How JPMorgan and RBS give DC members retirement flexibility

The JPMorgan UK Pension Plan will implement an automated drawdown option for members in order to mitigate increasing longevity, a less certain retirement age and uncompetitive annuity pricing, its chair Rene Poisson told delegates at the National Association of Pension Funds’ derisking conference on Tuesday.

The plan had already modified its default strategy ahead of the new freedoms to enable greater flexibility for members.¹

Under the current default strategy members are contacted around five years ahead of their retirement date and given two options: they can either remain fully invested in a blend of diversified growth funds to, and potentially through, retirement; or for those wanting to take the 25 per cent tax-free lump sum, they can remain invested in the DGFs until 18 months before retirement at which point 25 per cent of their pot is converted to cash.¹

The £2.2bn DC scheme plans to implement the option at the end of next year and will allow members to manage what they want to draw down and over what period.

“The employer would pay the set-up cost of going into this structure in the same way as they do going into the annuity, but then the member would be responsible for paying the annual ongoing admin charges,” said Poisson. “So there would be no incremental cost to the employer in doing this.”

The scheme put together an implementation plan 18 months ago but only gained agreement with its providers over who should pay for the plan after this year’s Budget, Poisson told delegates.

RBS Group Pension Fund also offers members some flexibility over their savings, its manager Graeme Wyllie told delegates. DC-eligible employees get a pension allowance of 15 per cent of their salary, which they can choose to put towards retirement savings, other benefits or take as cash.

“That final feature is one we believe makes RBS relatively unique as a UK employer and allows us a bit of an insight into a world where people have complete flexibility over their retirement arrangements,” Wyllie said.

Members are defaulted into a DGF made up of 60 per cent passive equities, which includes emerging markets; 15 per cent bonds; 15 per cent property; and 10 per cent absolute return.

JPM’s approach

The financial services company’s scheme began to review its investment options in 2009, when its default strategy was a passive global equity fund. This transitioned members to cash and bonds for the last 10 years.

However the scheme’s members were experiencing much more uncertain working life patterns, Poisson told delegates.

The state pension age was also “receding into the distance”, meaning something would be needed to bridge the gap until members reached state pensionable age, he said.

As several factors had made annuities more expensive, the scheme saw evidence of members who could save more saying they were not prepared to because they did not want to be locked into an annuity, Poisson said.

In 2011 it rolled out a strategy that defaults members into a global passive equity fund up to age 40 and transitions them into a blend of DGFs between ages 40 and 50. These investment styles are designed to provide volatility smoothing, and pension pots are derisked into cash and bonds five years out from retirement.

¹The original version of this article mistakenly said JPMorgan's drawdown plan will allow members to remain fully invested in DGFs until 18 months before retirement, at which point they can convert 95 per cent of their pot into cash or remain invested to and through retirement.