There are four asset classes that pensions will usually invest into and the reasons why they are used:

• Cash

– Readily realisable for a payment such as PCLS

– Avoids the effects of reverse pound cost averaging

• Fixed interest

– One of the most secure investments as they are debt backed by companies or the government

– Can be linked to inflation to provider inflation protection

– Can link to term to retirement

– Provide guaranteed income streams

• Equities

– Over a long term, they provide an opportunity to outperform cash or fixed interest

– Good for long term horizon investing

– Used to cover mortality drag

• Property

– Good diversifier against other investment types

– Over a long term has the potential to produce positive real rate of return