Bringing you live news and features since 2006 

No Monkey Business unimpressed with NEST’s new SIP


Wealth management firm No Monkey Business (NMB) believes the National Employment Savings Trust (NEST) should follow its lead and adopt the principles of Liability Driven Investment (LDI).

According to NMB, NEST’s newly-published Statement of Investment Principals (SIP) makes ill-advised trade-offs in its target date funds between short-term, nominal volatility and long-term real outcome risk. The impact is that younger members will be irrationally conservative, middle-aged members will exchange equity risk with inflation risk and older members approaching retirement will be matched to the wrong kind of pension.  

At the end of last year founder and director of investment, Stuart Fowler, went on record as saying :“The massive impact of inflation will simply replace equity volatility and a mistake like this would undo all the good work of ‘lifestyling’ and keeping costs low.” 

In response to NEST’s latest communication Fowler says: “We were urged by NEST to wait to see its SIP before judging its investment approach in the default funds (which it expects to account for 90% of contributions). But the SIP tells us nothing to temper our criticism of the weaknesses at each of the three lifetime stages. NEST has the opportunity to be cutting edge. It rightly went to the edge by choosing target date funds, which recognise that time horizons matter critically to how risk is managed, and then fell back on the failed convention of ‘balanced management’ to manage the assets.  

“NEST claims diversification is the best way to manage risk. But diversification relies mainly on mixing equity-type risks with bonds, making a silent and dangerous exchange between inflation and equity risks which is no way to manage the risk budget. Because of the diversification constraint and planned addition of bonds, the target in this phase of inflation plus 3% is much too low – historically equity-type risks have provided on average a margin of 6-7% over inflation. In the early, ‘foundation’ phase, equity backing will be even lower, in case volatility in the portfolio value scares off younger and less informed members. This is not so much paternalistic, which has some justification, as patronising.

“The approach to the consolidation phase is also flawed because NEST has not addressed the massively different implications for outcomes and risk management of how, as well as when, retirees take benefits. NEST has a real opportunity to educate people about the need for inflation protection in their retirement income, in which case the matching asset for risk reduction purposes in any phase is index linked gilts. If they want their tax free cash to be applied to their retirement spending, cash is not the right matching asset. Tax free cash is only taken out as cash because of the tax break. For most NEST members it will still need to be applied to providing a lifetime income stream, such as through a purchased life annuity.”

Latest News

Figment Europe, a provider of institutional staking infrastructure, writes that it is solidifying its presence in the heart of Europe’s..
Saving and investing app, Moneybox, has doubled the number of ETFs available on the platform, in the light of ‘growing..
Global X ETFs has announced the appointment of Ryan O'Connor as its Chief Executive Officer effective as of April 8, 2024. ..
Value-driven structured credit investing firm, Angel Oak Capital Advisors, LLC, has announced the completed conversions of two of its mutual..

Related Articles

Ryan McCormack, Invesco
This year sees the 25th anniversary of Invesco’s QQQ, the USD240 billion ETF – the fifth largest ETF in the...
The European ETF market achieved a record 28 per cent growth – reaching over USD1.8 trillion assets under management (AUM)...
Sal Esposito, Zacks Investment Management
Zacks Investment Management started doing investment research in 1978 and in 1992 started its investment management arm, initially with SMAs...
Jeremy Senderowicz, Vedder Price
Jeremy Senderowicz, a member of the Investment Services Group at law firm Vedder Price, has witnessed a steady upswing in...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by