Research into the likely membership of the National Employment Savings Trust (NEST) pension scheme has indicated that a carefully constructed default fund will be essential in order to prevent a large number of potential members ‘opting out’ of the scheme.

Chief investment officer Mark Fawcett yesterday told a media briefing that it is expected that NEST members will find it more difficult than most to understand investment information, and are likely to be more risk-averse than average.

Accordingly, members will be introduced to risk gradually. The corporation intends to avoid exposing members to too much volatility in the early years of making contributions, when returns from riskier investments would not have a big impact on the final pot size.

A member’s risk exposure will be low in early years, then increased throughout a ‘growth phase’ before being reduced in the years approaching retirement, the ‘consolidation’ phase.

“We need to give them risk in an appropriate way, at an appropriate time,” Fawcett said.

According to information released today by the NEST Corporation - the trustee body responsible for running the scheme - approximately 77 per cent of members will earn less than £25,000 a year from their main job.

Of those, it is expected that around 37 per cent will earn less than £14,999. It is estimated that just nine per cent of scheme members will earn in excess of £33,000 a year.

Many members are expected to come from industries with high rates of job churn, and are more likely to be employed in temporary or shift work.

NEST’s default offering is set to be comprised of more than 50 ‘target date’ funds, with scheme members placed in the fund which matches their anticipated date of retirement.

The NEST Corporation is currently advertising for managers for five investment mandates, revealed earlier this month. The mandates form the basis of the target date funds and include a global equity fund, a UK gilts fund, a UK index-linked fixed interest fund, a low-risk cash management fund, and a diversified beta fund.

Contracts are expected to be complete by early January next year.

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