More than five years have passed since the UK’s largest employers went through the process of automatic enrolment.
A number of these are starting to review the decisions they made, and some are considering if those choices are still giving their employees the best possible outcomes at retirement.
Something that should be top of the ‘Must Have’ list when considering a switch is the strength of the default fund, as over 90% of people automatically enrolled into a workplace pension scheme default fund remain there.
This means default funds should be the best option on offer, not a last resort or backstop fund. The challenge is how to align what has traditionally been a ‘one-size-fits-all’ single default fund model, with the varying needs of a broad and diverse membership.
Targeted default fund
Mark Fawcett, NEST’s chief investment officer, says NEST’s approach to the problem of personalising the default offer to members has been through introducing a unique series target date funds.
When a worker enrols with NEST their money is invested in a Retirement Date Fund based on the year they are expected to retire.
This allows NEST to maximise members’ pension pots by taking the right investment decisions on their behalf at different stages of their path to retirement. The default strategy is split into three distinct phases to ensure that the level of risk taken is appropriate with the life stage of each member.
NEST uses a broad range of global investments to diversify members’ pots and offer them good return opportunities. The split between assets in each member-facing fund is managed dynamically by the NEST in-house team according to market and economic conditions.
NEST is confident that its target date funds – which are constantly reviewed to ensure every individual member is benefiting to the fullest – deliver the right solution for their members given the ease of understanding, level of service and targeted investment approach they provide.
Delivering long term value
While NEST’s recent returns have been market leading, providers need to have a clear long-term investment perspective and not focus on short-term returns. Savers want to know that their money will grow in value with the security that their savings will be there at the end of their working life. As such, prudent risk management is key.
NEST’s approach is to refrain from taking undue risk with its member’s money and provide long-term pension investment planning with a focus on risk-based asset allocation.
A strong in-house investment team can help align this strategy to members’ needs. They can also deliver value for money, making smart decisions about what to do in-house and where and how to get best value in the market.
Some of the largest and most sophisticated institutional investors and pension funds around the world have in-house specialist teams. Scale gives these providers scope to keep charges low and to offer a more flexible and tailored service.
NEST believes it is providing the right solution for employers looking for value for money in their pension provision and to give their workers the best hope of a more prosperous retirement.