DC Investment strategies

These are exciting times for DC investors. The government’s agenda of ‘Freedom and choice’ gives DC members much more control of how they want to generate and manage their retirement income.

Strategies for the ‘growth phase’

A DC investor in their early and middle earning years is likely to be seeking investment options that can help them grow their long-term retirement savings.

Multi-asset funds

Multi-asset funds provide diversified exposure to a broad range of markets. By investing in a range of asset classes, countries, sectors and currencies, investors can avoid having a concentrated exposure to any one driver of returns.

Read more about Multi-asset funds

Future World Fund

The Future World Fund is designed for pension schemes looking for an alternative to a traditional index strategy, while also addressing the long-term financial risks of climate change.

Index funds offer investors low-cost access to a wide variety of different strategies and asset classes, with the added benefits of simplicity, liquidity and ease of implementation.

Read more about Future World Fund

Pathway funds

The government’s 'Freedom and choice' pension reforms mean that finding the right solution to help DC scheme members invest for their entire journey to and through retirement is now more crucial than ever.

The L&G Pathway Funds are a tailored ‘to and through’ retirement solution for DC scheme members, harnessing specialist expertise from across the L&G Group. Designed to help DC investors navigate the new retirement landscape, they aim to provide a flexible path to building a retirement income that is aligned with individual member’s goals in retirement.

Read more about Pathway funds

Active Equity 

Real Income Builder

Real Income Builder (RIB) is also a ‘to and through’ retirement solution for DC scheme members and aims to protect income against the effects of inflation and targets during accumulation, to grow income by 4% above inflation each year.

Real Capital Builder

Real Capital Builder (RCB) is similar to the RIB strategy but its focus is only on total return.

RCB aims to generate a total return of 4% above inflation (UK CPI) per annum over rolling five-year periods. In addition, the strategy aims to provide equity like returns but with two-thirds of equity market volatility in a downturn.

Read more about Active Equity funds

Retirement options

At retirement, DC savers now have greater freedom to help them achieve their retirement goals. Members can still choose to buy an annuity, but now they can also leave their money invested and draw an income from it or  take a cash lump sum.

At LGIM, we recognise that different options will suit different members and have therefore developed options to cater for a wide variety of retirement needs.

Income drawdown – LGIM Retirement Income Multi-Asset Fund

Income drawdown solutions have become a compelling option for DC investors looking for an alternative to buying an annuity. These solutions allow members to draw income as they require, but leave the rest of their savings invested to grow for the longer term.

This thinking underpins the LGIM Retirement Income Multi-Asset Fund.

Read more about Retirement Income Multi-Asset Fund

Annuity purchase – LGIM Pre-retirement funds

A DC member looking to generate a fixed annual income may choose to buy an annuity at retirement. As members approach retirement, they may prefer to invest in a fund that focuses on preserving their annuity purchasing power rather than growing assets.

The LGIM Pre-Retirement funds are specifically designed for this purpose.

Read more about Pre-Retirement funds

Risks

Investing in financial markets exposes investors to risk. These Funds invests in a wide range of asset classes, predominantly equities and fixed income, typically by investing in other funds. Equities (shares of companies) have a higher risk of being volatile (ie going up and down) than most other asset types, particularly in the short term. The Fund’s fixed income exposure – usually corporate and government bonds – is particularly sensitive to trends in interest rate movements.

The value of the Fund’s exposure to this asset class is likely to fall when these interest rates rise (such falls may be more pronounced in a low nominal interest rate environment). The financial strength of a company or government issuing a fixed interest security determines their ability to make some or all of the payments due. If this financial strength weakens, the chances of them not making payments increases and this will reduce the value of the Fund’s exposure.

The Fund may also may hold assets in currencies that are not denominated in sterling. If the value of these currencies falls compared to sterling this may cause the Fund’s value to go down. While the Fund’s broad diversification aims to lower risk, each asset class has risks that may impact the value of the Fund. Any objective or target will be treated as a target only and should not be considered as an assurance or guarantee of performance of the Fund or any part of it.

Investors may receive less income through drawdown than if they had bought an annuity. They will not benefit from the security of a guaranteed income for life that an annuity offers.

The value of the Fund can go down as well as up. Additionally, the value of an individual’s investment in the Fund will be depleted by the charges levied by the Fund, any redemptions made to draw down a retirement income and any increases in the rate of inflation. These factors could reduce either the level of retirement income that an individual can draw down or indeed the length of time for which that level of retirement income can be drawn down.

The recommended minimum expected holding period is 5 years.

Further details (including relevant risk factors and fund specific risks) are available in the Description of Funds document, which can be obtained from your usual LGIM contact.

Disclaimer

This content is produced by Legal & General Investment Management Limited. It is for the exclusive use of the recipient and is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of, or located in, any locality, state, country or jurisdiction where distribution, publication, availability or use of this content would be contrary to law or regulation.

This content is provided for information purposes only and does not constitute an offer or a recommendation to buy or sell securities or financial instruments. It is not intended to be a substitute for the full documentation of the Fund.

Legal and General Assurance (Pensions Management) Limited (“PMC”) is a life insurance company and carries on the business using a linked policy. It is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The policy is divided into a number of sections (“the Funds”).

Legal & General Investment Management is authorised and regulated by the Financial Conduct Authority. It provides investment and marketing services to PMC.