‘Sustainable pensions coming for millions’

We 'cannot afford to wait for perfect data’ is the message to pension schemes on net-zero alignment reporting.

The government has today published its response to the ‘Climate and investment reporting: setting expectations and empowering savers’ consultation, which ran from October 2021 to January 2022. 

The response backs what it calls “effective stewardship, informed at least in part by portfolio alignment assessments, will help trustees drive real-world decarbonisation outcomes while delivering long-term value to savers” and makes changes to statutory guidance.  

The Department for Work and Pensions (DWP) said that the changes, alongside the existing Task Force on Climate Related Financial Disclosures, would mean that from October this year: “more than 80% of UK members will be invested in pension schemes which are helping to limit the climate risk to their members retirement incomes.” 

The DWP said that it is now seeking to align with the TCFD’s updated guidance, which includes a recommendation that financial institutions should describe the extent to which their activities are aligned with a below 2°C scenario, in line with the Paris Agreement. 

The government refused to delay the implementation of the new requirements, which apply to schemes with between £1 billion and £5 billion of as assets, beyond the introduction date of October 2022, despite industry pressure to do so. It also rejected calls for a ‘principles-based’ approach. 

Becky O’Connor, Head of Pensions and Savings, interactive investor, the pension and investment platform said: “When asked, more people say they would prefer a sustainable pension ‘by default’ to a non-sustainable one. The measures being proposed by the government should give people peace of mind that their pension is working for the planet. 

“Even so, people who are particularly motivated to ensure their biggest investment is backing the shift to net zero might wish to consider moving their old workplace pensions to one that meets their own view of how the energy transition should take place, rather than the fairly.” 

interactive investor’s Great British Retirement Survey 2021 found that a higher proportion of people (37%) thought that pension providers should offer ethical pensions ‘by default’ than not (33%).  

Some of the comments from respondents to last year’s survey highlighted the absence of clarity and choice in pensions:  

“Ethical investing should be the default option! In general, people need to be given more information and more choice. I didn’t get to choose my pension until I set up a SIPP.”  

“Ethical investment through major pension providers is a poor experience with limited choice. Ethical investors need to seek out providers like interactive investor... to access a wide range of ethical funds.”  

“I would like to see a lot more effort made to assist people to invest ethically and more options for ethical and environmental funds.”