Rebecca Dorrian
Chase de Vere, the Independent Financial and Corporate Advisers, has called on product providers to do more to meet the growing demand from employers, and their employees, to provide easy access to ethical and socially responsible investment funds in their workplace pensions.
More than 10 million employees are saving into a workplace pension following the launch of auto enrolment from October 2012. The auto enrolment rules say that pension schemes should be easy to understand and have suitable investment options including a default strategy for those who don’t make their own investment decisions. Many studies have shown that around 9 out of every 10 employees invest in their scheme’s default pension fund.
However, with companies putting an ever greater focus on social and ethics issues, and with more employees wanting their money to be invested responsibility, there is a distinct lack of support from product providers. A survey by Invesco, published in June, found that 72% of scheme members thought it was “a good idea” if their scheme included responsible or ethical investments as part of the default fund.
A positive exception is Aviva, which has launched a default pension strategy based on their Stewardship fund range. This excludes companies that fail to meet certain ethical standards or that harm society or the environment. The Aviva team also engages with companies to improve how they conduct their business. The Stewardship range were the first mainstream ethical funds, launched back in 1984.
Rebecca Dorrian, Corporate Consultant at Chase de Vere, says:
- We are finding that an increasing number of our corporate clients want ethical and socially responsible investments to be easily accessible to their employees through their workplace pension scheme
- Many employees are also keen to invest responsibly and, while pension schemes typically have ethical options available, we know that most employees simply stick with their default fund
- This is despite the fact that those investing ethically don’t necessarily have to sacrifice performance. Indeed, there is a strong argument that companies adopting a sustainable and responsible approach can out-perform over the longer term
- It is great news that Aviva has launched the Stewardship Lifestyle Strategy, a default option which includes ethical and ESG (environmental, social and governance) considerations.
- However, while some other providers are including socially responsible factors in their investment process, too many are doing little more than paying it lip service
- This needs to change. As is often the case, the workplace is lagging behind the retail market
- We need to see far more specific ethical and socially responsible default funds being made available and, at the very least, all providers should be paying far more consideration to these areas
- Auto enrolment has the opportunity to be a ‘game changer’ in terms of the retirement prospects of millions of people in the UK. An increased focus on investments in areas which are beneficial to society and to the environment can only help to increase engagement amongst employees
- Whether or not people end up investing in a socially responsible manner shouldn’t be down to the lucky dip of which pension provider their employer has chosen. It’s time for all providers to stand up and do their part.
