Call for radical reform of UK pensions system to boost ethical investment

An opt-out system where workplace pensions are automatically invested in sustainable funds would dramatically boost investment in the sector, a pension expert has said.

Very few workplace pension savers have switched their funds to sustainable options despite widespread support for green investment, according to a new report.

More than half of savers surveyed said they believe the default pension fund should have an environmental, social and governance (ESG) focus, but 80 per cent have never made any changes to the funds in which their workplace pension invests. The research found that older workers in particular were less likely to switch.

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Although savers are keen to see their money invested in sustainable funds, few actively make the switch in their workplace pensions. Picture: AFP via Getty Images.

Barnett Waddingham, the pension consultancy that conducted the research, suggests a similar approach to the organ donor register could be implemented where funds are placed in ESG investments, unless savers opt out, which would have a major impact on sustainable investing

Amanda Latham, policy and strategy lead at Barnett Waddingham, said: “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.

“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 underused 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."

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