Our family of funds refers to our three core ranges of pension funds, which are available to individual pension customers (through our Retirement Account proposition) and to those in workplace pension schemes. They are:
1. Our Pension Portfolio Funds (which are available individually as well as forming the building blocks of our Governed Investment Strategies (GIS) for individual pension customers and our Pension Investment Approaches (PIA) for workplace schemes
2. Our Premier Pension Portfolio Funds (which similarly are available individually, but also form the building blocks for Premier GIS and Premier PIA)
3. Our Retirement Portfolio Funds.
Q: What are the differences between these three ranges and how do they meet your customers’ needs?
Our Pension Portfolio Funds are our original, most simple, pension fund range. Each Pension Portfolio is made up of a number of passively managed ‘tracker’ funds, which themselves invest in equities and bonds. We decide the ‘split’ between these funds, meaning that the Pension Portfolio range combines the benefits of low-cost passive investing with our own asset allocation decisions.
Just over three years ago we also launched our Premier Pension Portfolio Funds, to meet demand for a range that offers potentially higher returns. The key difference between Premier and our original range is the number of different types of investments in which Premier invests.
Finally, last year we launched the Retirement Portfolio Funds, which again are multi-asset, and specifically designed to meet the needs of customers taking income drawdown during retirement. These funds incorporate our Dynamic Volatility Management (DVM) process, which is designed to mitigate the impact of market downturns on a pension pot.
Q: The Premier Pension Portfolios hold a significant proportion of their equity weighting in ‘smart beta’ strategies. Why did you decide to include these over traditional market-cap-weighted passive solutions?
Market-cap-weighted passive funds present a simple and effective means of giving exposure to equity markets and, as such, they play an important part in our Pension Portfolio Funds. However, we also see advantages in alternative forms of index tracking. The ‘smart beta’ indices that we use within the Premier Portfolios have been built based on the fundamental value of the underlying companies – the belief is that this provides a better indication of a company’s prospects than market capitalisation. ‘Smart beta’ strategies are more expensive to invest in than market-cap funds, but we are able to absorb this extra cost within Premier.
Q: You said that you undertake your own asset allocation decisions – please could you explain how you do this for each of the three fund ranges?
We have a dedicated Asset Allocation Team that is responsible for asset allocation decisions.
If we start with the Pension Portfolios: we have set a long-term (or strategic) asset allocation that recognises the part each portfolio might play in a de-risking strategy, or glidepath. We review that strategic asset allocation on a regular basis, typically annually, looking for opportunities to improve long-term returns. This strategic asset allocation is also carried across into the Retirement Portfolios as a matter of course.
Our aim within the Premier Portfolios is to provide higher returns for the same level of risk as the Pension Portfolios. This involves reviewing the components of the Premier Portfolios as the strategic asset allocation of the Pension Portfolios changes.
Our Asset Allocation Team also considers expected asset class performance over the medium term (three to five years) and based on that, they will decide whether to overweight or underweight certain positions for a period of time. The opportunity to do this is greater within the Premier Portfolios simply because they have a high number of asset classes.
Q: Your whole family of funds appear to be very competitively priced. How committed are you to maintaining the quoted Total Annual Management Charge of each of the ranges?
It is important to us that these ranges are competitively priced. This is reflected in the annual management charge, which also includes other expenses within a portfolio, often known as the Ongoing Charges Figure, or OCF.
We have achieved this pricing through our careful selection of asset classes and underlying funds, and by sourcing the underlying funds on competitive terms. We are committed to continuing to apply these disciplines and reflecting them in our price to customers.
Q: Do you anticipate making your portfolios available via third-party platforms?
Not in the short term. Our portfolios are available only through Scottish Widows pension wrappers for now.