The UK’s Department for Work and Pensions (DWP) has launched a trial to encourage pension scheme members to make greener choices in their retirement saving.
The so-called “Green Nudge” trial will test the impact of behavioural nudges and messages on increasing saver engagement with the sustainability of pension investments, and how this could translate into decisions favouring greener pension investments.
Nudge theory is based on the idea that shaping a specific choice architecture – the different ways in which choices can be presented to an individual – can influence the likelihood that one option is chosen over another. In other words, it can “nudge” them towards making the desired, or “right”, decision.
The trial will use e-mails to test which interventions are most effective at encouraging members to learn more about the sustainability of green pensions, and measure their intent to switch to a greener investment option.
It has been commissioned as part of the government’s COP26 agenda, and follows last year’s introduction of the legal requirement for pension trustees to assess and publish the financial risks from climate change in their portfolios, the UK being the first country to implement this.
The trial will cover 160,000 pension scheme members and last three weeks, with results to be published later this year.
Minister for pensions Guy Opperman said: “Through the productive long-term investment power of pensions, we can help the UK get to net zero and deliver both investment returns and a sustainable planet.”
The DWP is running the initiative in partnership with the Behavioural Insights Team (BIT) – known as The Nudge Unit – and is also working with Aviva, UK workplace pension provider Smart Pension and financial services company Hargreaves Lansdown.
Fiona Smith, investment proposition manager at Smart Pension, said: “We are strong believers in delivering better outcomes and promoting sustainability. We are research-driven and the technology behind Smart Pension is built on more than a million hours of research with savers and developers which incorporates tests like these.”
Harry Brignull, head of innovation, Smart Pension, recently spoke to the EU parliament on how to use “nudge” technique in a more positive way.
BIT is a global social purpose company working with national and local governments, businesses and charities to tackle major policy problems, often through testing and implementing simple changes.
It has grown from a seven-person unit established in the Cabinet Office in 2010 to apply behavioural science to public policy, into a company with operations and offices around the world. It is now wholly owned by Nesta, the UK innovation charity.
Ellie Lugt, senior adviser, BIT, told IPE: “Currently, member awareness and knowledge of green pensions is low, so we are excited to contribute to the evidence base on how to best increase engagement and support the transition to a greener economy.”
The overall “Green Nudge” project is a ten-month research initiative.
In the project’s first phase, BIT led research exploring factors affecting engagement with green pensions, surveying over 1,000 pension fund members, and carried out qualitative research in partnership with NatCen Social Research, the independent social research organisation.
Building on these findings, BIT applied behavioural science to develop and test prototype solutions to increase engagement with green pensions using its inhouse platform, Predictiv.