Nest gives insight into the makeup and savings secrets of its members, but pension pots remain small especially among women – despite female Nest members apparently being better savers. 

 

Nest Insight and Vanguard have been looking at Nest’s 8m-strong membership and their savings behaviours in a new study, ‘How the UK Saves’. 

 

They found that although the bulk of new members was brought to Nest through auto-enrolment, a quarter of a million actively chose to participate, many of them on very low incomes and predominantly younger women. 

 

The majority of Nest’s active members have had their Nest account for less than one year, showing the significant job churn in the industries most represented – employment (14%), health and social care (14%), retail, hire and repair (9%), catering and accommodation (9%) and manufacturing (6%). 

 

More than half of Nest’s members earned less than £20,000 a year, and nearly half of them are younger than 35. At the same time, almost 15% of members were 55 and older, and over a quarter earned more than £25,000 annually. 

 

Women accumulated a median £174, or 76% of the median balance for men of £228 - the difference is down to structural issues in the labour market, concludes the report, noting that these factors need to be identified and challenged “wherever they are found” if the gap is to be closed. 

 

After adjusting for earnings, the study also found that “women appear to be better retirement savers than men” in Nest. For incomes below £10,000, women’s median balances were 13% higher than men’s, and for incomes between £10,000 and £14,999, women’s balances were 20% higher.  “Having controlled for earnings, women tend to be better retirement savers than men in all income cohorts but the highest earners,” the report notes. 

 

 

 

Will Allport, a report author and senior retirement strategist at Vanguard, considers addressing the shortfall of female retirement wealth relative to male was a tricky task. “We should refocus our attention on the differences in average earnings and working patterns between genders,” he said. 

 

“Furthermore, lowering the earnings threshold for auto-enrolment eligibility, or making contributions on the first pound of earnings rather than adhering to the lower earnings limit, would both help to narrow the disparity,” he said. 

 

Outcomes and therefore the adequacy of pensions are not just determined by earnings and contributions, but also investments. Nest’s investment team regularly prepares forecasts of future retirement wealth for members in the scheme, taking into account age, income and scheme turnover, along with projections of future investment returns and using an economic scenario generator based upon a number of economic assumptions.  

 

For the report, 10,000 scenario paths were generated to predict that a 22-year-old with pensionable earnings of £9,187 today might be expected to accumulate a pot balance of around £50,000 in today’s money by retirement age.  This could result in an income in retirement of roughly £3,000 per year – a replacement rate of approximately 15%, the report authors said, or 55% if the state pension is factored in.  

 

“This represents a significant uplift in income compared to a scenario in which they had not saved at all – which, for many, was the case prior to the introduction of automatic enrolment,” the report notes. 

 

Lack of coverage is undoubtedly the key issue of the past that auto-enrolment was brought in to fix – and has fixed for the employed, if not the self-employed.   

 

What should happen to further improve pension saving for master trust members?