Delegates at the Corporate Adviser round table held last month at the House of Lords debated whether the pensions industry should do more to direct members to default funds that represent their religious and ethical values.
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They agreed that there is a lack of signposting in the industry when it comes to informing scheme members about religious and ethical fund options.
According to the Corporate Adviser Master Trust & GPP Report 2022, the Shariah HSBC Islamic Global Equity Index returned over 27 per cent in 2021 and has a 5-year annualised return of around 18 per cent, far higher than all default funds. The HSBC Shariah option was the leading faith-based option for all but two of the master trust and GPP providers covered in the report.
Jayesh Patel, co-head of DC consulting at Willis Towers Watson, noted that the industry hasn’t always prioritised putting diversity and inclusion at the forefront of their pension engagement strategies.
He stated that the industry is guilty of viewing it from an old-world perspective. He agreed that there is a lack of signposting and that more people would have invested in funds that were suited to them if there was more information available.
Patel said: “Looking at ethical funds, over the last few years my experience has been that trustees have made a point of actually making these funds more accessible to members.
“Now we’re seeing the move towards ESG and climate funds, [the challenge is] making these funds more accessible – either as a self-select option or incorporated into the default.”
Patel said he had been disappointed by a lack of signposting and communication around these fund options. “But there is a real opportunity to engage some of the younger members particularly.
“Signposting is really important and that should extend to faith-based funds and ethical funds because those engaged investors will want to know if one is available, and if so is there more information around it, because they typically have strong views around these issues,” he said.
Jason Marley, head of pensions at Kerr Henderson said: “A lot of the more paternal employers don’t try to signpost and let people know that these sorts of funds are accessible.
“Members tend not to want the self-select option because they feel that when they self-select ‘it’s over to you, it’s up to you’ – all the responsibility in terms of making sure that someone is actually delivering for you and de-risking as you approach retirement.
“There’s no glide path now available. They don’t get the same oversight and they don’t get that same sort of visibility over the fund’s performance.
“They’re really going to engage with it themselves and there’s just that fear of taking responsibility, which is why I see the conversation moving away from purely pensions to financial wellbeing.
“This isn’t an engagement with pensions, this is people’s relationship with money. It’s a problem and a big proportion of the population aren’t terribly good at managing their finances and are afraid of it, and pensions is just part of that.”
Delegates also questioned the extent to which people are taking advantage of the £500 advice allowance for advice. Baroness Ros Altmann suggested trustees and providers should do more to ensure there were “panels of approved advisers” available to scheme members, particularly as they approached retirement.
Marley said: “Because of adviser charging, this idea of lots of £500 for advice has disappeared.
“We are finding a lot of employers are setting up retirement policies for their staff that give them a contribution towards advice because they don’t think guidance is strong enough.
“As with auto-enrolment apathy prevails. Guidance means they actually have to go and take action themselves – they have to decide who the provider is, they have to fill out the paperwork, so it never tends to happen. So employers are saying, okay, in order for you to get the best outcome, we’ll give you an allowance and you go and select your adviser.”
Marley added: “People say ‘a lot of people don’t need advice’ and I agree with that. But what I’m very conscious of is if they make a bad decision based on guidance, they have very little or no right of recourse. If they take advice and that advice turns out to be poor, well, then they have a right of recourse then and that fee in comparison to the outcome of the experience all of a sudden looks very good value for money.”
