Now Pensions has become the first master trust to announce changes to its default investment strategy after the recent Budget reforms to defined contribution (DC) schemes.
The fund is anticipating its membership to take advantage of the new freedoms and withdraw pensions savings entirely as cash.
In March, chancellor of the Exchequer George Osborne announced reforms that meant the majority of DC savers did not have to purchase an annuity.
This meant DC default investment funds, which previously tailored strategies based on a combination of cash withdrawal and annuitisation, needed to re-evaluate at-retirement asset allocation based on member preferences.
Now Pensions, wholly owned by Danish provider ATP, operates one investment fund for all its nearly 350,000 members.
It has now completely removed its annuity-matching investment strategy.
The fund originally comprised three strategies – diversified growth to build assets, retirement protection to annuity match and cash protection, which was invested in money market funds and short-dated fixed income.
However, after assessing its membership – and due to its belief that annuity purchases will be unlikely – the master trust has stripped out the latter two strategies and replaced them with a ‘retirement countdown’ strategy, which mimics cash protection.
Now Pensions said members would remain in the diversified growth strategy until 10 years before the selected retirement age, and then shift into retirement countdown.
DC providers have been analysing the impact of the Budget reforms on asset allocation as the removal of compulsory annuitisation comes into effect in April 2015.
Most default investment strategies currently have around three-quarters of near-retirement assets invested in annuity-matching products, namely Gilts.
However, predictions of the fall in demand for annuities have been as high as 75%.
Many default investment strategies will reassess, taking account for larger cash withdrawals and a growing demand for income-drawdown products, where assets remain invested in growth strategies, albeit with lower volatility.
Now Pensions has become the first major master trust to announce its new strategy, after the government confirmed its plans on Monday.
Chief executive Morten Nilsson said the provider looked at predicted fund sizes and expected the majority of assets to be withdrawn as cash.
“The new lifestyle investment strategy therefore focuses on funding for cash but gives consideration to those that want to take an alternative route,” he added.
“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.”