The Financial Conduct Authority's (FCA) proposed sustainable investment product labels "don't look ideal for workplace pensions", Aegon has said, emphasising the need to consider the specific aspects of the pensions landscape.

The FCA previously launched a consultation on new proposals designed to crack down on greenwashing, with plans for a further consultation to extend these proposals to pension products expected "in due course".

However, Aegon pensions director, Steven Cameron, explained that while the early consideration given to extending to pensions was welcome, the pensions landscape, and in particular workplace pensions, have many different aspects that need to be considered, including how members engage with investments.

In particular, Cameron noted that if individuals are making active decisions around where to invest their pension, for example in a self-invested personal pension, the new labels may help them invest in line with their sustainability preferences, suggesting that "here, consistency with the approach for investment products will be helpful".

However, he pointed out that the "vast majority" of workplace pension scheme members are invested in the default fund without giving any consideration to investments, highlighting this as a "direct and deliberate outcome of government auto-enrolment policy".

Cameron continued: “Default funds are designed to meet broad needs of members and based on the current proposals, are highly unlikely to qualify for a sustainability label. Rather than investing solely in equities, they are typically multi-asset and often constructed on a fund of funds basis.

“They also often utilise de-risking strategies as retirement approaches, meaning a gradual change in asset mix.

"But the sustainability disclosure requirements (SDR) proposals lend themselves most readily to equity-based investments. Furthermore, it will be very challenging for a broadly diversified fund of funds approach to qualify for any one of the three SDR categories."

In light of this, Cameron argued that the FCA's proposals for investment funds "don’t look ideal for workplace pensions", clarifying however, that it is still important for pension schemes to highlight where they are seeking to contribute to the sustainability agenda.

"So even if a default funds doesn’t meet the criteria for using a label, governing bodies and trustees should still be encouraged to take the lead in explaining to members their approach to sustainability," he added.

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