Events. Remember those? I went to my first one this week since the pandemic started. It felt so good to sit once again in a room full of people. In the basement of The Ned, I listened to Otegha Uwagba discuss her latest book We Need to Talk About Money. It inspired me to write this blog post taking a closer look at generational unfairness. My latest article for Professional Pensions examining how DC policy needs to change was also published this month. And I posted a piece taking a closer look at the different styles of sustainable investing. I’m starting a new project looking at the communications difficulties asset managers and investment consultants face when they talk about sustainable investing. Please get in touch if you would like to chat.
Look forward in anger
Intergenerational unfairness is baked into the pension system. Baby Boomers working in the private sector will be the last generation to receive an income for life on retirement with protection from inflation. Auto-enrolled contributions are currently half the levels needed to provide an adequate replacement income. Pensioners are protected by a triple lock while the working age population carrying the burden of this pay-as-you-go benefit shrinks. The housing crisis has exacerbated this wealth gap and created a retirement lottery within each generation. Policy makers could make positive changes to pension policy to improve the outlook but instead they shrug their shoulders and focus on the short term.
Getting policy right for the ski slope of doom
Private sector DB pensions are fast approaching their peak and benefits will soon decline. This article explains how policy makers need to make urgent changes to DC to ensure this does not become a long term problem. Current auto-enrolled contribution levels of 8% are too low to ensure an adequate income – they should be closer to 16% to ensure pensioners receive two-thirds of their salary. While the pensions industry is well aware 8% is sub-optimal, most scheme members think this will be enough to provide them with a comfortable retirement. Auto-escalation of contribution levels should start as soon as possible to address this issue.
Shades of sustainability
Sustainable investing can be confusing as it covers a range of different styles. But this article explains how spectrum of capital as outlined by Karen Shackleton is useful tool to gain a better understanding. This represents a continuum with traditional return-focused investing at one end and philanthropy at the other. Responsible is the closest to standard investing with its focus on mitigating environmental, social and governance risks. Sustainable − a style as well as my preferred umbrella term for this type of asset allocation – focuses on providing a positive outcome for people and the planet. Impact-driven aims to improve the lives of underserved people by linking investments to the UN’s sustainable development goals.
New project alert!
It’s not just that sustainable investing is a confusing concept for many investors, there’s also a communication problem. The approach of asset managers and consultants to this philosophy is often not clear to asset owners. I’ll be reaching out to my contacts to get a clearer picture of how they think about sustainable investing. After some research, I’m aiming to produce a one-page slide with some simple steps to help asset managers and investment consultants to talk more clearly about these ideas. If you would like to chat to me, please get in touch!