Confidence and COVID-19

  • Alex Cave

Capital at risk. This information should not be relied upon as investment advice, or a recommendation regarding any products, strategies. The environmental, social and governance (“ESG”) considerations discussed herein may affect an investment team’s decision to invest in certain companies or industries from time to time. Results may differ from portfolios that do not apply similar ESG considerations to their investment process.

All figures below are from the BlackRock Defined Contribution (DC) Pulse Survey, July 2020.

As we find ourselves approaching winter, in what has been one of the most turbulent years of our lifetimes, we not only face more rainy days, but also the harsh reality that Covid-19 is here to stay. Whilst settling into the current reality, we recognise the importance of supporting clients during these times. We want to be that shoulder that clients can lean on and we want to be that first port of call when concerns arise. We are here to provide financial well-being for our clients, but also re-assurance and stability throughout every stage of the relationship.

The importance of this was really underlined in our DC Pulse Survey,  when we recently spoke to over 1,000 pension scheme members about their views on retirement and the impact of the on-going COVID-19 pandemic. Our goal was to identify barriers in terms of understanding, confidence and engagement; enabling more productive retirement income savings behaviours. What we found was that members are far from confident regarding their financial futures, seen where only 5% of respondents knew how their pensions are invested. This is largely due to members not understanding enough about their investments and a low level of financial literacy more generally. Therefore, more than ever employees are looking to their employers as trusted decision makers of their pension assets. With only only one in four participants claiming to be comfortable ‘managing’ their pensions, the industry needs to ensure participants have access to the best possible information to help try and improve confidence when managing and understanding their pension pots. This highlights the importance of BlackRock’s role in providing strength and stability for schemes, so that despite the volatility that COVID-19 has caused in the markets, members are able to retire with the dignity they deserve.

What was even more concerning from our findings was how 51% of respondents declared they are reviewing their pension contributions as a result of the pandemic. We understand that in times like this, immediate financial concerns are a reason to consider reducing contributions, however, the impact could be to significantly reduce the final retirement pot. Clearly COVID-19 has had an impact on retirement attitudes, however it is vital members remain invested and continue contributions, if they are able, in order to minimise the long-term damage, they could face down the line.

As member engagement is critical in the UK DC space, our role as a fiduciary becomes even more important and back in January our CEO, Larry Fink, set out a strategy around Sustainability and COVID-19 has really accelerated the integration of our ESG initiatives. 86% of our active portfolios are now considered to be ESG integrated, and we are on track to meet our 100% objective by year-end. With 90% of the people we spoke to in our survey seeking sustainable investments within their pension offering, we know that this is increasingly important. We have listened to our clients and made it our mission to make sustainability our standard for investing. Consequently, our breadth of offerings has really grown in the UK retirement market, where ESG integration is now at the core of many of our funds. We continue our journey to incorporate more ESG investments in LifePath1, our flagship target date fund. With continuous work going on behind the scenes, we remain determined to create more ESG orientated products and solutions for our clients.

Our energy going into sustainability is truly exciting and I want to close this post by capturing the positives. We have all come a long way since March lockdown. At BlackRock, in our efforts to support our clients, our developments regarding ESG have highlighted how much we value our relationships, not just now, but for the long term. With member engagement playing a critical role in the DC market and financial confidence levels being low, we are more than ever devoted to providing a long term and sustainably orientated breadth of products and solutions.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed from BlackRock are as of October 2020 and may change as subsequent conditions vary.

  1. LifePath seeks to provide a diversified asset allocation solution that adjusts overtime to appropriately balance growing investments when young and a more conservative risk allocation when approaching retirement. LifePath does so by following a glidepath, which establishes how much risk individuals should take at each point over the course of an individual’s lifetime. Through this process, LifePath seeks to help individuals prepare for retirement through their accumulation and decumulation phases.
Up your DC game
In July 2020 we ran our BlackRock DC Pulse Survey of 1,000 UK DC members focusing on: retirement confidence, importance of retirement savings in participants’ financial planning, sustainability and COVID-19.
Up your DC game