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The trustees of educational publisher Pearson have decided they will change the pension fund’s defined contribution investments in October, replacing the corporate bond fund in the lifecycle strategy and adding an ESG fund to the self-select range among others.
The investment committee of the Pearson Pension Plan recently undertook a review of the DC investment funds administered by Aviva and, taking advice from consultancy firm LCP, decided to make a number of changes. The £4.4bn plan has nearly 13,000 DC members, as well as almost 14,000 defined benefit members.
In the lifecycle strategies, the trustees are replacing the BlackRock Over 15 Year Corporate Bond Index Fund with the BlackRock Sterling Short Duration Credit Fund, although the former remains available in the self-select range. The Over 15 Year fund returned 14.6% over one year and 10.1% over five years, being 0.2 and 0.1 percentage points below benchmark respectively.
Greener options and drawdown target
The BMO Responsible Global Equity fund is being added as a self-select option, giving members the opportunity to make ESG investments if they wish. The scheme already has the Jupiter Ecology Fund, an active fund which underperformed by 68.9 percentage points over one year compared to its benchmark and by 15.9 points over five years.
In addition, the scheme has changed the default target for additional voluntary contributions to drawdown, from having targeted cash previously. This change affects new members as well as existing members whose main default fund targets drawdown.
Lastly, the committee decided that in the annuity lifecycle strategy, the Blended Index Linked Gilt Fund should be replaced with the Annuity Targeting Fund.
Pearson is not the only scheme to have recently adjusted its DC investments to include ESG – pharmaceutical giant GSK has this year built a 50% carbon tilt into its global equity fund by allocating to the Legal & General Future World funds and introduced a sustainable equity fund in the self-select range.
Last year, BlackRock said that its LifePath DC default option would increase its allocation to ESG strategies by mid-2021. The option is the main default for the Aegon Master Trust among others.
Pearson and GSK’s move indicates that ESG is slowly arriving in DC investments, with all schemes over £1bn subject to Task Force on Climate-related Financial Disclosures reporting rules from October next year, while those with £5bn or more will already come into scope this October.
The lower £1bn mark in particular is likely to capture a number of single trust DC schemes. DC schemes already need to state their approach to ESG and stewardship in their statement of investment principles, and have had to produce implementation statements since last October.