Pension, funding the world’s problems

The average UK pension member, through the companies their pension invests in, pays for 23 tonnes of CO2 emissions a year[1]; that’s equivalent to running 9 family cars or burning 1,100 coal fires[2].

But, 99.5% of employees[3] don’t know the extent of the issue. The lid is beginning to lift and as employees get to know more, they are concerned and expect their employer to be doing something about it.

88% of employees said that they want their employer to take some sort of action including moving to a pension provider that is making a positive impact on climate change and nearly 57% want more transparency on how their pension is invested.

It’s not just about more information, employees want more of a say in the way the companies their pension is invested in are run. Climate change is about activism and an  increasing number of people are no longer prepared to take a passive stance; they want to be involved. Over 62% of employees confirmed that they want the opportunity to have a say in how the companies their pension is invested in are run.

As employees get more involved, they become more engaged with their pension. Suddenly, pensions aren’t just about retirement, they’re about harnessing the power of capital and letting it become a force for good now, not just in 20, 30- or 40-years’ time.

Pension, funding the world’s problems
29 July 2021, 11:00 am – 11:45 am

Free webinar series: How HR saved the world

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How do we get younger people to care about pensions?

For older people nearer to retirement there’s a massive reason to care. They’re staring retirement in the face, and they have a pot of money waiting to be accessed. It’s that old but very reliable call to action – ‘what’s in it for me?’ Access to a pot of money!

But for the younger generation, who can’t access their pension pot anytime soon, how do we answer the question, ‘what’s in it for me?’

For younger people it takes a more altruistic approach, and it lies in their concern for what’s happening in the world today and how their pension can make a difference in the here and now so that the world is in a much better state for when they eventually do retire and can start accessing their money. It’s about making their pension a force for good today – and they have a vested interest.

Coming back to those who are closer to retirement, this is not too difficult – pay day is in sight! Most people in their 50s are going to be getting to grips with how much they’ll have in retirement, what their options are and how they’re going to take their money – so they’re likely to feel more connected and more engaged.

But on the flip side of the coin, for 25-year-olds with 40 or more years to go until retirement, there is no sense of urgency and with other more immediate financial concerns in the frame, like getting on the housing ladder, they’re not going to be spending much time, effort or money on planning so far into the future.

So, we’re left with a quandary. The benefit of compounding tells us that the earlier you start saving into a pension and the more you put away in the early years, the more likely you are to build up a pension that will get you the retirement you’ll eventually deserve. But this is only going to happen if you feel connected now, not when you’re in your 50s and it’s too late to make an impact.

The pension industry’s standard response to this issue is to communicate what is mostly negative information – pension communications rely too much on getting people to act through fear – the fear of living in poverty. Fear is the antithesis of connectedness – we don’t engage with things we fear. The standard response is to run away or bury our heads in the sand.

The simple fact is, communications that leave people feeling defeated before they’ve even started will most likely result in inaction or worse still, paralysis.

Over 84% of employees say they are concerned about climate change, and this increases to over 88% for under 25s[4]. In fact, the environment is the second most important issue for under 25s only behind health[5].

Instead of the standard message about avoiding living in poverty, how about telling them that their pension is helping the climate crisis? They’re saving for their future but also helping tackle an issue that is really important to them and the world at large. Surely, that’s a message that’s more likely to resonate, make them feel connected and get them engaged?

But to give out that message, you need to firstly remove some excess baggage. 23 tonnes worth!

It can’t just be about pensions

As well as using the “stick” instead of the “carrot”, the other mistake the pensions industry and employers make, is talking about pensions in isolation. We position pensions as if retirement is the biggest or even the only thing that people should be concerned about.

But the reality is that for all of us retirement is the final destination, and on the way, we have other more pressing and immediate financial concerns, like getting on the housing ladder, getting married, or sending the kids off to university etc.

In another piece of research, the biggest financial concern for under 35s is how to afford a house6.

With the best will in the world, younger people struggling to get on the housing ladder are going to be more interested in how to get together a deposit and sorting out a mortgage than thinking about an event that is 30 or 40 years away.

To make pensions resonate more, they need to be offered together with other workplace solutions that help employees with their other financial needs. Take for instance a Lifetime ISA. With a 25% government bonus, it could be a great product to help younger employees get on the housing ladder. If it’s presented in conjunction with a workplace pension, you suddenly have created a holistic approach that talks to ‘me’ about ‘my’ financial needs not just retirement; far more engaging.

The way forward

If we want to get people more engaged with pensions, we need to create connectedness, a real reason to engage. And with the reality that pensions can’t be accessed until age 55, this has got to be more about what their pension is doing today rather than tomorrow.

The reality is that their pension can be doing a lot of good right now and helping to solve an issue that is close to young people’s hearts – climate change. But when it comes to workplace pensions, the initial decision lies in the hand of the employer.

Either you offer a pension that’s doing good for your employees but not so good for the planet or you offer one that’s doing good for people AND the planet.

We need to change the way we talk to younger people about pensions. We must stop with the negative messaging and replace this with positive reinforcements – the fact that young people are in a pension is a good thing. Let’s tell them this and drop the fear mongering.

And finally, we need to stop thinking about pensions in isolation, and start thinking about workplace savings that offer pensions and other savings vehicles that can help people along their entire financial journey.

Guest blog written by Steve Watson from our Lumina Money partner, Cushon.

Pension, funding the world’s problems
29 July 2021, 11:00 am – 11:45 am

Free webinar series: How HR saved the world

Book Now

[1] Cushon research – December 2020
[2] 24th May 2021
[3] (Average UK pension pot is £87,947) x (FTSE 100 CO2e emissions of 480m tonnes / £1.8 trillion market cap = 0.265 tonnes per £1,000 market cap) = equivalent of 23.3 tonnes of CO2 emissions per pension pot
[4] Environmental Protection Agency – Greenhouse Equivalences Calculator, with car emission calculations adjusted by Cushon to allow for relative fuel efficiency of US vs UK cars
[5] Cushon  research – December 2020