Responsible investment could boost pensions

Offering fund options aligned with members' beliefs could bolster contributions

Defined contribution scheme members would pay an extra £1 billion a year into their pensions if fund options were better aligned with responsible investment criteria, research has claimed.

In a study named ‘The Power of Emotions: Responsible Investment as a Motivator for Generation DC’, Franklin Templeton published findings that schemes could see a boost in annual member pension contributions of £1.2 billion by better integrating responsible investment.

David Whitehair, head of UK DC at Franklin Templeton, said while auto-enrolment and pension freedoms had tackled some of the structural changes required in the UK DC market, this was “just the beginning”.

“Our industry needs to stop seeing savers as statistics and better understand them as people,” he said.

“Through better aligning themselves with topics their members are passionate about, schemes can help to drive engagement and ultimately look to boost contribution rates.”

Whitehair said the study of 2,500 people, which was carried out with Adoreboard — a pioneer in human experience using emotion artificial intelligence — identified an “emotional experience gap” for Generation DC.

This demonstrated a wide disconnect between how people feel about their pension and what it currently delivers, with only 22% of respondents feeling their pension scheme was aligned with their values.

Franklin Templeton said responsible investment could go some way towards bridging this gap. The top issues respondents most identified with were climate change (55%), animal welfare (48%) and plastic/excess packaging (41%).

“We encourage scheme providers to consider how responsible investment, in its many forms, can be incorporated into their DC investment design, particularly the default investment,” he said.

“Many schemes do not currently have responsible investment options, while some offer ethical screening funds which, as our research shows, do not necessarily represent the values of younger generations.”

Along with bringing in additional savings for members’ futures, Whitehair said encompassing responsible investment in default or other DC fund options would deliver additional capital for sustainable investment projects globally.