The People’s Pension has overhauled the £6bn pre-retirement section of its default fund, cutting cash and sovereign bond exposure in favour of a global portfolio of short-dated corporate bonds.
The £35bn master trust said the changes were intended to “deliver better long-term outcomes” for older savers while continuing to manage drawdown risk.
It said recent fiscal concerns had driven heightened volatility in government bond markets, reducing the appeal of sovereign debt on a risk-adjusted basis.
UK and US government bonds have experienced a marked increase in volatility over the past three years as central banks have raised rates in an effort to mitigate higher inflation. In addition, political risk has affected bond markets as governments have struggled to balance their books.
As part of the strategy change, the fixed income allocation has been “significantly restructured”, The People’s Pension said. Cash holdings have been reduced, reflecting what the provider described as the “declining competitiveness of cash as a long-term strategic asset” as interest rates fall.
The fund has also cut back its exposure to gilts and treasuries, redirecting the portfolio towards assets it believes can offer more stable real returns.
“By focusing on high-quality corporate credit, we aim to deliver better real returns while managing risk responsibly.”
Dan Mikulskis, People’s Pension
The People’s Pension’s Pre-Retirement Fund will instead be anchored around a global portfolio of high-quality, short-dated corporate bonds, actively managed by Invesco.
The mandate includes investment-grade credit in the US, Europe and the UK, with selective exposure to US and European high-yield bonds, the master trust said. A shorter duration profile is intended to help manage interest rate risk for the portfolio, as well as provide flexibility to reinvest maturing bonds if credit spreads widen.
Invesco was appointed as the provider’s primary fixed income manager in February, replacing State Street. The company is responsible for more than £8bn in assets. More recently, it was awarded a £260m mandate to run a collateralised loan obligation portfolio for The People’s Partnership, which is believed to be the first time a UK master trust has made a strategic allocation to this asset class.
The People’s Pension said its move to segregated mandates meant a separate cash buffer within its portfolio was no longer needed. and allows tighter control over risk and responsible investment. A greater share of the pre-retirement assets will now sit within mandates covered by the scheme’s climate targets, exclusions and ESG reporting requirements.
Dan Mikulskis, chief investment officer at People’s Partnership, said: “These changes reflect both our asset ownership model, which constantly evolves our investment strategy in line with market realities and member needs, and the power of our partnership with Invesco. By focusing on high-quality corporate credit, we aim to deliver better real returns while managing risk responsibly.”
Chris Fagan, chair of the investment committee for People’s Pension, added: “Our driving focus is always to improve outcomes for our members. These changes are grounded in deep analysis and clearly defined investment beliefs, and we firmly believe they will help us to continue to deliver more stable and rewarding retirement journeys for millions of savers.”
Additional reporting by Nick Reeve
