Implementation of new default investment strategy

The situation

£1bn DC scheme for a leading global financial services company, with over 10,000 UK employees.
LCP appointed investment advisers in 2006.

LCP undertook a comprehensive investment strategy review.
A proposal was put forward to develop and implement a new default investment strategy for new members, moving away from traditional "lifestyle" approach.
Proposed new default strategy was designed to give better downside protection to members.

This new default strategy uses a diversified basket of return seeking assets in the early years of a member's working life.
This gradually reduces risk by introducing interest rate protection as retirement approaches.
This is an improvement on a Lifestyle approach in several ways.
Lower volatility of returns than an equity-only approach in the early years.
Better matching of the cash flows required for the eventual benefits taken.
Much more gradual reduction in exposure to volatile assets.
The ability to further reduce risk by combining two portfolios with different characteristics.