Too Little Risk?

September 1st, 2017

Are young savers who are auto-enrolled into the NEST pension scheme taking too little risk, asked the Mail. The reason it asked is that NEST’s ‘default’ option for younger savers (aged 22 to 27) is a cautiously-invested fund with a large proportion of its money in safe investments. Yet, as experts agree, over the long term riskier investments like shares are virtually certain to deliver much higher returns, so most investment advisers would recommend young people to allocate their savings to a fund investing almost exclusively in shares.

NEST argues that its approach is valid because young ‘first-time’ savers are nervous and may opt out of the scheme if they incur losses in the early years. Experts argue that better communication, so that savers understand that paper losses on their funds in the first few years don’t matter, is what’s needed.