They contain the retirement hopes and aspirations of millions, and they are selected by you, the corporate IFAs and employee benefit consultants that implement the nation’s workplace pension solutions.
Now in its fifth year, the Corporate Adviser Ultimate Default Fund competition is continuing to monitor the unfolding story of contract-based DC investment strategy for the mass market.
With workplace pensions coming under increased scrutiny on cost and investment strategy, the industry is looking for innovative ways to meet employer and employee
demands.
Last year’s winner, ScotLife’s Governed Range, reflected a growing desire for greater oversight of default investment offerings.
Appetite for such solutions is reflected by the fact that two of the six advisers asked to put together our shortlist opted for a similar offering
from Scottish Widows, meaning half our panel have opted for a product with provider governance built in. But other much talkedof initiatives in the default arena are yet to make it through to the shortlist. Multi-asset funds, for example, are yet to fully win over intermediaries’ minds in the contract-based default space, at least as far as our shortlist is concerned.
Corporate Adviser readers know and understand better than anyone else what a good default fund should look like, and this online poll is our opportunity to see where the default debate is taking us. This is your chance to have your say in the great default fund debate, and win a case of 12 bottles of champagne.
The shortlist for this year’s poll has been selected by our panel of experts and extends across a range of solutions available to advisers.
Last year’s poll was conducted against a backdrop of the most extreme financial uncertainty for pension investors.
The shortlist we have before you may not be definitive – but it does give a representative view of some of the more popular approaches to defaults available on the market today.
The shortlist
– Aegon Universal Lifestyle Collection James Biggs, corporate pensions consultant, Lorica
– Blackrock Aquila HP (50:50) Global Equity Index Tim Gillingham, director, Citrus4Benefits
– Scottish Life Governed Range Patrick Connolly, head of communications, AWD Chase de Vere
– Scottish Widows Balanced Pension Investment Approach (PIA) Iain Chadwick, senior consultant, Johnson Fleming and Robin Hames, head of technical marketing, Bluefin
– Standard Life MyFolio III Nick McMenemy, director, corporate solutions, Towergate Financial
The Challenge
The Corporate Adviser Ultimate Default Fund poll is your chance to vote for the fund that you believe best fills the accumulation phase retirement saving needs of employees not getting independent financial advice.
We have asked our panel of experts to nominate a single default fund, or fund solution (ie including governed default fund solutions) that best matches the needs of a company with 1,000 employees with an average spread of ages and skill sets for the growth stage of their pension saving – the fund is expected to be used in conjunction with some form of process to manage risk in the years before retirement. At least 80 per cent of members are not expected to be getting individual face-to-face advice and are likely to end up in the default option.
The Ultimate Default Fund is to be offered through a contract-based scheme and its objective is to achieve maximum returns for members without taking risks that employers are likely to find unacceptable.
THE SHORTLIST – HOW THE EXPERTS JUSTIFY THEIR NOMINATIONS
Aegon Universal Lifestyle Collection
James Biggs, corporate pensions consultant, Lorica
I love this fund! It is an ideal “I don’t want to think about it” home during the accumulation phase. This is especially so where pensions are arranged in a non-advised roll-out, which was the scenario in this challenge. Why? Because it has all the good things I would want in a fund if I was either too confused, too intimidated or too busy to choose one.
Firstly, it has 75 per cent of the fund tracking a balanced passive index, managed by Blackrock Secondly, it has 5 x 5 per cent chunks being actively and externally managed in an attempt to outperform the index at no additional cost Thirdly, it has a 72 month lifestyle process that consolidates gain and moves towards security as NRD approaches Importantly, this fund sits in the balanced sector. Even in an advised domain, most people opt for a middle risk fund. We have a duty therefore to ensure that those who don’t choose end up in this sector without
additional cost.
So how does it perform? Bang on the sector average. And if I was a “typical employee” I would be pleased that it has not under-performed – the biggest fear that most have when considering equity investment.
Scottish Life Governed Range
Patrick Connolly, head of communications, AWD Chase de Vere
A major challenge for advisers is to provide a designated default option that is suitable for a wide range of employees and includes an effective
investment review service.
A flexible default range is needed; one that matches individuals’ attitudes for risk, reflects changing requirements during their working lifetime and has a level of governance that ensures ongoing quality and suitability for the individual. Scottish Life’s Governed Range enables advisers to deliver exactly this.
At a time when default design has moved into the modern era and it’s now accepted that a ’one size fits all’ solution is unlikely to be the most appropriate, Scottish Life provides a range of risk profiled portfolios, automatic rebalancing for investors and increased flexibility for lifestyling. The governance means that there is a formal review process, which includes an investment advisory committee to review investments and the use of analysis from investment risk management experts Barrie & Hibbert.
The Scottish Life Governed Range offers the choice, flexibility and governance that a default option should have in order to meet diverse client and adviser needs in an increasingly complex market.
Scottish Widows Balanced Pension
Investment Approach (PIA)
Iain Chadwick, Senior Consultant, Johnson Fleming
Iain Chadwick
Default members are unlikely to be proactive. A good default fund is therefore very different to a good fund that individuals actively hoose to invest in. The PIA has been specifically designed as a default option and is able to change both its investment approach and the underlying managers if required.
It balances risk against reward, at low cost. It has the right blend of assets in the accumulation years, offering potential for growth but diversified from pure equity, which is too high risk a strategy for a default fund. As members near retirement, the approach to risk reduction is more sophisticated than traditional lifestyling. Importantly, we have seen Scottish Widows’ governance process in action. The last review recommended the removal of SWIP bond funds; replacing them with a passive State Street option. For members who are unlikely to be monitoring their fund selection, this proactive governance and underlying flexibility provides an extra layer of security.
The PIA is easy to understand, even where no face-to-face communications are provided. The very nature of default means no fund is perfect, but the structured approach of the PIA is more suitable than a normal fund with lifestyling added. Other alternatives, such as inflation plus or absolute return, need more time before their suitability is proved and often carry a price premium. With the default care is
needed to not spend more of a member’s money than we have to.
Also nominating Scottish Widows Balanced Pension Investment Approach (PIA)
Standard Life MyFolio III
Nick McMenemy, director, corporate
solutions, Towergate Financial
The investment solution we propose for the default fund is the Standard Life MyFolio III fund with a 10 year lifestyle overlay. The fund is around 65 per cent invested in growth asset classes and is the median in a range of 5 risk funds.
Rebalancing, monitoring and overnance are built into the fund to ensure the employee’s investment remains aligned to their original risk level, whilst the 10 year lifestyle profile automatically switches the pension fund into cash and fixed interest assets to match the delivery of tax-free cash as well as purchasing pension income.
This risk-based investment solution includes an innovative and unique exposure to absolute return strategies such as Standard Life Investment’s GARS fund. The construction of the portfolios utilises both a quantitative and qualitative framework designed and supported by leading industry professionals.
Strategic asset allocation is provided by financial risk modelling experts Barrie & Hibbert. This is regularly reviewed to optimise the expected return of the fund. Tactical asset allocation is then overlaid by the Standard Life Investments’ award winning multi-asset team to take advantage of shorter term market opportunities.
The fund selection governance committee, which includes independent experts, oversees the fund research process conducted by Standard Life’s in-house team of specialists. The fund is a cost effective solution to accessing market leading investment strategies whilst the 10 year ’lifestyling’ overlay prepares the employee’s pension fund for retirement making it the essential default fund.