Trinity Mirror sizes up target date fund default

The publisher's defined contribution scheme is the latest to consider TDFs before it starts auto-enrolment on July 1. Industry experts predict assets managed under this strategy could quadruple as the reform progresses.

“Trustees were advised at relatively short notice, given the auto-enrolment process, that the [company] wanted to use the DC plan for its auto-enrolment vehicle and [it] had done research with financial advisers to come up with an appropriate default fund,” said group pensions manager David Astley, at the National Association of Pension Funds’ DC conference last week.

Are TDFs appropriate for all members?

The default for the vast majority of current scheme members follows a lifestyle strategy. In the run-up to auto-enrolment, employees who were not members of this “more generous” DC scheme were offered access to it.

“Trustees asked themselves the question, ‘Should everyone that is in the current lifestyle fund be in the new fund or, equally, should everyone be in the current fund?’,” Astley told delegates. This prompted the scheme to embark on a membership survey to determine the needs and wants of members.

The design of the default follows the conservative approach taken by the National Employment Savings Trust, the highest-profile scheme so far to adopt TDFs. “We felt that those [who] did not take up the offer were likely to be the younger and less well paid, and likely to fall into the bracket of people Nest was looking at,” he said.

“Some of our trustees like what they hear about TDFs and others perhaps need to learn a little more about it,” said Astley. “One of the obstacles we’ve found through this whole exercise is a certain reluctance from consultancies that advise on this issue.” Advisers to the scheme had presented the strategy as “too complicated”, he reported.

From the audience, Emma Douglas, head of DC at consultancy Mercer, raised concerns about consultants’ ability to add value with TDFs. “We aren’t anti-TDFs, they offer some great simplicity... but it is the potential lack of flexibility that is causing consultants to think twice about recommending them to clients.”

It may be necessary for schemes to launch a whole new set of funds if they, for example, want to change asset allocation or partake in income drawdown, she added.

Paul Bucksey, head of DC business development and strategy at asset manager BlackRock, said: “There is no doubt in my mind that with TDFs, consultants have less opportunity to consult. [They] should be looking at what is best for clients.”

Research done by BlackRock last year found that almost half of respondents chose the default investment option “without knowing much about it”, while a quarter went with the default option after considering other options, with the remainder having said they picked the most appropriate fund for them.

“The need for a clear default is well understood – something that is flexible, member-friendly, and easy to communicate,” said Bucksey.

Less than half of the current DC market is invested in TDFs but assets are expected to quadruple to £8bn by 2018, according to BlackRock figures. The manager announced last week it had extended access to these funds to bundled DC pension schemes.