Since the government pension reforms in April, many pension providers have been reviewing their default funds. They have looked at whether their products will continue to meet the needs of their investors, and whether they are providing what people are looking for in the new environment.
In particular, plans have looked carefully at their defaults’ composition to ensure that they meet the new challenges such as changes in income, reduced volatility because of less variable returns from investments such as stocks, the ability to switch into other instruments at a reasonable cost and also the changing retirement demographic.
All these elements are being considered to allow for the investment strategy of a plan, or ‘glide path’, to potentially change.
To ensure their products are fit for purpose, many providers have been reviewing their default allocations. Up until now, very little has changed because many plans are still reviewing their options. However, given time, the Defined Contribution Investment Forum (DCIF) expects that these new strategies should become more widely used.
While the overall defaults will continue to remain fairly static, we expect that with the new pension freedoms, more options will be offered to scheme members. This will ensure that pension plans are able to meet the challenges of members wanting to drawdown cash to fund other requirements or to purchase annuities, and also the ongoing management of post-retirement in drawdown requirements.
Rob Barrett is vice chair of the Defined Contribution Investment Forum (DCIF)