According to Scottish Widows, more than two-thirds of UK employers offer responsible invested company pensions, but only 44% have made it the default option.
Employees must switch to a responsible investment if they wish for their pensions to be invested.
Responsibly Investment Pensions Report found that employees are not aware of their options for changing pension investments. 61 percent said they did not know. In spite of the growing interest in responsible investments, 60 percent of employers report that employees have been asking more about their pension schemes in the last year. However, many workers are still unaware of the options they have.
Priorities for Employee Investment
When asked to rank their priorities for pension investments, 63 percent of respondents ranked long-term growth as the main objective. This was followed by financial risk reduction (41%).
The interest in environmental and social impacts of pensions has also increased. Nearly 1 in 5 (17%) employees consider it to be a priority. This number increases to 25% amongst those aged between 18 and 34. In terms of responsible investment, 45 percent said that they would rather invest in companies which directly contribute to UN Sustainable Development Goals.
Meanwhile, 38 per cent of respondents favored reducing their exposure to industries or companies with negative social or environmental impacts.
Employers are Responding
Employers have adopted a variety of strategies to integrate responsible investment into pensions at work. Over half of employers (53%) allocate pensions to sustainable funds. Meanwhile, 46 percent invest in impact strategies. A further 45 percent invest in companies actively working to reduce carbon emissions.
Employers also prefer active engagement, with 36 percent of them supporting strategies such as voting and engagement. Only 20 percent of employers support exclusion policies that remove certain companies or industries from investment portfolios.
Eva Cairns of Scottish Widows’ Head of Responsible Investment highlighted the importance of employers taking action in this field.
She said: “Providing workers the opportunity to invest in their pensions in a manner that provides financial and societal benefits in the long term can only be seen as positive. We have an important role in educating savers on responsibly invested pensions.”
Employers and advisers must now navigate a crucial balancing act – delivering pensions which grow, while also reflecting the values of employees. It is not enough to provide guidance, but also clear priorities, innovation, and approaches. For example, through active ownership, private markets and investments that support the UN Sustainable Development Goals and transition leaders.
Responsible Pensions: Bridging Knowledge Gap
Many employees are still unsure about their options, despite the growing interest in responsible retirement plans. Concerns include lack of clarity about costs and benefits (25%) as well as doubts regarding comparable returns (23%).
91 percent of employers say that they offer guidance on responsible pensions, and 81 per cent believe that they do this effectively. Financial advisers also play a greater role, with 80 percent of them feeling ready to offer advice on responsible investments and 70 percent doing so already. Only 11 percent of advisers say they receive inquiries from clients about responsible pensions.
Cairns said, “Transparency and assurance are key. Workers want to know that their pensions will be future-proofed, for both their retirement as well as the world in which they plan to retire. Employers must also demonstrate that they have made responsible investments in their workplace, particularly the default option for most employees.
