I spent some time at the Pensions UK Investment conference in Edinburgh this week. I still do some consultancy work in the sector, and I am the Chair of a pension fund investment committee. Held during Trump’s war (sorry, ‘operation’; Have I heard that before somewhere?) against Iran, there were a few nervous delegates. However, pension fund investors take a long-term view, and most funds are in pretty good shape. In particular, the much-derided Defined Benefit (DB) schemes.
It is a busy time for pension schemes, with global volatility driven by Trump’s impact on the global economy before the current conflict, the risk of an AI bubble bursting, and significant changes to pension regulation in the UK.
Responsible investing (ESG) has faced increased scrutiny, especially from political sources in the US. The sector was never fully enthusiastic about it, and many fund managers and benchmarks have a noticeable tendency towards greenwashing. However, if the conflict in Iran teaches us anything, it’s that the push towards Net Zero is fundamentally correct. The more we invest in renewables, the more we enhance our domestic energy security. There was a broad political consensus on this until the Tories and Reform Ltd diverted in a Trumpian direction. At the conference, Caroline Lucas wiped the floor with Michael Gove in a debate; Gove, who was once part of that consensus, offered less-than-convincing reasons for his shift. The conference delegates reaffirmed that pension funds should do more to address climate change. Caroline emphasised that, particularly for young people, it makes no sense to invest in ways that harm the planet.
The pensions minister, Torsten Bell, was the keynote speaker. He has had a longer tenure than most pension ministers (not that’s saying a lot), and long may that continue. He is overseeing the biggest pension reform in a generation, and it is long overdue. He made a strong case for issues such as the consolidation of pension funds and UK investment, as well as the actions the government is taking to support them. The English Local Government Pension Scheme is rapidly consolidating its pooling arrangements. Sadly, the Scottish scheme is not reforming at all. We used to lead the way, but now we are stuck in a rut at the expense of effective investment and costs. The minister was asked about this and gave the tactful reply that devolution should be about learning from each other!
There were a few sessions on UK and place-based pension fund investment. An agenda is progressing in England, but much less so in Scotland. It is vital that more of our pension funds invest in the UK economy, where we live and work. Pursuing global investment returns is fine, but we all want to retire into a functioning economy and communities with a high quality of life. There are many examples of good local investment that also generate decent returns. In fact, overseas pension funds are investing in UK infrastructure, so why can’t we? One example is social and affordable housing, which provides stable, long-term investment opportunities that match the stable returns pension funds seek. I did some work on this with Scottish housing associations, which would be a win-win for them and pension funds. There has been some use of this in Scotland, but nowhere near the scale seen elsewhere. Declaring a housing crisis is all very well, but some action would be better.
It's encouraging to see such a bold pension reform in the UK. Some in the sector advocate for a slower approach, but I would encourage the minister to move more rapidly. I also wish we were as bold in Scotland regarding reserved pension policy.
