It’s often said that paying into a workplace pension is a no-brainer, and maybe here’s the proof: early investors into Britain’s biggest auto-enrolment scheme have tripled their money in seven years. And those who chose the ethical fund have made the best returns.
Figures provided exclusively to Guardian Money by Nest (National Employment Savings Trust) – which boasts 8.5 million members – are good news for those putting aside money for their future.
But they also reveal that a decent chunk of Britons’ retirement cash is riding on the fortunes of Facebook, Apple, Google and Amazon.
Nest is a publicly owned scheme set up by the government as part of the so-called “automatic enrolment” retirement saving initiative designed to get millions more people paying into a pension.
This kicked off in October 2012 and requires all employers to automatically put eligible workers into a workplace pension where both the worker and employer pay some money in. So what have we learned so far?
Nest is big and getting bigger
The 8.5 million members make up roughly a quarter of UK workers. By the late 2020s, one-third of the working population is expected to have a Nest pension pot.
As of the end of September this year, it had £8.3bn of assets under management – but with about £450m in new contributions flooding in every month, forecasts suggest this will swell to £20bn by 2022.
It has turned £2,000 into £6,000 (sort of)
Nest says that in just seven years, some of its savers have tripled their money, once you factor in employer contributions and investment returns. That far outstrips what you could have got from other savings products such as Isas, it adds.
We had asked Nest to provide performance data, plus figures for how much people who joined the scheme at the start might have in their pots now.
It based its calculations on someone on an average annual full-time income of £29,588 who made pension contributions each month at the minimum level. It says that, assuming this person started paying in at the start of October 2012, and was put into its default “2040 retirement date fund”, they would have a pot worth just under £6,000 as at the end of September.
The individual would have paid in £2,070, their employer, £2,097. They then get £517 of tax relief on top, and benefited from £1,368 of investment growth. But then you need to lop off Nest’s charges, amounting to £127 in this case. That gives you £5,924.
However, the figure for its “higher risk” fund is £6,241. And for its ethical fund £6,258.
Ethical investments deliver the best returns
Or at least they have in this case, as can be seen from the above.
Nest members who have opted to “go green” will be cheering their decision, because the ethical fund has delivered a cumulative return of 116% over seven years.
Its higher risk fund, for those happy to take a bit more risk, delivered 115%. Meanwhile, the 2040 retirement date fund produced 90%.
While people are initially put into the appropriate retirement date fund for their age (there are 49), they are free to switch into a fund that better matches their priorities.
Nest can’t be accused of ignoring the climate emergency and other issues around sustainable investing.
In February 2017 it announced it would be shifting a chunk of its retirement date fund investment cash into a new climate change fund designed to move people’s money out of fossil fuels and into renewable energy. This so-called “climate aware” fund had about £750m in it in March this year, but the figure now stands at more than £1.1bn.
And in June this year Nest announced it would be going tobacco-free across all its investments, though it estimated this would take up to two years.
There are other funds that have provided a better return
A typical global investment fund has delivered about 110% to 120% over the seven years in question, so Nest has largely matched that.
But some funds have done a lot better: the £18bn Fundsmith Equity Fund has achieved more than 250% return over the same period.
But most experts say you can’t really beat a workplace pension, because it comes not only with tax relief, but also with a valuable employer contribution.
Nest seems to really, really like US tech companies
As of September, the top five shareholdings for both the 2040 retirement date fund and the higher risk fund were, in order, Microsoft, Apple, Alphabet (aka Google), Amazon and Facebook.
Meanwhile, in the case of its ethical fund, more than 9% of all the money going into shares was invested in Microsoft and Apple.
Nest has a sharia fund
And it’s open to anyone. The investments – entirely in equities – are screened by Islamic scholars to meet sharia standards.
Again, you had better like big tech firms: as of September, a chunky 22% was invested in Microsoft, Apple, Alphabet and Facebook.
