2010 Pension Investment Approach Review
Each year we carry out a comprehensive review of our three Pension Investment Approaches. Our Pension Investment Approaches reflect different attitudes to risk and reward, with three approaches to choose from:
- Adventurous
- Balanced
- Cautious
With all three Approaches, your pension fund will gradually move into lower risk investments which can help protect the value of the plan from large fluctuations in market movements in the years leading up to retirement.
The purpose of our regular reviews is to ensure our Pension Investment Approaches continue to meet your needs and long-term objectives. This review was conducted in conjunction with financial risk specialists Barrie and Hibbert and we’re pleased to report the review has confirmed that our Pension Investment Approaches continue to deliver in line with our expectations.
The reassurance of regular reviews
When we launched the Pension Investment Approaches in 2006, we put an ongoing review process in place with input from independent specialists to ensure we continue to meet our customers’ needs.
The purpose of the latest review was to:
- consider if changing the proportion of investment in UK and overseas stocks and shares would result in less risk whilst maintaining the same expected investment performance or, alternatively, if taking a slightly higher level of risk would improve the potential investment returns
- evaluate the impact of reducing the length of the lifestyle stage (currently 15 years)
- review the types of assets (e.g. stocks and shares, bonds) currently included in the Approaches, to determine whether any other types of assets should be added, for example global emerging market stocks and shares, commodities, UK government bonds (gilts), property and overseas bonds
- consider whether the funds currently used in the Approaches continue to meet their aims and objectives
- assess the impact of protecting the overseas stocks and shares element of the Approaches from movements in foreign currency markets
- determine whether we should still go ahead with our plans to change the element of the Approaches which is invested in bonds from active management to passive management, which has been delayed since 2008 due to unprecedented market conditions. (Please see the ‘Bond fund management’ section for more information.)
The results of our recent review were as follows:
- the current mix of assets within the Approaches remains fit for purpose
- there wouldn’t be any benefit in reducing the length of the lifestyle stage
- at present, we believe that the types of assets included in the Approaches provide sufficient investment diversification
- the funds currently used in the Approaches continue to meet their aims and objectives
- protecting the overseas stocks and shares element of the Approaches from movements in foreign currency markets would not provide any benefits
- we should go ahead with our plans to move the element of the Approaches which is invested in bonds from active management to passive management as soon as appropriate.
Bond Fund Management
It has been our intention since 2008 to make changes to three of the underlying funds used for our Pension Investment Approaches, by changing the element which is invested in bonds from active to passive (tracker) management. Active management is where a fund manager actively tries to beat a benchmark, such as a stockmarket index. Passive management is where the fund is aiming to match the performance of a benchmark.
We have delayed making these changes due to extreme market volatility experienced over the past few years. It is still our intention to make the switch at a suitable time, during 2012, subject to market conditions.
We believe this change is appropriate as the majority of the investments in our Pension Investment Approaches (i.e. the element invested in stocks and shares) are already managed on a passive basis, meaning we’ll be taking a more consistent investment approach.
Passively managed funds can be a way for investors to gain access to the world’s equity and bond markets, providing access to funds covering many of the popular market indices. You can find more information on both the general and relevant risks associated with the funds used within the Pension Investment Approaches in the Scottish Widows Pension Funds Investor’s Guide.
Do I need to do anything?
No. The planned changes to the management of the element of the Approaches which is invested in bonds will happen automatically.
Will there be any future changes?
Other than the change to the element which is invested in bonds from active to passive management outlined above, there are currently no other plans to change our Pension Investment Approaches. The most recent review concluded that they still meet members’ needs, although we will continue to review these during 2012 and beyond.
How do I find out more?
For more information on the impact of this review on your investments, please contact your financial adviser. You can find more information on our Pension Investment Approaches in our Pension Investment Approach Guide.
You can also use our Investment decision tool and our Interactive pension planning tool to help with your investment decisions. You should speak to a financial adviser before making any investment decision.
Scottish Widows cannot provide customers with financial advice, but if you have any queries, you can contact the existing member helpline on 08457 556 557*.
The helpline operates 8am – 6pm Monday to Friday.
* Calls may be recorded and monitored to help us improve our service
