Lifestyle And Target Dated Funds

Question 1

Explain why employer scheme balanced lifestyle fund may not be suitable for Jane (8)

Answer 1

• it assumes an annuity will be purchased
• at 65
• Jane plans to retire at 60
• although will probably buy an annuity (ATR)
• the fund will gave equity in it at that point and disinvestment may occur during a market fall
• fund switches are automatic
• taking no account of market conditions
• balanced lifestyle fund likely to have a higher equity content than Jane is Comfortable with

Question 2

Explain how target sate funds work and how they may not be suitable for Nick (8)

Answer 2

How it works:

• member chooses a target date that coincides with their retirement date
• whole fund is de-risked as the date approaches
• on assumption member will take full PCLS
• And purchase and annuity
• fund is actively managed
• meaning the manager can take account of market conditions

Why unsuitable for Nick?

• nick has an adventurous ATR
• unlikely to be a TDF which fits his ATR
• he is unlikely to purchase and annuity