09 November 2015

Update: New Default Investment Strategy for WorkSave Pension Plans

Following our September newsletter  New Default Investment Strategy for WorkSave Pension Plans, we are pleased to confirm we've changed the standard default investment strategy for our WorkSave Pension Plans (WPP) to reflect the likely impact of this year's pension reforms. The new standard default option is now Multi-Asset Fund.

This update contains more information on:

  • Our new default strategy and the reasons behind the change
  • The implications for both new and existing scheme members
  • The communications strategy for employers and members
  • Timetable for change
  • New investment strategies for 'freedom and choice'

Reasons for change

Our previous default investment strategy was the Multi-Asset Lifestyle Profile. It invests in a diversified range of assets and aims to provide a suitable combination of the potential for growth with relatively low volatility.

When members reach ten years from their selected retirement age, the lifestyle profile gradually adjusts the underlying assets to reduce the potential for a sudden drop in value.

Since members now have more options for taking their pension savings - including regular instalments, occasional lump sums or a combination of the two - we've chosen a more open-ended default investment approach.

We’ve removed the lifestyle profile function so the new default strategy is simply our Multi-Asset Fund without the de-risking element, thus giving members’ money greater potential for growth for the duration of their plan including the retirement period.

This change only applies to schemes using our standard investment strategy – the Multi-Asset Lifestyle Profile. Schemes that have designed their own default investment strategy are not affected.

What it means for new schemes and new joiners to existing schemes

From 1 October, the standard default strategy for all new WPP schemes became our Multi-Asset Fund without the lifestyle profile function.

From December 2015, new joiners to existing WPP schemes set up via our automated online facility will be invested directly in our Multi-Asset Fund without the lifestyle profile function.

From February 2016, new joiners to all other existing WPP schemes which use our Multi-Asset Lifestyle Profile as their default fund will be invested directly in our Multi-Asset Fund without the lifestyle profile function.

Schemes operating their own bespoke default investment strategy are not affected.

Employer communications

We’re writing to all affected employers with existing schemes explaining the change of default investment strategy and the implications for their members.

Three new investment strategies for pension freedom and choice

Recognising the three main options for members - cash, drawdown or annuity - we’ve created three new investment strategies to help them achieve their desired outcomes. 

Market research suggests many members may not make decisions until they are close to taking their money, so these options take effect over a three year period. The new routes are as follows:

  • Cash Lifestyle Profile

For members wishing to take their entire pot as cash in one go or over a relatively short period, the Cash Lifestyle Profile gradually moves their money into the Cash Fund so there is less chance of a sudden fall in value in the event of a stock market crash.

  • Drawdown Lifestyle Profile

For members who wish to leave their pension pot invested to provide an income over the medium to long term – either as monthly payments or occasional lump sums or a combination of the two – the Drawdown Lifestyle Profile gradually moves their money into the Retirement Income Multi-Asset Fund.

  • Annuity Lifestyle Profile

For members wishing to secure a guaranteed income for life or a fixed period, the Annuity Lifestyle Profile moves 75% of their money into our Pre-Retirement Fund investing in sterling assets that reflect the broad characteristics of the investments underlying the pricing of a typical fixed rate annuity. The remaining 25% of the money moves into the Cash Fund.

As they approach their selected retirement age, members will be prompted via annual benefit statements and other means to consider these and other investment options in the light of their personal retirement plans.

Timetable for change

Timetable for change

Timetable for change
1 October 2015 New schemes

From 1 October the standard default strategy for all new WPP schemes became our Multi-Asset Fund without the lifestyle profile function.

12 November 2015  We're writing to notify employers of existing schemes 
  • SME schemes set up via our automated online facility will be given 1 month’s notice
  • All other affected schemes will be given 3 months’ notice

Schemes with a default investment option other than the Multi-Asset Lifestyle Profile are not affected. 

10 December 2015  We will implement the new default option for new joiners to SME schemes set up via our automated online facility

New joiners will be invested directly into our Multi-Asset Fund without the lifestyle profile function.

11 February 2016  We will implement the new default option for new joiners to other affected WPP schemes

New joiners to existing WPP schemes which use our Multi-Asset Lifestyle Profile as their default will be invested directly in our Multi-Asset Fund without the lifestyle profile function.

March 2016 We’ll write to selected members of WPP schemes - focussing on the over 50s and those approaching their selected retirement age - to encourage them to consider their investment choices in the light of the new pension freedoms.
Ongoing communications We’re implementing an ongoing communications programme to prompt members at key life stages to consider their investment strategy in light of their retirement objectives

In summary

The introduction of new pension freedoms has fundamentally changed the way members can take their retirement savings.

Our standard investment strategy was designed primarily for people choosing to buy an annuity and is no longer suitable for most people given the range of options available. 

We have therefore changed our standard default investment strategy for WPP schemes from the Multi-Asset Lifestyle Profile to the Multi-Asset Fund.

For new schemes and new entrants to existing schemes which use the Multi-Asset Lifestyle Profile as their current default option, we're implementing this change in stages between now and February 2016.

In March 2016, we'll write to members of existing schemes who are invested in the Multi-Asset Lifestyle Profile to encourage them to review their investment options in the light of the new pension freedoms.

We're also planning an ongoing communications programme to prompt members to consider their options as they approach retirement. 

We're introducing three new investment strategies depending on whether members plan to take their money as cash or via income drawdown or annuity. These strategies are designed to take effect three years before selected retirement age.

Our white paper explains the rationale behind our change of default investment strategy in more detail. 

For more information please see our Questions and Answers   or contact your usual Legal & General representative.

An important note

Please note that the default investment options for our Stakeholder Pension Plans and Group Personal Pension Plan 2000 will remain unaltered but are currently under review.

Useful links

 (L&G fund code: NTW3; this is relevant to schemes whose investment funds range ends in '3')
 (L&G fund code: NTWY; this is relevant to schemes whose investment funds range doesn't end in a '3')