Is a pension scheme default investment strategy the right fit for you?

With the implementation of auto-enrolment, more architects are now able to save for their retirement. As a result, employers are responsible for selecting the scheme that best suits their practice as they are only obligated to offer one pension scheme for employees to join.

The scheme chosen by practices should be easy to join, safe and secure, and effective with easy access. There are plenty of options in the investment market, but not all of them will be right for your practice.

RIBA Business partner, Corpad Employee Benefits Limited, provide pro-active advice on a one-to-one basis and offers the below advice when it comes to finding the scheme that works best for your needs, whether you're a sole practitioner or a practice with employees.

Default strategies may not be the best approach for everyone

When it comes to managing your pension, many providers offer access to a default investment strategy. This removes the complexity of deciding where to invest your pension contributions. These strategies are usually what employees are first enrolled on to, even if there are other choices available.

These pre-defined strategies often assume that employees will opt to purchase an annuity in retirement, which provides a guaranteed income for life. However, recent changes to pension legislation mean that you can access your pension much more flexibly, making the default strategy potentially less suitable for many practices.

One common challenge for those nearing retirement is witnessing the value of their pension fund decline. This happens because the default investment fund is designed to preserve purchasing power for annuities.

These funds heavily invest in government bonds, which tend to fall in value as interest rates rise. While annuity rates improve with rising interest rates, people often overlook this and focus on the decline in their pension fund value, without realising they could potentially purchase a similar income as before based on improved annuity rates.

Considering that most retirees no longer opt for annuities and prefer not to see their pension fund decrease in value as they approach retirement, it is essential to question if the default investment strategy aligns with your own retirement goals. Therefore, it is advisable to review your pension investments to ensure they match your retirement aspirations.

The RIBA Pension Solution

For sole practitioners and larger practices who feel that the default investment strategies may not be right for them, Smart Pensions may be the perfect alternative.

RIBA have partnered with Smart Pension to provide a workplace pension scheme suitable for auto-enrolment. Smart Pension aims to invest in a sustainable way, which takes into account environmental, social and governance (ESG) considerations. When investing, Smart Pensions think about:

• the financial risks associated with environmental impacts such as climate change
• social impacts which are issues affecting the fair treatment of people
• governance, which considers the way that companies are run

Some of their funds not only consider these risks but also look to invest in companies and projects that provide solutions to our environmental and societal issues.

This is the difference between investing in a company that is reducing its carbon emissions by using renewable energy and investing in a company that is producing renewable energy, for example, a wind farm.

Smart Pensions default investment strategy contains 100% ESG funds. Like many other providers, they also offer a range of additional funds that you can choose from. You do not have to use one of their investment strategies – you can choose your own investments from a selection instead.

If you do choose your own investments, it is important to keep an eye on them, and you may want to take advice and consider changing them along the way if you think it is necessary.

Taking independent financial advice

While there are alternative funds available for self-selection, most individuals may not know where to start when choosing the strategy that works best for them or their wider practice.

If you find yourself in this situation, seeking independent financial advice is a prudent step. A professional advisor can help you determine the best investment options to achieve your retirement objectives. They can explain risk levels and provide historical performance data so you are well-informed and better able to make a decision.

An Independent Financial Advisor has the expertise to recommend the most suitable fund selections by examining the entire market and comparing alternatives that better align with your specific circumstances.

They can also review any other pension funds you may have, offering a comprehensive financial perspective. It is helpful to take advice at these key stages in your career:

• when you begin saving into a scheme or are ready to start
• if you change employers and have more than one pension pot
• leading up to retirement (15 years before is a good time to review plans and again at 10 or five years)
• when you reach retirement and need to know options on accessing your money

RIBA Business selected partner Corpad Employee Benefits Limited is an independent financial advice team that is always on hand to assist members with any query and can provide regular pro-active advice on a one-to-one basis throughout your career as well as at the retirement stage.

Corpad also provides help to practices by offering advice on the full range of employee benefit options, sourcing the best terms for any additional arrangements, and offering a full range of services to individuals. As a benefit to RIBA Members, quotes can be provided with no obligation.

If you're unsure about your pension investment strategy or would like to seek guidance on alternative options, contact Corpad directly at ceb@corpad.co.uk or + 44 (0)113 387 0112.

Find out more about our RIBA Pension Solution or contact the RIBA Business team at ribapension@riba.org for further information.