Nest target group ’emotional’ at pension losses

The financial crisis had a big impact on pension behaviour, both in terms of contributions and fund switch activity, according to research for Nest carried out by DCisions.

The research found 46 per cent in the Nest target group sample those who share characteristics with Nest’s future target group made a change of some sort, according to DCisions’ analysis of defined contribution member behaviour in the UK immediately before and after the financial crisis. The research found more of those in the target group sample stopped contributing, with 14 per cent stopping making contributions, compared with 10 per cent across all income groups.

Qualitative research carried out for Nest by Opinion Leader into reactions to volatility and loss found many respondents did not see the value of pension funds going down as well as up as a feature of pension savings. It also found pension schemes were considered by people in the target group to be more like a savings account than an investment.

The qualitative research also found savers had emotional reactions to interim loss including disappointment, anger, helplessness and often surprise and incredulity. When participants’ hypothetical pension lost value, they wanted to know where the money had gone and who was to blame for losing it.

A loss in the value of a pension fund prompted such strong negative feelings that participants thought they would take action aimed at avoiding further losses, such as stopping contributions, researchers concluded.

Mark Fawcett, Nest chief investment officer, says: “The research from Opinion Leader and DCisions are valuable parts of our extensive evidence base leading us to investment solutions which recognise that for many of our future members, pensions and investments are new and can be intimidating. The challenge for Nest is to encourage our members to start saving, continue saving and take appropriate investment risk to support them in building a better income in retirement.

“When developing Nest’s investment strategy our starting point and our first investment belief is the importance of understanding our members. We have developed an investment approach that takes account of their attitudes, aspirations and, in some cases, fears.”

Helen Dean, Nest managing director of scheme development, says: “All of those involved in pension provision will be facing the challenge of communicating and developing suitable products for millions of UK workers who will be saving for the first time. How concepts such as volatility, loss and inflation are presented in a meaningful way to these new savers will be crucial to improving confidence in saving for retirement.