(1888PressRelease)
October 20, 2007 - The fund's chief investment officer told delegates at a conference that the Appia Capital fund is currently based on a uniform asset mix and indexation policy for all members. Reports state that Appia Capital is considering the move in order to avoid putting off younger investors.
Appia’s chief investment officer stated that a promising route to ensure continued interest in the fund would be to offer younger individuals a higher investment return and appropriate risk exposure while offering older individuals more certainty and less risk.
The issue comes to the fore as Appia Capital predicts that the fund's share of inactive participants in total liabilities will rise from 50% at present to 75% by 2010.
In January, Appia revealed a new investment framework, under which two portfolios will be established, to focus on liability hedging and risk optimizing. The chief investment officer said that by offering a weighted combination of the two portfolios it would be possible to accommodate different risk preferences, although how the scheme would offer this to investors is yet to be confirmed.
Turner pointed to basic defined contribution pension schemes in the US which have tackled the problems of members' differing risk profiles by establishing so-called "lifecycle approaches". As a rule, such strategies will automatically rebalance a member's asset allocation as they approach the maturity date for their policy. A common strategy is for firms to open multiple funds, each with different risk parameters, and to transfer members' assets from fund to fund as they get closer to retirement.
According to a marketing technical manager at UK pensions giant Standard Life, it is more common for closed defined benefit schemes to follow an age-based approach as it is easier to determine future changes in members' risk preferences.
"We do see a lot of closed defined benefit schemes moving into asset classes like gilts as their members get older."
“As open schemes tend to see a constant average age as new members enter and old members leave, it is rarer for them to take an approach focused on age,” he added.
###
