This month, 36% of UK consumers with a workplace pension told Barnett Waddingham that they have made changes to how that pension is invested – that is, picked which funds it is invested in. Some of these have only made changes once (12%), while 18% have done so occasionally and 6% regularly. This engagement with pensions has increased by a staggering 80% in just 18 months. In November 2021, just 20% of people had made changes – 11% once, 10% more regularly.
Despite this shift, the corresponding trends have remained remarkably consistent. In 2021, younger members were much more likely to make changes to their investments; 34% had done so, versus just 9% of 55+s. Now, a whopping 63% of 18-34 have made changes, whereas the 55+ figure remains subdued at 12%. And women are still less likely to engage than men; 15% of women in 2021 is now 26%, and men’s likelihood has increased from 25% to 43%.
Barnett Waddingham’s research also delves into people’s perceptions of how their hard-earned workplace pensions should be invested, and the findings are clear: there is a strong appetite for their money to be invested responsibly, which is likely to be driving many of the investment choices. Most savers believe that their pension providers shouldn’t use their money to invest in things which harm people (e.g. weapons & tobacco) or the planet (e.g. oil & gas), and should be setting goals around climate change.
Avoiding causing harm to people generates the strongest opinions from savers; 41% ‘strongly agree’ that their provider shouldn’t be investing in the likes of weapons and tobacco. A further 27% ‘slightly agree’, resulting in just 21% who disagree and 10% who aren’t sure. Women are particularly impassioned; half (49%) strongly agree, compared to just a third (34%) of men. And older savers are more likely to agree generally than their younger counterparts too, led by 35-54s (70%), then over 55s (68%), and finally 18-34s (66%).
Similarly, 67% of people agree (strongly or slightly) that pension providers should be setting goals around climate change when deciding on how to invest their cash, such as achieving net zero emissions by 2050. This is truer of younger savers; almost four fifths (79%) of 18-34s agree, versus 65% of 35-54s and 57% of over 55s.
62% believe that their retirement savings shouldn’t be used to invest in things which hurt the planet – like oil & gas. This is the area with the least generational discrepancy; it is true of 63% of 18-34s, 64% of 25-54s, and 59% of over 55s. Here though, a gender difference is clear; 67% of women agree, compared to just 57% of men.
And topping the list, 72% of people agree that their money should be invested in things which help this country, including domestic infrastructure. This is especially pertinent given the City of London’s proposals surrounding the ‘future growth fund’ for DC pension schemes, and ongoing Government support for the topic.
In 2021, most savers believed the default pension fund should be an ESG one (46%) or were indifferent (45%) – merely 9% thought the default fund should not integrate ESG.
Sonia Kataora, Partner and Head of DC Investment at Barnett Waddingham, said: “It is remarkable that people’s engagement with pensions has shot up so significantly since 2021. There are many possible reasons for this; the cost of living crisis has prompted people to take stock of their finances and make their money work harder, many default DC schemes haven’t been performing as well as members expected, and successful campaigns from the likes of the PLSA and ABI and ‘Make My Money Matter’ have encouraged savers to pay more attention to their pension.
”There is also undeniably a higher interest in, and passion for, responsible investing. The British public strongly believes that its money should be used in a way which helps fight climate change and helps the country, and cannot be used to cause harm. This will be music to the ears of policy makers who are keen to harness the power of DC funds. However, trustees and pension scheme managers also have a responsibility to their members to generate the best returns at the appropriate risk level, to ensure the best outcomes for people at retirement. This balancing act will remain front-and-centre in the coming months.
“And we cannot lose sight of the fact that, despite the eighteen month increase in engagement, more than two thirds of workplace pension holders remain in their default fund. It’s critical that trustees of all DC schemes sit up and pay attention to the appetite of members for responsible investing. There’s no single answer to this question. It’s vital that trustees, investment providers, and consultants work together to stay at the front of the sustainable investing curve by developing solutions that both address the risks involved with climate change and other areas of sustainability, but also harness the huge number of opportunities to drive returns. Ultimately, this will improve member outcomes and maximise the amount that people have at retirement.”
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