“But I don’t want to invest my pension in the arms trade . . . “
UPDATES 9 NOVEMBER 2016
There’s a lot of detailed information below. Pensions, and democracy, can be complicated issues!
I hope this post will be useful to anyone who is interested in how their pension is invested.
(A Parliamentary debate on the new Local Government Pension Scheme regulations, and associated guidance, took place on Monday 24 October 2016. You can find more information, watch the Parliamentary debate, or read the transcript of the debate here).
Hopefully your pension plan gives you control over whether or not to invest your pension contributions in an ethical fund. The bad news is that, if you’re a teacher, a social worker, a librarian, or one of countless other roles in the public sector, any meaningful choice whether or not to invest in the British arms trade, or companies operating within oppressive overseas regimes, may have just been taken away from you.
I’m an ordinary person, and I’m certainly not an expert on pensions. But, ever since I started making contributions into a pension fund, I made a personal commitment not to invest in the arms trade. I appreciate that not everyone will make the same choices as me. Regardless, I believe that I should have the right to act on my own conscience when it comes to how I invest my own earnings in my own pension scheme. And I believe the same right should extend to everyone else in the UK, whichever sector they work in; public, private, not-for-profit or self-employed.
Until now local authorities could ‘divest’ from specific companies or industries. For example, they could decide not to invest in tobacco companies, or gambling, or pornography, or other industries whose impact is judged to be more adverse than the benefit of profits generated for pension funds. (A significant historical example is divestment from companies operating in South Africa in the 1970s and 1980s, which helped to inform and shift public opinion on apartheid, and increased political pressure for change. A more recent example is divestment from fossil fuels in response to climate change; with the London Borough of Waltham Forest being the first of the UK’s Local Government Pension Schemes (LGPS) to decide to divest from all fossil fuels.)
As democratically elected bodies, local authorities have historically been accountable to their local communities for such strategic pension investment decisions. This is what the charity War on Want say about how the scheme has worked up until now:
“The Local Government Pension Scheme has 4.6 million members across the UK such as teachers, librarians, social workers and other employees in local government jobs. It has been a decentralised scheme with decisions made locally about how pensions are invested.
Until now, local residents could call on their local pension fund to divest from a company whose practices they regard as unethical. Local pension scheme members would be consulted on the issue and, if they agreed, the fund administrators would then authorise the divestment. This process gave all the stakeholders a say, and it allowed for public debate and discussion resulting in practical changes that keep local government representative of the values of the local community. It’s called democracy!”
But new amendments to the Local Government Pension Scheme Regulations 2009 come into force on 1 November 2016. And these give the Secretary of State for Communities and Local Government the power to intervene if the Secretary is “satisfied that an administering authority is failing to act in accordance with this guidance”. Intervention could include requiring a local authority to “make such changes to its investment strategy under regulation 7 as the Secretary of State considers appropriate, within such period of time as is specified in the direction”.
On a positive note, the new guidance specifies that schemes can “take purely non-financial considerations into account provided that doing so would not involve significant risk of financial detriment to the scheme and where they have good reason to think that scheme members would support their decision”. However, there is a significant exception to this power:
” . . . the Government has made clear that using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries are inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government”.
It seems to me that this is an issue of enormous significance, not least because it sets a precedent. Who’s to say the degree to which which central government can determine how individuals are allowed to invest their pension contributions won’t be extended over time? I’m surprised that so few people are aware of the new regulations, and I’m not at all sure why there has been so little coverage and analysis in the media.
So I’m publishing this blog post as a ‘work in progress’ and, hopefully, an exercise in collaboration to encourage people to find out what this means for them.
This is what I’ll do:
- I’ll record who I’ve contacted for further information at the end of this post, and continue to update the post if if I make further enquiries of other individuals and organisations.
- I’ll update the post as and when I receive relevant responses (applying principles of anonymity and confidentiality as appropriate).
This is what I’d like you to do:
- Forward this post via email, on Facebook, or Twitter to friends, family, colleagues and other people you know who may be affected by the new regulations. (You can also find this post via: http://www.facebook.com/wherestuffcomesfrom and on Twitter – @wherestufffrom).
- Forward the post to individuals or organisations you know who may have more information. and ask them to contact me with their comments and opinions. They can do this using the Comments field at the very bottom of this page, or emailing me at: email@example.com.
- If you have concerns about how your own pension contributions are invested, please do ask your employer for more information.
- If you have concerns or questions about the new regulations and guidance, please contact your local MP for more information.
Additional sources of information
- The full text of the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016.
- The full text of Local Government Pension Scheme – Guidance on Preparing and Maintaining an Investment Strategy Statement
- War on Want Q&A on the new regulations.
- Investment and Pensions Europe (I&PE) article on the new regulations, September 2016.
- Investment and Pensions Europe (I&PE) article on concerns about the potential power of the government to direct investment under the new regulations, September 2016.
- Ethical Consumer guest blog by Ryvka Barnard, of War on Want, on the ban on ethical investment by local authorities, October 2016.
- Article in Middle East Eye, by Ryvka Barnard, of War on Want, on divestment in the context of the Boycott, Divestment and Sanctions (BDS) movement, October 2016.
- Article in the Evening Express on proposed amendments to pension regulations, February 2016.
- Article in the The Independent on proposed amendments to pension regulations, prior to consultation, December 2015.
People and organisations I’ve contacted, with responses where applicable
11/10/2016 War on Want – to request more information on their campaign for people to sign an online petition to Sajid Javid MP. (The petition asks Sajid Javid to take account of the majority of responses to the government’s prior consultation expressing concern about the governments new ‘power of intervention’).
In the next phase of their campaign War on Want have prepared a letter supporters can send to their own MPs to ask them to participate in a parliamentary debate on the topic on Monday 24 October 2016. You can find the template letter here.
11/10/2016 – Mayor John Biggs, Executive Mayor of Tower Hamlets (my local borough) – to request information on what criteria the local council currently use to screen potential pension investments as regards foreign nations and UK defence industries; and their response to the new guidance, and to the War on Want petition.
The London Borough of Tower Hamlets Corporate Director Resources responded as follows:
” … the Fund’s current policy is in line with its primary responsibility to deliver the returns needed to pay scheme members’ pensions, and to protect local taxpayers and employers from high pension costs. The Pension Fund therefore does not have a policy to screen potential pension investments in terms of foreign nations and UK defence industries.
The Council has a responsibility to obtain the best level of investment return, however the Council recognises that Social, Ethical and Environmental issues are factors to be taken into consideration in assessing investments. The Council’s investment managers pay due attention to these factors in the selection, retention and realisation of investments. The Pensions’ Committee monitors and reviews investments on a regular basis and that includes taking account of the wider social, ethical and environmental considerations. For example, the Committee is currently reviewing its policy on fossil fuel investments.”
17/10/2016 Rushanara Ali, Labour Party MP for Tower Hamlets – to request information on her response to the new regulations and guidance, and intentions in this regard.
No response as yet.
17/10/2016 UNISON – to request information on their response to the new regulations and guidance and their intentions in this regard, particularly given their previous guidance to members including on pension fund engagement and divestment in the context of Palestine.
Key points from UNISON’s briefing for for members on their response and intentions are:
- Despite almost universal opposition by respondents to a government consultation on the draft version of the new regulations (over 23,000), the government has gone ahead and given itself unprecedented powers of intervention, with the demand that investments must not breach UK foreign policy.
- But pension investment funds sole purpose is to provide benefits in retirement; they are not there to further the interests of UK government foreign policy.
- UNISON is taking legal advice on whether the new guidance specifying that funds “Should not pursue policies that are contrary to UK foreign policy or UK defence policy” breaches UK and EU law.
- The attempt to impose foreign policy on local government pension schemes breaks fiduciary principles that consideration of members’ interests must be paramount (the ‘duty of care’).
- Issues around fiduciary duty are even more important now that the government has announced that local government pension schemes funds must now be pooled into a small number of ‘British Wealth Funds’, each over £25n in size.
- Unfortunately the plans do not require that these giant funds must invest in the interests of the members.
- In this January 2016 press release UNISON explain why they consider these giant funds may be risky. “Making pension funds plough their assets into the latest government initiative could very well mean poor returns for workers in the LGPS pension scheme. Funds should not have to risk gambling away their members’ retirement incomes by subsidising an infrastructure project that should be funded from government coffers or by the private sector.
17/10/2016 Campaign Against Arms Trade (CAAT), a a UK-based organisation working to end the international arms trade – to request information on their response to the new regulations and guidance.
CAAT have been opposed to the changes since they were originally announced. They have worked with groups affected by the changes and will continue to do so. The articles below provide more information.
CAAT article for Red Pepper magazine, October 2015
Al Jazeera article which CAAT were involved with, February 2016
17/10/2016 ShareAction, a charity which exists to “make investment a force for good” – to request information on their response to the new regulations and guidance.