Supporting changing retirement needs, Aegon will widen its lifestyle fund offering, and will move to a default multi-asset strategy that reduces volatility as savers approach retirement.
Aegon announced today that it will offer lifestyle strategies that cater for the broadening choices available to retiring investors. This will include a strategy that focusses on reducing risk via multi-asset investment.
The numbers who buy an annuity are set to fall as low as 25%, according to advisers. In addition, 46% think risk reduction is the priority as they near retirement. The results, from a YouGov poll commissioned by Aegon, follow the Chancellor’s 2014 Budget announcement which offered retirees more choice about how they use their pension savings.
It also reflects changing investor behaviour, with only 28% retiring on the date they planned and just 29% stopping work completely on a set date, meaning more are likely to remain invested after their nominated retirement date.
Aegon’s new default lifestyle approach – with multi-asset investments – offers a better risk/return profile for investors who opt for drawdown or change their retirement date. As such, it better serves the needs of a ‘typical’ default investor. The strategy will be used for Aegon’s default fund and will become the primary strategy within its range of default options.
Lifestyle strategies are primarily designed for workplace default fund investors, catering for the changing needs of savers who don’t take active investment decisions as they near retirement. As Department of Work and Pensions best practice, they have an increased market presence in the wake of auto-enrolment.
Lifestyle strategies that target annuity purchase by moving into long gilts and cash are the current industry standard. In the context of a 25-year gilt bull market and a prevalence of annuity income, this approach has served investors well. However the market is rapidly changing and, as new retirement flexibilities raise the demand for drawdown solutions, Aegon believes the industry standard needs to fundamentally change to meet the needs of a ‘typical’ workplace saver.
Therefore, Aegon is announcing important changes to its lifestyle proposition today, which will be implemented in the second half of 2015.
It will add choice for employers and scheme members by offering three types of lifestyle glidepath – diversified risk-reduction, annuity target, and cash.
Aegon’s primary strategy – which it will use for its own default fund – will be diversified risk reduction. Aegon believes this strategy offers the best outcome for a ‘typical’ default investor, who is likely to choose drawdown and phase retirement or change their retirement date.
These improvements meet the priorities of savers with more flexible retirement needs.
Nick Dixon, Investment Director at Aegon said:
“Savers are already responding to new pension flexibilities by demanding more choice.
“We need to offer lifestyle strategies for workplace schemes that reflect the changing pensions environment. Moving into long gilts makes sense if you purchase an annuity on your planned retirement date. However, retirement patterns are fundamentally changing. People are retiring later than planned and are often phasing into retirement over a number of years. Workplace advisers who cannot afford advice, and struggle to make their own investment choices, need an investment approach that reduces risk while offering reasonable prospects for growth, even if they retire later than planned.
“Over time, annuity-targeting strategies will no longer reflect the behaviour of most investors. Risk reduction using a diversified investment strategy tends to offer better returns for less risk, especially where investors delay or phase into retirement, and where they choose drawdown.
“We expect multi-asset lifestyle strategies to become a UK industry standard.”
