Providers of auto-enrolment occupational pensions are split on whether default investment strategies need to be reviewed following the reforms that would allow savers to access all of their pension funds after age 55.
Nest said that “others in the industry” would inevitably review their positions following the changes, but Standard Life and Legal and General have told FTAdviser they believe there is no need to review default funds.
Ian Naismith, head of pensions market development at Scottish Widows, said the firm will be reviewing the default fund.
Mr Naismith said providers in the auto-enrolment market have “no choice” but to provide savers a default investment fund and that this scheme has to provide an investment strategy that requires no changes to be made by members.
He said: “We will be looking at what changes we can make. It becomes a lot more complicated as it depends on what a person wants to do.
“How quickly we will change things, we don’t know. We need to think about what will make it more appropriate - we will have to be reviewing it.
“Under auto-enrolment, a scheme has to exist where changes aren’t needed. It was more straightforward when people had to buy an annuity. We now need to think things through.”
Tim Jones, chief executive at the National Employment Savings Trust, described the changes announced in the Budget as “significant”, adding “we want to give them the careful consideration they deserve, along with others in the industry”.
He added: “We want our members to be able to access their retirement pots in ways that help them meet their aspirations and provide the flexibility they need in later life.
“Changes to the ways in which consumers want to access their pension savings, and what they are allowed to do with them, are likely to influence how we manage their risks and invest their money. It will also affect what help and guidance we provide to members about the choices they need to make.
“For the Nest Retirement Date Funds, our Foundation and Growth phases are likely to remain unchanged by the recent announcements. However, we will be reviewing our approaches in the Consolidation phase to ensure how we manage members’ money in that phase best matches a member’s planned method of taking retirement benefits.
“As we develop our thinking, we plan to consult widely to ensure that we bring the best ideas to bear on delivering appropriate solutions to our members.”
Standard Life said it is in a different position to other pension providers as it has a range of default funds and not just one.
Jamie Jenkins, head of workplace strategy at Standard Life, said he believes the Budget changes will affect firms differentl and that this “widens that need for guidance”, referencing the government pledge to ensure savers received “face-to-face advice” on their retirement choices.
He told FTAdviser that many default funds will need to be “reconsidered as they are geared towards people buying an annuity with three quarters of their fund”.
He said: “Some will still buy an annuity others won’t. The challenge is what do you change it too? You can’t say people won’t de-risk in gearing towards protecting annuity levels. Now you can’t just strip all that out and keep people invested as you haven’t moved people’s desire for volatility.
“I think it will be foolhardy to rush into an another solution as there are such as wide range of choices. There’s not just one default... [and] people still have a concern about reducing risks.”
“It widens that need for guidance and to be engaged. We call people about 10 years prior to retirement we are about to enter the de-risking process and do you still want to take retirement in 10 years and do you still want to take an income in 10 years? Those questions are still relevant.”
A spokesperson for Legal & General says the provider is not reviewing its default fund.
He said: “Our default is a global multi-asset and active fund. It is low volatility but good growth prospects. We think the most important thing is people should invest in a a fund with low charges to generate the best income for the value of their pension.”
