A Legal Framework for Impact case study - NOW: Pensions

Organisation details

Name: NOW: Pensions

Signatory type: Asset Owner

HQ country: UK

NOW: Pensions, founded in 2011, is a prominent provider of workplace pension services in the UK, serving a broad range of employers. The master trust manages the pension savings of more than 2 million members, on behalf of tens of thousands of companies. NOW: Pensions applies a robust governance structure to ensure that the scheme operates in the best interests of its members. The trustee board is responsible for the scheme’s governance and is supported by committees, an external investment advisor and an investment manager.  

Overview of NOW: Pensions’ framework: As a UK master trust formally authorised and regulated by The Pensions Regulator (TPR), the NOW: Pensions trustee has a regulatory and fiduciary responsibility to act in the best interests of its members. To achieve this outcome, the NOW: Pensions trustee takes a long-term investment approach in alignment with members’ long-term retirement savings journeys.  

Covered in this case study

1. Portfolio-level sustainability goal: To close the gender pay gap and gender pensions gap. This goal targets the systemic issues caused by the gender pay gap and the gender pensions gap to achieve tangible improvements in gender equality. 
2. Motivations for setting and pursuing the goal: The NOW: Pensions trustee believes that gender equality is a social imperative that has material financial implications.  
3. Actions taken and outcomes to date: The NOW: Pensions trustee (and staff on its behalf) has engaged policymakers and advocated for policies that address the gender pay and gender pensions gap. The trustee has also engaged their investment managers to use their voting rights to support shareholder resolutions that advocate for gender equality and vote against boards that are insufficiently diverse. 
4. Assess progress: Progress has been measured through an ESG dataset and assessment of engagement activities and reported through both voluntary and regulatory disclosures such as the Gender Pensions Gap report, the Statement of Investment Principles (SIP), the stewardship policy, and the Implementation Statement.  

Investment beliefs, strategies and policies 

The NOW: Pensions trustee believes that the incorporation of ESG issues and the pursuit of real-world sustainability impact through investment processes are necessary to mitigate risks and enhance returns in the long term.  

ESG Integration:  

The NOW: Pensions trustee believes that companies that consider sustainability factors increase their chances of business success, which also increases the likelihood of improved investment performance. This is also why it divests from companies it believes cannot adapt and are therefore harmful to humanity, society or the environment and represent unacceptable financial risks. 

The NOW: Pensions trustee also incorporates real-world sustainability goals into investment processes to address systemic risks relevant to the investment thesis. This aims to ensure that members and their dependents can enjoy a quality of retirement and life that is similar to or better than what is currently possible. 

Instrumental IFSI: 

With the belief that systemic sustainability issues are material to beneficiaries’ long-term financial interests, the NOW: Pensions trustee considers sustainability impact when establishing its investment objectives and strategy.  

In this way, NOW: Pensions adopts a sustainability approach aligned with instrumental IFSI, pursuing positive impact where it is believed to enhance the financial prospects of its investment strategy. 

The fund has identified three key sustainability priorities: 

• Gender equality 
• Climate action 
• Living wages 

The NOW: Pensions trustee believes these themes are mutually reinforcing as, for example, jobs held by women are more likely to alleviate poverty and inequality, reducing systemic financial risks in the long term.  

Case study on NOW: Pensions’ actions to promote gender equality

While NOW: Pensions focuses on all three themes, its efforts towards promoting gender equality particularly stand out in the UK master trust market; therefore, we focus on this theme for this case study. 

Why gender equality:  

• ESG Integration: The NOW: Pensions trustee recognises the challenge of isolating the impact of gender equality on a company’s financial performance. Nevertheless, the trustee believes gender equality is an important consideration in investment and has reviewed the academic and investment evidence. The trustee believes that companies prioritising gender equality tend to make better decisions and face fewer reputational issues, while being more competitive and less likely to encounter regulatory intervention, compared to those that do not. 

• Instrumental IFSI: The NOW: Pensions trustee notes the systemic impact of greater gender balance and equality for economies and capital markets. Pursuing system-wide progress in gender equality (in addition to individual companies) contributes to improved long-term financial outcomes for its beneficiaries. 

In this case study, NOW: Pensions has covered:  

1. Portfolio-level Sustainability Goal: To close the gender pay gap and gender pensions gap. This goal targets the systemic issues caused by the gender pay gap and the gender pensions gap to achieve tangible improvements in gender equality. 

2. Motivations for Setting and Pursuing the Goal: The NOW: Pensions trustee believes that gender equality is a social imperative that has material financial implications.  

3. Actions Taken and Outcomes to Date: The NOW: Pensions trustee (and staff on its behalf) has engaged policymakers and advocated for policies that address the gender pay and gender pensions gap. The trustee has also engaged their investment managers to use their voting rights to support shareholder resolutions that advocate for gender equality and vote against boards that are insufficiently diverse. 

4. Assess Progress: Progress has been measured through an ESG dataset and assessment of engagement activities and reported through both voluntary and regulatory disclosures such as the Gender Pensions Gap report, the Statement of Investment Principles (SIP), the stewardship policy, and the Implementation Statement.  

In the following sections, NOW: Pensions explains its approach in more detail. 

Goal setting (investment approach) 

The NOW: Pensions trustee pursues several goals; this case study will focus on the goals related to gender equality.

Instrumental IFSI goal:

• Pay and pensions equity: To close the gender pay gap and gender pensions gap.

This goal targets the systemic issues caused by the gender pay gap and the gender pensions gap to achieve tangible improvements. This is supported by the more granular goal, targeting investee companies.

ESG integration goal:

• Gender equality in investment companies: To address gender equality issues in investee companies.

This goal targets the material financial risks that the trustee believes are associated with inadequate gender representation or poor policies concerning company workforces and boards.

Actions taken (investment process)

To contribute to a reduction in the gender pay and pensions gap, aligned with its instrumental IFSI and ESG integration goals, NOW: Pensions (the trustee, and staff acting on its behalf) has:  

• Policy engagement and advocacy: Advocated for policies that address the issues contributing to the gender pension gap, including policy changes that ensure fair pension contributions and benefits for women across company supply chains. NOW: Pensions engages policymakers through its Gender Pensions Gap campaign to influence UK government policy and meet its gender equality goals. Engagements with policymakers include:  
  • Proposal to remove the £10,000 earnings trigger, which would enable more people to participate in auto-enrolment, including part-time, lower-paid and multiple job holders, the vast majority of whom are women. 
  • Proposal to eliminate the lower earnings limit for auto-enrolment to increase overall pension contributions.  
  • Proposal that the government introduce a top-up for family carers to compensate for the lack of employer contributions during out-of-work periods. 
  • Proposal to ensure that pension sharing is considered by default during divorce proceedings to prevent women from experiencing retirement disadvantages resulting from divorce. 
  • Highlight the need to improve childcare affordability and availability to enable more women to return to work and contribute to their pensions. 

To improve its integration and consideration of gender equality issues in the investment process, aligned with an ESG integration approach, NOW: Pensions has:  

• Stewardship: Used its direct voting rights (and engaged third-party managers) to support shareholder resolutions that advocate for gender equality, such as those requiring companies to report on gender pay gaps or increase diversity in leadership positions. For example, one of NOW: Pensions’ third-party managers voted against the re-election of a company’s board members in order to diversify the board and meet a goal of 30% female representation.  

In Quarter 1 2024, the NOW: Pensions trustee moved the majority of its equity holdings to be held directly and managed by an investment manager rather than through third-party manager funds. This grants the trustee greater control over stewardship, enabling engagement and voting on investee companies in line with their three sustainability themes, including gender equality.

Evaluation, reporting and goal revision (where applicable) (investment outcomes)

NOW: Pensions has undertaken a range of actions to evaluate and report on its goals, including: 

• Published the Gender Pensions Gap Report biannually since 2019 to assess progress and inform policy recommendations. 
• Published a stewardship policy, with a specific section on gender equality.  
• Highlighted advocacy and progress to members through responsible investment web pages, social media, events and partnerships.  
• Used standardised datasets by ESG data providers to assess portfolio gender equality risks and opportunities. Datasets used for assessment include board diversity, workforce diversity, gender pay gap, minimum wage, paid overtime, a proprietary human capital score, and a proprietary SDG 5 (gender equality) alignment score.  
• Created an Implementation Statement including the outcomes of the most significant votes by third-party managers, in line with the gender equality priority sustainability theme.

Key takeaways 

The NOW: Pensions trustee’s goal is to close the gender pay gap and the gender pensions gap. The NOW: Pensions trustee seeks to achieve this impact goal by engaging policymakers and integrating sustainability issues into investment processes.  

NOW: Pensions proposes a number of policy changes and promotes these changes and wider awareness through campaigning. Some of these positions have since been adopted by government in the Extension of Automatic Enrolment Act, and the gender pensions gap issue attained a more prominent position on the government’s agenda with the new DWP Gender Pension Gap report launched in 2023. 

The trustee has also set a goal to address gender equality issues in investee companies through stewardship activities focused on board representation, workforce diversity, gender pay and pensions equity. The trustee has engaged with third-party managers and its investment manager to support companies and shareholder resolutions that advance these aims.