A DC pension fund had a default lifestyle strategy that targeted the purchase of an annuity at retirement. Since pensions freedoms were introduced in 2015, sales of annuities have plummeted as more attractive options are available.
We conducted a member preference survey, which showed varying retirement needs with the majority of members preferring to target income drawdown and a tax free cash lump sum in retirement versus annuity purchase and tax free cash.
The default life-style option should be designed with the likely membership profile in mind and follow the standards set out by the Department of Work and Pensions. Specifically, it should consider the likely characteristics and needs of employees who will be automatically enrolled into it.
The default investment strategy and associated life-style glide path was changed to target income drawdown in retirement, whilst still assuming that members would take the 25% maximum tax free cash lump sum.