The decision to adopt an ultra-low-risk investment strategy for the national employment savings trust during the growth phase of saving could knock £40,000 off the value of members’ pension funds, according to Hymans Robertson.
Last week, the Government-backed scheme confirmed the Nest default fund will target long-term investment returns of the consumer price index plus 3 per cent.
It also confirmed the additional fund choices that will be available include a higher-risk fund, a lower-growth fund, an ethical fund, a Sharia fund and a pre-retirement fund.
Pension consultancy firm Hymans Robertson head of defined contribution Lee Hollingworth says: “Nest is faced with a near impossible task of providing solutions for a hugely diverse group of members with a low capacity for risk and likely low level of financial understanding. As a result, any solution will be a compromise of sorts.
“A typical growth phase target for defined-contribution schemes is CPI plus 5 per cent. The difference this could make to a member’s fund over a 30-year period could be as much as £40,000.”
In February, Nest revealed the five investment mandates for the default fund most members are expected to use.
They include passive global equities, passive UK gilts, passive UK index-linked gilts, sterling cash and diversified beta.
Hargreaves Lansdown head of pensions research Tom McPhail says: “The returns are not going to be spectacular but it does what it says on the tin and you can understand why Nest has taken this approach.”