By Tim Jones, CEO of NEST
2011 was a big year for pensions and a big year for NEST. The Government confirmed its approach to introducing automatic enrolment and NEST went live. We’re currently working with more than 100 employers that want to use NEST early. Many of these employers are putting in pension arrangements and getting ready for automatic enrolment many years before they have to, which is really encouraging. You can see case studies of some of these employers on our Youtube channel www.youtube.com/user/nestpension?ob=5#p/u
We’ve launched NEST in low volumes with small numbers of volunteer employers to help us make sure that the scheme works well in practice and provides the functionality that members, employers large and small and, of course, our members require. What’s really exciting is the feedback we’re getting from our earliest customers – it’s been very good so far and we're evolving our systems continuously to make them ever better. We’re very grateful to all of our employers and members for the feedback they are giving us.
For NEST, the coming year will see the scheme take on increasing volumes of employers of all sizes and sectors. We’ll continue to refine our processes for employers and members, aiming to ensure we’re easy to use no matter which way an employer decides to use NEST, and that all our members can expect a straightforward and empowering experience.
Preparing for change
Following the Government’s confirmation, we know that generally, all employers, whatever their size, will be subject to the new duties to provide a pension scheme and make minimum contributions for certain workers. The Government has made it clear that more than half of all workers – around five million people - will be automatically enrolled before the end of this Parliament and that automatic enrolment will be introduced from October this year. This means that consumer awareness of changes to workplace pension schemes should grow and automatic enrolment should also move up the priority list for all employers and those responsible for supporting their pensions decision making.
The final timetable outlining how when the new duties will apply to different employers will be made available by DWP and The Pensions Regulator shortly, so how should employers start to prepare for the new pensions landscape that begins to take shape this year?
To help employers get started, NEST has developed an Employers’ guide to automatic enrolment which suggests a few questions to consider when looking at the options. You can download a copy of NEST’s Employers’ guide to automatic enrolment on our website: http://bit.ly/NESTEmployersGuide
Supporting employers in making their 2012 choices will be about assessing a range of features of any new or existing pension arrangement, including understanding the ease of administration, the way the scheme communicates with members and also its investment approach. We’ll provide a closer look at NEST’s investment approach and the way we communicate it below.
Developing investment communications
Towards the end of last year we made available a new range of NEST fund factsheets, aimed predominantly at advisers, at http://www.nestpensions.org.uk/schemeweb/NestWeb/public/aboutUs/contents/other-funds.html
These factsheets provide more detail on NEST funds in terms of asset allocation, risk management and top holdings, among other areas. We have factsheets for all of our alternative fund choices – Ethical, Sharia, Higher Risk, Lower Growth and Pre-retirement - and for a selection of NEST Retirement Date Funds and we’re working towards providing factsheets for each NEST Retirement Date Fund as we test our current selection and see what works for our audiences and we’ll be updating each factsheet quarterly.
To recap, NEST’s default strategy consists of NEST Retirement Date Funds – individual funds for the years a member might retire in – with clear return objectives and a carefully managed risk profile. The objective for the NEST Retirement Date Funds is to target investment returns in excess of inflation after all charges over the long term. We aim to deliver this objective over the lifetime of saving through three phases: Foundation, Growth and Consolidation.
In the Foundation phase, the objective it to keep pace with CPI after charges. This represents a lower-risk start for younger members which, our research tells us, is likely to encourage persistency.
As members get older, their NEST Retirement Date Funds will transition out of the Foundation phase and seek returns in excess of inflation throughout the Growth phase. Lifetime savers with NEST will spend the majority of time in the Growth phase. The specific objective will be to outperform inflation by 3 per cent over the long term. This is the longest phase where we will look to maximise investment performance whilst avoiding extreme shocks while providing the opportunity for members to benefit from global economic growth through exposure to, primarily, return-seeking assets.
One of the elements included in the fund factsheets is information about the lifecycle of the funds. This makes it clear that although the information in the factsheet is a snapshot showing one quarter, for any of the funds with lifecycling, there will be a journey of risk management throughout a member's time saving with NEST. Over the years we will also show where the fund has come from, in terms of its position on its particular glide path, as well as showing where we expect it to go to.
Throughout this year and beyond we’ll continue to develop our communication approach to members, employers and those responsible for advising employers, based on research and customer feedback.
2012 is another huge year for pensions and while it may not have the immediate feelgood factor of London 2012, the new employer duties are an Olympian leap forward for the retirement aspirations of millions.
This article was taken from the latest edition of the Actuarial Post Digital Magazine which can be viewed below:
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