Standard Life is in talks with the Government and the FCA over concerns its old default funds remain targeted at annuity purchase.
A report by the provider’s Independent Governance Committee, published today, reveals worries historic default strategies “either do not have a lifestyle design or have a design which remains targeted at annuity purchase despite the introduction of the pension freedoms”.
It adds: “We have asked Standard Life to amend these default strategies to match the lifestyle profiles incorporated in the current pension products.”
In its response, Standard Life says it is “aware of and acknowledges the issues in relation to people still invested in lifestyle strategies targeted towards annuity purchase”.
However, the firm says: “The contracts we have in place do not allow Standard Life to take investment decisions (either redirecting future contributions or switching existing funds) on members’ behalf.
“However, we are in agreement that this action will be in the best interests of the majority of members so we are actively engaging with both the FCA and the Department for Work and Pensions to find a solution to this problem that will allow providers to move members into more appropriate solutions and hope to be able to agree a way forward soon.
“In the meantime, we have started a programme of communications with relevant members to ensure they are aware of their options to initiate their own investment switches, should they wish to do so.”
The FCA declined to comment.
The pension freedoms have presented a significant investment challenge to all providers.
While previously default strategies were geared around annuity purchase, the reforms introduced in April last year have shifted consumer behaviour, resulting in almost £6bn being withdrawn from pensions either through drawdown or via cash lump-sums in the first nine months.
This has forced insurers to wrestle with the problem of how to design appropriate default decumulation strategies given the raft of retirement income options now available to members.