme, the investment risk ultimately falls back on the member.

It is, therefore, important that you know what risks you are taking within your pension fund and keep these under review.

Use the Investment risk profiler to assess your investment risk tolerance.