Perhaps most importantly, there is growing evidence from individuals that they’re interested in their pension making social investments. Research by the Defined Contribution Investment Forum found that 77% of individuals favoured a social pension fund over a conventional fund if the returns were similar; 44% still preferred a social fund, even when they were told that they would receive an 8% smaller pot, and 30% agreed even if the pot was 18% lower.
In our paper ‘Designing a social investment fund for UK pension’ we outlined our desire to see a social pension fund – similar to the ‘90/10’ employee solidarity savings schemes – developed for the UK market. Based on the evidence gathered for the Law Commission’s call, we now have a clearer sense of some of the practical legal, regulatory and structural barriers that are making it very challenging for DC pensions to do this in practice.
Government can play a key role in addressing a number of these to support and enable pensions to make social investments. Based on our interpretation of evidence gathered, including legal advice from Sackers, and input from a number of other stakeholders, we have made a number of recommendations where targeted policy change could be highly valuable.
Our recommendations fall into four themes:
- Transparency, disclosure and consultation – As a first step, we recommend a legal requirement for DC pension funds to disclose the impact of current investments, and to regularly and meaningfully seek the views of members on whether default and chosen options align with their broader values.
- Fiduciary duty – Changes in legislation to give trustees comfort that social investments are in accordance with their legal duties, including the duty to act in the best financial interests of beneficiaries
- Liquidity – Greater clarity is required to overcome structural barriers around investing in less liquid social investments. We recommend an amendment to members’ statutory right to request transfers to provide an option to exclude a small, illiquid portion of a fund that could be channelled into social investments.
- Accreditation and labelling – There is a clear role for legal or regulatory backing for an independent body to accredit and label a social pension fund option.
Given the range of barriers above, in order to address the current inertia we recommend that government mandate all DC pension schemes to offer a ‘social’ pension fund option. This would have a truly catalytic impact on the market.
We are really keen to hear people’s view on our paper and recommendations, please do get in touch.