DC schemes urged the ‘time is now’ to review, design and set ESG and net zero targets

22 October 2021

LCP are urging DC schemes to take more account of ESG considerations in the design of their investment funds as a survey reveals that nearly 1 in 4 schemes currently don’t.

LCP surveyed 150 DC schemes to take the temperature of the market. The results highlight that while regulation and an acceleration of policy from government in this area means that 61% of respondents have included ESG factors in the design of their DC scheme’s default investment strategy, nearly 1 in 4 still haven’t.

The survey also uncovered differences of opinion across the industry around the issue of employer responsibility for employee saving. While more than three in four of respondents (77%) agreed that it is the employer’s responsibility to provide sufficient income for employees to retire, nearly one in four (23%) organisations disagreed that this is the case. These differences have significant implications for scheme design, management and contribution rates.

Other key findings from the report include:

Nearly half (49%) did not currently have agreed metrics in place for their DC plan.

Nearly one in two (46%) organisations offer a total contribution that simply meets the legal minimum requirement of 8%. While in one in four (25%) DC schemes the employer contributes less than the minimum employee contribution, in over four in ten (41%) organisations, the maximum employer contribution is at least 10%.

While nearly one in two (48%) organisations have reviewed the design of their DC scheme in the last two years, less than 24% had conducted an employee survey in the last two years to seek their views.

Over half (52%) supplement the regular communications issued by their scheme’s pension provider with bespoke member communications at least once a year.

Over 60% of respondents identified communications-related improvements as the most important changes they could make other than increasing contribution levels. LCP are urging schemes to take small steps such as building an understanding of the population through demographic analysis and targeted surveys and set specific communication objectives.

Laura Myers, Head of DC at LCP, commented: “While it’s encouraging to see that the majority of schemes have taken into account ESG considerations there is still a sizeable number that aren’t. The time really is now to review, design and set investment strategies that consider E, S and G, as the raft of policy announcements on sustainability from the government this week ahead of COP26 reminds us.”

“The results of the survey show that on the whole, schemes are heading in the right direction especially in the context of the turmoil of the last 18 months or so. Innovation is going to be the watchword. Those schemes that can use technology savvily to understand the membership will design investment and communications strategies that deliver the best results for employees.”

Source: LCP
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