A mixed start to 2023
Markets proved to be more resilient in 2023 compared to how they ended last year. That being said, investment market conditions remained somewhat difficult with continued fluctuations in the value of underlying assets and consequentially fund unit prices. The issues in the banking sector in Q1 showed some of the negative impacts higher interest rates can have on the economy. There is also a risk that banks continue to make it more difficult to access credit by tightening standards – making it harder for companies and households to borrow.
The path from here remains uncertain, with tension between China and the US and continued whispers of global recession. The debate as to whether economies will enter recessions and how deep these could be continues. So far, economies have been holding up generally better than expected. But whether they can continue to do so as the impacts of higher rates keep feeding into the economy is an open question.
In Q1 2023 our funds achieved similar positive returns to those in Q4 2022 which has reduced the extent of the one-year negative returns. Members reaching their retirement age this year will now have received positive returns when viewed over the last three years. As always, the key thing we’d urge our members to do is to view pensions savings as a long-term endeavour. Despite exceptional volatility over recent years our funds have still delivered good returns over the 10-year period to 31/3/23.
Strength in diversification
We believe, now more than ever, that well diversified funds are the best strategy by which we can deliver good, inflation-beating returns for our members over the long term. We continually evolve and improve the sophistication of our award-winning default fund strategy. This includes increasing the proportion of our assets that are invested in private market and illiquid assets. Nest’s scale and expertise enables us to include these assets at attractive prices, giving our members access to assets previously only available to large defined benefit schemes. We remain confident that in the long-term our funds will continue to meet their performance objectives.
It’s also worth remembering that, most members will benefit from contributions from their employer as well as from tax relief they receive. These additional contributions mean a workplace pension can be one of the most effective ways to save.
The power of good governance
Nest Invest Limited is an FCA authorised subsidiary and provides Nest Corporation with investment advice. Nest’s Trustee Investment Committee is also a key part of our governance framework.
The Investment Committee’s latest quarterly meeting took place in February and reviewed Nest’s investment performance and plans. One agenda item was to approve Nest’s latest Voting and Engagement Policy document. Nest owns assets, including shares in UK companies, these give us a say in how they’re run: through voting rights and engaging on how they operate. We believe companies with sound corporate governance and those that consider their impact on society and the environment, have a better chance of sustaining long-term economic success and therefore deliver good returns for members. Nest’s Voting and Engagement Policy sets out how we will engage with companies and the principles by which we will exercise our voting rights. Areas within the Policy that are being updated include Nest’s stance on board diversity, climate voting, natural capital, tax management & reporting and pay & reward.
Our performance vs the market
Capa have published the risk and return figures for most pension providers at 31 December 2022. The chart below shows 5-year gross annualised risk and return figures for a member 30 years from their retirement date – so in Nest’s case they will be invested in our Growth asset allocation. The chart shows Nest is delivering returns in line with market average but doing so whilst taking significantly less investment risk than most others. Nest’s figures compare particularly well with the UK’s top 10 pension providers where we have delivered above average returns, again at lower risk.
Nest now invests over £30bn on behalf of our 12 million members, making us one of the biggest pension schemes in the UK. We give our members access to the kind of investments that are usually only available to the largest investors, including those that aren’t listed on the market. This also allows us to keep our charges low, maximising pot growth potential.
The value of investments may go down as well as up and the return of your investment is not guaranteed. Fluctuations in financial markets, currencies and other risks may cause fluctuations in the value of investments. Any fund objective or target should not be considered as guarantee of performance of any fund. Derivatives may also be used for efficient portfolio management purpose.
This document does not constitute advice on whether to invest in these funds. Neither this document nor any data contained within this document is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. You may wish to consult with an appropriately qualified financial adviser in relation to your investments and any change to them.
This document has been created by National Employment Savings Trust (Nest). This document is valid as at the date of its publication. This document and data contained within this document is provided for information purposes only and may not be reproduced or extracted or used for any other purpose.
This document includes and/or is based on data that is owned by and obtained from third party sources. Data from third party sources is provided “as is” and is not verified by Nest. Additional disclaimers which apply to the third-party data are available on our website nestpensions.org.uk
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