Creating Rolls Royce’s innovative TDF structure for DC members 

Rolls-Royce wanted to give members of its £1 billion defined contribution (DC) pension scheme the clearest possible path to retirement. We helped negotiate a tailored structure with BlackRock that increased transparency of returns to support engagement and also improved value for members.

The issue

The FTSE 100 engineering group asked us to review options for Rolls-Royce Retirement Savings Trust’s default strategy. The company’s priorities included:
  • Offering scheme members a transparent view of their financial position throughout their membership of the trust
  • Using targeted, active communications to keep individual members informed about and engaged with their pensions
  • Retaining the scope to offer members greater flexibility when they reach retirement

Rolls-Royce decided to adopt target date funds (TDFs) as the default option for scheme members who don’t make their own investment choices. TDFs automatically shift a member’s pension pot from growth-focused investments to lower-risk assets over a 15-year path to a chosen retirement date.

However, asset managers usually offer TDFs in sleeves of three or five years within which each member is placed based on their selected retirement date. That means, depending where a member’s chosen retirement date sits within that sleeve’s three- or five-year date range, they could miss out on a significant period of returns from growth-focused funds. It also makes the goal of timely, life-stage communications harder to achieve.

The outcome

Rolls-Royce selected BlackRock to manage £840 million of TDFs for 34,000 scheme members in the default strategy.

Here are some of the benefits to Rolls-Royce and its scheme members:

  • The bespoke structure gives each DC scheme member a highly transparent view of their path to State Pension Age.
  • The one-year TDFs enable Rolls-Royce to pinpoint communications to keep members on track for the retirement they expect.
  • The substantial fee reduction for members helps maximise the size of each member’s pension pot.
Please get in touch if you’d like to hear our ideas about how to improve the design of your DC pension scheme and achieve better value for your members.
Tej Patel

- DC Investment Consultant

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