Pension Reform in the United Kingdom: The Unfolding NEST Story

Abstract

This article follows on from the article “A Pension for All: Pension Reform in the United Kingdom” (RIJPM 2:2, Fall 2009, http://dx.doi.org/10.3138/rijpm.2.2.42), which outlined legislated reforms and their key components – most notably, a requirement for all British companies to automatically enroll their workers into a pension plan. That article describes “Personal Accounts” – a new defined contribution (DC) pension plan available to any company to meet this requirement – and the Personal Accounts Delivery Authority (PADA), which is charged with designing and building the Personal Accounts plan. This article describes the design of the personal accounts scheme, now known as NEST (the National Employment Savings Trust), and actions taken by NEST Corporation, the scheme trustee, to develop and run the scheme. It focuses on the design of the investment approach and on NEST’s approach to redesigning member communications; discusses the Corporation’s early experiences in bringing on board approximately 840,000 members in the first 16 months of automatic enrollment; and touches on forthcoming reforms and policy debates: the proposed rollout of a flat-rate basic state pension, the Pillar 2 “small pots” problem created by market micro-structure and job churn, and the debate over the adequacy of pension saving.

Keywords: Automatic Enrollment, Investor Inertia, Pension Fund, Pension Reform, Target-Date Funds