PensionsMar 29 2016

Standard Life asks FCA and DWP to look into default funds

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Standard Life asks FCA and DWP to look into default funds

Standard Life is working with the Financial Conduct Authority and the Department for Work and Pensions over concerns its default funds remain targeted at annuity purchase.

The talks were revealed in the firm’s inaugural Independent Governance Committee report, published earlier today (29 March).

In February 2015, the FCA confirmed ensuring legacy pensions are good value for money would fall under the remit of independent governance committees, which became a mandatory requirement for all pension schemes from pension freedom day last 6 April.

The IGC’s report revealed concerns the older style defined contribution scheme investment strategies either do not have a default design, or that their design remains targeted at annuity purchase, despite the introduction of the pension freedoms.

As such, the IGC has asked Standard Life to amend its default strategies.

The firm responded: “Standard Life is aware of and acknowledges the issues in relation to people still invested in lifestyle strategies targeted towards annuity purchase.

“The contacts we have in place do not allow Standard Life to take investment decisions (either redirecting future contributions or switching existing funds) on members’ behalf.

“However, we are in agreement that this action will be in the best interests of the majority of members, so we are actively engaging with both the FCA and DWP to find a solution to this problem that will allow providers to move members into more appropriate solutions and hope to be able to agree a way forward soon.”

The response added that in the meantime, the provider has started a programme of communications with relevant members to ensure they are aware of their options to initiate their own investment switches.

A DWP spokesperson said: “The pension freedoms introduced last April gave customers more options about how they fund their retirement. We’ll continue to work with pension providers to ensure savers are fully benefitting from the full range of freedoms available to them.”

The FCA declined to comment.

Justin King, chartered wealth manager and chartered financial planner at Dorset-based MFP Wealth Management, said he has been concerned by similiar DC pension strategies for some time.

“The whole thing was always flawed in the first place. Most people are in target date strategies, their money needs to be invested with growth assets, not just safe assets.

“It’s not just Standard Life, there’s numerous corporate schemes that are all de-risking people at the same time.

“People need to understand the difference between volatility and risk - they are not the same. This is the problem with this carte blanche removal of risk. The biggest risk is to de-risk.”

ruth.gillbe@ft.com