LifePath is a target-dated investment strategy that automatically manages a member’s savings from their early working life, through to retirement.
Aegon BlackRock LifePath Flexi is the preferred default for TargetPlan contract and own trust schemes, as well as the Aegon Master Trust. Members will be put into a target-dated version of the fund that includes the year they’re retiring in. So, for example, someone retiring in 2074 would be put into the 2073 to 2075 version of the fund.
We believe, along with the AMT trustees, that most scheme members will value the flexibility that Aegon BlackRock Lifepath Flexi offers over alternative strategies, such as those targeting annuity purchase or cash. Although, LifePath does offer all three options.
How the Aegon BlackRock LifePath strategies work
There are three LifePath strategies:
Aegon BlackRock LifePath Flexi (default)
This strategy is aimed at members who intend to stay invested after they reach their target retirement age, with a view to taking income from their pension pot.
Aegon BlackRock LifePath Retirement
This strategy is aimed at members who intend to buy an annuity with their pension pot at retirement.
Aegon BlackRock LifePath Capital
This strategy is aimed at members who intend to cash in their entire pension pot at retirement.
Each of the LifePath strategies works in three stages:
Early career
When members are still at the early stage of their career, the strategies focus on growth, investing largely in equities (company shares).
Historically equities have provided greater long-term growth potential than lower risk asset classes, like fixed income securities (government and corporate bonds) or cash. But there’s no guarantee they will in future. The strategy takes this risk early on because members’ savings have time to recover from any market shocks, although there’s no guarantee.
Mid-career
As members progress through their career, the strategies focus on building wealth by introducing greater diversification, combining growth assets (like equities) with investments designed to offer a degree of downside protection (like bonds).
Approaching retirement
As members get closer to retirement (within 10 years), the Aegon BlackRock LifePath Flexi fund gradually moves into what are generally considered to be lower-risk investments. This could include, for example, government and corporate bonds – loans to governments and companies from the UK and overseas.
The Flexi fund continues in this way until it reaches approximately 40% in global equities and 60% in bonds (also known as fixed income securities) at each member’s target retirement age. Around 45%¹ at this stage will be invested in funds incorporating ESG screens.
The fund will maintain the same 40%/60% mix into retirement and assumes members will want to remain invested and drawdown an income from their savings. We believe this mix provides a balance between risk and potential returns that can help guard against the effects of inflation, as well as supporting income withdrawals, although there’s no guarantee.
The value of members’ savings and any income isn’t guaranteed and may fall as well as rise in value. They could run out of money. Moving into lower-risk investments could also mean they miss out on some growth if markets go up.
How the Aegon BlackRock LifePath Flexi changes as members approach retirement
As members get closer to retirement (within 10 years), the Aegon BlackRock LifePath Retirement fund gradually reduces the amount invested in equities and moves into a mix of government and corporate bonds.
In the final two years, the Retirement fund moves a proportion into cash investments to cater for a member’s tax-free cash entitlement (currently up to 25% of the total value). This means they will end up with an investment split of 75% bonds and 25% cash at their target retirement age. Around 45%¹ at this stage will be invested in funds incorporating ESG screens.
This mix aims to ensure that, even if the value of a member’s retirement savings goes down just before they retire, the size of annuity they can buy should stay broadly the same, although this isn’t guaranteed.
The strategy isn’t designed for long-term investing after members have retired. The ‘spending power’ of their retirement savings may be eroded by inflation if they leave it too long before they buy an annuity.
This information is based on our understanding of current taxation law and HMRC practice, which may change.
How the Aegon BlackRock LifePath Retirement changes as members approach retirement
As members get closer to retirement (within 10 years), the Aegon BlackRock LifePath Capital fund automatically changes focus from a growth objective to capital preservation.
The Capital fund gradually moves out of equities and bonds until it’s 100% invested in cash-like investments at their target retirement age. It’s designed for those who intend to take all their retirement savings as a cash lump sum.
This strategy isn’t designed for long-term investing after members have reached their target retirement age. The ‘spending power’ of their retirement savings may be eroded by inflation if they leave it there too long. Moving into lower risk investments could also mean they miss out on some growth if markets go up.
Any cash taken above 25% of their pension pot will be taxed as earned income. This information is based on our understanding of current taxation law and HMRC practice, which may change.
How the Aegon BlackRock LifePath Capital changes as members approach retirement
All three strategies, Flexi, Retirement and Capital invest identically in the early and mid-career stages. As members approach retirement, the strategies invest differently.
There’s no guarantee the fund will meet its objectives. The value of investments and any income taken, can fall as well as rise and isn’t guaranteed. The final value of a member’s pension pot when they come to take benefits may be less than has been paid in.
LifePath’s responsible investment credentials
Over the past two years, we’ve worked closely with BlackRock to move assets in the LifePath default strategies into funds incorporating environmental, social and governance (ESG) screens.
As at December 2022, 80% of assets in the early years and 45% in the retirement stage fund have been moved into funds incorporating ESG screens1.
An average of 66%1 of assets across all LifePath target-dated versions are managed to ESG mandates. We plan to increase these levels over the coming months and years, in line with the LifePath climate objective that states the funds will aim to target an absolute reduction of 50% in carbon emissions intensity by sales, over the 10-year period between June 2019 to June 20292.
This aligns with our commitment, made in 2019, to reach net zero by 2050 and to halve emissions by 2030 for our default funds.
Why BlackRock?
BlackRock, like Aegon, has committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner. It’s an active steward of the funds it manages and a member of the Net Zero Asset Managers Initiative.
BlackRock has invested significantly in its 70-strong investment stewardship team. Their team engages with companies on effective corporate governance and how companies are managing material sustainability-related risks and opportunities. It has $586 billion in assets under management (as at December 2022) in dedicated sustainable strategies3.
¹As at December 2022.
²The current intensity metric to be monitored is intensity by sales, however there is flexibility within the prospectus for this to change through time. ‘Intensity by sales’ measures the volume of a company’s carbon emissions divided by its total revenue, so CO2 emissions / $M revenue.
3BlackRock Sustainable Investing, global statistics as of December 2022. All values in $USD. Comprised of uplift, thematic, impact strategies and selected priority screened products.