NEST recently announced its investment approach. One of the biggest challenges it faces is communicating this approach to members. Graham Vidler explains

Automatic enrolment will inevitably focus attention on the design of the default funds of defined contribution (DC) pension schemes. Somewhere between 70 and 90 per cent of those automatically enrolled into DC pension schemes are likely to stay in the default fund, if experiences in the US, Sweden and Chile are repeated here.

We've carried out a huge amount of research to provide our members with a default fund approach that we believe will be appropriate for most of our members.

On joining NEST, members will automatically be invested in the NEST Retirement Date Fund that matches their expected date of retirement.
There are also a small number of carefully selected additional fund choices designed to meet particular beliefs or preferences – our Ethical Fund, Sharia Fund, Higher Risk Fund and Lower Growth Fund.

Many of those who will be automatically enrolled into NEST and other schemes will have never invested their money before, either through a pension scheme or any other vehicle.

We need to ensure our communications are fit for both those who want to engage and for those who have little or no interest in doing so.
Research suggests there is a range of financial skills present in the general population and we believe that this will be mirrored in our target group. The evidence also suggests that many in the general population have difficulty interpreting investment information and subsequently taking investment decisions.

Many also lack higher end numeracy skills that drive the ability to understand and interpret investment information.

So what does this all mean for our communications approach?

First, it gives us some key principles:
1)we use straightforward and clear language
2) we make fund choice easy, but we don't promote it – we don't want members to feel that they have to research and make a choice
3) we take a hierarchical approach to presenting information to help provide our members with what we believe is the right amount of detail at the right time.

Broadly speaking, tier one is aimed at those members who are at the pre and early enrolment stage. We will provide these individuals with simple, introductory information on our public website, headlines on fund choice in our member welcome information and clear signposting to where they can find more detailed information.

This initial information does not give detailed asset allocations for the NEST Retirement Date Funds, but provides general information on the risk profile of the funds – without using this term.

The purpose of tier one information is to reassure the member that their money is being looked after and that NEST Retirement Date Funds are designed to suit most members. However, we will also highlight the alternative fund choices and tell them where to get further information.
Tier two focuses on those members who are potentially interested in making a proactive fund choice, or moving between Retirement Date Funds.

At tier two we will provide more detailed, though still jargon-free, information on all funds and 'read more' links to more detailed information. However we avoid technical details and also continue to not actively encourage switching.

Should the member get to the point they want to switch funds, we'll provide them with further information and health warnings.

Tier three information provides technical detail and is generally for advisers, other experts or more engaged members who want to exercise their freedom to dig deeper and explore the more detailed content available through the public section of the website. This includes full information on asset allocation and underlying investment vehicles.

So far we feel the foundations we are laying at www.nestpensions.org.uk for our very first members are solid and appropriate for these individuals, but we know we don't have all the answers.

We want a continuing dialogue with stakeholders on communicating with savers. We recently held an event to gather a wide variety of views and intend to hold more. You can share your thoughts on how we are doing and as we deliver NEST throughout 2011 at stakeholder@nestpensions.org.uk

Graham Vidler is director of communications and engagement
at NEST

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