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Survey Report

Investment: The incorporation of ESG into investment strategies

ESG and Sustainability|Pension Board and Trustee Consulting|Pensions Corporate Consulting|Retirement
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August 31, 2019

Chapter three of the FTSE 350 DC Pension Survey 2019.

Default investment strategies continue to evolve across all scheme types. In the early stages of the growth phase, equities dominate, with approximately a 65% allocation. Closer to retirement age, 10 years out, this reduces to 40%, but interestingly at-retirement there is still a 15% allocation to equities.

The use of scheme specific, or bespoke, default designs has declined in this year’s survey. Does this suggest that employers and trustees are becoming more comfortable with outsourcing or delegating this aspect of pension provision to streamline delivery? It may also reflect a belief that providers and fund managers have developed and improved their solutions.

There has been a marked increase in the number of defaults targeting drawdown. For example, 45% of trust-based schemes now target drawdown, whereas only 21% continue to target annuity purchase.

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Default fund design: Typical asset allocation

Interest in sustainable investment, including ESG considerations, has really taken-off, with both employers and trustees looking to incorporate this into DC pension design sooner rather than later.”

Anne Swift
Senior Director, DC Investment Team

Sustainable investing is high on many scheme’s agendas. Across all scheme types, 62% of schemes have either taken some action or are looking to incorporate ESG (Environmental, Social and Governance) factors into the default strategy at some point in the near future, with two-thirds already having added, or considering adding, this as a self-select option. The majority of schemes have indicated that they currently, or are planning to, monitor the provider’s or fund manager’s policy in this area, but fewer are currently looking to directly influence their behaviours.

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ESG and stewardship factors in investment strategy

Next Chapter: The development of technologies to support the delivery and management of DC pension arrangements

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