UK - AllianceBernstein has remodelled its US target date funds range for the European market, and could eventually offer some form of guarantee.

The Customised Retirement Strategies unveiled today is designed to give trustees control over the funds and asset managers included in the DC plan but leave the default age-based funds rebalancing to AllianceBernstein, and without the need to for movements between one or several funds.

The vehicle is a life policy wrapper administered by Axa Sun Life, with custody also provided by the life insurance giant. AllianceBernstein then takes care of the investing, rebalancing, asset allocation and general maintenance of investment activity once trustees decide what investment managers they want to include in each of the default target date funds.

David Hutchins, head of research and design for UK DC at AllianceBernstein, said almost any investment manager could be included in a plan as long as their format meets daily pricing needs but trustees still get involved in the big decisions concerning the strategy of age-based funds.

The bigger aim, however, is to ensure UK investors do not suffer the swings and losses experienced in the US in 2008. Some US investors of 2010 target date funds found they were just two years away from their target retirement date but had lost anything between 20-40% of assets in 2008 as the average equity exposure, despite approaching retirement, was 57% but up to 85% in some cases. (See earlier IPE article: Target date woe)

The situation is very different in the UK market as target date funds in the US were built either to provide an income at retirement or to provide a lump sum investment, whereas most UK investors are looking to build a pension income.

That said, AllianceBernstein is keen to reduce potential losses so its asset allocation is set out to provide:
90% equity allocation and 10% diversified assets between the ages of 20 and 40;
By age 55% assets fall from 90% to 60% equities, while diversifying assets increase to 20% and a 20% bonds holding is introduced, and
Between 55 and 65 allocations shift again to approximately 20% equities and 80% bonds.

And while research is still in early stages, AllianceBernstein has also been looking at whether it can attach some form of guarantee to its CSR plans in one or two years, to at least limit some of the losses investors face should markets drop substantially again.

"A DC guarantee should be a substitute equivalent of the Pension Protection Fund, but not something investors should be claiming on every week," said Hutchins.

"They should give some comfort that their savings will provide a minimum level of assets. But there are all kind of problems you could rebuild with a guarantee, and we would not want to replicate the problem of with-profits redemptions," he added.

The US operation is now close to launching some form of DC guarantee for its target date funds, but the project had been set back somewhat by the market turbulence of 2008.

The CSR plans are being rolled out in the UK at this stage, but could be suited to other European countries such as Ireland and the Netherlands at a later date, according to officials.

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