Pension funds should focus on topics relevant to beneficiaries and give members more say to avoid being cast as an unaccountable elite by populists on both sides of the political spectrum, one adviser has warned.

Populists on the left and right of the political spectrum are vying for voters’ attention, but those on the right have arguably been more successful in this year’s local elections, with Reform UK now administering 12* county councils. In parliament, the party has five MPs. Two suspended MPs have left the party; one of them, Rupert Lowe, now sits for his party Restore Britain.   

On the left, Your Party, led by Jeremy Corbyn and Zara Sultana, has potentially six MPs. The Greens are also expected to position themselves further left under new leader Zack Polanski; the party has more than 800 councillors in 170 councils in England and Wales.  

As the government has a laser-sharp focus – and significant appetite – on the huge sums managed by pension funds, it is perhaps unsurprising that opposition parties have also turned their attention to this, Reform UK among them. At the start of September, the party's deputy leader Richard Tice claimed the LGPS had wasted nearly £1bn in asset manager fees over the past year. He argued investments should only be made in passive equity and bond funds, and called sustainable investments “a meaningful cause” of underperformance.  

This interest in pensions and sustainable investment from the rightwing party has alarmed some working in responsible investments – and they are readying for the assault. On Tuesday, Tom Powdrill, a stewardship adviser and former TUC policy officer, led a webinar on what to expect from Reform in the context of LGPS investments. 

Where Reform UK sits on council pension fund committees, it is unlikely that criticism of sustainable investments would be based on fundamental questions such as whether climate change exists, Powdrill said. Having watched debates of committees where Reform has a seat, he believes the arguments against sustainability would instead revolve around costs and national interests, focussing on trade-offs such as a loss of working class jobs and control over resources.  

A “high-cost allocation with ESG orientation and questionable benefits to the UK would be catnip for Reform in the LGPS world”, he said, citing overseas unlisted renewable energy as an example.  

The fear that climate commitments could be rolled back are not unfounded. Three newly Reform-controlled councils – Durham, Kent and Northamptonshire – have already scrapped or are scrapping their council’s net zero target, with debates inevitably spilling over into pension fund committees.

Stewardship can be portrayed as too interventionist by populists on the right and as not effective enough by populists on the left, with both suggesting that too much power is exercised by unaccountable insiders, pitching an ‘elite’ versus ‘the people’.  

LGPS reforms currently in train with the pension schemes bill will curtail individual councils’ say over investments, with more responsibility about detailed implementation falling on asset pools. Funds are usually already required to adhere to their asset pool’s voting policy. 

Powdrill argued that to be less vulnerable to attacks from populists, pension funds and responsible investment experts should focus on topics relevant to beneficiaries, such as fair pay and tax in the UK, which might mean changing the ranking of responsible investment and stewardship objectives. He cited the Dutch pension fund for shop workers, which has removed the worst human and labour rights violators from its portfolio to take into account its members’ preferences.   

Some are looking to their members for input, with Avon Pension Fund currently conducting a survey to understand members’ preferences around defence investments. Others in the industry believe member preferences can be difficult to pin down, as the most vocal groups do not necessarily speak for the majority.  

Powdrill also expressed unease about pension consolidation and greater government power over large pools of assets given that no one knows who will wield that power in future. Similar concerns were raised by Pensions UK giving evidence to the pension schemes bill committee earlier this month.   

He also argued that a perceived – or real – democratic deficit needs to be addressed so the public has a voice in pensions and corporate governance where it is affected by decisions.  

“To date, policy has gone in the other direction, with the elimination of member trustees... some reverse of that is required,” he said. “If we see populism as a challenge and [those in power] as a technocratic elite... the worst possible response is to leave it to the experts.”
   

       

   

   

*this figure has been updated as Reform UK administers both North and West Northamptonshire