Workplace pensions

There are a number of things that come together that makes Aviva different when delivering workplace pensions investments. And the best place to start is the fact that we have a dedicated investment propositions team that is focused on designing and delivering innovative investment solutions to help people meet their future financial goals. 

And that team brings together over 200 years of combined experience across a wide range of skills, from designing workplace and retail investment solutions, to fund management, to investment research; to advice and consulting.

But it’s not just about the investment propositions team, it’s also about how it collaborates with and gets support from very well resourced teams across the wider Aviva business, and that includes member research, workplace distribution, investment governance, asset transitions, customer experience and many, many others. And all of those resources help us build a clear understanding of what people want and require when it comes to investments, and then deliver the right investment solutions to meet those wants and needs. 

So, when we combine what we have at Aviva when it comes to investment knowledge and expertise with Aviva’s resources and history - which actually spans more than 300 years of looking after people and their finances - it really puts us in a great place to deliver for our clients.

We also work very closely with well-established and heavily resourced asset management firms to create our investment solutions, and they provide the building blocks we use when putting together those investment solutions.

And that includes our in-house asset manager Aviva Investors, who have 50 years of investment expertise and a strong heritage in responsible investing. And those close relationships we build with the asset management firms we work with allows us to solve our clients investment challenges quickly and effectively.

Our ultimate objective is to help our customers achieve positive financial outcomes and meet their future financial goals.

We want our customers to enjoy a financially secure retirement, and this is our priority when it comes to designing investment propositions. And the way we design our default strategies is by looking to maximise returns for our customers while taking an appropriate level of risk throughout their journey to retirement. And we do this by setting specific volatility targets, and we try to make sure that the journey is as smooth as possible.

Now research tells us that the vast majority of people out there are unsure about how they’re going to access their pension savings until they get very close to retirement and for some even when they’re at retirement. So, the way we design our default strategy is to allow people to keep their options open as they approach retirement. And we feel this is currently a much better position for people’s investments to be in instead of being optimised for one of the three outcomes at retirement – take cash, go into drawdown or buy an annuity. And that’s because it could be quite detrimental for them if they’re in a strategy that targeted one of those outcomes at retirement and then they changed their mind on

how they’ll access their pension savings.

For those people that do have a clear idea of how they’ll access their pension savings, 

we have alternative lifestyle strategies. And these target the various outcomes at retirement – annuity, cash or drawdown. And we can always make one of those strategies the default if that’s the right thing for a particular scheme.

So for example, we have several schemes that have a default strategy that targets a drawdown approach as that’s what’s appropriate for those members in that scheme. Now, depending on how sophisticated we want the default solution to be, we can use passive or active underlying investments or a combination of both. And we also invest in alternative and illiquid investments to help improve diversification and expected returns. 

We can also incorporate dynamic asset allocation where the asset manager regularly assesses the market and makes short term changes to the asset allocation to help improve expected returns or to help protect against market shocks.

So its not just a set and forget type approach.

And then lastly but definitely not least, we look to integrate environmental, social and governance factors into the design and ongoing management of the default strategies. Investment strategies that manage these factors well will not only have a positive outcome on the environment and society in general, but we believe they should also lead to superior investment returns over the long term.

We’re always thinking about how we can enhance and innovate our investment solutions to provide customers with even better outcomes. So we look at areas that we think could benefit from innovation and then set about working on how we can make those things better.

One of the areas we’re focusing on is how to provide customers with a better retirement journey.

Now, following the introduction of pension freedoms, most people are looking for more flexibility around how they access their retirement savings – they’re moving away from annuities to more flexible options such as cash and drawdown. And this flexibility is great in terms of people having the ability to choose how to use their savings at retirement, but as DC pots grow and become the main source of people’s income in retirement, there is a real risk of people running out of money before they die.

Expecting people to manage their own money and make the investment and drawdown decisions necessary to ensure their money lasts through retirement could lead to poor outcomes. People need help in managing their money and they need a solution that gives them flexibility but also reduces the risk of running out of money before they die. And the way we want to help people solve this challenge is by splitting a person’s retirement into two distinct phases – an early part of retirement where people will have the flexibility they want and then a latter part of retirement where they will have the security that they are going to need. And we’ll do this through a guided retirement solution that provides members with three pots.

Firstly, there’ll be a Flexible income pot that will provide members with a regular flexible income in the early part of their retirement. And that will come from an income drawdown arrangement.

Then there’ll be a guaranteed income pot that will provide them with a guaranteed secure income in the latter part of their retirement. And that income will come from an annuity.

And then finally, there will also be an occasional spending pot that people can dip into if they need additional money on top of their regular income and that will be there for any unplanned spending.

Another area that we’re looking at is how to further diversify the investments in workplace defaults and enhance long-term performance for pension scheme members. This is a hot topic in the industry at the moment with lots of discussions around how illiquid investments, such as private assets and real assets, might be able to provide additional diversification benefits and enhance returns. And we’re working very closely with our investment management partners to see how we can incorporate more illiquid investments into our default strategies. We already invest in certain illiquid asset classes like direct commercial property and are exploring ways to further diversify our default solutions.

The role of ESG in pension provision is incredibly important. Pension providers are asset owners in businesses all over the world and have large stakes in these companies. And we strongly believe that those businesses that are aware of their environmental, social and governance risks and are managing them well are going to do better over the long term than those businesses that don’t, whether that’s reducing pollution, considering the social impact of their business activities on local communities or having robust governance processes in place - these are the types of businesses we want to invest in to help our customers achieve positive financial outcomes.

We also have a responsibility to help the businesses we invest in make the transition to become more sustainable, whether that’s building more diverse workforces or reaching net zero. And for us, providing positive financial outcomes for our customers and helping action positive change through responsible investing– go hand in hand.

Investment strategies that manage ESG factors well will not only have a positive outcome on the environment and society in general, but we believe they should also lead to superior investment returns over the long term.

There are several ways ESG can be integrated into the investment process. So, for example, dedicated ESG funds can be added to a solution to reduce carbon intensity, which is what we do with one of our default solutions.

In one of our other default solutions we use an optimisation framework to improve the ESG score of our passive portfolios versus their respective benchmarks. 

And then with the active funds, our portfolio managers consider ESG analysis on each company they may want to invest in alongside the more traditional financial metrics so that they can create a more holistic view of the company when making their investment decisions.

The other thing we consider very carefully is engagement and voting. And that’s because we believe we have a responsibility on behalf of our clients to engage meaningfully with the companies we invest in. And working with Aviva Investors, we’re known in the industry for our strong engagement and voting track record.

What is important is to integrate ESG into all investments within a default strategy and throughout a person’s journey to retirement, and this is what we look to do within our default solutions.