Does auto-enrolment create a new dynamic for shareholder activism? Share Action’s Catherine Howarth thinks so. John Greenwood hears why
For years pension scheme members in the UK have shown low levels of interest in responsible investment issues, when compared with other countries around the world. But for Catherine Howarth, chief executive of pressure group Share Action, auto-enrolment presents a massive opportunity to extend the scope of activism and at the same time engage members of the public with their pension investments.
The last couple of decades has seen specific issues taken up by pressure groups and backed by the media – Ros Altmann’s campaign for the ASW scheme members, Gina Miller’s work on opaque pension charges.
Howarth believes that auto-enrolment’s creation of literally millions of new shareholders can prove to be a catalyst for a new dawn of shareholder activism, giving millions more people a say in the way pensions schemes invest their money, and create a new voice in the workplace pensions sector.
“One of the interesting things about auto-enrolment is that you are putting in a lot of people at the base of the pyramid of wealth and putting them into this system as direct share owners. So that potentially creates space for debates around issues that people see on the TV to flourish in an interesting and hopefully constructive way,” says Howarth.
For Howarth that doesn’t just means tapping into scheme member interest to get issues such as executive bonuses, the living wage, climate change and child labour further up the corporate agenda. She also sees Share Action’s role as shaping the structures in which pensions operate to ensure that shareholders’ interests are best preserved.
This drive has led to a number of apposite interventions into the debate around Independent Governance Committees (IGCs) that will sit within contract-based schemes and questioning of the true independence of commercially-run master trusts.
Howarth, who has spent five years as a member nominated trustee of The Pensions Trust, is particularly critical of the IGC structure currently on the table. “Previously there has been nothing – a complete vacuum within providers in regard to looking after the interests of a large number of financially illiterate people who will depend upon these products for their old age. So IGCs are a hell of a lot better than nothing,” she says. “But the government’s professed policy objective is to have governance standards that are equally good on the contract-based side of the market as are on the trust-based side. And they are nowhere near that with these IGCs,” she says.
Howarth does not share the view from some corners of the life industry that it is trustees who have a free rein, while insurance companies have always had to operate within the framework of FSA and now FCA regulation.
“There is no proper fiduciary duty with IGCs, which are only advisory. And one of the things that is as yet untested is whether, when they do make recommendations, to shape up and improve aspects of the product design, that they have any clout to impose it. It is really unclear what powers they have,” she says.
“We also think the proposed membership of these committees – which are called independent, but two out of five members can be employees of the insurance company and the other three will all be appointed by the provider – should be truly independent. We like the idea of someone having skin in the game, someone with an interest in how the scheme is run, having a voice on the committee.”
Howarth does have a similar level of mistrust of commercially-driven master trusts. “We are quite concerned about master trusts, which is the new very important kid on the block. They are being set up by commercial providers in most cases. And trustees are being appointed by those commercial providers. Trustees of a regular pension scheme can say we have no confidence in this fund manager, so we would like to move. But under these master trusts the managers have been put in place by the commercial provider and I have no confidence the trustees will move the investments to a different manager to protect the interests of the members,” she says.
“We simply do not have in the newly emerging pension fund structures the same ability to act independently and scrupulously in the best financial interests of the members, in the way that we do in the trust-based side of the market. Occupational schemes move money around and that is vital for keeping the asset management industry on their toes, because they know they can be substituted,” she says.
One recent success for Share Action is getting the Legal & General master trust to hold what is believed to be the first AGM for a master trust.
“Hardly anyone turns up to them, but the great thing about AGMs is that it is often the member of the public, the retired accountant who reads the annual report from cover to cover, that asks the really pertinent question.
“We are really chuffed that L&G responded – which is to their credit. I put the idea out there and one of the trustees came and said they would like to take it forward,” she says.
It is hard to see how providers could argue against AGMs for pension funds, given their relative low cost, increased transparency and the golden opportunity to engage with members that they present. But Howarth reports others are slower in coming forward.
“We are having to do a bit more work to get others to come on board, although to be fair we haven’t had a significant campaign on this yet. But over the coming year we will be having a lot more conversations, and present it as an opportunity,” she says.
She would also like a IGCs to also have AGMs. “We think the AGM should not just be the IGC but also senior representatives of the pension provider, because otherwise questions from the membership might end up being deflected to someone who is not there, weakening the meeting,” says Howarth.
While she has little time for the complaints of pension providers complaining at the restraints they are being put in, Howarth is not, perhaps surprisingly, a charge cap zealot.
“I am not gung-ho for the charge cap. It is a regulatory knee-jerk reaction to shocking historical over charging. What would be much better would be to have better governance in these schemes. And if we had complete confidence that the people running these schemes had the skills and knowledge to make smart decisions in a completely unconflicted way. And if they thought spending more was in the interests of members, then great. But we have to have the charge cap at the moment because of the governance vacuum,” she says.
Share Action, which was formerly known as Fairer Pensions, is funded by charitable foundations and philanthropists. “They fund us because they think there is a genuine public interest in having an organisation that keeps an eye on these things. For pension savers it is important that the market operates well and it is incredibly rare in civil society to have organisations that look at this, as it is quite technical stuff,” she says.
One of the issues with corporate social responsibility has always been the fact that one person’s sin is another person’s pleasure – not everyone has the same view of what is ‘right’ or ‘wrong’. So how does Share Action determine which issues it should champion?
“Most pension savers have a very sensible view on this, which is that they don’t want to exclude loads of investments on ethical grounds. Historically the so-called ethical screened funds have been crude, in that they have stripped out whole sectors for simple reasons that these sectors were considered sin stocks. And actually if you survey people these days, people are not bothered about alcohol, for example. We haven’t seen ethical funds keep pace with what people’s perceptions of ethical are.
“When you survey members about this you find people are really interested in human rights, labour rights and child labour. We believe the people that run the funds should be doing consumer surveys to be certain that the screening criteria reflect the views of the investors,” she says.
And where does Share Action sit on the debate over whether pension investments should try to engineer social change or go all out for investment returns?
“I think Nest has a good nuanced perspective on this. When it comes to thinking about stewardship, and the way they can encourage sustainable wealth creation, and I mean that in every sense, I think they have a very strong responsible investment policy, and aligning their policy with their members’ interests.
Howarth sees a natural fit with the new auto-enrolment scheme membership, which includes many people on minimum wage, and the battle over low pay. “We are working hard on the living wage. When we started there were only two companies in the FTSE100 offering the living wage across UK operations. There are now approaching 20, with another 30 firms engaged with the discussion and thinking it over. And we are meeting the CEO of a major FTSE100 on Monday to talk about just this,” she says.
All about Catherin Howarth
– Joined ShareAction in July 2008, having previously been the founder and lead organiser of West London Citizens. Earlier in her career she was Senior Researcher at the New Policy Institute.
– A board member of Green Alliance.
– Formerly a member nominated trustee of The Pensions for five years until Spring 2013. Served for four years on The Pensions Trust’s investment committee.
– Named a ‘Rising Star of Corporate Governance’ by Yale University’s, Millstein Center.
– Recognised by the World Economic Forum as a Young Global Leader in 2014.
– First Class BA in Modern History from Oxford University and an MSc in Industrial Relations from the London School of Economics.