A new report, published today by the Social Market Foundation (SMF) and Big Society Capital, calls for the introduction of social pension funds in the UK to help finance projects such as social housing, rehabilitation initiatives, and environmental schemes. During a period of prolonged austerity such a step would provide much needed investment for the charities and social enterprises carrying out this work, while acting as a positive motivation for individuals’ to save for retirement.
Good Pensions: Introducing social pension funds to the UK argues that the scale of potential social investment from pension funds is huge: an estimated 16 million savers and some £600 billion in Defined Contribution pensions by 2030. It also cites evidence that many savers, especially younger generations, worry not only about the financial performance of their funds but the social and environmental effects as well. The report draws on a survey by the Defined Contribution Investment Forum showing that 44% of UK employees would prefer their employer to choose a pension provider that invests in ‘social’ funds, even if this was likely to achieve a lower return on their investments.
However, the SMF report details the current barriers to introducing social pension funds in the UK that must be overcome, including inertia on the part of savers and concerns about liquidity and scale on the part of fund managers.
In response, the paper draws on evidence from France where a similar ‘Solidarity Investment Fund’ already has more than a million investors and assets of €4.6 billion. The French fund invests 10% of the fund in social organisations dealing with issues including housing, employment, and the environment. The remaining 90% of the fund is invested into traditional investments in listed companies which are ethically screened according to environmental, social and governance criteria. Such an approach should be replicated in the UK, the report recommends, as a route to achieving scale and liquidity.
With a goal of tens of thousands of investors and over £1 billion of assets during the next decade, Good Pensions also recommends a series of other actions for policymakers and the industry, including:
- Working with the industry so that larger trusts and pension providers offer a social pension fund to their members.
- Encouraging the take-up of social pension funds by making it mandatory that all employers offer employees the option to save into such a fund through their workplace pension scheme.
- Developing a set of incentives and nudges to encourage savers to put some of their pension savings into the social pension fund such as financial incentives.
Nigel Keohane, report author and Social Market Foundation research director said:
“Pension funds comprise huge reservoirs of capital. Putting these to productive use within the social sector has never been more important given further reductions in government funding. But, with people increasingly wanting to see positive social as well as financial returns, this could also be a route to encouraging people to save and creating the savings culture that the Chancellor has called for.”
Nick O’Donohoe, CEO of Big Society Capital, commented:
“The public are increasingly interested in understanding how to better use their money, and many have shown an interest in social investment. Pension choices provide a route in for individuals who are motivated to do social good. However, pension products need to keep pace with innovation and give people the choice to invest socially. With millions more savers now joining the UK pensions system, there is a compelling case to establish social pensions funds to unlock untapped sources of capital and empower individuals to help the most disadvantaged in our communities across the UK.”
Paul Todd, head of investment at NEST (National Employment Savings Trust), said:
“The success of social investment funds in France sets a promising precedent for the UK. As long term investors new opportunities for improved diversification are always of interest. We’ve followed this project closely so far and look forward continuing to provide input – sharing understanding about our membership and our perspective as institutional investors.”
Notes to Editors:
- A copy of Good Pensions: Introducing social pension funds to the UK is attached to this release.
- The survey referred to in this release is Defined Contribution Investment Forum, Identifying new ways to engage with savers in Defined Contribution Pensions (March 2013).
- The report is a joint project by the Social Market Foundation and Big Society Capital.
- The Social Market Foundation (SMF) is a leading independent UK think tank which develops innovative ideas across a broad range of economic and social policy, champions policy ideas which marry markets with social justice and takes a pro-market rather than free-market approach.