Emma Matthews: Investing for all seasons

Portrait image of Emma Matthews

At 31 Emma Matthews, head of investment here at NOW: Pensions, is one of the youngest investment heads in the country. But don’t let her age fool you about her experience and expertise. We asked her about her first six months at NOW: Pensions, progress with responsible investment and why a single pension investment strategy is good for our members.

Championing change

‘It’s been good!’ Emma says. ‘One of the attractions of joining NOW: Pensions was the way it considers its members. There’s a genuine desire to keep on challenging how we can best meet your needs.

‘It’s an organisation that is championing change – for example, the work it has done on closing the gender pensions gap. It has been heart-warming to meet colleagues and see their passion. Our report on the gender pensions gap was published in June 2022 and such great work has gone into it. It may be shocking to you, like it was to me, to learn that if you’re a woman you need to start saving, on average, from the age of four to get the same size pension pot as the average man at retirement. Or you’re going to have to retire a lot later. It really brings home the impact of taking time away from the workplace – whether it’s for childcare, looking after family or something else. And the report highlights some simple steps we can all take to help reduce the gap and help us to build as decent a retirement pot as we can.’

Safeguarding savings

‘My interest in markets started when I was a child,’ Emma adds. ‘My parents ran an auction business. It was long hours of physical and mental work, with me and my little brother helping from a young age. I learned it was possible to earn money by buying quality items, like jewellery or furniture, at an attractive price – whether it was something lovely, or something that could do with a bit of love. I also grew to realise the importance of having some form of retirement plan. Both of my parents still work.

‘There are definite parallels with investment – identifying investment assets that offer good value and have the potential to grow in value over time. But my interest for investing pension money goes beyond making a good deal. Our members are likely to be with us for decades, so it’s important to act as a steward, safeguarding your hard-earned pension savings. When it comes to pensions, every penny counts! Especially when we are seeing the cost of living rising so much.’

Sustainable, responsible investment

‘We want to be a sustainable and responsible investor,’ Emma goes on. ‘This means managing the risk, return and real-world impact of the investments we make on your behalf. It also means we continue to challenge ourselves on whether what we’re doing for you continues to be the best thing.

‘We’d like to hear what you think about this. Get in touch and tell us here.

‘We feel strongly that our investment strategy should be aligned with what’s good for you in the shorter and longer term. So we’ve made a commitment to net zero greenhouse gases, and we champion climate action, gender equality and a living wage. We’ve invested in green bonds for many years, but we’ve broadened this more recently to include social and sustainable bonds.’

Why only one pension investment choice?

‘We believe a single investment strategy is the best approach for our members,’ Emma points out. ‘There’s research to show that in other large pension schemes like ours, around 90% of people are in the default investment option – the one you go into if you don’t choose anything else – even if the scheme offers investment choices. And only around 7% of people regularly review how their pension investment is doing.

‘So, we want to focus on working as hard as we can with that pot of money, whether it’s your only pot or one of many pots.’

A balanced approach

‘We’ve got members that are early on in their savings journey and members that are closing in on retirement,’ Emma says. ‘So we believe the pension investment strategy shouldn’t favour one set of market conditions over another. We don’t have a crystal ball to predict the future – so we combine in-house and outside investment expertise, look at what’s happened in the past and what could happen in the future, and come up with an investment strategy that has you at the heart of it. Some of you may not be able to save regularly, so it’s particularly important to think about how we balance investment risks to deliver a good return over the longer term.

‘We want a responsible investment strategy that’s balanced across different potential economic situations. Think of it as bringing an umbrella in the morning even it if doesn’t rain, compared to never having an umbrella and getting soaked every time it rains .

‘To do this we focus on balancing different risks, rather than choosing particular types of investment. We believe this gives you more robust investment returns and long-term sustainable growth in different economic conditions.

‘We keep a close eye on the investment strategy and monitor the investments closely. But this doesn’t mean they’re immune to market ups and downs. As a general rule, if you want long-term growth you have to take enough investment risk to get returns that are higher than inflation. Higher-risk investment assets (like shares) are usually expected to give higher returns than lower-risk investment assets (like government bonds) over the long term, but are also expected to go up and down in value more in the short term.

‘Recent markets have been interesting and challenging, because it’s those low-risk investments that have been struggling most and weighing on pension performance. But we believe our investment strategy is performing as we expect it to.’

Aiming higher

‘As well as monitoring the investments regularly, we review the investment strategy in depth at least once every three years,’ Emma goes on. ‘In the most recent review we decided we should be taking more risk in the savings phase, especially for younger members, with the aim of getting higher returns over the long term on our journeys to retirement.

‘Once you’re 15 years away from your retirement age we gradually move your money into our retirement countdown fund. This is designed to protect the value of your money and has been consistently stable during recent market upsets.

‘We also upped our game on responsible investing. We’ve invested in green bonds for many years which fund environmental and climate-positive projects, such as railways and wind farms.

‘As part of the investment review, we looked to add more climate-aware, social and sustainable investments – types of investment that weren’t necessarily available when we first started using green bonds. We also stopped investing directly in fossil fuels and started investing in an environmental fund. ’

Smashing targets

‘We consider ESG – environmental, social and governance – in our investment decisions,’ says Emma. ‘We talk to the companies we invest in about what they can do to deliver long-term sustainable value. And we work to influence company agendas on social, environment and governance matters. Social matters could be gender equality and living wage. Governance includes things like how diverse their management teams are. And we look at environmental factors such as carbon emissions and water.

‘In the first half of 2021, we set a goal to move at least half our two main funds into investments that were in line with our responsible investment beliefs. We wanted to achieve that target by the end of 2021. We met the target around the middle of the year. And we’ve continued to challenge ourselves on how we invest responsibly and the impact we have on the real world.

‘So far in 2022, the percentage of responsible investments in our retirement countdown fund has stayed close to 100%, and the percentage in the diversified growth fund (where your money is for most of your working life) has grown from around 55% to 70%.

‘So we not only met the goal. We smashed it! And we’re not stopping there.’