Why am I wasting my time watching VFM stuff when I could be watching Nest’s Paul Todd about turning Nest into a pension.
I don’t know this guy but I know people who do and so I’m going to go out with him and have a lunch.
He’s a bit nervous to start with, but then he gets going and he’s really interesting because he’s talking about what matter to people. Have a look at the list of things being talked about down the bottom of this blog
And there are these two guys interviewing him who I know nothing about but are getting 20.000 people watching the show.
Full of good stuff, this is Paul mesmerising Damien Jordan of @DamienTalksMoney and his best friend Timeyin Akerele, or ‘T’, who also worked in finance, but like most people, doesn’t have a clue how to build long term wealth… yet.
This conversation, which is intense, has had 20,000 viewers, a much higher audience than other podcasts get. To some extent this is to do with the people asking the questions (I like them) , partly to do with it being about 13m of us are in and partly is about the sensible responses to questions by Paul Todd.
Much of what is talked about is quite deep, somehow the conversation is interesting, “1% of assets in Bitcoin” – “not quite there yet” says Todd. Timber yes, Bitcoin – under investigation. People who want 100% investment in equity (me) aren’t a Nest fan – of excluding this (but not yet).
I can see my lunch will be fun! I would also like to know when I can convert my Nest Pension into a Nest Pension and not an insured annuity – but not yet!
Do not expect to be any of this stuff – yet!
How to navigate a 90 minute video about NEST
Intro 00:45 –
Why was Nest set up? 03:56 –
Do Nest think 8% is enough? 14:30 –
Default funds 24:28 –
Do Nest’s default funds reduce expected return? 34:05–
Should you get out of the default? 38:59 –
Why did Nest change their Shariah fund? 47:35
Will Nest bring in a 100% equities fund? 01:00:39 –
Fee structure 01:10:15 –
Where do your fees go? 01:13:42 –
What does Nest think about the government’s plans? 01:20:28 –
Following the Canadian and Australian model 01:27:19 –
Why don’t Nest allow partial transfers?01:32:35 –
Why people like me can’t drive the process
At one point (55 minutes) when Todd talks about moving people to think about investment rather than stick cash in building society.
This is where many of the 13 m savers Nest has – are. This is a huge lesson for people who think that Nest thinks it is changing things. Nest is a profit for member organisation and people like me- who want to take large risk to maximise my pension are not typical of those 13m savers, we need to go along together.
But I think we should learn from the 99% of savers who use the defined benefit. We should work out an outcome that suits 99% of the people. I don’t hear 1% of people wanting to invest their entitlement of the state pension. I think 99% of people would be very happy to have a pension that was well above the annuity offered by insurers.
I believe that that outcome is possible from Nest and (sorry Paul) Mr Todd and I are going to have a rigorous discussion over our fish lunch ( get there early – you can’t book Sweetings).
Thanks @moneymakingpodcast for this. I’ve subscribed
COMMENTS ON LINKED IN
When you have lunch with Paul Todd, Henry, you may or may not wish to ask him to explain these numbers taken from NEST’s own website:
If you’d invested £1 in [NEST 2040 Retirement Date] fund in 2017, your pot would be worth:
After 1 year: £0.96
After 2 years: £1.12
After 3 years: £1.21
After 4 years: £1.38
Today: £1.25
I understand why the performance period starts in 2017, because from 2011-2016 you’d expect a NEST member to be in their “foundation stage”, where not losing money was/is the overriding objective.
But a pot “today” (which may mean 31 March 2024) of only £1.25 (and starting the most recent 5-year period from £1.12 rather than £1.00) cannot be reconciled with 5-year returns claimed for that fund of 40.6% or an average of 7.1% pa.
The podcast also highlights what appears to me to be a rather high cost operation (despite Paul’s claims to the contrary), which takes 1.8% off every new contribution, has only reached “breakeven” in 2024/25 after starting in 2011, and has an accumulated DWP loan of £1.2bn on which repayments have still to begin. The weighted average interest rate payable on that (taxpayers’) loan is a generous 3.18% only.
I recall tied agents charging 2% “trail commission” on pension contributions in the 1980s, but I hadn’t expected such rates from “a low cost operator” like NEST in the 2020s.
The 2022/23 accounts for NEST also show a one-off charge of £74m to terminate a partnership with Atos BPS.
NEST and Atos BPS were partners in a scheme to “transform” Nest’s administration services.
The partnership ended in February 2023 after two years.
NEST then re-contracted with Tata Consultancy Services (TCS) to continue the transformation programme.
Nice work if you can get it…
I am not here to protect Nest or Paul Todd. I have been critical of the 1.8% (there to repay the loan), I am not a fan of the low-risk antics of the fund (especially at the start but also at the back-end). Why somebody should consider themselves at the end of their pension with Nest as they approach retirement is a mystery.
They are I think things which Nest needs to address and a lot of what you evidence is the impact on those in later stages of saving (I think). I have moved my retirement date back to later in life to be invested rather than de-risked.
The importance is to have Paul out here talking to people, something that Nest haven’t been very good at doing. I find Paul a good listen and hope he does more and get more eloquent, focussing on these numbers is not doing much good Byron.
Although his interviewers didn’t press him on these points, I thought the possibility of drawing down 3% or 4% or 5% per annum of a final DC pot, along with the option to consider deferred annuities after 85 (personally I’d consider earlier ages than that), which Paul Todd spoke about, made some sense.
13m members from 1m employers does highlight how small the average NEST participating employments really are. And that’s before we consider the self-employed.
Personally, I would like to see Nest line up with the DWP and Treasury to allow those with DC pots and at or past State Pension Age, to swap their Nest pot for more State Pension (at least the non-cash part). This seems to be an obvious alternative to issuing gilts! I hope to meet Torsten Bell in due course…
Arun Muralidhar • 1st
Co Founder, AlphaEngine Global Investment Solutions LLC/M-cube Investment Technologies LLC
Is it a pension? My exchange with the CIO suggests he had no interest in ensuring folks get a GUARANTEED REAL RETIREMENT INCOME. My bias – their stated objectives (available online) is that folks’ portfolios could go to “pot” as they have the WRONG objective! And tax payers will have to bail out poor (pin intended – again) retirees.
Henry Tapper Author
Turning pots to pensions
Is is not a pension yet, it is a pension saving scheme with the pension yet to come. There are no ways to turn pots to pensions yet (I and others are working on this) but Arun Muralidhar , the state pension should benefit from Nest and vice versa as members get an option which is what was imagined by many when they joined.
Internal research by Ray Chinn told us that many people in the early days thought they were saving for a state pension. I doubt that this has changed over the years. Paul Todd and I are going to have a good lunch!