In its response to the FCA Consultation Paper Sustainability Disclosure Requirements and Investment Labels, Aegon has explained why a straight copy of the proposals from investment products to pensions won’t work.
Steven Cameron, Pensions Director at Aegon, says:
“We support the FCA’s aims of improving sustainability disclosures and investment labels to improve decision making and halt ‘greenwashing’. While the initial focus is on investment products, we support the FCA giving early consideration to extending to pensions. However, the pensions landscape and in particular workplace pensions have many different aspects, including how members engage with investments, which need to be considered.
“If individuals are making active decisions around where to invest their pension, for example in a SIPP, then applying the new labels may help them invest in line with their sustainability preferences. Here, consistency with the approach for investment products will be helpful.
“However, the vast majority of workplace pension scheme members are invested in the default fund without giving any consideration to investments. This is a direct and deliberate outcome of Government auto-enrolment policy.
“Default funds are designed to meet broad needs of members and based on the current proposals, are highly unlikely to qualify for a sustainability label. Rather than investing solely in equities, they are typically multi-asset and often constructed on a fund of funds basis. They also often utilise de-risking strategies as retirement approaches, meaning a gradual change in asset mix. But the SDR proposals lend themselves most readily to equity-based investments. Furthermore, it will be very challenging for a broadly diversified fund of funds approach to qualify for any one of the three SDR categories.
“For these reasons, the proposals for investment funds don’t look ideal for workplace pensions. However, it is still important for pension schemes to highlight where they are seeking to contribute to the sustainability agenda. So even if a default funds doesn’t meet the criteria for using a label, governing bodies and trustees should still be encouraged to take the lead in explaining to members their approach to sustainability.”