Finance giant Hargreaves Lansdown has unveiled a straightforward pension plan tailored for individuals seeking an uncomplicated route to retirement investments. This new offering, called the Ready-Made Pension Plan, is specifically designed for those who are uncertain about how to initiate their retirement savings. The plan involves two key phases: a ‘growth phase’ fund and a ‘de-risk phase’ fund, spanning eight years leading up to retirement, all at an annual fee of 0.75 percent.
Regulatory mandates have prompted Self-Invested Personal Pension (Sipp) providers like Hargreaves to introduce a ‘default’ option by December. Hargreaves is the first to disclose details of its default plan, effective from November 9, with other firms expected to follow suit in the upcoming weeks. While most employed individuals are automatically enrolled in workplace pension schemes bolstered by employer contributions, Sipps cater primarily to self-employed individuals, those earning below the £10,000 earnings threshold, or those unable to join a workplace pension for various reasons.
In response to the Financial Conduct Authority’s directive to enhance pension options for such individuals, Hargreaves, among others, is offering a standardized pension plan featuring a ready-made investment fund alongside existing Sipp choices. The new Ready-Made Pension Plan aims to accelerate the growth of invested money during younger years and subsequently transition to safer investments as retirement approaches.
The growth phase involves investing in the HL Multi-Index Moderately Adventurous fund, which incorporates a mix of passive investments. In contrast, the de-risking phase involves gradually moving funds to the HL Multi-Index Cautious fund starting eight years before a pre-selected retirement age, typically 65 if no other choice is made. Importantly, participants have the flexibility to opt out of the de-risking process by moving their funds elsewhere or switching to a different fund or version of the same fund that does not follow the de-risking approach.
The Ready-Made Pension Plan entails an annual fund management fee of 0.30 percent, in addition to a platform fee of 0.45 percent. Ruchir Rodriques, Chief Client and Commercial Officer at Hargreaves, emphasized the simplicity of the user journey, particularly beneficial for self-employed individuals who lack the automatic enrollment advantage, enabling them to start saving for their future with ease. Rodriques highlighted that as investors gain experience and confidence, they can diversify their investment strategies.
One crucial aspect to consider in pension planning is the concept of ‘derisking’ or ‘lifestyling,’ which involves transitioning investments from riskier stocks to seemingly safer government and corporate bonds as retirement approaches. While this strategy aims to shield savers from sudden market downturns, recent market fluctuations and bond price instabilities have raised concerns. For individuals aiming for long-term growth and willing to keep their pension funds invested for decades, sticking with stocks might be a viable alternative.
Additionally, the attractiveness of annuities, offering guaranteed income until death, has increased due to rising interest rates, prompting investors to reevaluate their retirement income options. As individuals navigate the complexities of pension planning, Hargreaves Lansdown’s Ready-Made Pension Plan emerges as a user-friendly solution, simplifying the process for those venturing into retirement savings.