Source · Select Committees · Treasury Committee
Recommendation 13
13
There is a high level of inertia amongst consumers around defined contribution pension fund choice,...
Recommendation
There is a high level of inertia amongst consumers around defined contribution pension fund choice, with most remaining in the ‘default’ fund. The Treasury has been robust in its view that default funds should not be required to move to more green alternatives, but at the same time maintains that consumers should not have to switch out of the default fund to invest sustainably. The Government should resolve this apparent contradiction. At present the Treasury is relying on a blend of disclosure, regulation and public investment to foster a transition towards more sustainable investment. For now, we support that approach, but the Treasury should report regularly on the proportion of pension holders in defined contribution pension schemes who remain in the default fund, and the extent to which those default funds are aligned with a path to Net Zero. (Paragraph 108) 54 Net zero and the Future of Green Finance
Government Response
Acknowledged
HM Government
Acknowledged
Pension scheme governance bodies have primacy in investment decisions and it is not Government policy to require them to invest in specific types of asset. A blend of disclosure, regulation and public investment will prove beneficial in nudging governance bodies to foster a transition towards more sustainable investment. This is already taking place. Fifteen out of seventeen leading defined contribution providers have made net-zero commitments. The Pensions Regulator already reports on the proportion of pension holders in defined contribution pensions who remain in the default fund. The latest release indicates that 96% of savers are invested in a default strategy, marginally up from 95% in the previous two years. The Department for Work and Pensions’ proposals for mandatory TCFD reporting includes all authorised multi-employer defined contribution schemes. Subject to Parliamentary approval, these regulations will come into force in October 2021. Schemes in scope will be required to publicly set and report on climate-related targets. Statutory guidance will also set the expectation that occupational pension scheme trustees should set targets of 10 years or less, or explain why not. Corresponding requirements for personal pension providers are also being consulted on by the FCA in June. These public targets and annual reporting against them should enable Government and Regulators to meet the Committee’s recommendation to monitor and report on the extent to which default funds are aligned with a path to net zero.