Context

There were £3 trillion worth of pensions investments in the UK in 2022, which had the potential to play an important role in the UK's transition to net zero. However, previous research has evidenced low consumer engagement with the sustainability of their pensions investments.

This study aimed to understand whether and how to engage individuals to direct their choice of funds within defined contribution (DC) pension savings towards more environmentally sustainable investments or 'green pensions'.

The report (DWP Research Report no. 1069) defines 'green pensions' as "funds that are invested based on environmental criteria, such as commitment to net zero across the whole portfolio and investments into climate change solutions".

The study

This study was undertaken by The Behavioural Insights Team on behalf of the Department for Work and Pensions (DWP) with active (non-deferred) UK holders of workplace defined contribution pensions. It addressed three research questions:

1. To what extent were consumers aware of green pensions, and their pensions more broadly?
2. What were the most significant barriers to, and facilitators of, consumer engagement with green pensions?
3. What interventions could increase consumer engagement with green pensions?

This was a multi-phased, mixed-methods study with several components:

• Evidence review: covering the recent academic and policy literature.
• Qualitative interviews: with 20 DC pension holders, 10 employers and 6 members of staff from three different pension providers.
• Online survey: with 1,000 DC pension holders.
• Behavioural audit: to explore, first-hand, the ease and challenges of finding out about, and switching to, green funds.
• Randomised controlled trial (RCT): which initially involved online piloting of five hypothetical email messages with 3,900 DC pension holders.
  • A subsequent field trial tested communications from three providers, with 159,229 customers who were randomly assigned to receive one of three behaviourally-informed emails containing links ('control', 'green suggestion' and 'future focus') in June 2022.
• Qualitative process evaluation: of the RCT, with 27 DC pension holders sampled purposively by a specialised external agency.

Key findings

General engagement with pensions was low, and scheme members were more engaged with financial performance than environmental performance.

• One in four people surveyed said they did not know how to manage their pensions.
• 53% said they did not know roughly how much was saved in their pensions.
• 55% said they tended to trust the default investment option within their employer's scheme.
• 42% said they were most likely to think about their pension when they received their annual pension statement.
• Respondents said they were more likely to sign into their pension portal, view their pension or request information about their pension fund than to engage in activities such as switching funds or requesting information about green pensions.

The use of light-touch communication did not show promising evidence of consumer encouragement towards green pensions.

The control email which focused on pension performance and made no explicit reference to sustainability consistently demonstrated higher engagement.

• Higher email open rates: 53.4% of those in the control group opened the email compared with 50.5% in the green suggestion and 49.4% in the future focus groups.
• Higher click rates: 6.3% of people who received the control email clicked on the link to log into their pension portal, compared with 2.9% for the green suggestion email.
• Higher rates of accessing green pensions information: 0.6% of those who received the control email clicked on the green link versus 0.3% for the other two emails.

Points to consider

Methodological strengths or limitations

• The authors note that the aim of the study was to encourage pension holders to seek further information about green pensions rather than to directly encourage people to switch to them.
• The researchers were also limited by how quickly recipients in the RCT could take the prompted action, the nature of the information available on green pensions, and the order of the links in equivalent emails across different providers.
• Insufficient details are given about the survey sampling methodology and figures from the survey are not always given. It is also not clear from the report how extensively statistical significance testing was used. As such, the results should be interpreted with caution.
• Some of the reported differences between groups in the RCT were small, which may suggest limited practical significance.

Applicability

• The study should be of interest to all policymakers, providers and other stakeholders with an interest in promoting environmental sustainability in financial services provision.

Relevance

• The study is relevant given the transition to net zero.

Generalisability and transferability

• The authors note that the scope of the study was limited to active pension members in workplace pensions, and did not extent to deferred members or members of individual personal pensions. It occurred in a rapidly changing economic context which might have influenced people's priorities.
• Nonetheless, there is likely to be learning which transcends this particular scope and applies to other groups, other geographical contexts where markets are similar, and other challenging economic times.