In July’s Mansion House speech, the Chancellor set out a raft of measures aimed at unlocking the growth potential of UK defined benefit (DB) schemes. LCP and Pensions for Purpose are urging the government to encourage pension schemes to invest more in areas that drive forward sustainability goals: 

Structural barriers – The letter calls for structural change to achieve this. As funding levels have improved, many pension schemes have significantly de-risked their assets and are predominantly invested in gilts and low-risk corporate bonds, where there are fewer opportunities to hold impactful sustainable investments. This will be critical in the coming years, as we face the need to halve our CO2 emissions by 2030.  

Fiduciary duty – Current interpretations of fiduciary duty often discourage long-term sustainable investments, despite evidence these investments can offer comparable or better returns. This letter calls for a re-think on the interpretation of pension trustee fiduciary duty. Reframing this duty could guide pension funds to take a longer-term perspective when decision making, and contribute to broader climate and societal goals which are in their beneficiaries’ best interests.  

Intergenerational fairness – UK defined contribution (DC) members are generally a younger part of the working population, whereas UK DB members tend to be older and often already retired. There is a clear risk the current pensions system upholds systemic intergenerational inequality, which could pose a number of long-term risks to society and the economy. 

LCP and Pensions for Purpose are calling for the government to innovatively resolve some of these issues. Specifically, LCP have developed a Pension Protection Fund (PPF) ‘opt-in’ system for managing DB schemes. This aims to both preserve and improve DB members’ security, and enables schemes to invest for positive societal and environmental outcomes which benefit everyone, while generating long-term investment growth – one of the reform options contained in the Mansion House proposals. 

Laasya Shekaran, Consultant at LCP, commented: “We are supportive of the idea of incentivising pension schemes to invest in productive finance but believe such investing must support sustainable impact. Now is the time to breakdown existing structural barriers, and to look to new and innovative ideas to ensure pension funds can invest in ways which make sense for people and planet.” 

Charlotte O’Leary, CEO for Pensions for Purpose, added: “Clear action needs to be taken on ensuring sustainability is integrated into all levels of pension fund decision making, including fiduciary duty, the governance process, mechanisms for consolidation and intergenerational fairness. This can only be achieved through collaboration between the pension industry, government and regulators. What we are talking about requires a paradigm shift in thinking and the time for that is now, not just to protect but to enrich pension member outcomes, society and the environment. We strongly urge the UK government, The Pensions Regulator and industry stakeholders to work with us in implementing these targeted reforms.”  

ENDS

NOTES TO EDITORS:

About LCP:

We have market-leading capabilities across pensions and financial services, energy, health and analytics and bring a breadth of knowledge and specialist skills that help our clients solve problems and embrace opportunities. 

Behind every piece of data, there are numerous possibilities. By fusing human instinct with analytical insight to identify sparks of opportunity, we help our clients navigate clearly through complexity to make decisions that matter to their business and to our wider society. We are powered by our desire to solve important problems to create a positive future.

Visit www.lcp.uk.com for more information. LCP has around 1000 experts based at locations in London, Winchester, Edinburgh, Cambridge and Paris.

About Pensions for Purpose:

Pensions for Purpose exists as a bridge between asset managers, pension funds and their professional advisers, to encourage the flow of capital towards impact investment.

Impact investments are investments that align with the environment and society. Pensions for Purpose seeks to empower pension funds through our online member platform, from which we deliver training, afternoon teas and events, member forums and a unique Knowledge Centre.

Press contacts:

Pensions for Purpose:

Daniel Jason, Material Impact Marketing Communications
[email protected] 

LCP:
Lauren Keith, Head of External Relations, LCP
[email protected] 

Please click on the button at the bottom of the page to read the letter.


This item was covered in:
Environmental Finance
Environment Journal
Investment & Pensions Europe
Pensions Age
Pensions Policy International
Professional Pensions
Responsible Investor
The Telegraph