Two thirds of workplace pension providers do not have a policy on weapons investment, with noteworthy failings over tax avoidance, climate risk and gender diversity at several major providers.
Six out of nine of the UK’s largest automatic enrolment pension providers have no policy to prevent investments in companies that profit from chemical and biological weapons, a new market ranking finds.
For their default funds, where the vast majority of savers’ pension pots are invested once enrolled, Aviva, The People’s Pension, Royal London, Scottish Widows, Aegon, and Standard Life do not screen out firms that produce toxic components of harmful weapons.
Aegon has no exclusion policy for any controversial weapon, including anti-personnel mines and cluster munitions, from any of its funds. These are among a number of findings in a report released on Saturday,
ShareAction, the responsible investment campaign group, surveyed ten auto-enrolment providers in the UK entrusted with the savings of nearly nine million savers. It ranked them on their approaches to responsible investment, including on their response to climate change risk, proxy voting and engagement with companies, and ethics. It also scored them on how well they engage and communicate with their members.
Nine out of ten providers responded to the survey. Scored out of a possible 352, the top five performers are: NEST (260), The People’s Pension (204), Legal & General (contract-based: 200, master trust: 195), Aviva (193), Standard Life (contract-based: 193, master trust: 192). The bottom five performers are: Scottish Widows (187), Royal London (166), NOW: Pensions (139), Aegon (90), and Smart Pension (who withdrew from the survey).
The Engagement Deficit report showed that on the whole, auto-enrolment providers are ‘lax on tax’. Despite 90% of the UK’s population viewing tax avoidance by large companies as morally wrong, only NEST and Royal London have specific policies on how they are actively encouraging responsible tax conduct by investee companies.
NEST, the UK’s largest auto-enrolment pension provider for six million workers, heads up the leaderboard. NEST’s approach to climate-related financial risks within its default funds was particularly commendable, scoring 86 per cent in the climate change section. NEST is the only provider to have a measurable and time-bound target to reduce the portfolio’s exposure to climate risks. No other auto-enrolment pension provider scored above 32 per cent in this section, suggesting climate risks are not addressed sufficiently by auto-enrolment default funds.
However, NEST fell down on the second half of the survey, as did the majority of its peers, which assessed how they communicate and engage with members. There was only a 13 per cent difference in scores between the leading provider, The People’s Pension, and the two worst-performing providers.
With opt-out rates projected to rise to 27% from March 2019, evidence suggests auto-enrolment pension providers could risk losing savers. It is essential that providers talk to their members about the issues they care about. In March, ShareAction found that a lack of digital innovation and uninspiring saver engagement efforts by the pensions industry could be jeopardising millennials’ willingness to save enough for a decent retirement.
Diversity on boards of trustees and independent governance committees (IGCs) trails FTSE100 executive boards: eight of the 11 boards of trustees and IGCs are made up of less than 30 per cent women. NOW: Pensions has the highest proportion of women at 60 per cent, while Royal London’s IGC contains the fewest women, with 17 per cent.
Based on its findings, ShareAction recommends that providers produce a statement of responsible investment principles which includes a commitment to engage with underlining investments to promote better practice on financially material issues like climate change and tax. This should apply as much to the default fund as ethical choices. The document should clarify which ethical concerns they consider, for example, controversial weapons exclusions.
The Department for Work and Pensions, the FCA and The Pensions Regulator should also encourage: climate risk assessments in default funds, gender diversity targets, and member engagement.
Paul Britton, Research Officer at ShareAction and report author, said: “The strong incorporation of responsible investment principles is good for our savings and good for society. The lacklustre performance across member communications and engagement by all providers is no real surprise. Of course, auto-enrolment pension providers cannot be solely blamed for Britain’s retirement cliff-edge, but they do need to act on their key position to engage the nine million new workers with their pension savings. Hoping members don’t opt-out as the minimum contributes rates rise is not enough – people need compelling reasons to save.”
Diandra Soobiah, head of responsible investment at NEST, said: “We know that investing responsibly leads to better outcomes in the long run for members, which is why we’ve put it at the heart of our investment approach. ShareAction has rightly identified that the next challenge is communicating this to members, which is something we’ve already been thinking hard about. Giving members more insight into where their money goes and the impact it can have is engaging, helps bolster trust and confidence in pension savings and creates a sense of ownership over their money. After all, responsibly managed pensions not only improves financial outcomes for members but can help improve the society and environment we all live and retire in.”
Emma Douglas, Head of DC Distribution, Legal & General Investment Management, said: “We’re pleased to be recognised for our record on ESG including the development of our new Future World Fund which invests in companies that are poised to benefit from the transition to a low-carbon economy. And we continue to work tirelessly on improving member communications and engagement. We have a large number of initiatives running to further improve our member experience and a recent trial of personalised video benefit statements was astonishingly successful – suggesting people are keen to engage with their retirement planning if we can just press the right buttons.”