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For decades, many pension defaults have been built around a simple assumption: members retire at a set age, typically 65. At that point, investment risk for members in the default investment strategy will have been dialled down, and members will need to make their own investment decisions. But patterns of work and retirement have shifted. Mercer Master Trust data show three-quarters of members1 have not changed their default retirement age to reflect when they actually plan to retire. At the same time, wider research finds that over 60% of adults think they will need to work past a state retirement age, and more than half say they may never retire.2
These trends matter for investment strategy. They expose a simple governance risk: when de-risking rules are tied to a calendar date rather than to members’ real circumstances, investment strategies can become misaligned with members’ needs at the point they start drawing income. A glidepath that assumes everyone wants to de-risk by 65 can leave longer-working members under-exposed to growth while they still need investment returns, or conversely, leave members approaching drawdown over-exposed to market volatility at exactly the point when preserving income and liquidity becomes paramount. This is further complicated when people elect to take their tax-free cash from their pension early and leave the balance of their fund untapped.
What Mercer is changing
To address this mismatch, Mercer is extending the default ‘Mercer SmartPath’ glidepath into retirement. The extension will be implemented for members next year to create a to-and-through investment solution as members move into retirement.
“The decisions made at retirement can significantly impact the potential for investment growth, and we take that responsibility really seriously,” says Ben Lewis, Head of Investment Proposition at Mercer. “The evidence tells us that members typically do not want to take investment decisions, which we can see clearly, with 94% of Mercer Master Trust members in the default investment strategy. That’s why we are extending the glidepath into retirement for Mercer Master Trust members, with a typical member remaining in the default investment strategy until age 80. This is a stepping stone towards the default retirement requirements that will be brought in for Master Trusts later in the decade, which emphasises the requirement for providers to deliver default retirement solutions.”
Matching strategy to modern retirement
The reality for many members is that retirement is no longer a fixed moment at 65. Mercer’s new investment approach is designed to keep members in strategies that better match their working lives and income needs, while preserving member choice for those who want to take a more active role and providing access to member-friendly modelling and advice. Mercer’s glidepath extension provides a practical example of how to realign defaults with modern retirement realities — improving choices for members whose lives no longer fit a default retirement date.
The Mercer Master Trust is provided by the Mercer Master Trust Trustee Board acting in conjunction with the founder of the Mercer Master Trust, Mercer Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No.984275. Registered Office: 1 Tower Place West, Tower Place, London EC3R 5BU.
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1 Mercer Master Trust data
2 Pensions-briefing-note_LWF-Research_2024.pdf
