Two thirds of top auto-enrolment pensions providers have no policy against chemical weapons investments

One company surveyed, Aegon, has no policy to prevent investment in any controversial weapons, including anti-personnel mines or cluster munitions

(Reuters)

Six out of nine of the UK’s largest auto-enrolment pension providers have no policy to exclude investments in firms that profit from chemical and biological weapons, new research has found.

One of the companies, Aegon, has no policy to prevent investment in any controversial weapons, including anti-personnel mines or cluster munitions, according to research by the responsible investment watchdog, ShareAction.

In their default funds, Aviva, The People's Pension, Royal London, Scottish Widows, Aegon, and Standard Life do not screen out firms that produce toxic components of harmful weapons.

The nine providers surveyed manage the pension savings of 9 million people under auto-enrolment, a system brought in to ensure people put aside more for their retirement.

The findings reveal a startling disconnect between the attitudes of the UK population and the policies of the fund managers investing on their behalf.

Nine in 10 people in the UK say they view tax avoidance as morally wrong but just two of the nine providers - NEST and Royal London - have policies on how they encourage responsible tax conduct at companies they invest in, the report found.

NEST came out on top of the rankings, which looked at a number of policies on responsible investment as well as engagement with savers. The provider was significantly ahead of its nearest competitor and demonstrated “particularly commendable” performance in its approach to climate-change related financial risks.

It was the only provider to have a measurable and time-bound target to reduce the portfolio’s exposure to climate risks, ShareAction said.

Frank Field, chair of the Commons Work and Pensions Committee, wrote in the foreword to the report that it was important to assess how responsible investment has been incorporated into auto-enrolment.

“This new generation of savers is especially well placed to take the long view and realise the benefits of a retirement plan that is truly sustainable for them personally, but also for their fellow citizens and the planet,” he said.

Providers need to make big improvements on how well they engage with savers or risk losing them as they opt out of making retirement contributions altogether, the report suggests.

Workers will see larger amounts come out of their paychecks for pensions from March next year as contributions rise from 5 per cent to 8 per cent.

This makes it more important to step up engagement efforts or more savers could opt out, the report said.

It follows research published by ShareAction in March that found the pensions industry could be jeopardising millennials’ willingness to save properly for retirement.

It found that a lack of digital innovation and uninspiring saver engagement efforts risked switching younger people off.

Paul Britton, research officer at ShareAction and report's author, said: “The strong incorporation of responsible investment principles is good for our savings and good for society.

"The lacklustre performance across member communications and engagement by all providers is no real surprise. 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 9 million new workers with their pension savings.

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