The introduction of social pension funds could help finance projects such as social housing, rehabilitation initiatives and environmental schemes, according to a report released today.
The Social Market Foundation and Big Society Capital have jointly published a new report, Good Pensions: Introducing social pension funds to the UK, which argues that the scale of potential social investment from pension funds is huge, with an estimated 16 million savers and some £600bn in defined contribution pension by 2030.
Evidence was also drawn from a survey by the Defined Contribution Investment Forum which showed that 44 per cent 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 report concludes that there are several barriers to introducing current social pension funds in the UK that must first be overcome. These include “inertia on the part of savers and concerns about liquidity and scale on the part of fund managers”.
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.”
The report states that latent demand for social investment, and the huge growth in private sector defined contribution membership, as well as the need to engage savers more makes this a significant, expanding and necessary source of capital.
The French example
The report looks at evidence from France, where a similar ‘solidarity investment fund’ has more than a million investors and assets of €4.6bn. The French fund invests 10 per cent of the fund in social organisations which deal with issues including housing, employment and the environment. The remaining 90 per cent of the fund is invested into traditional investments in listed companies which have been “ethically screened” according to environmental, social and governance criteria.
The report recommends such an approach be replicated in the UK, as a route to achieving scale and liquidity.
It concludes that a social pension fund could be developed already within the existing law, however regulatory activity and market initiatives could make the environment easier for setting up social pension funds.
It says that the social pension fund could appeal to all three different types of investors: self-investors, self-enrolled and auto-enrolled, and that take up of the funds could be encouraged through a series of measures including labelling, nudging and incentives.
Nick O’Donohoe, chief executive of Big Society Capital, said: “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 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 sector.”
