US FUND management giant Vanguard is planning to launch a target date fund offering for use as a default fund in the UK corporate DC market some time in early 2011.
The product, the eventual design of which will be determined by the outcome of the review into the annuitisation process, is expected to target a retirement date where consumers buy an annuity, rather than glide through retirement still invested in equities.
Vanguard, which specialises in low-cost funds says the proposed 55 per cent tax charge referred to in the annuity consultation means that a post-retirement drawdown fund designed for the UK would look quite different to its US ’through retirement’ counterpart which retains an equity content of 30 to 40 per cent into the retirement phase.
Peter Robertson, head of retail at Vanguard Investments UK says there are two factors behind the need for a different approach for the expected future UK tax and regulatory environment. Firstly, in the US contribution limits are much lower meaning pensions cannot be effectively used as a means to get round inheritance tax, so consequently can be passed on without any tax charge.
That in turn means “drawdown” is managed as with any other pot of assets the client may have, it can be passed on to one’s estate free of any extra tax. In contrast it would appear that a UK “capped” drawdown pot should be managed in such a way as to run out at (or before, if the client has other assets) death because of the tax charge, says Robertson.