The majority of members of government-backed workplace scheme National Employment Savings Trust (Nest) are in their 30s, earn less than £20,000 and are receiving the minimum auto-enrolment contribution.
Nest Insight and Vanguard yesterday (28 June) published How the UK Saves – a study which analyses the choices, demographics, behaviours and likely outcomes of the nearly 6.5 million members of the master trust.
The research found the majority of active members (92 per cent) are automatically enroled into Nest.
The remaining 8 per cent have actively chosen the scheme, representing more than a quarter of a million people who might not have previously saved for retirement at all, Nest stated.
The majority of active enrollers are women, earning less than £10,000 per year, and are aged less than 25-years-old.
On account balances, 41 per cent of members have less than £499 saved, the study showed.
However, workers aged 55 to 64 have balances nearly three times higher than workers aged less than 25.
Since auto-enrolment was only introduced in 2012, the size of pots is still small, which would explain the majority of consumers who opted to withdraw money from the scheme choosing to take a cash lump sum (trivial commutation).
As at 31 January 2018, fewer than 1 per cent of active Nest members had retired, two-thirds of whom had withdrawn money from their accounts.
Since inception in 2012, more than 40,000 Nest members have accessed their pension pots, withdrawing £24.6bn from their accounts.
Almost £19bn were taken cash lump sums, with another £3.5bn transferred out to qualified schemes.
Malcolm McLean, senior consultant at Barnett Waddingham, argued although Nest is handling large volumes of cases, due to minimum contribution levels required, it isn’t surprising that most of the decumulation that has occurred to date has involved cash lump sums.
He said: “At this stage, therefore, it is impossible to say whether Nest will help the majority of its members achieve adequate future retirement incomes, but in the absence of any government decisions to increase minimum contribution levels beyond 8 per cent, this is something it will need to keep an eye on.”
Mr McLean also noted that it is interesting that as much as 99 per cent of members are invested in Nest’s default investment strategy, “which even by industry standards is extremely high”.
He said: “This suggest that either Nest has got it exactly right in its choice of a range of retirement date funds, or that its members are in large numbers failing to engage with their scheme and the options available to them.
“Similarly, activity is also low with fewer than 1 per cent of members changing their investment options in 2017.”
He argued that these trends might not matter too much with the scheme in its infancy, but this could change in the future.
He said: “Going forward, I can’t help wondering whether Nest ought to be doing more to stimulate more active member engagement with their plans, and make sure they are on course to receive the level of pension income they might aspire to have in retirement.”