In light of the new flexibility afforded to pension savers announced in the 2014 Budget and confirmed by HM Treasury earlier this week, NOW: Pensions has announced changes to its lifestyle investment strategy.
NOW: Pensions offers a single investment fund made up of three components: a Diversified Growth Fund, a Retirement Protection Fund and a Cash Protection Fund.
Currently, the Retirement Protection Fund is targeted at annuity purchase and the fund provides an interest rate risk exposure as a hedge. The Cash Protection Fund invests in cash deposits, money market funds, short dated bonds with low credit risk, and in interest rate derivatives.
From this week, as members approach retirement, they will be moved from the Diversified Growth Fund into a Retirement Countdown Fund which will follow the same investment strategy as the existing Cash Protection Fund.
The default position to start switching a member’s investments from the Diversified Growth Fund into the Retirement Countdown Fund is ten years away from their selected retirement age. As an alternative, employers or members can opt for a five or 15 year version of the lifestyle strategy.
Members who want to remain in the Diversified Growth Fund for longer can also extend their retirement age.
Morten Nilsson, CEO of NOW: Pensions said: “The pensions landscape is fundamentally shifting and any investment strategy that targets annuity rates needs to be urgently addressed.
“Given the profile of our members and their expected fund sizes over the coming years, we expect the vast majority to take all of their pension pot as cash at retirement. The new lifestyle investment strategy therefore focuses on funding for cash but gives consideration to those that want to take an alternative route.
“As the market evolves we’ll continue to keep our investment strategy under review, adapting our approach to make sure our members are well served.”
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