It has developed the blueprint following a far-reaching consultation, the Future of retirement, which gathered evidence from around the world on the needs of DC savers following the introduction of new pension freedoms by the UK government.
That consultation showed that for most savers contributing to a pension is ultimately about having an income when they stop working, but that access to ad-hoc cash lump sums is important. The consultation also found that both in the UK and abroad providers like NEST have an important role to play in ensuring savers can access income as standard when they come to retire, without locking them in.
Based on these findings, NEST has developed a blueprint for meeting its members’ needs as the scheme matures and members build up bigger pots.
A retirement income blueprint for NEST’s members sets out three building blocks to cover three phases of later life: from mid 60s to mid 70s, mid 70s to mid 80s and mid 80s and beyond.
These are:
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an income drawdown fund
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a cash lump sum fund
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a later life protected income fund
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Commenting, Mark Fawcett, NEST chief investment officer, said:
'Since the pension freedoms were announced the challenge to industry has been to help savers achieve a sustainable retirement income without removing freedom and flexibility.'
'We believe this is possible but it requires innovation. Many of NEST’s members are the first generation of savers who’ll rely almost entirely on their DC pots and their state pension in retirement. This makes it absolutely critical that we get this right for them.'
'We’ve developed an evidence-based blueprint for how to meet members’ needs. We hope this will stimulate the innovation necessary for us and others to deliver what members will need and want.'
Further detail on the three building blocks for the blueprint:
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An income drawdown fund – to provide a steady income that aims to protect members against inflation, as well as give them full flexibility to change their mind and withdraw some or all of their money.
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A cash lump sum fund – to be highly liquid so it can be used by members for unexpected events without impacting their core income stream. If market conditions are good in the drawdown fund then this pot can be topped up with additional lump sums. This would be a fund from which members could move money in ad hoc lump sums into their bank account to use as they like.
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A secure later life income fund – to be ‘bought’ gradually over time through small payments from the drawdown fund. This would remain refundable up to a certain age, at which point that money is locked in to ensure a secure income is available for the remainder of a member’s life to protect against the risk of running out of money before they die.
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