BMI Healthcare decides on new default investment strategy

BMI Healthcare operates 65 private hospitals across England, Scotland and Wales. Most of its employees are female, with typical hospital roles being nurses and healthcare assistants. Average salary is £21,000. Some 95% of current pension scheme members are invested in the default fund.

BMI Healthcare has long operated a Friends Life defined contribution scheme for its 9,500-strong workforce, but the advent of auto-enrolment and the prospect of increased membership prompted the trustees to review its investment strategy in relation to the default fund.

Anne Woolcott, head of employee relations and HR compliance at BMI Healthcare, is mindful that the Department for Work and Pensions (DWP) guidance highlights the employer’s responsibility to consciously look at the default fund in the scheme. With the potential for 4,500 new members as a result of auto-enrolment, they were aware that the membership could suddenly grow significantly.

The trustees’ discussions resulted in moving away from traditional lifestyling starting at five years before retirement to Friends Life’s My Future investment programme. As well as aiming to provide a better return for members, My Future also aims to control the amount of risk to which members are exposed, recognising that big fluctuations can be harmful to pension funds.

This strategy has three stages, with different investments in each: a growth phase using a multi-asset fund for the early and middle years of the typical career; a consolidation phase, when, like lifestyling, any gains start to be locked in; and a pre-retirement phase, when the assets are moved over to bonds and cash to protect them from risk.

The key differences from the old arrangement are that the growth phase is based on a fund invested in a wider range of assets and is managed to a volatility target, so should protect against downside risk, and the introduction of a consolidation phase will start to lock in assets before the start of BMI’s traditional lifestyle option.

In addition, Friends Life’s investment managers have the flexibility to adapt to market conditions to ensure the My Future programme remains suitable for members.

“We needed to ensure the investments were right for our employee population,” says Woolcott. “What we have moved to is probably a better match because it encourages growth but has protection by holding different asset classes in the default fund.”