Will knowing how our pension is invested help?

This seems an important initiative which both the Regulators and Government should watch carefully.

The timescales for the disclosures are short, we will see them by early next year and we will be able to gauge public reaction within the next twelve months.

My initial reaction is that people will not read the disclosures but they will read the commentaries on them. Where financial journalists are given access to detailed information, they will probe for weaknesses in governance and point out where unnecessary risks are being taken. Clearly there is concern about “derivatives” which are not exclusive to Australian Super Funds, a derivative can be used to hedge risks or to create leverage, amplifying risks in return for reward. People want to know more than that a fund is using derivatives, they want to know how their fund is managing risk and whether it has done a good job.

It is also clear that people are keen to make their money matter and are waking up to the capacity of their retirement funds to shape their future world. Clearly the Australian stock market is heavily invested in mining and other stocks with heavy carbon footprints. Investigative journalism will enable people to see which funds are most exposed to the risks that such holdings present.  Australia has an industry comparing funds by league tables, Australian citizens are fascinated by comparisons and take decisions on who manages their money with reference to them.

Can this be replicated in the UK?

The “secret sauce” of good investment management is unlikely to be just its stock selection. A fund’s capacity to execute a chosen strategy efficiently will add to its value and funds are increasingly disclosing their efficiency in trading through the CTI templates.

But we have focused recently on the costs of asset management to an extent that we may have lost sight of the fundamentals of investment management, to maximise the outcome through the choice and management of the asset. Choosing assets is returning to vogue as our version of Super funds, our workplace pensions, move greater allocations into private markets where there are less opportunities to simply “buy an index”. Ironically, this means less invested in derivatives of the asset and more invested directly. Managing these assets is part of the function of the manager who may have a physical place on a company’s board. Both the choice of an asset and its stewardship are more important when investing in private markets.

Whether we will start debating the decisions of the CIOs of Nest and other big workplace pensions is an important question. If it happens in Australia, it could happen here. Financial journalism that talks to the investments we are making is of interest to a great number of people and they don’t all need to read the Financial Times.

We’ve had a great deal of talk these past couple of weeks in Glasgow and in Westminster about getting engagement with our pensions. These have ranged from comparing simpler statements down the pub to protests at COP 26. But are we really very much wiser about where our pensions pots are invested and why?

The world of asset management has hardly been scrutinized over the past 30 years and this has led to a lot of opaque practices including the use of Non Disclosure Agreements to protect everything from a manager’s commercial strategy to their stock selection. The Australian Government has decided to level up to global best practice. Perhaps someone might like to point to where best practice is exhibited, I don’t think it is in the UK.

If we have the transparency that the Australian Government craves, then I worry that we are doing little with it, but I suspect that we don’t. Let’s look at what comes out of Australia and see whether we can learn. I bet we can and I bet that ace journalists like Jo Cumbo will show us what we are missing.

Why does this matter?

We have to get interested in our workplace pensions and why shouldn’t we? If we are going to rely on our retirement savings for our futures, why wouldn’t we want to know what our money is up to?

I think the door to inquiry is through performance and that until we are clear to people how their pots have performed, we will struggle to get them to ask more searching questions about “why?”. Why I have done well or badly needs a benchmark – compared with what?

This is why the Government are right to get us to focus on concepts such as net performance, costs and charges and most of all “value for money”.

I think that the management of my pension matters a lot, not just because it impacts on the quality of my retiring years but because it is my biggest lever on my personal carbon footprint and my chance to make my money matter in improving the way we govern and the financing of societal good.

The great advocates of greater transparency have been the organizations that organize stewardship of the assets pension own – Share Action, Pirc, Minerva and asset managers who have opened their doors and listened to their investors. Tumelo is a great example of how, if we have transparency in what we are invested in, we can have a say in how our investments behave.

If we can get this pioneering work amplified through journalism and blogging so that we create a culture where people are interested in what their money does, then we will have handed ESG to the members of our workplace pensions and given them a tool to take active decisions about who manages their money in future.

Investment information seems to me crucial to a properly run pension system where it is savers –  not their employers or Government – who take the investment risk.

But we will see!

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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