We are changing our investment default for workplace pension customers to Balanced Lifestyle Strategy (Drawdown) from February. The timing of this aligns with the launch of our new retirement engagement packs, which will now be sent from 5 years before the customer’s chosen retirement age. By connecting with customers earlier than the government requirement of 6 months, we believe this will help highlight their choices at retirement and help align their investment choice with their retirement target.
Our new investment default means customers will automatically be invested into an investment solution that is designed for drawdown. Customers no longer effectively have to purchase an annuity by age 75, and our experience has shown the trend towards drawdown escalating.
The new default will continue to move customers through Governed Portfolios 4, 5, and 6 as they progress towards retirement and in the final five years will move them into a rebalancing portfolio designed for drawdown, our Governed Retirement Income Portfolio 3.
We will switch existing workplace pension schemes to the new default later in the year. This will impact all customers except those in their final year prior to retirement, as it’s likely they will already have made their retirement decisions. Our Investment Advisory Committee is extremely supportive of re-risking as many customers as possible by moving them to target drawdown. We will be writing to employers and customers to make them aware of the changes, and they will have the option to opt out.
We currently have around half a million customers invested in the default, with more than £3billion in assets under management. The vast majority of our workplace customers have more than five years to go until their Selected Retirement Age and will not be immediately impacted by this change.
The strategic asset allocation of the current default endpoint is equally split across defensive assets namely Gilts, Index Linked Gilts, Corporate Bonds and Cash. The new endpoint has a strategic asset allocation across 14 different asset classes - 55% of which is allocated to growth assets (Equity, Property, Commodities and High Yield Bonds) with the remainder being allocated to defensive assets.
The optimal default for customers should aim to reflect their expected retirement target, and by changing our default we believe we will be meeting the majority of our customers’ retirement needs.
For more information please speak to your usual Royal London contact or download our new default investment guide.