Providers plan mass transfer out of outdated lifestyle funds


Providers are eyeing a mass transfer of workplace pension customers from out-of-date lifestyle funds.

Last week Scottish Widows announced it would be moving “hundreds of thousands” of customers from annuity-targeting strategies to flight paths that assume they will stay invested into retirement.

The firm said it found only 25 per cent of customers had bought an annuity after the pension reforms took effect in April 2015.

As a result the provider has written to scheme advisers and customers warning savers more than five years from retirement will be moved into a new strategy by the end of this year unless they opt out.

Scottish Widows pensions director Ronnie Taylor says: “For customers to make the most of the  new freedoms, they really need to think about the way they want to use their pension fund in later life at least five years before their retirement date and ensure they pick an investment glide path to accommodate it.

“But despite our best efforts to draw attention to the issue, many customers remain disengaged and, where this is the case, we believe it’s important and in their best interests to take action on their behalf.”

Now Standard Life and Aegon have also revealed they will be moving customers into revamped products.

In March, the first annual report published by Standard Life’s independent governance committee revealed the provider was in talks with the FCA over finding a solution to the problem.

“Despite our efforts, many customers remain disengaged”

In a wide-ranging policy statement published last week the FCA addressed the issue of outdated default strategies.

It said: “We accept that making changes to lifestyle strategies on an opt-out basis can provide good outcomes in situations where customers are shown to benefit.

“However, in the event that some customers could be worse off by such a change, firms should consider the position of these customers and take appropriate action to ensure they are treated fairly.”

Standard Life head of pension strategy Jamie Jenkins says the FCA’s statement has given the firm confidence to begin transferring customers.

He says: “The issue we have is for non-auto-enrolment schemes. We don’t have the catalyst of moving them to a qualifying scheme that meets auto-enrolment standards to change their investment funds, and that’s where our issue lies.

“It’s not insurmountable and we have clarity now from the FCA on this – they’ve laid out conditions to be met in the event that we change people’s investments.

“It’s pretty clear – they have said here’s our position and it is fairly definitive.

“It’s now up to us to construct a way of either getting people to make a decision or moving them with a very strong communication in advance so they have the ability to opt out.

“We might do different things for different members depending on how engaging they are.”

Aegon will be moving any customer who has not made an active decision to new strategies by February 2017.

Aegon pensions director Steven Cameron says: “If people are in lifestyle funds at the moment, which would include default funds for auto-enrolment, then our aim is to move them to a more appropriate lifestyling fund.

“Our contracts were written in a way that allowed us to adjust the default fund and investments appropriately.”

The FCA says firms considering making investment switches on behalf of customer need to consider a range of questions.

These include whether their contract terms are fair under unfair terms legislation; costs to customers; the need to model customer outcomes; and how to treat advised customers.