The UK
government is making changes to encourage people to save for
retirement. The Pensions Act 2008 introduced new duties on employers to
provide access to a workplace pension scheme. All employees will be
automatically enrolled into an occupational pension (unless they opt out) and
where employers do not already have a scheme, people’s money will be invested
in NEST. NEST (National Employment Savings Trust) will be a universal, defined
contribution scheme, accumulating a fund during a workers life to purchase an
annuity on retirement. It
is due to commence in October 2012.
Much
scrutiny has been given to the investment choices that NEST will make available
to their members. When it
comes to the funds that NEST invests their members in in the early years this
differs substantially to what is typically used in standard Defined
Contribution Lifestyle funds in Ireland.
NEST carried out extensive
research and consultation and as a result they found that when it comes to
younger members- those under 30- that they’re especially sensitive to
volatility and loss and are most likely to act adversely in the face of such
volatility. NEST will invest younger members- in their 20’s - initially
in funds that will target investment returns that look to match inflation after
all charges have been taken out. The next phase where members will spend
the majority of their time circa 30 years, will target returns of inflation
plus 3% after charges, the final stage is designed to manage the risk of shocks
closer to retirement.
Niamh Quirke
