Scottish Widows is to bulk switch its workplace pension customers into what it described as a “pension freedoms-friendly default fund” by the fourth quarter this year.
Yesterday (25 April) the group said it will be shortly writing to advisers of schemes in which the default fund is invested in lifestyle investment strategies geared towards turning savings into an annuity which provides a regular income between the ages of 60 and 65.
According to Scottish Widows, this will alert them to correspondence with employers and scheme members to give three months’ notice of the move to a fund which is targeted at flexible access in retirement.
Pension funds are typically invested in riskier, higher growth assets when the saver is young, but progressively moved to less risky investments such as cash or fixed interest under the lifestyle approach.
However, in the new pensions environment, Scottish Widows found around 25 per cent of customers are opting to take an annuity, making this investment approach unsuitable for the majority.
Those customers who plan to follow an alternative retirement journey, such as full encashment or purchasing an annuity, can opt out and will be assigned the investment approach appropriate to them.
Additionally, those who are within five years of retirement will remain in their current default fund unless they opt to switch.
Ronnie Taylor, pensions director at Scottish Widows, said: “For customers to make the most of the new freedoms, they really need to think about the way they want to use their pension fund in later life at least five years before their retirement date and ensure they pick an investment glide path to accommodate it.
“But despite our best efforts to draw attention to the issue, many customers remain disengaged and, where this is the case, we believe it’s important and in their best interests to take action on their behalf.”
Scottish Widows created a series of lifestyle investment options - what it termed pensions investment approaches - for customers approaching retirement, which were launched in April 2015 to coincide with the introduction of the pension freedoms.
As a result, customers can select glidepaths which reflect how they intend to use their pension pot in retirement - whether it is taking a fixed income, encashing or going into drawdown or remaining invested.
Mr Taylor added: “We have been studying customer behaviour since the introduction of the freedoms and when it became clear that the majority of customers planned to remain invested or to use drawdown, we decided to change our default option accordingly.”
Daren O’Brien, director at London-based Aurora Financial Solutions, said: “This is a positive move from a large group pension provider and will be good news for the type of clients we look after giving them more choice.
“A lot of our clients at retirement, have moved away from traditional annuities and are now taking their benefits using the new freedoms available and lifestyling doesn’t always fit their investment objectives.”