JP Morgan launches income-focused TDF range

JP Morgan Asset Management is launching a dedicated UK defined contribution business centred around a series of target date funds that focus on income in retirement.

The manager, which has assets of over £19bn invested in its US target date funds, says the aim of the funds in its UK launch is to get the majority of scheme members to a target income replacement level at the point of retirement. The glide path of the funds has been built to reflect the manager’s research into member behaviour and uses active investment management across a wide range of asset classes.

Charges range from 0.6 per cent for the more aggressive earlier years of investment, tapering down to 0.4 per cent in the pre-retirement years. The TDFs are set up on a fund of fund basis.

The funds are being targeted at trust-based arrangements although the fund manager says they would be equally suitable for contract-based arrangements, subject to access being given to them through platforms. The provider, one of several US players believed to be planning TDF launches, says that 80 per cent of US DC schemes now have a target date arrangement as their default option.

As well as the complete target date fund offering, component parts of the glide path can be integrated into bespoke default funds or form part of a core menu of funds. These building blocks are actively managed funds of funds and include diversified equity, diversified fixed income, diversified real return and diversified alternative beta.

JP Morgan Asset Management head of DC Simon Chinnery says: “The prime differentiator for us with these funds is the focus on income replacement and the philosophy of getting the majority of members across the finishing line, as well as the institutional diversification we bring.

The key for us is to change the mindset that the ‘size of the pot’ is all that matters and instead focus on getting as many members as possible over the retirement finish line. As such, in preparing for the launch of UK SmartRetirement, we have captured the best of US practices and incorporated guidance from the DWP and the Pensions Regulator, with the overall aim of ensuring our funds are built with the member in mind.”

“The governance burden placed on DC schemes is extensive and we hope that the growth in target date funds will mean schemes can find relief to the extent that our funds are actively managed over the investment life of a member, meaning scheme sponsors can focus on critical issues such as encouraging saving and engaging with their members.”

The target date fund range will be managed by Katy Thorneycroft, portfolio manager for the Asset Management Solutions – Global Multi Asset Group at JP Morgan Asset Management.

Thorneycroft says: “We have designed the SmartRetirement glide path to target a specific objective: to help as many members as possible to a secure retirement. The way we test this is to look at income replacement as a measure. Based on our analysis, which is supported by DWP findings, most members will need a 70 per cent replacement income in retirement. Allowing for a 15 per cent contribution from the state pension, members will need about 55 per cent from their DC savings. We constructed the glide path using our proprietary long-term capital market assumptions and used income replacement as a measure to thoroughly test its ability to increase the number of members reaching a secure retirement.”