Gen Z want their pensions to help save the planet, LGIM research finds
It’s nothing new for young generations to want to seem different to their predecessors. But Generation Z really could claim to be different when it comes to their pensions.
This is the first generation of workers who have never known what it’s like to not be automatically enrolled into a pension scheme and who must therefore make a conscious choice to opt out.
These workers – currently aged between 18 and 26 – have also started their working lives at a time when global phenomena such as the effects of climate change are not the stuff of academic debate on managing distant threats but are becoming reality.
LGIM’s latest research1 into the ESG views of its DC pension members attempted to find out if Gen Zers understand the links between their pensions and environmental, social and governance (ESG) issues, and what the pensions industry can learn about their attitudes and motivations.
Discovering their power
Despite being automatically enrolled into workplace pension schemes, Gen Zers aren’t particularly clued up when it comes to the basics of pensions or their power as a tool to influence ESG behaviours of companies in which their funds are invested.
We asked DC members if they were aware that their pensions were invested, that this meant they owned little bits of companies, and that collectively, their pension funds owned large parts of many businesses.
Of the 3,634 DC members interviewed in the UK, across all generations, the total numbers of those who said they were very aware or vaguely aware of this was 68%.
However, Gen Zers seem to like the implications this has on the power of their pensions to drive positive ESG changes. Nearly nine in 10 (89%) of these young workers say they would have wanted to be more involved in their pensions and its investments if they’d known it was being used to reward and encourage companies to make a positive ESG impact.
Prepared to pay
Most Gen Zers (83%) have heard of net zero in connection to climate change and more than three-quarters (78%) would be prepared to pay higher pension fees to support it.
For example, when LGIM asked it DC pension members how well they thought pension funds which had net zero targets might do in the long-term, 72% thought they’d do better than funds without. This was significantly higher than the figure across all generational groups, where a much lower 55% thought these funds would do better.
While there is little difference between the generations on the ESG issues that most concern them, Gen Zers tend to more strident when it comes to taking action.
For example, the average across all generations who say they worry a great deal or a fair amount about climate change/global warming is 80%. However, Gen Zers are the least tolerant of the continued use of fossil fuel use, with a resounding 93% wanting to see their pension reduce its exposure to investments in fossil fuels.
And more than one-quarter of Gen Zers (27%) don’t care if this would affect the financial performance of their pensions. For comparison, only 15% of Baby Boomers would risk taking a hit on their pension’s performance.
Given their stage of life and the cost-of-living crisis, perhaps unsurprisingly, those aged between 18 and 26 are keen to see their pensions supporting key areas of infrastructure such as the building of affordable homes and local job creation.
Yet, given recent soaring temperatures around the world, Gen Zers seem focused on the potential risks of climate change in a way that previous generations either weren’t or felt no urgency to be.
We’ve listened to our DC pension members and they’ve told us clearly that most of them want to have net zero targets in their pensions. But none more so than those of Gen Z, who will be most affected by climate change and are the most prepared to pay more through their pensions for action to help deal with it.
 Legal & General Investment Management (LGIM) survey in June 2023 of the views of 4,678 defined contribution workplace pension members on environment, social and governance investing. Respondents were split across generations and genders and across the UK and Ireland. This article refers to UK data only.
In partnership with LGIM - Legal & General Investment Management
Legal & General Investment Management is one of Europe’s largest asset managers, offering investment solutions to a broad range of clients globally.