Here are some sad truths about the way that auto-enrolment workplace pension providers manage your money.
Recent research by Ignite UK suggests that we expect fund managers to manage responsibly. If this is the case, people are not having their expectations met.
According to research published this morning by Share Action….
Two thirds of the largest auto-enrolment providers lack policy to avoid controversial weapons
- Six out of nine auto-enrolment pension providers fail to take stand on weapons investment.
- Seven providers are lax on tax avoidance, despite societal concerns
- NEST ‘breaks away from the pack’ in responsible investment race.
- All providers bar one present a climate risk lottery.
- Disappointing performance across industry on member engagement and communications.
- Eight boards of trustees and governance committees are made up of less than 30 per cent women.
This isn’t good enough. These providers are entrusted with a nation’s money and Britain expects every provider to their duty.
Here’s the detail
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. Further, 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 today.
ShareAction, the responsible investment watchdog, surveyed ten auto-enrolment providers in the UK entrusted with the savings of nearly nine million savers. It ranks 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 own members, many of them millennials.
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 campaign group finds in the report, called The Engagement Deficit, 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, albeit technically legal, only NEST and Royal London have specific policies on how they are actively encouraging responsible tax conduct by investee companies. Both recognise that an aggressive tax policy is a reputational and regulatory risk.
NEST, the UK’s largest auto-enrolment pension provider for six million workers, heads up the leaderboard. Driven by a stand-out performance across responsible investment themes, it leads 30% above the second highest scorer. NEST’s approach to climate-related financial risks within its default funds was particularly commendable, scoring it 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, says: “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 9 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.”
Frank Field MP, Chair of the House of Commons Select Committee on Work and Pensions, says in the foreword: “It is against this backdrop [of auto-enrolment] that ShareAction has produced this significant piece of research into areas that took a back seat during the first stage of automatic enrolment…This is also an important opportunity to focus on the incorporation of responsible investment – especially in the default fund where the vast majority of these new savers are – ensuring that even the most disengaged savers still benefit from the proper consideration of environmental, social and governance risk. This new generation of savers is especially well placed to take the long view and realise the benefits of a retirement plan that is truly sustainable for them personally, but also for their fellow citizens and the planet.”
Diandra Soobiah, Head of Responsible Investment at NEST, says: “It’s a real honour to have our work recognised in this way and we’re delighted with our score, particularly on our climate aware strategy. Only this week MPs on the Environmental Audit Committee highlighted climate change as a key risk that pension schemes should be addressing. This ranking will allow us to understand where more work is needed and help us to contribute towards developing higher standards across the industry. 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. It’s a great story that we are working hard towards sharing with our six million members.”
Emma Douglas, Head of DC Distribution, Legal & General Investment Management says: “We welcome this report from ShareAction which highlights a number of key issues of interest to ourselves and the pensions industry at large. ShareAction do a great job as champions of responsible investing and it contains some important and challenging findings. 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.”
Anthony Raymond, Acting Executive Director at The Pensions Regulator, says in the foreword: “These providers are all in the market for automatic enrolment business, so it is disappointing that their member communication and engagement strategies seem built on the presumption that those who join a scheme through automatic enrolment then suddenly become proactive and engaged and come looking for information.”
Danielle Walker Palmour, Director of Friends Provident Foundation, says: “We are pleased to support this ground-breaking survey by ShareAction, which shines a light on auto-enrolment pensions’ wider performance, both how they reflect the concerns of society as well as prioritise communicating with their members. Independent surveys of pension providers by ShareAction provide an important wake-up call to companies that they cannot measure success by financial performance alone. Pensions are long-term savings for everyone and it is vital pension providers are responsible stewards of that trust”.
Chloe Sharp, a member of Aegon, says: “I try to live my life as ethically as possible so I find it stomach-churning that Aegon doesn’t guarantee it won’t invest my retirement savings in warfare – I thought these types of exclusions were standard practice nowadays. This is very poor form. If NOW: Pensions can exclude all controversial weapons, why can’t Aegon?”
Louis Stupple-Harris, a member of NEST, says: “It’s great to see NEST investing my money responsibly compared to other pension providers. However, they’ve got some work to do to improve how they keep me informed about all this. I would really benefit from an Annual Member Meeting, a face-to-face opportunity to meet once a year to understand what’s really going on and a monthly e-newsletter telling me where my money is going and the impact it’s having. If they take these steps, I think I’d feel much more involved and connected to my savings.”
Chayley Collins, a member of The People’s Pension, says: “As a member of The People’s Pension, I’m of course pleased to see they performed well in ShareAction’s latest ranking, but there is no room for complacency. I’m concerned by there not being a policy in place to engage with investee companies on aggressive tax policies. From the state pension to the NHS, tax receipts are going to have a major impact on the quality of my life in my retirement. My pension provider should be using my pot to help this be the case.”