#### Duke of Marmalade

##### Registered User

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Now that the Bill has been published we have a better idea of what the default investment strategy (DIS) will be:

First of all one has to say that this is a heck of an improvement on NEST in the UK with its 40+ lifestyling funds. But it is an extremely flexible description. Typically one takes the risk (volatility) of a 100% equity linked fund to be 20% or on the border between rating 3 and 4 in the above Table. Higher than 20% indicates either gearing of a 100% conventional equity index or a very racy investment strategy. (Even bitcoin with a volatility of 65% wouldn't make the cut for rating 7 ) .

So at one extreme the DIS would take a higher risk than 100% in a typical equity index up until 15 years before retirement, 100% conventional equity until 5 years before retirement and then 50% equity thereafter (for nerds 5% volatility = 1/2 of a volatility of 20% = square root).

At the other extreme it could mean 100% conventional equity up until 15 years before retirement, 50% conventional equity until 5 years before retirement and cash thereafter.

If the PRIIPS risk ratings are what is being referred to here, these are they:AE Bill said:(3) Subject tosubsection (7), the risk levels for the purposes of this Part are:

(a) the higher risk level, consisting of AE provider schemes with a risk rating of 5, 6

or 7;

(b) the medium risk level, consisting of AE provider schemes with a risk rating of 3

or 4;

(c) the lower risk level, consisting of AE provider schemes with a risk rating of 1 or

…

(4) Wheresubsection (2)does not apply[that is where the punter did not choose a risk level as over 95% do not in the UK], the appropriate risk level, subject to

subsection (5), is:

(a) where the period before the participant reaches pensionable age is more than 15

years, the higher risk level;

(b) where that period is 15 years or less, but more than 5 years, the medium risk

level;

(c) where that period is 5 years or less, the lower risk level

First of all one has to say that this is a heck of an improvement on NEST in the UK with its 40+ lifestyling funds. But it is an extremely flexible description. Typically one takes the risk (volatility) of a 100% equity linked fund to be 20% or on the border between rating 3 and 4 in the above Table. Higher than 20% indicates either gearing of a 100% conventional equity index or a very racy investment strategy. (Even bitcoin with a volatility of 65% wouldn't make the cut for rating 7 ) .

So at one extreme the DIS would take a higher risk than 100% in a typical equity index up until 15 years before retirement, 100% conventional equity until 5 years before retirement and then 50% equity thereafter (for nerds 5% volatility = 1/2 of a volatility of 20% = square root).

At the other extreme it could mean 100% conventional equity up until 15 years before retirement, 50% conventional equity until 5 years before retirement and cash thereafter.

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