Financial provider Scottish Widows has evolved its workplace pension default fund to help “maximise” savings growth for employees.
A pension default fund is the option employers offer employees that join their workplace pension. It means employees do not need to actively choose an investment strategy for their money.
Scottish Widows’ new default fund is called ‘Lifetime Investment’. It is available to new employers and all customers on a self-select basis immediately.
Lifetime Investment has been developed to make the most of savings growth potential for customers, and to ultimately help them achieve their retirement goals. The new fund has a high exposure to equities in its growth phase and a shorter derisking phase than the existing default fund.
This means that a person’s pension savings are invested in higher-growth assets, which can go down as well as up, for longer to boost potential returns.
The new fund is an evolution of the provider’s existing default fund, called Pension Investment Approaches (PIA).
Savers with money invested in the current £60bn+ PIA default will also transition to the new default, ensuring that they too benefit from the enhancements.
Scottish Widows worked with asset manager Robeco to ensure the new default delivers on its responsible investing commitments. Research shows that customers increasingly want their pensions invested in a way that improves the world that they will retire into.
In response to this, the newly launched fund will tilt towards companies that have a positive impact on the UN’s Sustainable Development Goals.
Businesses will still be able to choose investment managers, such as BlackRock, State Street Global Advisors, Aberdeen and Robeco, under Scottish Widows’ open architecture approach.
Under the new default, members will have two risk options: the Growth Path, where 100 percent of savings will be invested into growth assets initially; and the Balanced Growth Path, where 85 percent of savings will be invested in growth assets, while 15 percent will be invested into more defensive assets (which can be more conservative and lower risk).
Whichever strategy businesses/savers choose, investments will start to “derisk” 12 years ahead of a customer’s selected retirement age (SRA). This is to ensure fund growth is more stable (and perhaps lower) rather than leaving the money in higher risk/higher return investments that could fall in value just before the saver retires. The existing PIA fund starts derisking at 15 years from SRA.
“The introduction of Lifetime Investment comes at a time where more and more savers are at risk of a poor standard of living in retirement or having to work longer to supplement their income,” said Graeme Bold, managing director, workplace and intermediary wealth at Scottish Widows.
“In fact, our research shows that nearly half (47 percent) of over 55s fear that they will run out of money during retirement. The new default has been developed as a direct response to these issues, as we aim to give savers the best chance of maximising the growth of their retirement pots.
“PIA has constantly evolved over the nearly two decades since launch and has performed for members over this time. We are excited to evolve this into Lifetime Investment to take account of changes, such as longer life expectancies and phasing of retirement. Whilst today’s announcement is an exciting milestone for us, there’s more to come as Lifetime Investment evolves and we continue to work towards better retirement outcomes for our customers.”
