Sustainability fails to engage DC savers, new research finds
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Pardon the Interruption
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To green defined contribution investments, government will need to intervene “further upstream”, the Department for Work and Pensions has found, as a trial struggled to engage individuals on sustainability.
Upstream interventions are needed to improve sustainability in DC, the department said in its research on ‘Applying behavioural insights to green pensions’.
It added: “This will require further research to understand the role of key players including employers, pension providers, trustees and government, in increasing the environmental sustainability of investment funds, with a focus on default arrangements.”
The recommendation to focus on pension funds, employers and government comes after the research found scheme members are more interested in the financial performance of their DC pot than its environmental sustainability.
Therefore, “light-touch communication-based nudges are not a promising avenue to shift pension investments towards more environmentally sustainable funds”, the report said.
Create comparability and member segments model
Separately, the DWP has also published a literature review and expert interviews, together with Government Social Research, on ‘Lessons on pensions engagement’.
This found that the literature generally portrays engagement as a positive aspect of consumer interaction, but “the literature reviewed did not explain how positive outcomes for consumers are directly caused by consumers’ engagement”.
Notwithstanding, the report suggests ways to increase engagement with pensions, including through the use of different communication channels, focussing on the information members want, and simple presentation.
It alludes to mistrust in the financial services sector potentially being a factor, saying: “A final suggestion is to build trust in pensions and financial providers. This is a long-term challenge that requires honest and transparent behaviour from institutions.”
The report notes that “employers can play a valuable role as an information channel and can provide workplace interventions to engage employees with their pensions”, while community groups and associated agencies could reach or target specific sections of the community, demographic groups, or harder-to-reach audiences.
Pension providers need to provide accessible information, develop online tools and apps, and offer product formats that aid comparison, it finds, while the DWP “could improve comparability between products, and help build and foster a greater sense of trust amongst members”.
As well as improving comparability – which will be part of the incoming value for money framework – the review noted that DWP could develop a consolidated standard model of member segments that would allow government and providers to better develop products and communication.
“This may be especially important for segments featuring more disadvantaged members, who may not attract high levels of commercial attention from providers,” the report notes.
Member engagement with “seldom heard audiences” could also be supported by developing a network of community and partner agencies, it suggests.
(How) does engagement improve outcomes?
