What is a vintage or fund life cycle approach in pension funds?

• A. A strategy that keeps asset allocation fixed throughout the member's life.
• B. A strategy that shifts from defensive to growth assets as retirement nears.
• C. A lifecycle strategy that gradually shifts asset allocation from growth to capital preservation as the member nears retirement.
• D. A strategy that focuses exclusively on short-term income.

Answer: (C)

The idea behind a vintage or fund life cycle approach is to manage risk by changing the investment mix as members age. Younger members start with a higher proportion of growth assets to pursue long-term returns, and the strategy gradually shifts toward more conservative assets as retirement nears to preserve capital and secure retirement income.

This de-risking path helps protect accumulated savings from market downturns close to retirement, aiming to keep the growth of the fund aligned with the member’s changing risk tolerance and time horizon. The option that describes gradually moving from growth to capital preservation best captures this process.

Fixed allocations do not adapt to age, so they don’t manage risk over time. Shifting toward growth as retirement nears would increase risk when it matters most, and focusing only on short-term income ignores the long-term goal of preserving capital for retirement.