A new scheme starting next year and aimed at making sure most British workers save for a pension will make low-risk investments for its youngest members to keep them onboard in rocky markets.
The National Employment Savings Trust aims to cater for millions of workers who currently have no pensions.
While most funds invest young savers' cash in high-return/high-risk assets on the assumption they have time to make back any losses, NEST said on Friday it was reversing the trend to boost confidence in retirement planning.
The move is likely to reduce allocations to equities and other high-risk classes, potentially disappointing managers who thought they might grab a bigger slice of a fund seen as big as 100 billion pounds by 2030.
"We want to take a little less risk in the early phase. In this phase, the most important thing is making contributions," NEST head of investment policy Paul Tood told Reuters in an interview.
Research by NEST found young investors were likely to react to market losses by stopping contributions to their pensions altogether, he said.
To avoid that, Todd told Reuters, investments made in a member's foundation phase would target returns matching inflation, leaving riskier allocation to members in their thirties to mid-fifties.
These older savers' money will target returns of inflation plus about 3 percent, while near-term retirees will be switched into a consolidation phase to lock in returns.
Brian Henderson, European Head of Defined Contribution Pensions at consultancy Mercer, said: "On the face of it this appears a sensible approach ... the challenge will be taking care not to undercook the low-risk start".
NEST, the brainchild of the Pensions Commission headed by Adair Turner, aims to make more people save for retirement. It will enrol members who do not make an investment choice in default funds to build a pension pot for their retirement year.
Defined contribution pension funds generally switch members in low-risk investments five or 10 years before retirement, potentially exposing them to heavy losses at a time when they cannot afford to.
"This is not about set and forget. This is about thinking: 'Is our 27 year old, the 38 year old, the 52 year old exposed to the right amount of risk-seeking assets, defensive assets?'," Todd said.
NEST, a so-called non-departmental public body, is not part of the government but ministers are ultimately responsible to parliament for the effectiveness of decisions made by it.