Scottish Widows has revealed that 69% of employers in the UK now offer a responsibly invested company pension — but only 44% have it as their default option, which “puts the onus on employees to take action if they want to switch.”
However, Scottish Widows’ Responsibly Invested Pensions Report reveals reveals that 61% of employees have no idea how to do that, highlighting a growing need for employers and advisers to educate workers on this issue.
The research highlights a growing trend as more employees become interested in how Environmental, Social and Governance (ESG) friendly their company pension scheme is – with 60% of employers reporting an increase of employees seeking to understand how sustainability is embedded in their pensions in the past year.
When asked about the top two investment priorities for their pensions, long-term value growth (63%) and financial risk management (41%) were seen as the two most important objectives among employees.
Almost one in five (17%) now also class the environmental or social impact of their pension as a top priority. This rises to 25% among those aged 18-34, suggesting employees now want their pension investments to generate positive environmental or social outcomes as well as financial return.
This trend was also reflected when employees were asked which responsible investment tools they believed were most effective for delivering long-term, sustainable returns.
Nearly half (45%) said they would invest in companies directly contributing to positive environmental or social outcomes in line with the UN Sustainable Development Goals (SDGs), while 38% would reduce exposure to companies or industries causing harm to the environment or society.
Employers are taking a variety of approaches to embedding responsible investment into their pensions. More than half of (53%) are allocating pensions to specific sustainable funds, 46% said they were invested in impact strategies and 45% are focused on investing in companies that are cutting carbon emissions.
Scottish Widows is part of Lloyds Banking Group and has more than £226 billion assets under administration and 10 million customers.
Eva Cairns, Head of Responsible Investment, Scottish Widows, said: “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.
“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. These are some of the levers available to achieve long-term financial returns with positive sustainability outcomes …
“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. These should be key considerations for employers and advisers as they engage and meet employees’ and savers’ expectations.”
Research was conducted by Opinium on behalf of Scottish Widows, surveying 4,712 employees and self-employed workers, 2,000 HR decision makers at UK businesses and 189 financial advisers based in the UK, from October 1-11, 2024.
Scottish Widows said a responsibly invested pension is a pension fund that incorporates environmental, social, and governance (ESG) factors into its investment decisions, meaning it prioritises companies with strong sustainability practices while aiming to achieve competitive financial returns alongside positive social impact.