BT launches review of lifestyle default

Earlier this month a union official revealed the board of governance for the BT Retirement Saving Scheme, which has around 20,000 members, had been “changing” the lifestyle profile for the default option of the plan.

Aveen McHugh, board member of the BT scheme and assistant secretary at Prospect, told a Trades Union Congress seminar: "We have recently been changing the lifestyle profile for the default option – [it is a] big decision."

The process had been “very difficult” and had raised issues around governance, she added. “Who makes this decision in this new contract-based world? And actually we had to feel our way through this, but we ended up reaching [a decision] by consensus and it went quite smoothly.”

But the employer said the plans were still in their early stages. “We have commenced a review as part of our regular governance but we are still collecting data, so [there is] some way to go before a change, if any, is made,” said head of pensions Kevin O’Boyle.

The launch of auto-enrolment has caused schemes and employers to gauge whether there has been a significant change in the profile of scheme members, and to review the age structures of their lifestyle options.

“If there is any significant change in scheme profile in terms of age and earnings then that might have an impact on decisions around the overall risk rating of the default fund,” said Mark Pemberthy, director and head of auto-enrolment at JLT Benefit Solutions.

These potential changes have led employers and schemes to opt for more cautious default funds to reflect either an ageing or a lower-paid membership, he added. 

It can be more difficult to change default strategies in a contract-based environment because there is a limited ability to impact those who are already part of a scheme.

“With a default in a contract-based environment you are really selecting the defaults for future joiners, rather than being able to influence the defaults that people are already in, unless you have a structure which enables you to do that, which isn’t particularly common,” Pemberthy added.

Many schemes are keen on a low-volatility approach for their default and increasingly want to take less risk with employees’ money.

Jon Dixon, head of auto-enrolment at Chase de Vere, said: “The employer has a duty under new rules to make sure there is effective governance, and that is really driving a situation where [they] want to get rid of any nasty shocks for people who are contributing, not by choice, but by new legal duty.”