UK retirement crisis warning

According to research by the specialized sustainable investment manager Gresham House, poor pension contributions put 60% of UK citizens at danger of living below average in retirement. In order to encourage more people to save for retirement, pension providers and the government need to emphasize the advantages of contributing.

Sixty-nine percent of 16 to 35-year-olds stated they would be in favor of their pension fund using a place-based impact investment strategy, according to Gresham House. Here, their funds would be put to use in businesses, properties, and infrastructure that directly deal with the most pressing social and environmental issues the UK is currently facing. For instance, food insecurity, biodiversity loss, and regional disparities.

“UK pension contributors want change,” stated Peter Bachmann, managing director of sustainable infrastructure at Gresham House. They want their money to make a difference in their community, closer to home. The younger generations’ heavy emphasis on this is hardly surprising. Their decisions are motivated by purpose, and pensions are no exception.

“To secure a good retirement, UK employees must save significantly more annually. These results give pension providers with guidance on how to achieve that goal.

Geerating a local impact

Thirty percent of respondents said they would even boost their pension contributions if they were aware that their money was being invested to have local impact. Nearly half stated that they would prefer it if the investments had a direct positive impact on the local community and the environment, respectively.

Such sustainable investment tactics are already a focus for some investors, such as Gresham House. While there are now some local government pension funds operating in this space, institutional pension providers have not yet embraced it extensively.

At present, over 50% of working-age Britons have their assets in the UK’s Defined Contribution (DC) pension market, which is the country’s most popular pension option with a valuation of over £500 billion. Redistributing just 5% of these monies to private, UK-based investment possibilities will enable nearly £50 billion in investment by 2030, in accordance with the Chancellor’s Mansion House Reforms. As a result, this may greatly boost the beneficial effect on regional projects.

“Innovative new solutions will be necessary to address our biggest challenges, whether they are societal or environmental,” Bachmann went on. These results demonstrate the need for a new strategy that addresses some of the pressing issues confronting the UK and generates returns for contributions, in line with the Chancellor’s recently announced plans to implement the Mansion House Reforms.

Attracting both public and private capital

In terms of private sector investment, the UK comes in at number 27 out of 30 OECD nations. A new strategy that incorporates place-based impact investing is required to guarantee that the nation ceases to lag behind its counterparts. This would provide robust risk-adjusted financial returns and help individuals who are saving for retirement. It would also bring investment from public and private pension funds in the UK back into the economy of the United Kingdom.

As of right now, only 31% of British Defined Contribution (DC) pension funds are invested in the UK, and the entire British pension industry owns just 2% of the UK stock market, down from 32% in 1992. In contrast, 10% of all publicly traded companies in the US are held by the top 20 pension funds. In the UK, local government pension systems (LGPS) offer a solid illustration of what may be accomplished through place-based impact investment.

Case studies

Gresham House’s sustainable infrastructure strategy (BSIF) and LGPS investments

• With portfolio businesses GoFibre (Borderlink), Wildanet, and Telcom, we are able to provide high-speed internet to over 150,000 homes in rural and underserved areas. We are on schedule to deliver 500,000 more connections by 2025, spanning the North West, Cornwall, and Scottish borders. The local regions stand to gain nearly £10 in economic, social, and environmental benefits for every £1 spent.
• Investing in Fischer Farms, which has built the largest completely automated vertical farm in the world in Norfolk, has allowed the company to expand from its first location in Staffordshire and support the spread of vertical farming throughout the UK. This platform increases food security, consumes up to 98% less water than field-grown crops, and is more than 1,900 times less carbon intensive than imported alternatives by growing leafy greens and herbs indoors in a controlled environment.
• Finally 4,000 hectares of non-arable property might be transformed into regional habitat banks (wetlands and forests) by investing in the Environment Bank, thereby enabling nature-positive financial products.