Andy Burnham has promised to rewire Britain by pushing power outwards from Whitehall to places and people across the UK. There is another less visible concentration of power that deserves the same attention.
Britain’s pension system now gives millions of working people a financial stake in the economy. Through automatic enrolment, introduced by a Labour government in 2008, people who own few other financial assets now have savings invested in companies across Britain and the world. Collectively, our pension schemes command enormous economic power.
Yet the governance of pension assets has not kept pace with this success story in financial inclusion.
Most people have little idea how their pension savings are invested. Decisions about stewardship of companies are delegated through pension schemes to asset managers and other financial intermediaries. The result is millions of citizens without a meaningful voice in the institutions governing their capital.
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That matters because pension schemes do more than select investments. Through the mandates they give asset managers, the votes they cast at AGMs and the investment priorities they pursue, they influence how companies respond to risks and opportunities over decades. Giving members new routes to involvement would help ensure schemes’ professional judgement and fiduciary decision making is shaped by the priorities of the people whose savings are at stake.
As I set out in my Fabian pamphlet, published today…’ beforeabour is now driving consolidation into much larger pension funds. Scale can reduce costs and improve investment capability. But concentrating pension capital without strengthening accountability risks creating institutions that are more powerful but also more remote from the people whose money they manage.
The next stage of reform must focus on governance. The Department for Work and Pensions has already posed questions about how trusteeship and governance need to evolve as the pension system changes.
This agenda should include stronger member representation on governance bodies; meaningful rights for members to ask questions and receive answers; and annual meetings at which trustees and executives explain how they have exercised stewardship and handled trade-offs on members’ behalf. These are not untested ideas: strong forms of member representation and accountability are well established in pension systems including those of Australia, Denmark, Canada and the Netherlands.
Schemes should also engage with their members to understand how investment and stewardship practices affect the people they exist to serve. Deliberative processes, member assemblies and panels can help schemes understand what savers think when given relevant evidence and competing arguments. Regulators can support this with stronger expectations for transparency, accountability and member involvement.Become a friend of LabourList and join our community. Our friends support our vital non-factional work and get access to exclusive content and events.
For Labour members, this is not an abstract debate. Most are pension savers and trade unionists have a long tradition of arguing that workers should have a say over capital accumulated in their name. Labour should renew that principle for the age of auto-enrolment.
None of this means politicians telling pension funds where to invest, or every investment decision becoming a referendum. Trustees must remain responsible for acting in members’ financial interests.
The argument is simply that people should have meaningful influence within financial institutions that exist to serve them.
That should resonate with a Labour government placing devolution at the heart of its political project. At its best, devolution is about shortening the distance between power and the people affected by it.
Britain’s pension funds are among the most consequential economic institutions in the country. Labour has an opportunity to ensure that as they become bigger and more powerful, they also become more responsive and accountable.
Working people already provide the capital. They deserve a stronger voice in how its power is exercised.
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