Scottish Widows gives default a makeover ahead of new DC requirements
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Scottish Widows is giving its largest defined contribution default fund a tilt towards the UN Sustainable Development Goals and plans to build private market investments into the strategy. The default is also delaying the derisking phase, which will instead continue beyond retirement. The revamp comes as the industry expects radical new requirements to create M&A activity in the multi-employer DC space.
The new default, Lifetime Investment, is an evolution of the firm’s more than £60bn Pension Investment Approaches default option that serves 4m members. Available straight away to new employers and on a self-select basis, current PIA members will also transition to the new default.
Graeme Bold, managing director workplace and intermediary wealth at the provider, said the tweaked default aims to give savers the best chance of maximising the growth of members’ DC pots.
Bold added: “We are excited to evolve [PIA] into Lifetime Investment to take account of changes, such as longer life expectancies and phasing of retirement.”
The new default targets drawdown. Members are given a choice between a 'growth path’, which invests 100% of savings in growth assets initially, and a 'balanced growth path’, which will put 85% of savings into growth assets, with the rest invested more defensively.
Both risk options will begin to derisk 12 years before a person's chosen retirement age. Those who want to buy an annuity or take their savings as cash are given access to relevant glidepaths.
Scottish Widows has worked with asset manager Robeco to build in the responsible investment commitments.
The announcement comes as the industry awaits the government’s response to its November consultation on defined contribution defaults, in which it proposed to require a minimum size for defaults of potentially £25bn to £50bn, arguing that this will increase their capacity and appetite for investing in ‘productive assets’. The proposals, to be implemented until 2030, would probably lead to intense M&A activity.
A spokesperson for Scottish Widows said with its Lifetime Investment default being an evolution of PIA, “PIA will transition to take advantage of the new features. As such, we believe this is both positive for members and also consistent with government direction on this matter”.
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