The soft launch of Nest is just months away and employers that join in will be able to enrol employees in stages, says Nest chief executive Tim Jones
This work has included developing prototypes for scheme administration processes and testing them with employers and advisers.
We’ve also been developing our investment strategy and getting the infrastructure in place.
We were very pleased to appoint our fund administrator, State Street Corporation, and are now also advertising for fund managers for five initial mandates that will provide the core building blocks for the construction of the default fund.
These mandates will together give us a mixture of asset classes such as equities, government bonds, alternative investments (such as property and infrastructure) and cash. As Nest grows, further building blocks will be added.
The mandates advertised in November are not the investment strategy nor are they the asset allocation. Individual members will not be directly invested in any particular mandate.
Nest will have an investment solution designed exclusively for members’ needs – based on extensive research. Our approach is aimed at understanding member preferences, which are low risk, whilst recognising that some investment risk is essential.
We expect Nest to take risk when it has most impact – so in the growth phase of a member’s savings career after a few years of developing the savings habit and building up a pot. Nest will not be a low risk scheme, neither will it be a high risk scheme.
We will always try to take appropriate risk at the appropriate time in order to best meet the interests of our members.
The investment strategy’s approach to risk, asset allocation and investment style will be determined by Nest’s Investment Committee and the Nest Trustee Members. Our Statement of Investment Principles (a summary of our investment approach) will be published in 2011.
The strategy will be kept under constant review – the approach to risk and therefore asset allocation will develop over time, as the membership grows and changes, and as markets and economies develop and change.
We remain on track to launch in 2011 with a small number of volunteer employers. We’re starting with low volumes to ensure the scheme works for employers and members in a live environment ahead of building up volumes gradually.
This helps to de-risk the project and ensure Nest is ready for larger volumes in 2012.
When you launch a new product you don’t always know what needs refining until you put it in the hands of real customers. Our user testing is helping us to mitigate this through our design and build phase, but the early launch in 2011 will really test whether we’ve got it right and help us to deal with any teething problems.
We’re starting with low volumes to ensure the scheme works for employers and members in a live environment ahead of building up volumes gradually. This helps to de-risk the project and ensure Nest is ready for larger volumes in 2012
And this will help employers too. Employers choosing to join Nest early will have the option to enrol workers in stages to avoid doing so all at once when the employer duties are introduced.
During this period, spring 2011 to October 2012, we will provide extra administrative support to employers that join Nest, for example to ensure that integrating Nest with HR or payroll systems goes smoothly.
Every employer needs to respond to 2012 and we expect that Nest will be used by many employers – large to small – in a number of ways.
For example, Nest could be the only pension an employer offers to all their workers where the employer does not have an existing scheme.
Alternatively, Nest could work for a particular category of workers, which could be defined by grade or salary.
Nest could be used as a base scheme, providing Pensions Act 2008 compliance within a wider benefits package.
Finally, Nest could also be used as an entry level scheme, for example for the first six months of being employed.
And of course Nest can be used to pay more than the minimum, within our annual total contribution cap, as is possible with any other qualifying pension scheme.
Working with our suppliers – who are leaders in their field from around the world – we are getting the infrastructure and processes in place to ensure Nest is a scheme we can all be proud of. We are looking forward to working with you to help millions save for retirement.