“Pensions play a vital role in shaping the financial security of the nation and our commitment to net zero by 2050”

So Guy Opperman opens the second of his end of year blogs in the pension press (this time in Pension Age).  It’s a remarkable statement as it explicitly prioritizes making our money matter in the fight to reduce global warming over all the other things that pensions could be doing.

I don’t think I have seen such an explicit statement on this subject before.  Having listened and re-listened to Reith Lecture 4 by Mark Carney, I get it (for those who don’t want to hear but read Mark Carney – this is the link to the transcript of his lecture). The money that we tie up in our pension funds is critical to the endeavors of the enterprises it funds. Lend money to a water company and you should expect cleaner rivers, invest in the equity of an oil company and you should expect it to be reducing dependency on fossil fuels as a result.

The people you appoint as your investment managers should be expected to carry out the stewardship of your money as part of the fee you pay them. You should expect to see reporting on the impact of your and others investments and you should have the right to influence that stewardship through feedback loops (as pioneered by Tumelo).

I struggled with what Carney calls the “gold-standard of climate change reporting” – TCFD. It took me time to get my head around it but I am there now. The DWP’s team working on this have done a good job and it looks like Opperman is genuinely convinced that Government can make a difference in making TCFD compulsory and relevant to those whose money is reported on.

I am putting trustees’ duty to manage climate risk on a statutory footing by introducing minimum governance requirements and mandating the publication of climate-related risks and opportunities in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

Politicians do not stick their necks out as Opperman is doing without some reward. The “big win” for the DWP is a pre-baked reporting framework which the Government can roll out in Glasgow in November’s COP26 summit. If I was Opperman, I would be excited, here is an area that Britain can show some leadership and this looks like a chance to leverage the power of popular opinion to make genuine change.

Getting savers onside

It’s one thing to set down rules about reporting, it’s another to get those reports read. This second blog of the Pension Minister’s also focusses on getting people involved with their pension and contains one statement that puzzled and then pleased me

I am ambitious for the future of dashboards, as a place where people can easily see what they can expect at retirement, and the value their current providers are giving them

The issue of “value” is critical to engagement and so far the pensions industry has fared poorly in helping people see the value their current providers are giving them. Most people struggle to even know who is managing their money let alone where the money has gone and whether it is doing any good. What they get by way of reports gives them little chance to assess whether their money has done well or badly or whether it is being invested with an eye to improving the environment, society or the behavior of corporate managers.

What the pension dashboards can do is to allow an individual to see not just future pension entitlements but the relative value offered by their current pension providers. This means making pension management considerably more accountable than it is today and I suggest “value” is going to be a major cause of debate in 2021.

We cannot really expect savers to engage with pension providers unless we give them an easy to use definition of value for money which allows them to compare their pension managers in a meaningful way. The dashboard is a platform to deliver such comparisons but we need to be a lot more transparent about how pensions have “done” and are “doing”.

If we can convince savers that they are getting meaningful, transparent reporting on their pension management, then we can expect them to engage, as they do other areas of finance, for now- pensions remains the least understood  and least interesting of  people’s financial assets.

There’s no doubt pension providers have see the marketing opportunity to increase “positive outcomes” for pension members; this is typically considered an opportunity for providers to get commercial advantage by attracting more funds to them through the signaling of their virtuous behaviour.

However, people are pretty skeptical about provider claims about future responsible investors if they don’t have access to information on the value their current providers re giving them now.

This is the link implicit in Opperman’s blog. There is an element of “practice what you preach” here. Providers who are open and transparently report on how they are doing today are likely to be more credible about their claims for what they will do tomorrow. The pensions dashboard will test accountability and transparency , which investors value more than they are credited for.