Nest can produce good things from a pot

I have to say it has been quite a day with a fine breakfast with my friend John Tsalos , discussing ways to spend our DC pots, spending a lunchtime in the company of 65,000 elated football ladies and an of 14m hour on the web with the much liked Paul Todd, COO of Nest.

Here is the video, the slides will follow in due course for those who want to use the material to explain Nest’s solution to the very new problem pot-holders, wanting a pension.

The research that Nest has carried out over more than 10 years is into what has to be called a “retirement income solution” (a pension to you and me).

There are two questions I have been asked since we announced Paul would be talking with us

1. To what extent the Nest pension is collective and to what extent its a personal pension.
2. What’s governing the conversion rate from pot to pension.

Paul was keen to stress that Nest remains a DC pension and even when members lose the right to have their money back as a lump sum (increasingly from 75 and totally from 85), this is a DC pension and this pension is neither an annuity or a DB pension. I have had trouble getting to understand this but what matters is not the technicality but the practice, if people get a retirement income for life that gives what is promised, no one is going to worry too much about DC/CDC or DB.

As for the rate at which pensions are paid, I heard words about the chosen annuity provider offering consultancy on this. I hope that this does not mean that Nest is organised to meet the needs of the insurer. In the clear expression of what will happen to pension money, I heard words from Paul Todd that made it clear the money would be fully invested to 75. What I’d be disappointed by, is the payment of pensions that only aspire to the income offered by annuities, annuities are not offering  and have not offered been offering value for money relative to the pensions paid by occupational pension schemes.

So while I buy the claim that Nest can and will pay a pension that increases over time (thanks to market returns) , I am not sure that Nest is being ambitious enough with the pension rate it aspires to achieve. It should not aspire to the return from an annuity, the reason for purchasing a bulk annuity is to ensure that it does better!

Regular Income yes, Value for Money – yes (so long as the annuity provider does not drive ambition down) and timing yes! This looks to me like something that Nest could put in place in 2026 if it chose to (for heaven sake it has been practicing for long enough). 2027 is just about NOW for me (I  will be 65 for most of 2027 and want a Nest pension as soon as possible. There is nothing in what Paul said at this session that suggests to me this needs to be considered either a Defined Benefit or CDC pension scheme. No further bothering of the DWP or TPR for legislation or regulation.

There were a lot of questions, we could have gone on a lot longer, but I’m a selfish fellow and I wanted to get on a bike and cycle down to the Mall which I did, seeing the England Ladies delight me even more than Paul Todd (who delighted me quite enough).

There are 14m of us up to default into this pension. Nest will be as close as we get to a second pension and it’s going to include almost as many workers as SERPS/S2P paid out (23m of us were paid some form of state pension in 2023)

Here is a comment from a friend who in part  was responsible for Paul’s appointment when he came back from Europe. This mail was almost a running response

That session was great.

But has made me quite critical of what Nest is proposing for its default.  It would be easy to defend it against any criticisms and Paul effectively did so.

You cannot produce a perfect system given the conflicting objectives.

You can always opt out.

But the Nest default will in effect be what most people get from Nest (unless it falls into disrepute).

This was a great session as my friend says, Nest will set the tone for master trusts and how they build default decumulation funds for savers who don’t make their own decisions.

Slides will follow subject to Nest clearance

I am grateful for Paul Todd for laying out for us, what we can expect soon. Grateful for all comment –  he will get many more.

Why should someone with a Nest pot and going the default income for life route have their starting payments based on the assumption that the payments are expected to rise with inflation? (I am not clear how specific that was and indeed whether it is inflation.

That includes the targeted amount at age 85, although that is not targeted to index, I think.

It will be interesting to see examples of precisely how that works. What if I had a Nest account and started at 74.

How much deducted for deferred annuity?  (I know I am odd). How exactly do they manage the volatility at the end of the drawdown period and the start of the “annuity” phase?  (Again it was obvious Nest/Paul had thought of it.

This is a crucial issue. Much bigger than any others in pensions policy outside State Pensions, at least for those people who will rely a lot on AE minimum pots.

It is obviously very crucial for the renters.  I don’t know how PC and means tested benefits work with pension assets and drawdown amounts.

But as with a question in the chat, this is crucial for those with more than small pots but less than large ones.

What such people (and households – good to see Steve mentioning my obsession) need is

(1) to maximise their means tested benefit expectations

(2) to avoid drawing down too much in any one year and paying higher rate tax needlessly.

Always accepting that some people may not want to optimise anything.