The roundtable covered a round up of our Investment strategy and key updates on 2024 acquisitions, we also discussed our retirement roadmap and the future options that will be available to members.

The presentations and live demo are available below to watch again or share with colleagues:

 

Speakers :
Hosted by Peter Jackson, Business Development Manager

Elizabeth Fernando, Chief Investment Officer
Mark Rowlands, Head of Retirement

The slides from the webinar are available here: December roundtable slides

During the roundtable we received some additional questions which we did not have time for, answers can be found below:

Q: Can you provide some more details about the changes to the Sharia fund? What has the addition of Sukuk bonds done to geographical/sector diversification, for example?

A: The Sharia Fund composition currently consists of 70% of global equities and 30% sukuk. Both funds are Sharia compliant and run by HSBC. A full sukuk fund overview can be found here: HSBC Global Funds ICAV – Global Sukuk UCITS ETF. The introduction of sukuk aligns with one of Nest’s key investment beliefs: that a diversified portfolio can help offer strong risk-adjusted returns. Adding sukuk bonds not only adds asset class diversification but also improves country and sector diversification. Nest members who wish to invest according to Islamic principles should have access to a diversified fund in the same way the rest of our members do.


Q: What level of private equity do Nest consider a safe level and considering ESG how do you influence these businesses in relation to the widely reported slash and burn from M&A activities? 

A: We are building towards approximately 30% in private assets generally – this is in line with the most mature and sophisticated Australian DC plans. Of that we think at least 10% in private equity could be optimal however risks and opportunities within the universe of private assets will evolve through time. We focus on growth and mid cap companies where our PE managers work with company management to grow the businesses, creating new jobs and improving their overall ESG credentials. One of the advantages of private equity is the more concentrated ownership structure compared to the highly dispersed ownership in public markets, which improves both influence and alignment.


Q: Your pension provider competitors are now looking at investing part of their portfolios into private assets. What would your fears for them be? Do you think there are enough good UK private asset opportunities to go around?

A: DB pension schemes, endowments and high net worth individuals have been successfully investing in private markets for many years. The lessons from their experience is you need to understand your risk tolerance and how you will manage the portfolio in stress scenarios eg when listed markets correct. There are plenty of private assets to go around in the UK and globally, it remains to be seen however whether there are enough fund managers who are prepared to reduce their fees so as to be affordable to all the DC plans which might want to invest with them.

Q: On the later life protected income element, how will Nest ensure they get good value for the deferred annuities given no one currently offers these in the UK?

A:We will ensure value for our members. We will achieve this by working with leading actuarial consultants who are advising us and working with us and the insurance industry, a competitive tender process and contractual protections.

Q: What income has the Guided Retirement Fund delivered, so far?

A: There isn’t a single response to this, as the rate is dependent on the age of the member and the underlying economic environment and forecast assumptions at that time. It is like how annuity rates change over time depending on the age of purchase and the economic conditions at the time of purchase.

Taking a broad-brush approach it has historically delivered income rates better or comparable to a 100% joint life level annuity. This is seen as a good comparison for the current approach as any member will bequeath all their remaining pot to their dependent, and this remaining pot has been calculated to be sufficient to sustain the same income level going forward (i.e. the dependent should receive an equivalent income level upon the passing of the original member).

Q: Is the income essentially a GAD rate?

A: No, this is too simplistic an approach compared to the current and future approach. The income level is calculated dynamically, factoring in age, historic returns and future market return and interest rate assumptions. It also importantly factors in the sustainability of the income level over the life of the member, which is not necessarily factored into GAD rate calculations.

Q: Have you assumed future increases in your income calcs or flat income with inflation risk?

A: The current approach does not include any future increases, nor does it hedge against inflation risk. For the current approach, it is assumed that the foundation of our member’s retirement income will be based on the state pension, which offers them a good level of inflation protection. By targeting a flat income this results in an initially higher income level compared to an increasing income pattern. Hence, following the assumption that retirees have a decreasing consumption over time and are in a better position (health) to enjoy their retirement at younger ages, having a higher income at the start of their retirement is more beneficial for our members than the alternative. And the state pension will provide them with some inflation protection over time.

The future approach has not yet been decided and is still under discussion and investigation as to what would be most beneficial for our members.


Q: I often ask my clients whether they would prefer having a sustainable level of income which essentially leaves them with the same amount of money at death as they started they often say no. They prefer to empty the account at date of death. So will there be a death benefit value for unused capital?

A: The design objective of the current and future solution is that members should expect to spend most or all of their pension pots in retirement. Our members are focused on income generation. The current design has death benefits on unused capital, the future solution will have full death value on unused capital not in the mortality pool, for any capital in the mortality pool, there will be a death value subject to a frictional cost, the details are being through currently and we’ll provide updates once finalised.