Investment markets have been volatile this year, particularly in September and most asset classes have recorded falls in value. As a result, Nest funds, like other funds across the industry, are showing falls over recent periods.
Bond markets have shown exceptional volatility this year and recent rises in interest rates mean a reduction in the value of previously issued fixed income securities that pay rates of interest lower than equivalents today. For example, higher expectations for interest rates and inflation in the UK has led to the UK Government Gilt market losing about 30% in value year-to-date. Nest is not a significant investor in UK Government Gilts so there has been less direct impact than other pension providers. But this trend is evident across fixed income markets and has impacted the value of our corporate bond investments. This has greater effect for members close to retirement, as part of our de-risking programme results in an increasing percentage of the fund being invested in bonds.
We expect more normal investment conditions to return as investors gain greater clarity over the outlook, but it will take time and there’s greater uncertainty as to when that might happen than usual. Members in our 2022 fund will either be those whose state pension age is this year, or others who have chosen this fund as matching when they want to start drawing on their Nest savings. However, it is worth remembering that our 2022 fund will remain open for existing members until 30 June 2023 when they will move into our Post Retirement Date Fund or NGRF. Nest will continue to look after their money and does not force them to take their savings at a time when markets have dipped.
We always encourage our members to take a long-term view of investment performance and performance is still positive over longer terms. The latest available Capa data is as at 30/6/22 and as you can see from the chart below Nest has above average returns at significantly lower risk levels – particularly so when compared with the other major, top 10, DC pension providers.
Nest’s de-risking approach is also becoming more sophisticated with the addition of new asset classes such as private credit and infrastructure. The value of these investments is not as directly linked to the above market conditions as publicly quoted fixed interest investments.
Nest now invests over £25bn on behalf of our 11 million members, making Nest one of the biggest pension schemes in the UK and giving our members access to the kind of investments that are usually only available to the largest investors, including investments that aren’t listed on the market. Our members also benefit from deals that only large investors get, allowing us to keep our charges low. And by keeping charges low, more of members’ money gets invested, meaning there’s more to grow.
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.
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