46% of pension savers want their default fund to be an ESG one, says new research.

Posted: 20 December 2021

By Luke Upton

Almost half (46%) of pension savers want their default fund to be an ESG one and consider sustainability issues according to research from professional services consultancy Barnett Waddingham, while 45 per cent do not have a strong preference. Only 9 per cent think that default funds should not integrate ESG factors into their investment decisions. Given these findings the report authors are calling for a radical reform of the UK pension systems to make all auto-enrolment default pensions ESG funds, while giving savers the option to ‘opt-out’ if they strongly object.

Their research shows that 80 per cent of workplace pension savers have never made any changes to the funds they invest in, and a further 11 per cent have only made a change once.

Generational differences to ESG

Older members aged 55 and above are particularly apt to stick to their original fund choices (91 per cent). Those aged 18 to 34 are more likely to review selections but still only 34 per cent have ever made changes to their investments. The research also shows that women are far more likely to have stayed in their default fund than men, at 85 per cent compared to 75 per cent.

Currently £71.3bn is invested in workplace pensions, but unless consumers engage more regularly with their pensions or the government takes radical action to boost uptake of ESG funds, Barnett Waddingham says this money won’t be invested responsibly.

Barnett Waddingham (@BW_LLP) policy and strategy lead Amanda Latham says of the data showing  46% of pension savers want their default fund to be an ESG one: “The UK is battling a bad case of inertia, with UK savers displaying a lack of confidence, ability, or knowledge around changing their workplace pension investments. But there’s no lack of appetite, and it’s the responsibility of the pensions industry to facilitate that appetite.

“The onus shouldn’t fall on individuals. In a system designed around inertia, we need to see policymakers and employers offering better default strategies rather than relying on pension holders to come up with them themselves.

Organ donation inspiration

“The UK’s organ donation system is one of the most effective examples of opt-out policy in the world, but it’s a criminally under-used tool when we’re looking to enact real change while protecting agency. By transitioning default workplace pensions to ESG funds, we’d see a tremendous impact on sustainable investing. As with the organ donation example, we’d likely also see a huge increase in conversation around pensions, prompting people to engage with their retirement savings and make their money matter. If the UK is going to be a leader in a greener world, there’s no time to waste – we need to follow the money and do what it takes to make change happen.”