Nest outlines investment plan

Trustee members of the National employment savings trust (Nest) have set out its investment approach.

Key elements of Nest’s Statement of Investment Principles for its retirement date funds (the default fund option) includes: seeking to achieve performance in excess of inflation for the majority of members over the long term, recognising different phases in an individual’s savings career, and proactively managing many different risks.

Nest will seek to ensure that older members’ money is invested in a way that looks to best match when and how they will take their retirement benefits, and will look to reduce the possibility of extreme investment shocks for all members, in particular the youngest and those closest to retirement.

In addition to the default fund, Nest will provide a higher risk fund, a lower growth fund, an ethical fund, a Sharia-compliant fund and a pre-retirement fund.

Lawrence Churchill, chair of the Nest Corporation, said: “To reflect our diverse future membership Nest’s investment approach combines the reassurance of a carefully-managed investment approach for the majority who don’t want to choose, with a set of focused choices for members who do want to.”

Chris Hitchen, chair of the investment committee of the Nest Corporation, added: “We carried out extensive research and wide consultation to ensure we put our members at the heart of our investment approach. That led us to develop clear and appropriate objectives and put in place a robust and efficient infrastructure to deliver them.

“This is an excellent starting point and will provide Nest with solid foundations for the future.”

Brian Henderson, European head of defined contribution (DC) pensions at Mercer’s investment consulting business, said: “Nest’s decision to start members off with a low-risk strategy is certainly different to traditional DC strategies.

“On the face of it this appears a sensible approach given the research undertaken on the profile of Nest’s membership. However, the challenge will be taking care not to undercook the low-risk start, especially in light of the initial charges. Without sufficient growth to overcome the initial entry fees there is a potential risk that the early year low-risk foundation stage could linger.

“In our view, Nest will have to strike a balance between the risk of not building up enough funds for the members and of losing money through risky investments in the early years. A solution to this problem would be to ensure the scheme offers a range of truly diverse growth-based assets that will help manage the volatility of the returns.

“We are very encouraged by Nest’s decision to offer a global ethical fund. As interest in responsible investment continues to grow, the Nest ethical fund will provide a high profile and easy access product for this investment approach to an increasing number of potential investors.”

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