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Nest could leave savers at the mercy of inflation

The National Employment Savings Trust’s US-style investment approach will leave millions of savers exposed to inflation risk, according to adviser firm No Monkey Business.

Earlier this month, the Government-backed savings vehicle, which was spared Chancellor George Osborne’s axe following months of uncertainty, outlined how it will look to invest the savings of up to six million members.

Nest will adopt a target date investment approach, with 52 different funds aiming to achieve returns for predetermined retirement dates. Its sole investment aim is to beat an inflation benchmark, likely to be RPI or CPI.

No Monkey Business investment director Stuart Fowler says inflation will simply replace equity volatility. He says: “A mistake like this would undo all the good work of lifestyling and keeping costs low.

“The state of the art for this type of investment architecture is liability-driven investing, not the outmoded balanced-management approach, with its excessive reliance on correlations between different asset classes.

“Faced with a choice between the old and the new world, Nest has gone for something in between, which is symptomatic of when committees design investment solutions.”

Pension Transfer Solutions managing director Carl Melvin says: “Beating inflation is at least a clear target rather than just putting money into equities and hoping for the best. The target should be RPI because it represents what things really cost.

“But if beating inflation is the aim, why not just put the money into index-linked gilts and save everyone the hassle?”

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