NEST sets out investment approach

NEST Trustee Members today set out the investment approach for NEST and published their first Statement of Investment Principles (SIP).

Lawrence Churchill, Chair, NEST Corporation, said:

"Agreeing the investment approach is a significant landmark for NEST in achieving our aim of helping millions to save confidently for their retirement. The investment strategy will develop over time and we are confident our approach will encourage saving and support our members in achieving their aspirations for retirement.

"To reflect our diverse future membership NEST’s investment approach combines the reassurance of a carefully-managed investment approach for the majority who don’t want to choose, with a set of focused choices for members who do want to."

Chris Hitchen, Chair of the Investment Committee, NEST Corporation said:

"We carried out extensive research and wide consultation to ensure we put our members at the heart of our investment approach. That led us to develop clear and appropriate objectives and put in place a robust and efficient infrastructure to deliver them. This is an excellent starting point and will provide NEST with solid foundations for the future."

Key elements of NEST’s investment approach for its Retirement Date Funds (the default fund option) include:

An investment objective that:

• seeks to achieve performance in excess of inflation (see notes below) after management costs for the majority of NEST members over the long term
• recognises different phases in an individual’s savings career
• proactively manages many different risks
• is based on evidence and research into the specific characteristics of NEST’s target group
• for older members, seeks to ensure their money is invested in a way that looks to best match when and how they will take their retirement benefits
• looks to reduce the possibility of extreme investment shocks for all members and in particular those who are youngest and those closest to retirement.

NEST’s Retirement Date Funds will use a broad and diversified set of asset classes.

Other fund choices

In addition to the NEST Retirement Date Funds, NEST will provide a focused range of other fund choices.

• NEST’s Higher Risk Fund will target high returns through taking more investment risk.
• NEST’s Lower Growth Fund will take very little investment risk but may not protect against inflation over the long term.
• NEST’s Ethical Fund will have similar investment objectives as the NEST Retirement Date Funds but will invest in companies that meet ethical criteria, as well as gilts and our liquidity fund. The fund may well be more volatile than a Retirement Date Fund over the longer term but we will look to manage risk throughout a member’s savings career.
• NEST’s Sharia Fund will only invest in companies that are compliant with Sharia principles.
• NEST’s Pre-retirement Fund is for those members who, in the early years of the scheme, may want to buy a retirement income with their pot rather than target a cash lump sum.

You can find out more about our investment approach and how we developed it by going to www.nestpensions.org.uk and downloading:

• Developing and delivering NEST’s investment approach
• NEST’s Statement of Investment Principles
• NEST Member Research Brief
• Understanding reactions to volatility and loss report
• NEST Retirement Fund fact sheets

Notes - The inflation benchmark we are using is the Consumer Price Index (CPI). In the Growth phase our performance target will be CPI plus 3 per cent. We expect that the majority of NEST members will spend most of their savings career in this phase. For members under the age of 30 this will be around 30 years.