The provider says it anticipates workplace schemes needing to have several, possibly three, options within the default arrangement, to accommodate those still wanting an annuity, those wanting to go into drawdown and those wanting to take the full amount as cash on retirement, if the Government’s proposed overhaul of the pensions system goes ahead.
Advisers say this will mean employees will have to make a choice in their fifties as to how they plan to draw their pension fund.
Hargreaves Lansdown says three quarters of pension default funds, with assets of £165bn, are invested in lifestyle strategies designed for people who buy an annuity. But Barclays predicts the annuity market could shrink by two thirds in just 18 months.
Scottish Life, whose Governed Range default offering allows for changes in asset allocation by its investment committee, says it is reviewing its allocation strategy as a matter of urgency.
Scottish Life investment marketing manager Lorna Blyth says: “We think people are going to have more than one default option to accommodate all the potential outcomes that will now be possible.
“If someone has clearly said they want to go and take their retirement pot as cash then you are not going to be putting them into gilts, but should probably be targeting cash. So we will have to figure out how we can accommodate these three different groups within a default arrangement.”
Jelf Employee Benefits head of benefits strategy Steve Herbert says: “I agree completely that we will need more than one strategy for these different groups. But that will mean people will have to make a choice in their mid-fifties as to what they are going to be doing, and this will give their employer an idea of what they are planning to do from a work perspective, which employees won’t like. In a GPP scheme this information can be kept from the employer, but that is not the case for a trust-based scheme. So this could be a sensitive issue.”
Hargreaves Lansdown head of corporate research Laith Khalaf says: “Absolutely everybody who is invested in a default fund in their company pension scheme should dust it off and take a close look at it; the fund may no longer be fit for purpose. This applies to pension plans set up with previous employers too. Likewise every company in the land should review their default strategy in light of the Budget.”