New Danish pension provider takes on Nest on charges and investment performance

Now:Pensions, the multi-employer trust backed by Danish pension scheme ATP will compete with Nest on charges and a pledge of stable, consistent returns through volatile markets.

Charges will be a combination of £1.50 per month for administration plus a 0.3 per cent annual product investment management charge. The provider says the difference between its charges and 1.5 per cent over the life of a 40 year pension makes up to a 31 per cent difference in the final pension pot.

The provider is seeking to differentiate itself as being able to offer better returns than other players in the market, citing an annualised return of 7.4 per cent a year by its parent ATP, more than 2 per cent  ahead of the Danish average, as evidence of its ability to outperform.

Now:Pensions’investment strategy is based on three funds – a managed diversified growth fund, a retirement protection fund and a cash protection fund.

The managed diversified growth fund is spread across five risk classes – rates, credit, equity, inflation and commodities, with overall risk controlled by a target risk level.

Allocation to the managed diversified growth fund is gradually reduced using a retirement protection fund, that has a return target based on annuity prices, and a cash protection fund. Members can choose not to use the retirement protection fund.

Morten Nilsson, chief executive of Now:Pensions says: “We believe auto-enrolment is a wake up call to the UK pensions industry, and ATP’s experience in servicing virtually the entire Danish working population – 4.7 million members – and proven track record shows there is another way. We have been providing Denmark’s working population with stable, consistent returns over the past 45 years, no matter how volatile the economic climate, and we are confident we can do it here.
“There are three major determinants of the pension benefits: costs, returns on investment and the price of the annuity at retirement.  Our investment strategy has been refined over 45 years’ experience.  Core to our belief is keeping it simple and transparent for members, which will also reduce the need for advice and give better outcomes – and keep costs down.  Our experience and research shows that for most members, choice is a burden.  And the fact is, where there is choice, 95 per cent end up in the default fund – so why not simply give people a full service and relieve them of this burden?”

Tom McPhail, head of pension research at Hargreaves Lansdown says: “Importantly there is still no indication of how Now:Pensions can hope to displace Nest as the default choice of low cost, simple pension scheme for employers that don’t want to use any of the existing pension industry solutions. Without an active distribution strategy to ensure that employers choose Now: Pensions ahead of any other scheme, it is hard to see how they will succeed in bringing in any members.
“Andthe scheme only offers one investment choice, which is going to be a problem for any employer with any employees who wish to avoid non-Sharia or unethical investments.