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Nest reviews investment strategy after Budget pensions bombshell

Government-backed pension scheme Nest is reviewing its default investment strategy after Chancellor George Osborne announced a radical overhaul of the UK retirement system.

The reforms announced during last week’s Budget mean that from April next year anyone over the age of 55 will be able to take their entire pension pot as cash.

The changes will fundamentally reshape the pensions market and resulted in huge falls in the share prices of some of the UK’s biggest insurance companies.

Experts have also suggested the default investment strategies used by auto-enrolment pension schemes will need to be restructured to take account of the new rules.

Hargreaves Lansdown head of corporate research Laith Khalaf said three-quarters of default strategies had been rendered “obsolete” by the Budget reforms.

Nest currently invests members’ money in ‘retirement date funds’ based on when they expect to turn their pension pot into a retirement income. As Nest savers approach their target retirement date the fund automatically invests in less risky assets in order to reduce volatility.

Nest chief executive Tim Jones says: “Changes to the ways in which consumers want to access their pension savings, and what they are allowed to do with them, are likely to influence how we manage their risks and invest their money. It will also affect what help and guidance we provide to members about the choices they need to make.

“However, the changes being proposed by the Treasury are significant and we want to give them the careful consideration they deserve, along with others in the industry.

“For the Nest Retirement Date Funds, our ‘Foundation’ and ‘Growth’ phases are likely to remain unchanged by the recent announcements. However, we will be reviewing our approaches in the ‘Consolidation’ phase to ensure how we manage members’ money in that phase best matches a member’s planned method of taking retirement benefits.

“Our over-riding concern is to act in our members’ best interests – that will be the lens through which we will consider any changes that may be needed.

“As we develop our thinking, we plan to consult widely to ensure that we bring the best ideas to bear on delivering appropriate solutions to our members.”

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  1. Any target date fund or investment strategy needs to be thought about very carefully indeed. This plays into the hands of advisers who are the only ones really able to discuss client plans and construct a proper investment strategy around their lifestyle. AE with its “no brainer” approach to ask no questions and join, is surely going to run into problems with default “lifestyle” investment funds.

    In any event, pretty much everyone will probably need to rethink their investing strategy going forwards. As a pension pot could now be viewed as not having a vesting/maturity date this must have an impact on investment strategy. There will presumably now be little point (for many) in gradually reducing risk and moving to low risk/cash prior to retirement if the portfolio is to survive, providing there is allowance for any withdrawals required – PCLS and perhaps income… all in all, it means more sophistication, more advice and more complexity…. not exactly an AE proposition.

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