Although most savers want their pension to be invested responsibly, new research from Barnett Waddingham reveals that very few of the 18 million people currently auto-enrolled into workplace schemes have moved their investments to sustainable funds.
When asked whether ESG funds should be the default option for workplace pensions, one in five savers (20%) said yes regardless of return, and a further 26% said yes so long as the return is the same as a non-ESG fund. 45% of people with a workplace pension were indifferent, leaving a mere 9% who believed the default fund should not be ESG-focussed.
According to the research, 80% of people with a workplace pension have never made any changes to the funds they invest in, and a further 11% have only made a change once. Older members aged 55 and above are particularly apt to stick to their original fund choices (91%). Those aged 18 – 34 are more likely to review selections but still only one third (34%) have ever made changes to their investments. Crucially, women are far more likely to have stayed in their default fund than men, at 85% compared to 75%.
It’s unclear whether members of workplace pension schemes stick to default funds because they are unsure how to access their pension, or because they are disinclined to adapt fund selections – perhaps based on confidence that trustees and governance committees have considered the investment strategy appropriately. But sticking with the default could potentially leave them in funds which no longer match their risk appetite and investment preferences, or aren’t equipped to make the most of market conditions.
Currently £8bn is invested in workplace pensions, but unless consumers engage more regularly with their pensions or the Government takes radical action to boost uptake of ESG funds, this money won’t be invested responsibly.
Amanda Latham, Policy & Strategy Lead at Barnett Waddingham, said: “The UK is battling a bad case of inertia, with UK savers displaying a lack of confidence, ability, or knowledge around changing their workplace pension investments. But there’s no lack of appetite, and it’s the responsibility of the pensions industry to facilitate that appetite. The onus shouldn’t fall on individuals. In a system designed around inertia, we need to see policymakers and employers offering better default strategies rather than relying on pension holders to come up with them themselves.
“The UK’s organ donation system is one of the most effective examples of opt-out policy in the world, but it’s a criminally underused tool when we’re looking to enact real change while protecting agency. By transitioning default workplace pensions to ESG funds, we’d see a tremendous impact on sustainable investing. As with the organ donation example, we’d likely also see a huge increase in conversation around pensions, prompting people to engage with their retirement savings and make their money matter. If the UK is going to be a leader in a greener world, there’s no time to waste – we need to follow the money and do what it takes to make change happen.”