Trustees of the Invensys Pension Scheme have changed the defined contribution default fund to target cash rather than annuities, according to its latest annual report.
The trustees' decision to swap the default fund to cash was based on a review of how members utilise their DC savings.
The changes were implemented throughout 2018.
The now default fund option is made up entirely of cash, which is suitable for individuals who want to use it as part or all of their tax free cash sum at retirement, the scheme stated.
The annuity based fund, which was in place before the changes, is made up of guilts and cash, which is more suitable for individuals who want to take 25 per cent of the fund as cash and use the remaining 75 per cent to buy an annuity.
These are the two standard options that are made available, where investment is gradually moved from higher risk investments (equities) to lower risk investments (gilts and cash) as people approach their target retirement date.
This is known as ‘lifestyling’ and means that individuals do not have to actively manage the investment of funds.
Following the pension freedom reforms of 2015 many more people opted to draw down their pension funds than buy an annuity.
Andrew Pennie, head of pathways at Intelligent Pensions, said: "No default option will ever be right for every member. Cashing out a pension remains the most frequently used of the new pension freedoms so one can argue the logic for selecting cash as the default.
"I struggle to see why a scheme would continue to take investment risk for a member who hasn’t engaged so a de-risking strategy to cash or annuity feels like a less risky option from a scheme perspective.
"What’s more, cash and annuity glide paths do actually work for those cashing-out or buying an annuity provided the selected retirement date is accurate but glide paths targeting continued pension investment are flawed and dangerous as the range of individual needs are so diverse."
The DC section of the Invensys Pension Scheme was introduced in April 2007 but closed to new contributions when the defined benefit section closed in March 2015.
The board of the scheme also decided to consolidate the plan’s DC and additional voluntary contributions offering.
Mr Pennie added: "Everybody’s retirement will be different and more personalisation is needed to help retirees secure better retirement outcomes.
"Schemes are tasked to provide a default which best matches their member base but this isn’t really going far enough and will undoubtedly result in some very poor outcomes.
"Invensys, and other DC schemes, need to find a better way of helping members engage and identify the best option to meet their needs, objectives and personal circumstances, and it’s hard to see how that can be done without the intervention of better guidance and advice."
amy.austin@ft.com
