After years of poorly conceived occupational pensions policy, the UK is finally attempting to remedy the situation - at least in the defined contribution area.

The National Employment Savings Trust (NEST) is the country's attempt at a remedy but has come under considerable criticism - from interested parties such as insurers that initially saw it as a competitive threat but also for its planned low-risk investment policy.

Under these plans, member contributions will default to a low risk strategy until about age 30. The aim of this investment strategy is to achieve performance roughly in line with the consumer price index (CPI). Critics say this strategy is unsuitable for pension saving.

In NEST's favour, very little pension saving takes place in the UK before age 30, particularly among the lower paid, so fostering the modest growth of a small endowment by that age is a vast improvement on the status quo.

And the recent bout of market volatility makes these plans much more understandable; the impact of negative returns should be viewed through the lens of behavioural finance.
A negative return in the early years - and seeing a statement that says you have less in assets than you paid in - could fatally undermine the concept of pension saving irreparably for many.

Even if NEST is successful, the main issue is still the level of contributions. Under auto-enrolment, the concept that underpins NEST, members will initially only pay a minimum contribution of 2% - of which 1% will be paid by the employer. The target contribution of 8% will be implemented from October 2017.

This is simply insufficient. Indeed, for too long, the UK has satisfied itself with the illusion that high expected investment growth justifies low pension fund contributions - both in occupational and individual pensions.

Given the difficult economic and market climate we now likely face, better conceived investment strategies are needed for all types of pension funds. In the Netherlands for example, a shared employer/employee contribution of around 20% is the norm. UK policymakers should stop deluding themselves that a 2% or an 8% contribution is going to be sufficient to secure an adequate retirement income.

Likewise, public sector unions should stop seeing pension contributions as a reduction in take-home pay and view them as a worthwhile contribution that secures a valuable benefit not available privately.

If occupational pensions are to be fit for purpose and sustainable they should be compulsory. With adequate contributions. This is no less the case for DC pensions - through NEST or otherwise - in the private sector. Time to break some policy eggs.