If you are saving into a pension at work, are you happy for your cash to be invested in companies that make weapons, dodge tax or harm the environment?
Well if you are enrolled automatically into a workplace pension, chances are that there is nothing to stop that happening.
ShareAction, the responsible investment watchdog, has surveyed the big auto-enrolment providers who are entrusted with the savings of nearly nine million newly-enrolled workers. It ranks them on their approaches to responsible investment, ethics, and how well they engage and communicate with their own members, many of them millennials.
- Six out of nine auto-enrolment pension providers fail to take a stand on weapons investment.
- Seven providers are lax on tax avoidance
- All providers bar one present a climate risk lottery.
- All are weak on engagement and communications.
- Eight boards of trustees and governance committees are made up of less than 30 per cent women.
The report finds that 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.
The campaign group finds in the report, called The Engagement Deficit, that most auto-enrolment providers are also ‘lax on tax’. It says that despite 90% of the UK’s population viewing tax avoidance by large companies as morally wrong (albeit technically legal) only two companies NEST and Royal London have specific policies on encouraging responsible tax conduct by investee companies. “Both recognise that an aggressive tax policy is a reputational and regulatory risk,” the report says.
Only one provider, NEST, has a measurable and time-bound target to reduce the portfolio’s exposure to climate risks. All the other pension firms performed poorly on this measure.
However, NEST fell down on the second half of the survey, as did most of the industry, which assessed how they communicate and engage with members.
The blog reported last month on ShareAction’s report ‘Next Generation Pensions’ which warns that young workers are at risk of jeopardising their financial futures due to uninspired and out-of-touch messages from the industry.
It said young employees were disconnected from and confused about their workplace pensions, and had little communication, understanding or choice about their savings.
The charity said lack of digital innovation by the pensions industry was contributing to a crisis of under-saving, and urged a “radical rethink” of its outdated and narrow message to younger workers in particular
Iona’s comment was: “It’s about time pension providers took the lead on getting young people inspired about their savings. We are in danger of entering into an era where people either sleepwalk into a third-rate retirement or stop saving altogether.”
Based on its latest findings, ShareAction recommends that providers produce a “statement of responsible investment principles” which should apply as much to the default fund as to “ethical” fund choices.
Paul Britton, Research Officer at ShareAction and report author, says: “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 newly-enrolled 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 report’s foreword: “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.”
ShareAction cites the views of two young workers.
Chloe Sharp, whose pension is with 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, enrolled into 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.”