More than two-thirds (69%) of UK employers now offer responsibly invested company pensions – but less than half (44%) have set it as the default option, according to research by life insurance, pensions and investment company Scottish Widows.
This means that employees must actively switch if they want their pension to be invested responsibly.
The Responsibly Invested Pensions Report noted a gap in awareness among employees, with 61 percent saying they do not know how to change their pension investment options. While interest in responsible investment is increasing, with 60 percent of employers reporting a rise in employees asking about the sustainability of their pension schemes over the past year, many workers remain unclear about the options available to them.
Employee Investment Priorities
When asked about their pension investment priorities, 63 percent of employees ranked long-term value growth as their main objective, followed by financial risk management (41%).
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Interest in the environmental and social impact of pensions is also rising. Nearly one in five (17%) employees now consider it a key priority, increasing to 25 percent among those aged 18-34. When considering responsible investment tools, 45 percent of employees said they would prefer to invest in companies that directly contribute to the UN Sustainable Development Goals (SDGs).
Meanwhile, 38 percent favoured reducing exposure to companies or industries with negative environmental or social impacts.
How Employers Are Responding
Employers are taking a range of approaches to embedding responsible investment into workplace pensions. Over half (53%) are allocating pensions to specific sustainable funds, while 46 percent have invested in impact strategies. Another 45 percent focus on investing in companies that are actively reducing carbon emissions.
There is also a preference among employers for active engagement with investee companies, with 36 percent supporting engagement and voting strategies. In contrast, only 20 percent favour exclusion policies, which remove certain industries or companies from investment portfolios entirely.
Eva Cairns, Head of Responsible Investment at Scottish Widows, underlined the importance of employer action in this area.
“Providing workers with the opportunity to save for their retirement in a way that delivers financial and societal value in the long-term can only be viewed as positive and we have an important role to play in educating savers about responsibly invested pensions,” she said.
“Employers and advisers are now tasked with navigating a critical balancing act: delivering pensions that grow while also reflecting employees’ values. This requires not just guidance but clear approaches, priorities and innovation – for example through private markets, active ownership and investments that support transition leaders and the achievement of the UN Sustainable Development Goals.”
Responsible Pensions: Bridging the Knowledge Gap
Despite growing interest in responsible pensions, many employees remain uncertain about their options. Concerns include a lack of clarity on costs and benefits (25%), doubts about comparable returns (23%) and uncertainty about how ‘responsible’ funds are defined (20%).
Most employers (91%) say they provide guidance on responsible pensions and 81 percent believe they do so effectively. Financial advisers are also increasingly involved, with 80 percent feeling prepared to advise on responsible investment options and 70 percent already doing so. However, only 11 percent of advisers report receiving client enquiries about responsible pensions.
Cairns added, “Transparency is key; workers want assurance that their pensions are future-proof, both for their retirement and the future world they will retire into. Meanwhile, employers must demonstrate how they have considered responsible investment in their workplace offering, especially their default that the majority of employees will be in.”
