Trying to shield policyholders from the extremes of market volatility isn’t a new idea. It’s been around for at least 200 years, since the advent of traditional with-profits funds in the early nineteenth century. These funds still follow the same basic recipe: holding back some investment returns in ‘good’ years to support payouts in leaner ones.

But smoothing has come a long way since then. While the popularity of with-profits has shifted over time – shaped by short-term market conditions, changing attitudes to risk, and events like the mortgage endowment mis-selling scandal of the 1990s – smoothed funds now offer a more contemporary approach. They’re designed to deliver steadier returns while addressing many of the drawbacks associated with traditional structures. For advisers and their clients, these may include relatively high costs, along with perceived lack of liquidity and transparency.

Today, the range of tools available to smooth returns is broader – and more precise – than ever. Among them is the mechanism used by the Standard Life Smoothed Return Pension Fund: the estimated growth rate (EGR). But more on that later. First, we’ll consider the investment landscape and the catalysts for smoothed fund development.

Why stability still counts

Investors are facing uncertain market, economic and geopolitical conditions, so comparatively lower-risk investment options appeal to many. Advisers also looking for ways to deliver medium-to-long-term capital growth for a particular group: those fast approaching, or already in, retirement who still want or need to keep their pension savings invested.

This group is typically more risk-averse than those with decades left to accumulate, but the potential for medium to long-term capital growth at close to market rates still appeals to them. They – and their advisers – must also consider how best to mitigate the effects of market volatility, especially as they draw income in retirement.

A smooth entrance?

To understand how we arrived at today’s sophisticated smoothing strategies, it’s worth looking back at the turning point in the early 2000s.

That’s when smoothed funds first appeared as a clear alternative to traditional with-profits products. They aimed to be more transparent and flexible, using straightforward methods to smooth out market bumps and deliver steadier returns. Unlike older versions, these funds often separated smoothing from guarantees, making it easier for advisers and clients to interpret how returns were managed.

Some smoothed funds, like the Standard Life Smoothed Return Pension Fund, are unit-linked. Others form part of the provider’s overall with-profits strategy, and in this case, bonuses depend on the performance of that broader strategy. Providers can generate bonuses in different ways, such as by redistributing profits each year or through annual mutual declarations. These bonuses aren’t guaranteed, but once added, they can’t be taken away.

On the other hand, unit-linked smoothed funds work more like regular multi-asset funds, so many of their features will feel familiar. Because their value is directly linked to the underlying investments, they tend to move more closely with the market. And when volatility sets in, that’s when their smoothing mechanisms come into their own.

Estimated growth rate - removing the rough guesswork

An EGR, like the one used by the Standard Life Smoothed Return Pension Fund, is designed to give advisers and clients both transparency and a steadier investment journey. You can always check the current EGR here.

Standard Life sets the EGR each year, based on long-term forecasts for the fund’s underlying assets, and reviews it every quarter. It generates these forecasts using a proprietary capital market assumptions (CMA) tool and then compares the output to that produced by other specialist CMA providers. These forecasts come from specialist external asset managers.

Typically, the smoothed unit price should rise in line with the EGR, after charges. We also make sure the smoothed and unsmoothed (market value) unit prices don’t drift apart by more than 10%, and we check this daily. If markets move sharply, we can adjust the smoothed price to bring it back within 2.5% of the unsmoothed price.

On top of that, we run an extra check twice a month to ensure the prices haven’t diverged by more than 5%. If they have, we’ll adjust the smoothed price to halve the gap.

Since the fund launched in January 2024, we’ve adjusted the smoothed price four times. Three of those were increases – in October 2024, July 2025, and September 2025 (by 2.63%, 3.07%, and 2.75% respectively). In April 2025, however, we reduced it by 2.8% in response to market uncertainty around US trade tariffs.

For clients, the EGR offers a clearer, more predictable investment experience. By providing a transparent, forward-looking guide to potential returns without relying on market timing or reactive decision-making, it helps manage their expectations. This can be especially valuable for those in or approaching retirement, who may be more sensitive to market volatility and sequencing risk. By using the EGR, advisers can support more meaningful planning conversations – helping clients stay invested with greater confidence and less emotional strain, particularly during periods of market uncertainty.

Smoothing the way ahead

We’ve seen that smoothed funds have come a long way from their with-profits origins, evolving to meet the needs of today’s investors and the challenges of tomorrow. By combining transparency, flexibility, and robust smoothing mechanisms, they offer a compelling option for those seeking steadier returns in uncertain times. Whether you use them to dampen the effects of market volatility or to match an individual’s lower risk tolerance, they’re designed to keep investors on track – by smoothing the way ahead.

The Standard Life Smoothed Return Pension Fund is available exclusively through the Fidelity Adviser Solutions platform.