Personal PensionJul 25 2013

Nest admits 99% of cash in default fund

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National Employment Savings Trust, the government-backed auto-enrolment scheme provider, has revealed that 99 per cent of the 300,000 people that have so far begun making contributions are opting to use the default fund, raising questions over the effects of a lack of financial advice.

Only 1 per cent of all cash that has come into Nest so far has not gone into the Retirement Date fund, while nobody has selected the Lower Growth fund.

Of the cash that is not in the Retirement Date fund, most of the contributions are heading to the Ethical and Higher Risk fund, with only about 100 people so far putting cash into the Sharia fund.

When quizzed about whether the 1 per cent who choose a fund other than Retirement Date were receiving financial advice, Mark Fawcett, chief investment officer of Nest, admitted many of those in the alternative offerings are Nest staff members. He said he would guess that they had not received financial advice.

He added, however, that the default fund was designed to be used by many and that he would expect that the majority, even if they took advice, would stick with this option.

Mr Fawcett, a former partner at boutique investment manager Thames River, said: “Our aspiration is that people making fully informed decisions would still choose it [the Retirement Date fund].

Paul Todd, head of investment policy for Nest, said: “We think it [Retirement Date fund] is right for most of the people most of the time.

“In the past the default strategy [from pension providers] is usually not as good. We are making our default strategy as good as possible.”

Mr Todd added that Nest is looking to allow investors to choose a blend of the funds it offers in the future in the hope of increasing their engagement with saving. This would potentially increase the amount of funds going into alternative options, as it will not be an all-or-nothing choice.

When asked would offering a blend of funds put Nest in direct competition with personal pension providers and risk it’s stated-aided status, Mr Todd said his scheme had always had permission to offer such an option to investors.

He said: “In terms of state aided status, it is a matter for the Department for Work and Pensions. Nest is still restricted for automatic enrolment and lower charges.”