Now: Pensions has announced changes to its lifestyle investment strategy following the new flexibility granted to pension savers announced in the 2014 Budget, and confirmed by the Treasury earlier this week.
The provider currently offers a single investment fund made up of three components: a diversified growth fund, a retirement protection fund and a cash protection fund.
Earlier this month, FTAdviser revealed that Legal and General believed that three fund options will replace the default fund for auto-enrolment schemes, as a number of providers continue reviewing their default fund strategies.
At present, most auto-enrolment schemes have a set default fund that assumes a member is going to buy an annuity at retirement.
However, the radical overhaul of the pensions system means the current system of default funds will no longer be applicable in most cases, industry experts said earlier in July.
At present, Now: Pension’s retirement protection fund is targeted at annuity purchase and the fund provides an interest rate risk exposure as a hedge, the provider said.
The cash protection fund invests in cash deposits, money market funds, short dated bonds with low credit risk, and in interest rate derivatives.
However, from this week onwards, as members approach retirement, they will be moved from the diversified growth fund into a retirement countdown fund which will follow the same investment strategy as the existing cash protection fund.
The default position to start switching a member’s investments from the diversified growth fund into the retirement countdown fund is 10 years away from their selected retirement age. As an alternative, employers or members can opt for a five or 15 year version of the lifestyle strategy.
Now: Pensions said that members who want to remain in the diversified growth fund for longer can also extend their retirement age.
Morten Nilsson, chief executive officer of Now: Pensions said: “The pensions landscape is fundamentally shifting and any investment strategy that targets annuity rates needs to be urgently addressed.
“Given the profile of our members and their expected fund sizes over the coming years, we expect the vast majority to take all of their pension pot as cash at retirement. The new lifestyle investment strategy therefore focuses on funding for cash but gives consideration to those that want to take an alternative route.
“As the market evolves we’ll continue to keep our investment strategy under review, adapting our approach to make sure our members are well served.”