PwC: Lifestyle Investments no Longer Fit with Unpredictable Retirements
24 May 2011 (PLANSPONSOREurope.com) - Many defined contribution pension pots are invested in investment structures geared towards target retirement ages no longer suitable for today’s workers, according to PricewaterhouseCoopers (PwC).
Thousands of people could see the size of their pensions suffer by, in some cases, up to 20%, warn PwC pension experts.
Marc Hommel, pensions leader at PwC, commented: “These ‘lifestyle’ investment structures are useful for those people who have predictable retirement horizons. But such structures will become less satisfactory as we see increasing diversity and unpredictability in retirement timings. The state pension age is steadily increasing and many people are choosing to work for longer, perhaps part time. Also, the recent relaxation of rules around buying annuities means lifestyle structures are less suitable for those individuals who, regardless of retirement timing intentions, choose to keep their savings invested during their retirement rather than cashing in and drawing a pension via an annuity.
“Employers and trustees need to review the defined contribution default investment structures in their workplace pension schemes, and consider whether modernising is necessary to take into account increasingly varied and unpredictable retirement needs of employees.”
“There’s a real danger that, under existing lifestyle default structures, investments will be switched to low-growth assets too soon and people could lose the opportunities for valuable higher returns. Given that many of today’s workers are already likely to have inadequate retirement savings, any threat to pension pots is a big concern.