ESG and Workplace Pensions – Changing Priorities

Published by Tom Bulbrook on 18 May 2023

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The current working generation are seemingly more ethically minded than those before with many giving further thought to the wider social and environmental impact their employer has.

With the current labour market becoming more competitive than ever, a company’s stance on environmental, society and governance (ESG) issues is having greater influence on a skilled worker’s decision to join or remain.

The Aon Benefits and trends survey (January 2022) indicates that 70% of organisations had already implemented benefits that support ESG issues, while a further 23% were researching the options available to them.

Typically, we have seen existing softer benefits, such as cycle-to-work schemes, utilised for this demand, although we are now seeing the emergence of new ESG benefits, with possibly the most significant being the provision of electric vehicles as company cars or available via salary sacrifice.

Whilst these additional soft benefits do provide a solution and create interest amongst employees, one major benefit is often forgotten in the ESG consideration – the workplace pension.

Workplace pensions

It should come as no surprise to anyone today of the need for individuals to plan for their future ahead and save towards retirement.

Thanks to Auto-Enrolment, employees can expect as standard a workplace pension and a minimum 8% monthly contribution of their salary (5% Employee and 3% Employer). As many employees will be aware, just relying on these minimum contributions and the State Pension provision will unlikely be enough in retirement, particularly given the additional cost pressures we are all facing, so an increased pension benefit from employers will certainly be valued – but how much further do employees understand about how their pension works?

Workers should mostly be aware that their pensions are invested, but it may be a small number that have knowledge of what these investments are, particularly given the general complexity around this topic. Whilst the element of ESG investing may add to this, the potential impact of increasing employees’ interest and engagement with their pensions may be huge in growing pension contributions and pension pot values.

ESG investing through pensions can be vital in promoting the basic concepts of this ethical stance that many employees across the country will want to prioritise – whether that is funding environmentally minded companies or projects that focus on representation and diversity.

Many of the top pension providers now offer ESG investment options as alternative investments or even as the default option on pension schemes – most notably Aviva UK’s ‘Stewardship Lifestyle Strategy’ in 2019 and, more recently, Royal London’s ‘Sustainable Trusts’ as part of their Governed Portfolio fund list.

The next steps is to help these ESG investment selections (and ESG in general) to increase awareness. Focus on employee engagement, encourage your employees to have a voice on what they are passionate about and encourage the understanding of the pension scheme and options available to members.

The introduction of an Independent Financial Planner can assist both the workforce and employer in understanding options available – such as different methods of tax relief, investment funds including ESG ones amongst others and/or other benefits such as online calculators or tools – in turn helping both the business and its workforce effectively plan for the future in a way personal to them.

Please contact our Financial Planning team to discuss options available within workplace pension schemes, including where contributions are invested and employee engagement, on +44 (0)1227 768231 or provide your details on our online enquiry form.

The content of this article is for information only and does not constitute formal financial advice.

This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

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