Author: Brian Henderson, Partner | Director of Consulting, Mercer UK
It’s second nature for people to use their purchasing power in their day to day lives. They might buy Fairtrade chocolate, free range eggs or organic beef in their weekly shop. They could eschew plastic straws or buy their shoes from Toms, which gives a pair of shoes to a poor child for every pair it sells.
Seven in ten people often make sustainable purchasing choices for at least some of their regular groceries, according to Navigating ESG, research by the DC Investment Forum which was published in April 2018.
Yet in one very important area, many people are totally disconnected from their power as consumers. When it comes to pensions, most have little idea what happens to their savings.
There are two main reasons why people are not harnessing their pension power. The first is a lack of understanding. People do not realise that their pension is invested, let alone that it might be invested in companies that they regard as ‘sin’ stocks.
The second is that it isn’t always easy for them to express their views within their pension arrangement. The vast majority of people invest in their scheme’s default investment arrangement. Master trusts have 99.7% of members invested in the default fund, and 94% of group personal pension members also stick to the default, according to the Pensions Policy Institute’s DC Assets Allocation Survey 2017.
A minority might invest in an ethical fund, if one is available. However, even that ethical fund is unlikely to reflect the wide range of individual standpoints that members might take towards different types of investment.
Although few savers engage with this subject, many are interested once they have learnt a little about it. Nearly seven in ten members would like to see their money invested for good, rising to nearly eight in ten among 22-34-year-olds, according to the DC Investment Forum research mentioned above.
The pensions industry must now bridge the gap between people’s everyday behaviour and their lack of engagement with their savings.
So, how to make the change? Today’s consumers need a solution which is readily available, straightforward to understand, and easy to implement. Technology could be the key to unlocking pension power among savers.
High street retailers are suffering because consumers are now able to have their shopping delivered to their doorsteps at the click of a button. The pensions industry needs to act to avoid the same fate as the beleaguered high street.
The secret is in empowering people to use their pension power. Making decisions about where their pensions are invested should become as easy as ordering online.
Success hinges on the pensions industry being prepared to think differently, learning and collaborating with other industries which do this more effectively.
For instance, crowdfunding has become a popular means of linking exciting new projects with eager investors. Could it connect like-minded savers with projects which inspire them?
In subsequent articles in this series, we’ll be exploring how technology could change pension savers’ behaviours. The pensions industry may be in the early stages of this journey, but as the advent of the smartphone and the meteoric rise of Apple have shown, radical change can happen very quickly.
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This article does not contain advice in respect of actions you should take. No decision should be made based on this information without obtaining prior specific, professional advice relating to your own circumstances.