Standard Life is changing the investment strategy of its default pension fund which would affect more than a million existing customers.
Standard Life customers who are invested in older lifestyle profiles which were created pre-auto enrolment and pensions reform will soon be informed of the changes in the asset allocation of their default funds.
The move follows the changes created by the pension freedom reforms which allows people to stay invested and not necessarily buy an annuity.
The SL Annuity Purchase fund will go from being 100 per cent invested in bonds to an actively managed multi-asset fund aimed at reducing volatility. It will also keep some growth element for those who want to remain invested.
The changes in the fund follow last month’s announcement by rival Scottish Widows which will also change investment strategy of its pension fund. This will affect customers who in the five years preceding their retirement date.
Customers who are less than five years from their retirement will remain in the same Scottish Widows bond-heavy default fund.
However, Standard Life will offer the change to a broader range of its customers to guarantee investment suitability especially for those that are closest to retirement.
Standard Life head of customer & workplace proposition Jenny Holt says: “We apply the change to everybody even those that are closest to retirement because the retirement date we have in our system – provided by employers – might not be accurate or out of date.
“The second reason is that it is the customers that are closest to retirement that are exposed to the greatest risk of being in the wrong investment mix so we are prioritising those.”
Aberdeen Standard Investments, Standard Life Aberdeen’s investment arm, will run the fund and change the asset allocation over the next four weeks.
Standard Life customers who are within five years of their retirement date will be charged for the transfer to the new strategy depending on proportion of their investments and market conditions.
For those customers in the default fund which had chosen to invest on a self select standalone basis will be moved into a replica fund called the Annuity Targeting fund with no transaction costs.
No change in charges will apply, for anyone who opts to remain in the annuity fund. Charges will remain at 1 per cent.
In January, the FCA examined a number of firms on how they were making changes to lifestyle investment strategies and whether these were appropriate for the customers.
Holt says: “The challenge is on how you go about implementing the change because there are challenges on terms and conditions and moving people without their consent.
“That is why not many providers have moved yet. We thought very carefully about this and we found a way to make the change on behalf of our customers that allows us to give them a better outcome.”