The National Employment Savings Trust (NEST) has ended its first ten months in operation with less money in its fund accounts than were made in initial contributions, after one member died and contribution charges ate into member pots.
However, its investment head has said the funds are delivering their objectives and performing "just how we wanted".
NEST has been trialling its systems with the help of volunteer employers and 850 members before the introduction of auto-enrolment later this year.
Between July 2011 and March this year, NEST annual reports showed that the government-backed fund received £481,250 in contributions and made £8,514 net return on its investments.
One member died, which triggered death benefits of £2,016.
The annual management charge and 1.8% charge on contributions ate into memberpots by £6,973.
NEST head of investment policy Paul Todd said the administrative charges were "geared" to decrease over the coming years.
He said: "In the first year, everyone's paying the contribution charge of 1.8% because it is the first year. In the second year, the contribution charge on those contributions will not be there; it is just the AMC."
He said he expected the percentage to come down to the equivalent of a 0.5% AMC as members build up their pots.
Todd said he was happy with the overall performance of the investments, with all target date funds outperforming the CPI benchmark over the period.
Todd said that "most members" will have seen a positive return on their investments, but added that the lower growth funds come with stringent health warnings.
"It is not a coincidence that we call the lower-growth funds the lower-growth funds," he said.
"We make it very clear that it may not keep up with inflation but there are some people who are very uncomfortable with the concept of any exposure to stock markets and volatility."
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