A basic tenet of responsible capitalism is that savers should be able to find out where their money is invested.
A basic tenet of responsible capitalism is that savers should be able to find out where their money is invested
The Pension Schemes Bill had its second reading in the House of Lords this week. One of its main provisions is to set up the legal framework for a new type of private pension, so called defined ambition pensions.
Here, financial risk is shared between members of the scheme instead of individually by members, thus promising better returns for savers.
This is good news. But the passage of the legislation also offers the opportunity to make our pensions work better for social justice and for prosperity.
For most of us, pensions represent our largest savings, but we seldom consider where this money goes. Yet I’d like the £350 or so that leaves my pay packet every month to be put to good use and invested positively and ethically.
I want my money to help create decent jobs and prosperity. I don’t want it to fund the tobacco industry or to be held in risky fossil fuel investments. I would also like those who manage my pension to be accountable for their investment and stewardship decisions.
The Pension Schemes Bill offers the opportunity to introduce much needed rights for people like me know where my money is invested.
I’ve mostly worked as a teacher, in charities and as a university lecturer and like many people who change jobs, I have paid into a number of pension schemes. As well as my government teachers’ pension, I currently have savings with the Pensions Trust, used by charities and housing associations, Prudential and Friends Life. My present employer terminated a defined benefit scheme and I presently paying into a Scottish Widows scheme.
My Scottish Widows pension is mostly invested in FTSE 100 companies and also allows me to put some of my savings into ethical and environmental funds. But I was disappointed to find out that the ethical fund holds significant shareholdings in the oil and gas industry. I am concerned that these investments do not guarantee me a healthy retirement income, nor a healthy planet in my old age.
Currently, the price of fossil fuels company shares is calculated under the assumption that all fossil fuel reserves will be consumed. But scientists believe that no more than 20 per cent of carbon reserves can be used before dangerous and irreversible climate change sets in. Extreme weather events and volatile food prices caused by climate change may also hit pension returns in ways that are dramatic and unpredictable.
In summary, shares in oil and gas are overvalued and bad news for pension savers.
It was for these reasons that I joined a group of fellow Scottish Widows savers, organised by Share Action, the campaign for positive investment. We put our concerns to the company, a subsidiary of Lloyds TSB. That Scottish Widows engaged with us was positive; we also heard that they planned to survey those who had opted in to ethical and environmental funds to see how they would like their money invested.
But I have had not had that level of engagement with my other pension funds and have found it difficult to find out what they do with my money.
I believe that a basic tenet of responsible capitalism is that savers should be able to find out where their money is invested, and understand how their pension funds are exercising shareholder rights on the behalf of savers. This information is not easily available, not for private pension funds, nor most occupational pension funds managed by trustees.
Even local authority pension funds, whose trustees are usually councillors, seldom make information about investments easily accessible. Nor is there much evidence to show that their trustees are using their rights as shareholders to influence company decisions.
Without transparency, trustees and those who manage our pension funds cannot be held accountable for their decisions. Without information, consumers and employers cannot make informed decisions about how and where to invest pension savings.
The Pension Schemes Bill offers an opportunity to address these is information gap and Share Action is among the organisations who are calling for amendments to the legislation.
Overall, our pension savings are worth huge amounts and have the potential to drive responsible investment. But this will not happen without a more transparent and accountable pension system.
Jill Rutter is a contributing editor to Left Foot Forward
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