Your Investments
The default fund
The current default fund for all new joiners is the Scottish Widows Balanced Pension Investment Approach (Targeting Flexible Access). This approach is designed specifically to provide members with growth during the majority of their working lives and then greater security as they approach retirement.
To find out which fund(s) you are currently invested in, please refer to your latest annual benefit statement produced by Scottish Widows or access your Scottish Widows plan details here, as you may not be invested in the current default fund.
How does the default work?
The scheme default fund uses a ‘lifestyle’ mechanism that works by initially investing in the main growth fund - the Pension Portfolio 2. Then fifteen years from your selected retirement age (this is set to 65 as default, but you can change this at any time) your pension pot is automatically switched into different funds designed to imitate the use of drawdown as a mechanism to provide you with an income in retirement. Lifestyling is a tried and tested investment technique that should provide most of our employees with a suitable investment platform to support their retirement income goals. However this approach, specifically targets funds that mirror the use of drawdown in retirement and may not be suitable for everybody, we would therefore encourage you to consider if this strategy is appropriate for you.
You can find out more about the default fund, the underlying funds it invests in, as well as alternatives that might better suit your retirement planing here.
Performance
Investment performance is one of the key factors in building a worthwhile retirement fund. If you log into your Scottish Widows account here you can find out the performance of the fund(s) you are invested in, the fund factsheets and a whole lot more!
One year on from the outbreak of Covid-19
Despite the considerable impact thrust upon the global economy by Covid-19 in the first quarter of 2020, some equity markets have performed very well since they fell by around 25-30%. In fact, after the initial downward movement, some have set record highs. US equities are one such example, with the S&P 500 benefiting from the appreciation in its mega cap tech stocks – which prospered under lockdown restrictions.
It should be noted, however, that the considerable support provided by central banks and governments to tackle the impact of the pandemic has muddied the waters when it comes to valuations and there are differing views on whether some markets may now be overvalued.
Pension default funds are long-term investments that typically invest in a spread of asset classes such as equities, property, bonds and other types of investment. As a result, values can go down as well as up, in response to market movements.
When members are many years away from retirement they will typically be invested more heavily in equity markets and when they draw closer to retirement will typically be invested in a higher proportion of more defensive assets, such as government and investment grade bonds.
Developments in Bond Markets
Given the progress being made with the roll out of vaccines, 2021 has begun with greater economic optimism and inflation is expected to rise. Whilst this may be a temporary increase, and central banks have been playing down the need for increases to interest rates, markets have started to price-in future rate rises.
We have therefore witnessed a notable uptick in bond yields over the first quarter of this year and this has resulted in negative returns for some bond funds. For members invested in annuity-targeted strategies, which typically invest heavily into UK
government bonds, fund values may be more adversely affected than for other retirement strategies. Whilst this may be less of an issue for those wanting to purchase an annuity, it may have a greater impact on those wanting to access their savings differently.
Should any short-term losses materialise, if you’re still some years from retirement, your pension investments should have time to recover.
What if I’m close to my selected retirement age?
Depending on how close to retirement you are, your retirement income needs and your other savings, you might need to take some action. Each individual’s circumstances are different and therefore we would always suggest obtaining regulated financial advice. If you do not have a regulated financial adviser, then you can find one on the Financial Conduct Authority website here.