Like many neutrals I’ll be hoping that Stoke City beat Manchester City at Wembley on May 14 to win the FA Cup. After all, we Brits often like to see an underdog triumph.
And when it comes to finance there is one initiative that most do not expect to come out on top – the national employment savings trust – it has been on the receiving of plenty of criticism from day one.
The latest wave of criticism is on its decision to invest in low-risk assets in the early years before moving up the risk ladder for the growth stage.
It goes against the perceived wisdom of many advisers who suggest that if you have years on your side then you should invest in higher-risk assets.
But Nest argues that the pot of money is so small in the early years that whether you invest 100 per cent in equities or 100 per cent in bonds it will not make too much difference to the total return over 45 years.
Some critics suggest that the ultra-cautious stance is designed to keep people in the scheme. I can see their point. Imagine the reaction of workers who get a pension statement one-year on to discover that they have lost a sizeable chunk of their contributions because of a market fall – they may well decide to walk.
Other critics argue that Nest is missing the point and that education is key. They believe that employees need to understand why they are investing in higher risk assets, and once they do they will be comfortable with the fact.
They have a point but the mass market is not up to engaging on the intricacies of risk versus reward trade-off. Most employees in definedcontribution schemes throw any communication from their pension department straight in the bin. Education will eventually filter through, perhaps when the first significant wave of DC members retire and realise their pension pots are not as generous as they had imagined.
I too have been sceptical of the scheme but I wonder whether it is time to give it a break, for now at least.
Nest aims to deliver a return of around 3 per cent above CPI. Those who salt away around £45 a month over the next 45 years (a total outlay of around £23,500) will get a return for an income of £5,000 a year for life. That does not seem too bad a deal (assuming, of course, that it manages to achieve this return), for the target audience who earn less than the average wage.
There was a period a few years ago when the Daily Express ran a front-page story seemingly every week warning homeowners of an impending house price crash. It was as though the paper wanted a crash to materialise, if only to say we told you.
Nest is worried that too much focus of negativity will undermine its chance of success. Britain’s pension system is buckling and something needed to be done. Nest has been years in the making and a generation of savers has missed the boat while the great and the good in the political and pension world were pontificating on how the scheme should work.
It is too late to go back to the drawing board – and it is not as though the pension industry has not had a chance of its own to come up with the answer.
I am yet to be convinced that Nest will be the answer to our pension dilemma, although the end of means-testing gives it a better chance. But perhaps we should give it a little more support. This is one underdog that needs to pull-off a victory, after all, millions of people’s retirement depends on it.
Paul Farrow is personal finance editor at the Telegraph Media Group