UK - NEST Pension Scheme considers Islamic pension fund offering

The Chief Investment Officer of the National Employment Savings Trust (Nest), Mark Fawcett, has issued a categorical denial that the new national pension scheme will only make zero or low risk investments.
But he stressed that since majority of the scheme’s target market – low-income and casual workers – would likely be risk averse, Nest would only introduce them to risk on a gradual basis.

‘We really, really want to avoid giving them a lot of volatility and causing them to drop out of the pool,’ said Fawcett in a meeting at Nest’s London office.

‘The worst thing we can do is to frighten them off in the first five years.’

The former Labour government established Nest as part of pension reforms aimed at tackling a lack of adequate pension savings among low- and middle-income UK workers.

The reforms included the stipulation that from 2012 employers either pay a minimum contribution of 3% into the scheme or automatically enrol workers in existing pension vehicles. In the meantime, Nest will launch its scheme – for voluntary enrolment – in the second quarter of next year.

Fawcett's comments came in the wake of criticism over Nest’s plans to put its members’ money in less adventurous investments.

The investment officer, a former fund manager at Gartmore, clarified that during a ‘foundation’ period, savers would be exposed to a relatively low level of risk; a subsequent ‘growth’ period would see that level lifted until it peaked; and during a final ‘consolidation’ stage, the amount of risk would be reduced again.
‘We need to give them risk in an appropriate way, at an appropriate time,’ he said.

Fawcett said Nest would offer members default ‘target date’ schemes, which would conclude at their normal retirement ages. There would be no cost to members for switching between schemes, he said.

Nest has recently appointed US group State Street to administer its funds and is currently seeking for managers for five investment mandates.

Fawcett said Nest was also considering establishing four other mandates: high risk/return, low risk/return, socially/ethically responsible and religiously compliant. He said the religiously compliant mandate would likely be according to Islamic Sharia law. The Sharia mandate would be for a stand-alone fund, he said.

Paul Todd, head of investment policy, said Nest would take corporate governance seriously and exercise its voting rights with an eye to long-term value.

Source : http://www.citywire.co.uk/money/nest-pension-scheme-will-not-just-make-low-risk-investments/a448755?ref=citywire-money-latest-news-list - Nov 12, 2010