Pension funds ‘must help create a world people want to retire in’

Pension funds are starting to think they have a duty to look after their members in old age, not just give them a big pot of money, the head of pension investments at one of the UK’s biggest funds has said.

Scottish Widows’ Maria Nazarova-Doyle said there is little point giving someone a massive payout when they turn 65 if they need to spend it on mitigating the effects of climate change.

Traditionally, pension funds simply focused on getting the highest returns for the lowest levels of risk, she told the PA news agency.

But today “more and more pension schemes are starting to understand that pensions don’t exist in isolation”, she said.

“If you have a large pension pot, but you have to spend it on hazmat suits and flood-proofing your property in retirement – then what’s the point of a large pension pot?”

The world needs to be a “place people want to retire in,” she said.

The UK has set a target of slashing its emissions to net zero by the middle of the century and pension funds will have to step up to be part of the effort.

Earlier this year, the All Party Parliamentary Group on local authority pension funds said pension funds should engage companies on how to transition to net zero in a fair way.

“Funds should ensure that collaborative engagements on climate change include a just transition as a central theme for discussion,” the paper read.

Experts believe that by unlocking the UK’s pension funds and putting them towards the net zero transition, it can rapidly encourage companies to change their practices.

There is some evidence this is already happening. Following shareholder pressure, not least from pension funds, oil giants Shell and BP have set out plans to get to net zero by 2050 in the last couple of years.

The power can also lie with the individual. By choosing where to invest their pensions, savers can have a major impact.

One study by Swedish bank Nordea found that moving pension savings into sustainable funds can be much more effective than normal carbon-cutting measures.

Switching your pension is 27 times more effective than shortening your showers by two minutes, taking one less international flight per year, ditching your car and taking the train and only eating one piece of meat a week.

Ms Nazarova-Doyle said there are two ways that the funds can work towards slashing emissions: “On the one hand it’s about finance flows: Where do you invest the money, what do you actually support and what do you not support.

“But also it’s about stewardship. So, once you have those investments you have voting rights, and you can engage with companies, you can use your shareholder power to engender real change.”