Green Investment Default in Retirement Plans
Nest (UK National Employment Savings Trust) · United Kingdom · 2020
Summary
Nest's change of the default investment option for 10 million UK workers to a responsible investment fund is perhaps the largest-scale application of default theory ever implemented. Nearly all enrolled workers remained in the default. The opt-out rate was below 2%. Returns were comparable to the prior balanced default. The experiment demonstrates that default choice architecture can redirect enormous capital flows at near-zero cost — and that stated preferences for sustainability expressed in surveys are not needed to produce sustainable investment behavior when defaults do the work.
Research question
"Does making a responsible investment fund the default option increase sustainable investment allocation without reducing returns?"
Methodology
Intervention
Nest changed default fund allocation for 10 million enrolled workers from balanced fund to responsible investment fund; opt-out available
Assignment
Pre-post with administrative data; near-universal take-up of default
Sample size
10 million enrolled workers
Primary outcome
Allocation to responsible investment; opt-out rate; fund performance
Effect estimate
95%+ of enrolled workers now in responsible investment default; opt-out rate <2%; comparable returns
Decision
Default maintained; UK government explored similar requirements for other pension providers
Result
Positive
95%+ of enrolled workers now in responsible investment default; opt-out rate <2%; comparable returns
Evidence strength
Limited
Observational or pre-post design; correlation not necessarily causal.
Replication status
Open for replication
Institution
Nest (UK National Employment Savings Trust)
Location
United Kingdom
Year
2020
Policy area
Energy & Environment
Mechanism
Default