Why tweaking your employer pension could do a world of good

In the nightmarish blur that was 2020, Richard Curtis wading into pensions might well have passed you by, so let me recap. In the summer, the Notting Hill and Four Weddings film director slash Comic Relief co-founder launched a movement calling for the £3 trillion invested in UK pensions to build a better world, and not to fund harmful industries like fossil fuels, tobacco, gambling and arms.

At a time when businesses are expected to behave responsibly, and regularly taken to task for paying lip service to environmental, social and governance (ESG) issues, rather than delivering measurable action, it’s curious that workplace pensions are frequently overlooked. That’s in spite of the possible repercussions for brands, let alone the consequences for the planet.

As the Make My Money Matter campaign website points out: “A cancer research charity could be investing in tobacco. A green energy company might be investing in fossil fuels. A company that’s just closed its gender pay gap might fund the company with the worst one.”

But with celebrity backing, more people worried about their personal finances in a weakened economy, and many now wiser to their impact on the world and looking for meaningful ways to reduce their burden, that looks set to change.

A recent survey of 5,757 adults by Scottish Widows found sustainable investing is important to people regardless of gender, age and income. At least a third (36%) of people in every age group, aged 18 to 65+, said having the option to invest their pension in sustainable-only companies matters to them.

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The findings also suggest responsible investments could make us better savers. Over half (56%) said a clean energy and low-carbon transition themed fund would make them more interested in their pensions; 54% said the same of a zero-plastic fund. For younger savers, easier responsible investing could have an even bigger impact. Two thirds (67%) of 18‐34 year olds said they would invest their money in a clean energy fund.

So, rethinking your workplace pension’s default fund could offer triple win: boost engagement helping employees to save more, level up your corporate responsibility efforts – and with it your employer brand – and preserve and protect the planet.

There are further reasons to treat auto-enrolment as more than a box-ticking exercise. PwC’s 2020 annual Employee Financial Wellness Survey found that, when asked what they feel causes them the most stress, more employees cite financial matters than any other life stressor combined, and half of stressed employees say their finances have been a distraction at work.

Employers interested in revising their workplace pension – and it’s a good idea to test the market every few years to see what other providers are offering anyway – can start by better understanding their current setup. Begin by asking these questions:

1. What default fund are our employees’ contributions invested in and what type of investments are included within the fund?
2. What levels of sustainable investments are built into these funds and, if none, what options do we or our employees have to switch?
3. How many employees are in the default fund and how many have moved out of their own accord to alternative investments? (This is a good way of gauging employee engagement with pensions.)
4. What sort of apps or online portals are available for employees to interact with their pensions, how user friendly are they and do they integrate with our existing workplace benefits technology?
5. What stats can we find to show engagement levels, such as how many employees have accessed their pension online in the past 12 months?
6. What is the current annual management charge (AMC) applied to our employees’ pension pots? Note that auto enrolment rules state this cannot be higher than 0.75%.
7. What ‘de-risking’ (sometimes known as lifestyling) applies to members’ funds as they get closer to retirement?

What next?

Once you’ve gathered the information and compared your workplace pension – including funds, flexibility and fees – to others on the market, you’ll have a clearer picture of what needs to be done. You may choose to stick with your existing provider and possibly change your default fund, or you may wish to switch away.

Either way, many companies will expose a need for boosting employee engagement with workplace pensions, and will want to plan a schedule of educational, awareness-raising activities. To make sure these are successful, you’ll need to understand your employee demographic and appreciate people are at different stages in their retirement journeys. A targeted approach should be considered, as younger employees will have different needs and appetites for risk than those closer to retirement age.

You can outsource a full market review of your workplace pension to an employee benefits advisor who will present the findings, manage any switch to a new provider and help you communicate changes to your teams. Speak to the friendly team at Connor Broadley to get the ball rolling: TeamBC@connorbroadley.co.uk

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