Nest nudge pension freedoms to one side

Are you saving into NEST? Around 8 million Brits are and I’m currently one of them.

I was looking at what AgeWage signed me up to and found out some surprising things

Firstly I am soon to turn 60 and NEST has a number of options for me!  Although the video explains that I can self-manage my pension, if I choose to do nothing, I will  find myself  in the Nest guided retirement fund.

As most people faced with baffling choice tend to do nothing, this  fund sounds important It’s Nest’s newest fund and from this month (July 2020) people’s retirement savings are flowing into this fund unless they exercise their freedoms for themselves.

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It’s all very simple, if you don’t tell Nest what to do, Nest will move you into  the guided retirement fund at your state retirement age (the default Nest Retirement date) or your selected retirement date – if you have chosen one

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I have a Nest retirement date. it’s 67, being the age I can draw my state pension and that means, unless I tell NEST otherwise that my savings, currently in a target dated fund due to mature in 2029, will move into this new fund

I’d never heard of this fund  my friend Philip, who’d been exploring NEST’s accounts , pointed me to to this headline

Back in March this year, Nest launched a new fund. The launch was very soft but this is what Nest was telling the market then

By 2025, NEST will have more than 1.75 million members aged 55-plus and for most of them retirement is no longer a cliff edge, Many are likely to choose to work for longer, for example, and we don’t think they should miss out on investment returns during these transition years.

Our new retirement hub and support services will help guide our (participants) through their choices, and for those who are still making up their minds we’ve now got more appropriate investment funds to suit them,”

NEST participants who do not notify NEST they intend to withdraw savings in the form of a lump sum by their intended retirement age will be automatically placed into the NEST Guided Retirement Fund by July 2020,

Not to put too fine a point on it, this new fund is where the biggest DC pension scheme in Britain is going to invest the nation’s retirement savings . This was news to me! Now what else was going on in March this year….?

So how did this happen?

Well first of all, NEST has found a way to keep your money for the whole of your life.

This will come as a surprise to many in  financial services as back in March 2017 the DWP announced that it was blocking the development of NEST’s Retirement Income BluePrint

The government has blocked a proposal by the National Employment Savings Trust to provide income drawdown products to its members

The Department for Work and Pensions announced the decision today (2 March) in its response to a consultation on the future of the government-backed auto-enrolment provider.

But it stressed this decision was not permanent, saying it would keep the issue “under active review in light of market developments”.

“If it is clear that the market is not developing in line with the needs of Nest members, we will consider enabling Nest to offer a fuller range of solutions,” the DWP response said.

Some time in the intervening three years , the  DWP  has decided to unblock NEST and in the meantime , NEST  has simply gone ahead with the build of its Retirement Income Blueprint which is now renamed the Nest Guided Retirement Fund.

Bearing in mind the full consultation on the Retirement Income Blueprint and the violent opposition from the private sector to NEST competing for business post retirement , it is surprising that the Guided Retirement Fund has arrived , without any further protest.

Nest’s Guided Retirement Fund has happened by stealth, a bit like the pension freedoms. You could say the DWP have nudged the pension freedoms out of the way.

What happens when I get to my NEST retirement date?

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Unless I say otherwise, money in my target date fund will be allocated to a wallet , a vault and a safe, each of which will do different things

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I’ll be able to draw-down from my wallet, use my emergency cash “slush” fund for emergency capital  and the bulk of my money will remain invested for the future , with a small pot being allocated to buy me an annuity if I live to 85.

The freedoms nudged out of the way

The Work and Pensions Select Committee, under new Chair Stephen Timms, is looking into the pension freedoms.  I hope that he will look at Nest’s new fund as a way of having a pension without losing their freedom,

NEST’s new default, which is taking our money  by default from this month  looks set to become the biggest decumulation fund in the UK.

It is designed to pay a regular income – a pension , but it does so in a Heath Robinson way with safes and wallets and cash. I remain to be convinced that this could be better achieved via a collective drawdown using the CDC legislation and especially section 47.

I’ve been arguing that NEST should be paying Scheme pensions since 2010 and I’m not going to stop now!

But that is technical detail. Much more importantly, NEST has been allowed to provide a to and through retirement savings and spending product which will become hugely important over time.

Those who are in control of their pension affairs will probably opt out but the vast majority of NEST savers will use this fund.

Other master trusts will surely  find ways to do the same. For the vast majority of savers  pension freedoms will be the “security of a regular income without being tied into one option”.

I guess that for the DWP, that is all the freedom most people want.

I agree.

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About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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