ShareAction scrutinises UK auto-enrolment providers

Six of the UK’s nine largest automatic enrolment pension providers do not have a policy banning investments in companies that produce toxic components of harmful weapons, according to campaign organisation ShareAction.

Only three of six providers that did have specific policies to address controversial weapons excluded companies with links to chemical and biological weapons.

The finding emerged from a survey the charity carried out of the nine largest auto-enrolment providers – known as master trusts – in the UK.

ShareAction ranked the providers on their approaches to responsible investment, with a focus on default funds, and member engagement and communication, claiming these areas had “received little focus during the roll-out of auto-enrolment”.

According to ShareAction, the top five performers were NEST, The People’s Pension, Legal & General, Aviva, and Standard Life. NEST was the top ranked provider overall mainly due to its score on responsible investment, where it was the “standout leader”.

The bottom performers were Scottish Widows, Royal London, NOW: Pensions, and Smart Pension.

“We do not believe that ShareAction has a good understanding of [our] approach, and it is therefore difficult to record high scores through ShareAction’s rather crude scoring system” 

Rob Booth, director of investment and product development at NOW: Pensions  

Smart Pension withdrew from the survey as it was transitioning to a new investment strategy at the time and “did not want to place dated or potentially misleading information in the marketplace that may have resulted in confusion for members”, according to chief investment officer Darren Agombar.

NOW: Pensions disagrees with assessment 

Rob Booth, director of investment and product development, said ShareAction’s ratings focused heavily on voting rights, while NOW: Pensions’ investment strategy required it to hold equity index futures.  

“We do not believe that ShareAction has a good understanding of this approach, and it is therefore difficult to record high scores through ShareAction’s rather crude scoring system,” said Booth.

The findings did not accurately reflect the “significant” emphasis NOW: Pensions placed on responsible investment, he added.

The master trust had 15.3% of total assets under management invested in green bonds (£99.3m), equal representation of men and women on its trustee board, and a published policy of social responsibility in investments.

“We are constantly developing our approach to SRI [socially responsible investing] and, over time, we will start to consider direct investment into companies which will be bound by the terms of our existing SRI policy,” Booth said. “In the meantime, we are pleased to see that we scored among the highest for communications and engagement, climate change and our controversial weapons policy.”

A spokesperson for Aegon noted that its workplace default funds were passive, but “becoming increasingly ESG aligned”.

Lorna Blyth, head of investment solutions at Royal London, said: “We are reviewing the report’s conclusions and recommendations and look forward to discussing in further detail with ShareAction how they arrived at their scores.” 

How they fared

There were pockets of good practice and innovation, ShareAction said, but “a lack of evidence pension providers are actively reaching out to savers to engage on important issues that really matter to them”.

Paul Britton, research officer at ShareAction and author of the report, said: “Of course, auto-enrolment pension providers cannot be solely blamed for Britain’s retirement cliff-edge, but they do need to act on their key position to engage the 9m new workers with their pension savings.

“Hoping members don’t opt-out as the minimum contribution rates rise is not enough – people need compelling reasons to save.”

In April minimum contributions in auto-enrolment defined contribution schemes rose to 5% – from 1% of salary to 3% for employees, and from 1% to 2% for employers. In April 2019 the minimum will rise again to 8% in total, with the employee contribution reaching 5%.

IPE contacted the bottom five providers for comment. Scottish Widows did not respond.

NOW: Pensions is the pension provider for IPE International Publishers.