March 26, 2014

“That” Budget and Auto-Enrolment

Those of you who have responsibility for signing-off a new pension scheme, or auto-enrolling your staff into an existing scheme, should bear in mind that the pensions world is about to change. The plain figures above speak for themselves. The old, supposedly “safe”, norm of a 5% annual return on investments will no longer be enough, and your scheme members will demand at least the 10% return that enables their fund to grow in value rather than drop.

Since about 80% of your members go into your scheme’s default fund, and rarely if ever move from it, you will have to ensure that you meet your employees’ expectations. Your default fund must be able to accommodate pension investments with at least a 30-year time horizon – that is, almost exclusively invested in equities.

If the pensions world is changing, we must change with it. That means dropping the supposedly “safe” investments which have failed to meet our employees’ expectations. “Risk” has nothing to do with volatility. “Risk” has now become the risk of the money in your own pension fund running out before you do – and overshooting is far better than undershooting.

If you have any comments on this blog please contact Roger May on 020 7583 2222 or [email protected]

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