NAPF conference 2013: Trinity Mirror Pension Plan has introduced a semi-passive diversified growth fund for its auto-enrolment default section, but said it plans to further explore possible changes to the set-up in the next few months.
In June, Pensions Week reported the scheme was to launch a staff survey to determine the suitability of target date funds for the growth phase, ahead of its July staging date.
Schemes are considering a variety of alternatives to traditional passive equity-based funds in an attempt to reduce the investment volatility experienced by their members.
But David Astley, group pensions manager at Trinity Mirror, told delegates at the National Association of Pension Funds' annual conference today that after carrying out research the plan settled on a semi-passive DGF for its Lifestyle 5 section.
"It uses strategic asset allocation to decide on the mix of the assets but will then invest in passive funds underneath that," he said. "That gave it a lower annual management charge, but also a lower target growth rate when compared with the DGFs that were available under the other sections [of the defined contribution plan]."
Astley explained that this posed a dilemma for trustees, who questioned whether deeming it appropriate for this section meant it should also be a suitable strategy for the older section and Lifestyle 7 section, which has a seven-year derisking period.
"The trustees discussed that and they decided that for now at least, they were comfortable with that decision and effectively had two defaults; one for the auto-enrolment people and one for the other group," he said.
Ensuring suitability
The plan is keen to continue monitoring the strength and suitability of its default arrangement for its diverse workforce.
We delegated to the adviser the ability to actively manage the asset allocation
Speaking of the planned review in this quarter, Astley said: "There's a very broad range of pension backgrounds and we need to understand that more clearly than we do at the moment, and make sure the default funds we have in place are the most appropriate ones."
Laurie Edmans, trustee chair at the Trinity Mirror scheme, said it would look again at TDFs once all the work from auto-enrolment had bedded in.
"When we did the comparison between what members can do with the funds we have and what would happen in a TDF, we felt that given the demographics of the people to be automatically enrolled, there would be little difference in the actual place their contributions would be invested, for quite a few years," he said.
"This gives us time to watch the development of TDFs closely and consider their use as we review – which we do regularly – the funds we have chosen."
Prior to staging, the scheme had found a reluctance from advisers on TDFs, which were portrayed as "too complicated". And consultancy Mercer's then head of DC Emma Douglas raised the "potential lack of flexibility" as a concern.
However, the consultancy's UK DC and saving product leader Roger Breeden told Pensions Week that TDFs "if designed well, allow for some flexibility for a dynamic derisking approach in the pre-retirement phase rather than a rigid glide path formula". Mercer has included TDFs in its new mastertrust Mercer Workplace Savings, launched earlier this week.
Members are contacted six years prior to their selected retirement age and are offered a target age. "[They] can stream into funds earmarked either for level or inflation-linked annuities," Breeden said. "We do have the ability to ‘toggle’ the glide path within pre-agreed ranges so we can adjust to market conditions if necessary."
Also speaking at the same event was Oliver Polson, pensions manager at the Molson Coors Brewing Company, who outlined the importance of placing member understanding at the heart of any fund structure in order for it to be a properly valued benefit.
The scheme put in place a range of four risk-banded white-label funds. The default fund is medium-high risk, Polson said, comprising 50 per cent DGF and 50 per cent UK and global equities.
"But importantly, we delegated to the adviser the ability to actively manage the asset allocation between those classes, so they can take those decisions on behalf of the members to make sure they were getting the best deal over the long term," he added.
