Think tank reveals £600bn social investment potential of pensions

The scale of potential social investment from pension funds is estimated to be worth £600bn by 2030 reveals a new report by Big Society Capital and the Social Market Foundation.

The Good Pensions: Introducing social pension funds to the UK report calls for the introduction of social pension funds in the UK to finance projects such as social housing, rehabilitation initiatives and environmental schemes. It argues that during a period of prolonged austerity such as that the UK is currently experiencing, such a step would provide much needed investment for the charities and social enterprises currently carrying out this work.

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 so 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 estimates that the scale of potential social investment from pension funds is an estimated 16 million savers and some £600bn in Defined Contribution pensions (where the employer and employee agree on a set amount to be contributed to an individual pension fund) by 2030. A survey by the Defined Contribution Investment Forum showed 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.

There is a compelling case to establish social pensions funds to unlock untapped sources of capital and empower individuals

CEO of Big Society Capital Nick O’Donohoe 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 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.”

Current barriers preventing the introduction of social pension funds include resistance to change on the part of savers and concerns about liquidity and scale on the part of the fund managers. In response the report cites evidence from France, where a similar Solidarity Investment Fund has been introduced and already has more than one million investors and assets of €4.6bn.

In this fund 10% of investments are made in social organisations, while the remaining 90% is invested into traditional investments in listed companies which are ethically screened according! to environmental, social and governance (ESG) criteria. Big Society Capital and the Social Market Foundation recommend that a similar model be introduced in the UK.

To download the Good Pensions: Introducing social pension funds to the UK report, please click here.        

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