NEST has spent a good deal of time telling us how it will get its 5 million plus members up the retirement hill but very little on how it will get them down again.

While we ponder the accumulation strategy, have we really thought through what happens when the default funds reach their target date?

Conventional thinking supposes that they will disperse 25% of their value as cash and offer the 100,000 plus who have made it to the top an open market annuity.

But this presupposes that

1. there is capacity to  absorb the huge sums into keenly –  priced annuities,   

2. that individuals will be able to chose sensibly the right type of annuity to protect their retirement income

 and

3. that there will be advice to hand to secure best rates via the open market option.

DB trustees know only too well, that the easy bit is going up, it’s when you are on your way down and the money on its way out that it gets tough.

If you were trustee of a £2bn pension scheme (the size of a NEST default at the target date), would you tell your 100,000 members to “go buy an annuity”?

Perhaps these target date funds should be targeting death not retirement?

NEST is due to open its doors in less than 6 months. There has, till now, been very little debate on how NEST will manage the pensions in payment of its membership.

Thinking on this, I’ve written an article on “Scheme Pensions” which you can find here.

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