By Andrew Speke & Luke Hildyard

Pension savings make up a significant and growing proportion of individual wealth in the UK. The latest government figures from 2018 show that £2.6 trillion is invested in UK pensions, up from £2.3 trillion in 2015.(1)

Pension savings are also one of the most commonly held forms of wealth in the UK. The percentage of adults below the State Pension age actively contributing to a private pension has increased, from 43% in 2012, to 53% in 2018.(2)This rise is likely to be a result of the
introduction of auto-enrolment between 2012 to 2018.

Since 2019 almost all occupational pension schemes with 100+ members have been legally required to have a policy on financially material ESG factors as well as on non-financial matters pertaining to the environmental and social impact of the scheme’s investments. In contrast to financially material social and environmental factors, trustees are not required to take account of these non-financial matters when making investment decisions. In June 2021, the Department for Work and Pensions launched a ‘call for evidence’ examining the effectiveness of occupational pension scheme trustees’ current policies and practices in relation to social factors.(3) This call was to help the DWP to assess how trustees of these schemes understand “social” factors and how they seek to integrate considerations of financially material social factors into their investment and stewardship activities.

The scale of pensions saving means that most people are invested in the UK’s biggest listed companies. Pension funds should be considering the social dimensions of these investments for the following reasons:

[1] Social and environmental factors can have a material impact on investment returns – for example, companies that are good employers are likely to benefit from improved employee engagement and productivity, and positive consumer sentiment. Conversely, the opposite is likely to be true of companies whose labour standards fail to meet regulatory standards or societal expectations. Therefore, it makes sense for pension funds to engage with social issues as a means of identifying financial risks and opportunities.

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