Nest has partnered Rothesay, to design a new lifetime income option for members in retirement, combining a bulk annuity with a managed investment approach.

This new approach will be a market first for the UK.  Rothesay will co-design a bulk deferred annuity for DC pension savers, which will pool longevity risk. This will be a key part of Nest’s trustee-managed retirement solution, which will blend this annuity with invested elements of a member’s portfolio. 

Nest says the ambition is to provide a higher average income for members, while offering flexibility, as to how they fund their retirement. Unlike traditional annuities, members will be free to cash in their pension or switch to another arrangement. 

While this will not offer a guaranteed rate of income, Nest says income levels and investment strategy will be set by the pension provider to ensure sustainability.  Meanwhile, the deferred bulk annuity will offer certainty that members won’t run out of money in retirement.

Rothesay is the UK’s largest pensions insurance specialist, securing the pensions of nearly one million people. Nest says it will look to purchase bulk deferred annuities from Rothesay for cohorts of its membership. 

Following the completion of co-design, Rothesay will look to develop similar insurance solutions for other DC schemes in the UK and around the world. Nest said it believes this will improve outcomes for all UK DC pensions savers.

Nest chief executive officer Ian Cornelius says:

“We know our members are finding it hard to manage the multiple risks they face in retirement on their own. It’s our role to do everything we can to help them achieve great outcomes in retirement.

“To support our members, we’re developing a lifelong retirement income solution which will play a vital role for those members who want and expect their pension provider to deliver a pension income for them, not a pot. Our solution will aim to provide a lifelong income solution to Nest’s members and provide certainty that they will not run out of money in retirement.

“This partnership with Rothesay has the potential to be transformational not only for our members, but all DC savers.”

Rothesay chief financial officer Graham Butcher adds:

“This partnership brings together the UK’s largest specialist pensions insurer with one of the UK’s largest workplace pension providers to create an innovative and sustainable retirement model for nearly 14m Nest members.

“Rothesay will leverage its purpose-built systems, risk management and execution capabilities developed in the DB pensions market and apply these for the benefit of DC pension scheme members.

“This is an important step forwards in transforming retirement outcomes for DC members and we are delighted to have been selected to partner with Nest in this groundbreaking initiative.

“It has been a hugely collaborative process so far and we are excited to continue our partnership to secure the long-term future for millions of DC savers in the UK.”

This is what a member- Richard Smith says on Linked in

This is what I have to say

“I’m a saver into Nest and have around £35,000 in my pot. If you are as big as Nest you can buy a service as sophisticated as what Rothesay can produce.

This is how Nest should be exercising its purchasing power. Whether Rothesay will be insuring long term risks in over 20 years when I get to 85, I have doubt. By then Nest will be so huge that it may find it more sensible to self insure. If it does , it becomes a CDC scheme (as I see it).

Right now it is already showing many of the features of CDC. It will receive defined contributions, it will pay income regularly and the increases of pension will depend on what it can afford to pay from the fund that will power the payments of income to people like me. I can imagine message giving me surprises (good and bad). I can imagine bad years when my pension goes down and great years when I get more than inflation.

When I get to 85, I will lose the opportunity to raid my pot for cash, at that point I will be getting paid by Rothesay though it will feel like Nest without the surprises. That’s alright, I think by 85 I’ll be done with surprises.

But then again , Rothesay may have been dispensed with by then and Nest will be big enough to give me the same security I get from Rothesay, without the cost. I’ll probably stick with Nest – I like Paul Todd and the others there who I know.