Danish default doesn’t put eggs in one basket

The Danish multi-employer pension provider offers a diversified growth default fund made up of five ‘risk classes’ – interest rates, credit, equity, inflation and commodities.

Equity is the growth component, with rates and inflation hedge strategies similar to those used in liability-driven investment, but in a defined contribution context.

Speaking to PW, chief executive Morten Nilsson confirmed the target allocation for its launch in January would be 20% rates, 10% credit, 35% equity, 25% in inflation and 10% in commodities.

This compares to Nest’s nearly 50% allocation to growth assets for those aged under 35, rising to around 70% in the full accumulation phase.

“We [also] have tactical room within each risk class," said Nilsson. "In terms of asset allocation this would mean equity eg would only amount to 20%."

Mads Gosvig, the chief investment officer for the scheme, also confirmed there were no plans to implement any alpha strategies at this stage.

Members in the default fund will follow a glidepath accumulation strategy, starting in a managed diversified growth fund targeting cash plus 3%.

This moves into the retirement protection fund which targets annuity prices, before moving into a cash protection fund as they reach retirement age. The default retirement age will be set at the state retirement age.

Now Pensions also confirmed its charging structure would be £1.50 a month plus 0.3% of funds under administration.

The scheme claims that a member with a salary of £26,000, paying 8% contributions over 25 years, could end up with a pot size of 30% more than higher charging funds, simply by cutting the investment and administration costs.

The scheme will also offer life insurance to members, providing members with cover at a cheaper rate than if they attempted to buy an individual policy.

Now Pensions declined to name the provider.

Finally, Nilsson hinted at introducing an ISA. “We are looking into future-proofing the scheme,” he said. “We’ve seen in the corporate space… that employees trust their employers, so it makes sense to [consider] offering many savings products through the employer.”