Default investment strategies risk causing division and distrust between members and pension schemes, according to two professional trustees.
Bobby Riddaway, professional trustee and managing director at HS Trustees, has co-written an open letter with fellow trustee Natalie Waller warning that default strategies often ignore the wishes of savers and could undermine trust and widen an already sizeable “generational pensions gap”.
While members cover every demographic group and hold very different priorities, they are rarely asked what they want their money to achieve, Riddaway and Waller said.
“If we continue to invest ignoring the hopes and values of younger members, we risk losing not just engagement, but trust,” the letter stated. “We risk managing assets that will fail to support a sustainable, resilient future for those who will live with the consequences of today’s decisions.”
More than 80% of members under 40 in the UK raise concerns about climate change and want their funds to deliver purpose, impact, and value in addition to financial returns. Yet, according to Aon’s 2024 DC Pension Scheme Survey, only 18% of defined contribution (DC) schemes have default funds that are screened for environmental, social and governance risks.
Most members lack the support, expertise or confidence to make active decisions by themselves, with today’s defaults too often lagging “behind what members actually want – and what the future economy demands and requires”, Riddaway and Waller said.
“DC schemes should realise that climate change will have a larger effect on their younger members,” Riddaway told Pensions Expert. “We urge schemes to be aware of that and not to ignore the dangers of inter-generational risk.”
The letter is entitled ‘Mind the Gap: Member engagement, system change, and closing the disconnect’. Waller is a trustee at the State Street UK Pension Scheme and a member of the Trustee Sustainability Working Group that Riddaway founded in 2024.
