The future of pensions

The Financial Times recently commissioned a research on financial literacy, which showed that when it came to financial education at school, 90 per cent of the 3,194 people polled learnt “nothing at all” or “not very much”.

These results were reflected in a survey conducted by investment app Freetrade, which showed that nearly half of UK adults lacked basic financial literacy. It is no surprise that the figures were even worse when analysing financial knowledge around retirement: 80 per cent of respondents failed to answer the relevant questions correctly.

As would be expected, this vacuum of knowledge has tangible impacts — according to data from Age UK, the number of pensioners living in poverty stands at 2.1mn.

For many, pensions represent an overwhelming mountain that seems impossible to scale. Prospective climbers have not been provided with the route or any equipment, and they do not understand how beautiful the view is when they get to the top

The solution

Clearly, there is a strong sense of apathy in the UK towards pensions, despite the fact that our future financial wellbeing is dependent on them. The pandemic has compounded these monetary concerns, diminishing the desire to save for a significant proportion of the population.

For many, pensions represent an overwhelming mountain that seems impossible to scale. Prospective climbers have not been provided with the route or any equipment, and they do not understand how beautiful the view is when they get to the top.

According to Capita Employee Benefits’ ‘Employee insight report’, nearly 45 per cent of employees would be willing to save more if they were given the map and equipment to reach the summit. It is therefore important to help members truly understand how their pensions work.

The power

You only have to look on your social media feed to see that there is a growing wave of interest in issues regarding climate, human rights, racial diversity and gender.

There is a yearning for the next generation to grow up in a world that is better than the one in which we live or, at the very least, one that still exists. Consequently, stakeholders demand that more is done to positively impact our planet. Through pension investments, our aim is to make those demands a reality.

Franklin Templeton finds that employees are likely to contribute significantly more into their pension if they believe it is being invested responsibly. This benefits the individual, the fund manager, the trustees and wealth managers, and, ultimately, the world. In our eyes, it is a win-win.

The result

Stewardship can influence the strategy underpinning companies. Following a campaign by Engine No 1, alongside pension funds that have listened to their beneficiaries and claimed back stewardship responsibilities, ExxonMobil elected two new “climate-friendly” directors. Similarly, through a stewardship group known as Follow This, Chevron was mandated to cut its emissions.

BlackRock noted the potential impact stewardship could have on the financial sector and, indeed, the world. In a recently published letter by chair and chief executive Larry Fink set out the company’s commitment “to a future where every investor — even individual investors — can have the option to participate in the proxy-voting process if they choose”.

Fink’s acknowledgment of the importance behind democratising investments makes clear the direction in which the world is going. He understands that, for investors, returns are no longer enough; they want to know that they are making a positive difference with their money.

The future

Shareholder democracy will continue to make waves, with voting becoming the ultimate tool for shareholders looking to use their voice and make a positive impact.

In terms of policy, it feels like we are very much swimming with the current, which reflects how valuable pension stewardship is viewed to be.

Regulations are going one step further and looking towards beneficiary preference, which essentially means asset owner’s investment decisions should be based on the preferences of shareholders.  

Last September, the Department for Work and Pensions published a press release on recommendations by the Taskforce on Pension Scheme Voting Implementation, set up by pensions minister Guy Opperman, to encourage investment companies to engage with those investing into their pension as to where their money goes; in other words, beneficiary preference.

Likewise, the Financial Reporting Council’s Stewardship Code states that asset managers and owners should take into account the views of beneficiaries/clients and relay what actions have been taken as a result.

The habit of saving is undoubtedly an education and one that we hope to share with as many people as possible. However, we also hope that through technology, we can unlock the power that all investors hold and genuinely change the world for the better.

Georgia Stewart is chief executive of Tumelo