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L&G reveals post-Budget investment strategy

Legal & General has announced changes to its mastertrust investment strategy that take into account the impact of the Budget on savers’ behaviour in retirement.

Prior to the Budget, most pension schemes used “lifestyling” to gradually remove investment risk from members’ pots and track annuity prices, reflecting the behaviour of the vast majority of members who took 25 per cent tax-free cash and bought an annuity with the remainder.

But following the Government’s pension reforms, annuity sales have fallen while the number of new drawdown contracts has increased. Thousands are expected to take advantage of the new option to cash in their entire pots from April, meaning strategies need to be tweaked to meet savers’ new demands.

The trustees of the L&G mastertrust have redesigned the default strategy around three “primary exit routes”, to reduce the de-risking period from 10 years prior to retirement, to three years before members plan to access their funds.

L&G mastertrust trustee chair Paul Trickett says: “Everything we know today tells us that a strategy that requires members to make decisions 10 or even five years into the future is unlikely to gain traction.”

Members expecting to take cash will see their investments move from the default L&G Multi Asset Fund to cash over three years, while those planning on drawing down their pension will be moved to the new Retirement Income Multi-Asset Fund, also over a three-year period. The new fund will be managed by L&G Investment Management’s Martin Dietz and aims to provide long-term investment growth at less volatility than the Multi Asset Fund.

Those who want to buy an annuity will move to a pre-retirement fund over three years. Member who do not make a decision will remain in the default fund.

L&G says it is the first DC mastertrust to reveal its new design.

Trickett says: “We believe 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.”

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