The National Employment Savings Trust, London, should be “a catalyst for innovation” within the retirement plan industry, said Mark Fawcett, chief investment officer.
“There has been so little innovation in the post-retirement market because there hasn’t had to be,” he said.
To do that, plan executives are consulting with others in the industry following wide-reaching changes to the U.K. retirement market, announced by Chancellor of the Exchequer George Osborne in his 2014 budget. Mr. Osborne’s proposals — to end compulsory annuitization, removing the 55% tax on withdrawing all retirement savings at once and instead introducing a marginal rate of income tax, starting in April 2015 — were cemented last week in a speech by Queen Elizabeth II.
The changes mean U.K. defined contribution participants will need investment products to take them up to and through retirement.
They also mean a rethink for NEST executives. The trust’s so-called consolidation phase — one of three portfolios within the plan that cater to participants’ age groups — faces significant changes.
At the moment, the consolidation phase, which kicks in about 10 years prior to a participant’s retirement, derisks from volatile and risky investments and into annuity-tracking assets.
“The budget announcement has changed the focus away from annuities, so we plan to consult in the autumn about how to redesign our investment strategy to better reflect the new choices people have,” Mr. Fawcett said.
NEST CEO Tim Jones, in comments provided to Pensions & Investments by a spokeswoman, said that NEST executives “want our members to be able to access their retirement pots in ways that help them meet their aspirations and provide the flexibility they may need or want in later life.”
The plan will consult with the retirement industry, government, consumer bodies, academics and others to “ensure we bring the best ideas to bear on delivering appropriate solutions to our members,” Mr. Jones said. NEST expects to publish its proposed course of action early next year.
Mr. Fawcett said NEST will look to other markets — such as Australia, where annuities markets do not really exist — for inspiration, as well as other options for investment throughout retirement.
The two other stages at the plan — the growth and foundation phases — will remain unchanged.