Younger savers are concerned with how ethically their pensions are being invested – this could be an opportunity for more engagement and higher contributions
by Bethan Rees
Younger savers would prefer their pension fund to be more ethical, according to research referred to by Tanya Jefferies for This is Money. The research is by US-based holdings company Franklin Templeton, which surveyed 2,500 younger savers about workplace pensions and responsible investments. It finds, according to Jefferies, that “only a fifth of staff aged 22 to 38 believe their pension scheme is aligned with their values, and half [of the respondents] believe ‘responsible investing’ should be built into the default fund”.
The research also finds the top issues younger savers identify with are climate change (55%), animal welfare (48%) and plastic and excess packaging (41%). Plus, some 29% cite responsible investing as the most important attribute of their workplace pension.
Nathan Long, senior analyst at Hargreaves Lansdown, is quoted. “Helping people to reflect their personal values in their pension savings is a great way to drive higher interest in saving for the future, and we’ve seen more and more workplace pension members wanting to do exactly that.”
According to Jefferies, the research finds that 45% of younger workers would be willing to put more in their pension pots if they thought it was going into responsible investments. Among these respondents, 70% would contribute an extra 1–3% of their salary, and 14% would contribute an additional 4–5% each month.
“That could mean a £1.2bn boost to pension pots, based on a median salary of £28,000, according to Franklin’s calculations,” she writes.
When a worker is auto-enrolled, their pension goes into a default fund, but Jefferies suggests that giving people a choice between a default or an ethical fund, or even a 50/50 split, could “give savers more options”. Jefferies references David Whitehair, head of UK Defined Contribution at Franklin Templeton, who says that many schemes don’t offer responsible investment options currently.
This is Money article
An article by The Irish News also refers to the Franklin Templeton research and examines the emotional responses of the survey and how these relate to attitudes of responsible investing in pensions.
Harvard professor Gerald Zaltman believes 95% of purchase decisions are driven by emotion and it’s time for the pension sector to recognise this, according to the article. It reports: “Despite the common narrative that people regard pensions as boring, the reality is that pension investment decisions actually drive intense feelings – especially when workers believe their money is being used in ways that conflict with their personal values.” The report, according to the article, says that there are opportunities for the pension sector to increase engagement with its customers through recognition of their values.
The article also states that “more information about existing pension schemes’ role in responsible investment also generates positive responses [among workers] and a stronger feeling of engagement and trust”. It’s therefore in the interests of employers to be transparent about how their company’s pension scheme works, and what it is being invested in. According to the survey, 78% of the respondents would engage more with their pension scheme if it gave information on responsible investment, while 58% would like to have this information given to them through an app.
The Irish News article
A millennial takes action
Meanwhile, in Australia, 24-year old environmental scientist, Mark McVeigh, is suing a pension fund for failing to provide information about climate change risks and allegedly violating the country’s Corporations Act, an article for Chief Investment Officer reports.
McVeigh filed the lawsuit in the Federal Court of Australia against the AUS$57bn Retail Employees Superannuation Trust (REST). Since 2013, McVeigh has contributed 9.5% of his salary to the fund and according to the Corporations Act, beneficiaries are entitled to request information so they can make informed decisions about the fund. According to the article, the court documents claim McVeigh requested such information from REST, including its climate change business risks and the actions it was taking in response to the risks. He claims the fund failed to provide this information.
The lawsuit states: “Climate change, the physical impacts, and the transition impacts, individually or in any combination, have posed, and will increasingly continue to pose, material or major risks to the financial position of many of REST’s investments … Trustee directors knew, or ought to have known, that REST’s climate change business risks were likely to have a material or major impact on the financial condition of [the fund].”
McVeigh is seeking an injunction to force REST to give him the requested information and a statement that REST violated the Corporations Act.
Chief Investment Officer article
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