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What are the Government’s current pension ESG policies?

Environmental, Social, and Governance (ESG) initiatives have become impossible to ignore in recent years. 

Naturally, this is an incredibly positive development; for decades, climate change, social injustice, and corporate mismanagement have dominated headlines, and initiatives which use finances to promote more sustainable, ethical practices cannot be ignored. 

And indeed, it seems that it isn’t just financial institutions that are taking note. Pension planners are becoming increasingly aware of the importance of ESG. A recent survey amongst 1,003 UK adults aged 40 and over – all of whom with pension savings – commissioned by My Pension Expert found that over two-fifths (43%) of respondents understand what ESG means, as well as its importance. 

However, awareness does not automatically translate into action. Indeed, despite the awareness of ESG, My Pension Expert’s research found that just 15% of Britons over the age of 40 consider ESG when developing their retirement strategy. 

The evidence suggests that despite theoretical enthusiasm for ESG, more must be done to ensure the public are more conscious about how it can fit into their personal retirement strategies. Positively, however, the UK government is taking steps to facilitate this.

Affirmative action

In July 2021, the UK government announced certain changes to pension scheme reporting, which would ensure that ESG remains central to pension scheme reporting. 

The Department of Work and Pensions (DWP) laid down legislation requiring a variety of pension schemes to make the Task Force of Climate-Related Financial Disclosures (TCFD), while managing climate change-related risks and opportunities. This means that pension schemes of a certain size must publicly outline how they are measuring and managing all investments relating to climate change. This is an incredibly positive step forward, as it will help the average saver, as well as independent financial advisers, identify investments and schemes which are both sustainable and profitable. 

Elsewhere, the government is placing pressure on pension schemes to move their investments away from those which drive deforestation. Again, this step will not only raise public awareness of such investments but will encourage them to become more commonplace within pension scheme investments. 

What’s more encouraging is that the government is also ensuring that the environmental aspect of ESG is not overlooked. From March – June 2021, for example, it opened a consultation which considered social risks and opportunities within occupational pension schemes. Whilst no immediate action has been taken, it suggests that the government is keen to ensure all ESG factors are considered. 

Of course, more is required, firstly to ensure ESG becomes commonplace when it comes to developing retirement strategies, and secondly, that ESG information regarding pension investments and schemes are readily available to the public. Ensuring corporate governance information is not overlooked, for example, and producing ESG investment guidance and best practice will also be vital. 

That said, such changes will inevitably take time. And whilst Britons wait for such progress, it is important to ensure they are using all the tools at their disposal to create a sustainable strategy that helps them achieve their desired retirement outcome. 

And therein lies the value of independent financial advice. 

Seek advice

Independent financial advisers, like our team at My Pension Expert, will take into account the entirety of a client’s financial situation and preferences. This will include their current situation, future goals, and their ESG preferences, which will then be used to create a tailored strategy which suits their specific needs. Consequently, savers will be secure in the knowledge that their pension plan is in keeping with their principles, whilst helping them to achieve the financially comfortable outcome they deserve. 

The government has made strong progress in improving public understanding of ESG, and access to the relevant information needed to make an informed decision when it comes to pension planning. And it is likely that even greater change is on the horizon. 

That said, seeking financial advice remains of the utmost importance when developing a pension strategy. In doing so, savers will develop a plan which not only meets their ESG preferences but is tailored to their specific needs and sets them on course to the best possible retirement outcome.