Nest pension scheme funds failed to hit annual performance benchmarks during 2019/20, despite low equity weighting, according to the group's financial reports.

The scheme highlighted the widespread market disruption caused by the coronavirus pandemic as a “major event” of the financial year, with the majority of funds being affected.

It clarified, however, that members closest to retirement in the default arrangement remained “largely protected”.

Annualised total returns net of annual management charges over the year for those in the foundation phase was -3.4 per cent, compared to an objective of CPI, recorded at 1.5 per cent for the past year.

Furthermore, the 2040 fund, representing members in the growth phase, also failed to reach its annualised return benchmark of CPI plus 3 per cent, with a one year fund performance of -5.8 per cent recorded.

Whilst the ethical fund in the growth phase also failed to reach its objective of 4.5 per cent, it did remain in the positive with an annual performance to 31 March 2020 of 1.3 per cent.

Meanwhile, the Nest Sharia Fund surpassed its objective of 6.5 per cent, with a fund performance one year to 31 March 2020 of 8.1 per cent.

However, the report clarified that whilst equity markets have experienced dramatic falls and continued volatility, its strategic equity weighting of 55 per cent for its growth phase remains relatively low compared to other UK DC schemes, many of whom are 70 to 100 per cent equity weighted within their default fund.

The firm stated that this put had put Nest members’ funds in a “stronger position” going into the crisis, also providing trustees the opportunity to seek value by increasing equity allocation while markets are down, which it stated will help members benefit upon a return to growth.

Nest added that while the trustee has kept a “close eye” on unfolding developments, the focus remains on the long term, and as a result would look to continue to diversify the scheme’s portfolio to help members achieve good long-term performance and help reduce the level of volatility within their investments.

It also emphasised that periods of volatility are “to be expected” in pension saving, stating that Nest has always anticipated that growth would eventually be interrupted, as is currently being experienced around the world.

The report stated that significant short-term events such as those seen at the start of 2020 are “clearly concerning for scheme members”, but emphasised that it has taken steps taken to reassure members.

Furthermore, since inception, the retirement fund date in the foundation phase showed annualised fund performance of five per cent, compared to a benchmark of 1.9 per cent.

Equally, the growth phase of both the retirement fund date and ethical fund also reported annualised fund performance since inception of 7 and 9.2 per cent respectively, compared to a benchmark of 4.8 per cent.

Nest also reported a year of growth in terms of activity and assets, with around 9,000 employers signing up to the scheme every month.

This saw both employer and member contributions increase over the year, up to £1.949bn and £2.256bn respectively.

The scheme also reported an income of £186m from transfers in during 2019/20, compared to £69.59m the year prior.

In total, the past year saw a £3.8bn increase in assets under management, from £5.7bn in 2019 to £9.5bn as at 31 March 2020.

Commenting on the report, Nest chief executive officer, Helen Dean, said: ‘From our first member contribution of £19 in 2011 through to managing the pension savings of more than 9 million members, I have seen Nest transform from a start-up into one of the largest defined contribution master trust pension schemes in the UK.

"Our strong foundations and sense of purpose were vital in our response to the emerging Covid-19 crisis.

"I have never been more proud of my entire team at Nest, and our service partners, who mobilised quickly to ensure all our operations functioned well throughout lockdown, allowing us to support our customers through these uncertain times.

"We were able to do this while prioritising the mental and physical well-being of our staff in extremely tough circumstances.

"With forecasts showing one third of the working population is expected to have a Nest pension pot by the late 2020s, our focus is to build upon the success of auto enrolment and help our members, both through the Covid-19 crisis and the long term, prepare for a better retirement."

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