The Trustees of the Legal & General Mastertrust have announced the default strategy to accommodate the new pension freedoms that come into force in April next year. The default option applies to participants in “Sole Governance” arrangements (schemes where the Trustees assume all fiduciary responsibility without the involvement of a participant’s Governance Committee).
The aim of the new default strategy is to take advantage of the decumulation options for Mastertrust members seeking flexible retirement savings permitted under the pension reforms announced in the chancellor’s budget in March. These changes mean that, from April next year, Mastertrust members can withdraw funds at any age from 55 to suit their financial requirements.
The key objectives are:
-
flexible benefit access
-
the removal of the requirement to purchase an annuity at retirement
-
the removal of ‘use it or lose it’ access to tax free cash
-
the avoidance of overly conservative de-risking.
Chair of the Trustees Paul Trickett commented: “We have been working hard with Legal & General and our independent investment adviser, Dean Wetton Advisory, to try and make sense of research into expected member ‘at-retirement’ behaviours post April 2015.
We have concluded that our current accumulator building block, the Legal & General Multi Asset Fund (MAF), already provides a suitable diversified growth fund combined with reduced volatility targets (compared with equity only funds) and a highly competitive charge. However, we will no longer offer a lifestyle strategy that switches into long gilts and cash starting 10 years from selected retirement age.
For the majority of members we anticipate three primary exit routes. For each of these exit routes we will introduce a lifestyle option with a 3 year de-risking period. We have chosen a 3 year de-risking period, notwithstanding today’s convention towards longer de-risking periods, because everything we know today tells us that a strategy that requires members to make decisions 10 or even 5 years into the future is unlikely to gain traction.
Members who don’t choose an alternative investment option or strategy will remain in MAF.”
MASTERTRUST OPTIONS POST APRIL 2015…
Mastertrust members who understand how they will take their benefits will have three new investment options designed to target their preferred outcome: KWD - 059 - 08/12/2014 2
-
Exit to cash – the solution for members who expect to take their entire fund as cash at a reasonably predictable future date. For this type of member we have created a lifestyle profile involving a transition from MAF to cash over the 3 years prior to expected crystallisation.
-
Exit to Drawdown – the solution for members who expect to draw funds from their pots over the short, medium and long term. For this type of member we propose a transition to the Retirement Income Multi-Asset Fund (RIMA)* - a new fund created specifically for this situation by Legal & General Investment Management Limited. RIMA aims to provide a MAF-like return but with still lower volatility, and is designed to provide income for members. This fund will be available to us from 2015. Again, the transition will be over a 3 year period prior to expected crystallisation.
-
Exit to annuity – the solution for members who expect to purchase an annuity at a reasonably predictable future date. For this type of member we propose a transition to a Pre-Retirement Fund over the 3 years prior to expected crystallisation.
Paul added: “We believe that what we’re putting in place is a sensible and measured response to the changed situation. We are confident though that member behaviour in practice will prove to be different to that anticipated by research. Consequently we will monitor the practical choices made by members and adjust our strategy as we get better quality information over the next few years.”
|
