The structure of Nest is becoming clearer. The month of November has seen Nest Corporation fill in a lot of the detail of how the new pension scheme will function.
The 10-year contract for the scheme administration has now been signed with Tata and a matching contract for fund administration has now been signed with State Street Corporation.
The investment strategy is also becoming clearer as Nest has now put the first investment contracts out for tender.
The default investment fund was always going to be the most important one for Nest Corporation to get right, given the potential for future complaints.
The default fund is going to have two elements of lifestyling to it, with target-dated funds adopting a low-risk investment approach in the early years of scheme membership followed by a higher-risk strategy in the middle years of investment and then a derisking of investments as Nest savers approach their retirement dates.
Further investment funds are going to be unveiled shortly and Nest savers will be given the option of investing in higher-risk funds as well as ethical and Shariacompliant options.
But if Nest is anything like existing occupational DC schemes, the majority of scheme members will end up in the default fund.
As a result, it is the performance of the default fund that will attract the most attention, both from scheme members and from the media so it is under-standable that Nest Corporation has gone for a safety-first approach.
It has been suggested that the reason for the safetyfirst approach has been prompted by a fear of negative tabloid headlines if investments nosedive in the first years of the schemes existence and frighten off all the potential members.
But the cautious nature of the investment strategy, combined with the modest levels of contributions that many scheme members are likely to make, mean there will be an even greater risk that scheme members will be disappointed in their final income at retirement.
Albert Einstein may or may not have said that compound interest is the most powerful force in the world but by deliberately opting for a safety-first option, Nest is further reducing the chances of many savers achieving anything like an adequate level of income in retirement.