How do you make a pension green and do workers want it?

Do people REALLY want green pensions? Yes, but they would prefer their work schemes to choose the investments for them

  • The majority of workers stick with the pension fund their employer chooses
  • Some 46% believe their ‘default’  fund should invest responsibly
  • Another 45% of savers are indifferent and 9% think this should not happen 
  • How green have default funds gone so far? Find a progress report below

People want green pensions but are reluctant to switch out of ‘default’ work funds, placing the onus on providers to switch them into sustainable investments. 

Some 46 per cent believe the pension fund they are automatically opted into by their employer should invest responsibly on their behalf, while 45 per cent are indifferent and 9 per cent think this should not happen, research reveals.

The pension industry should learn from the organ donation programme and transition all ‘default’ workplace funds to green investments, leaving individual members to opt out if they want, according to a report from consultant Barnett Waddingham.

Climate change: Many pension firms have started adapting their ‘default’ workplace funds to accommodate savers’ wishes for sustainable investments – see below for a progress report

Previous surveys have found most workers want to invest their retirement savings to combat the climate emergency – or according to environmental, social, and governance of ‘ESG’ principles – if their scheme makes this available. 

Among the 46 per cent of savers who told Barnett Waddingham they believe their default pension fund should be invested responsibly, 20 per cent said yes regardless of return and 26 per cent agreed so long as the return was the same.

People with jobs are automatically opted into their employer’s pension scheme unless they actively object. 

The vast majority stick with their employer’s default fund, whether it really suits them or not. Read more here.

According to Barnett Waddingham’s survey of more than 1,200 people with workplace pensions, 80 per cent have never made any changes to the funds they invest in and a further 11 per cent have only made a change once.

Some 91 per cent of members aged 55-plus have stuck to their original fund choices, amd 86 per cent of women have stayed in their default fund versus 75 per cent of men.

Meanwhile, 34 per cent of 18 to 34-year-olds have made changes to their work pension investments.

Many pension firms have started adapting their default funds, but there is some way to go. See below for Barnett Waddingham’s analysis of progress to date. 

This anonymised graph compiled by Barnett Waddingham analyses sustainable investing across 17 providers¿ default pension funds, showing one line per provider, and grouped according to net zero targets and their timing. Impact investing means actively trying to do good in the world

This anonymised graph compiled by Barnett Waddingham analyses sustainable investing across 17 providers’ default pension funds, showing one line per provider, and grouped according to net zero targets and their timing. Impact investing means actively trying to do good in the world

How green have default funds gone so far?

‘There are a handful of providers where 70-80 per cent of their default offering is based on some form of sustainable investing, but there are equally a handful of other providers who have very little sustainable investing exposure,’ says Barnett Waddingham’s study.

‘It’s also worth noting that there are different shades of green within the green bar, with some providers simply making minimal exclusions whilst others making more substantial tilts to their portfolio.

‘The majority are adopting a 2050 net zero target although there are a handful of providers who are on a more ambitious pathway.’ 

There’s no lack of appetite for ESG investments, and it’s the responsibility of the pensions industry to facilitate that appetite, says Amanda Latham, policy and strategy lead at Barnett Waddingham.

What does responsible investing jargon mean? 

Two thirds of savers want to invest responsibly but are baffled by jargon: How to tell ESG from SRI and impact investing… and spot greenwashing here. 

‘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.’

Reuben Overmark, senior policy adviser at pension industry group the Association of British Insurers, says: ‘Pension providers recognise there is a strong appetite from savers that their pension is invested responsibly. 

‘It is increasingly common for ESG factors to be incorporated into most automatic enrolment default funds. This means savers do not have to self-select funds to be in an ESG rated product. 

‘Given over 85 per cent of people enrolled in a workplace pension are in the default fund this is particularly important. 

‘Insurers also take an active role in stewardship and have managed to affect positive change on carbon emissions and workplace disclosures at some of the largest firms in the world, on behalf of customers.

‘There is more to be done to help customers understand and compare the environmental and societal impact their investments. A standardised approach to reporting and definitions of ESG is needed and we are committed to working with the regulator and government to make this happen.’