Independent trustee and governance services provider PTL has warned that the industry should proceed “with caution” when it comes giving members the illusion they have voting rights on shares in their pension scheme.
The warning comes as Legal & General Investment Management and Avivaare rolling out new technology from fintech start up Tumelo, allowing scheme members to vote on shareholder resolutions. After a successful pilot it is understood that LGIM is introducing this technology with around 40 schemes.
Technology like Tumelo is being used to engage scheme members on a range of issues, particularly relating to environmental, social and governance (ESG) issues, such as climate change.
But PTL managing director Richard Butcher, who is also chair of the Pensions and Lifetime Savings Association, says that while such technology can boost engagement there are potential downsides which are not always fully acknowledged.
Members could become disllusioned realising they cannot make huge differences, and this could lead to them opting out of pension savings he warned.
“Much is being said around voting at the moment, not unsurprisingly given the vitally important role trustees have to play in stewardship and the AGM season upon us. However, when it comes to giving members a sense they have a say in those votes it becomes far more complicated and we risk creating a dangerous illusion for them.
“Stewardship is our chance to influence the companies we invest in to adjust their business to ensure they also manage ESG risk and, in the process, become more sustainable.
“But, and it’s a big but, most schemes invest in pooled funds which presents two critical challenges that are hard for trustees to overcome. First and foremost, due to intermediation, schemes rarely have ownership rights and are often several steps removed from the actual legal owner. Then there’s the issue of scale; a handful of schemes may command the attention of the managers, but the majority, in isolation, will not.”
Butcher added: “All of this means that the ability of most schemes to influence is pretty weak with the one ‘real’ power, currently, being the threat to fire their manager – and it’s debatable how effective that is.
“In these circumstances giving members a sense they can influence a vote is a wrong and creates a potentially dangerous scenario that could give rise to member dissatisfaction. In a worst-case scenario it could lead to opt outs, a potentially disastrous unintended consequence that we need to do our best to avoid.”
Butcher concluded: “Lots of work is being done on how to give trustees genuine leverage when it comes to voting, and we not only welcome but are active participants in that and it’s great to see the industry tackling the climate emergency. The key part now it to demonstrate to the members that their investments are doing good things for the world we live in – without giving them any false illusion of power.”
Tumelo chief executive Georgia Stewart has rejected Butcher’s claims, arguing that its system allows users to communicate their opinions to their trustees and fund managers. It also supports financial wellbeing and confidence and increases engagement with pensions, she argues.
Stewart says: “Responsible stewardship is how fund managers address the global challenges faced by companies they invest in. Fund managers can only invest into those companies, because pension members and retail investors – our users – entrust their personal savings to them. These underlying investors are powerful by virtue of the choices they make: whether to invest and who to invest with. Tumelo gives transparency to users; we help them communicate their opinions to their trustees and fund managers; and show them the impact their savings are having on the world around them as they grow – thanks to the voting and engagement their fund managers are doing on their behalf.
“We have seen that using Tumelo reduces financial anxiety, increases confidence and prompts positive actions like learning and consolidation from pension members who were previously disengaged. We also know that fund managers – those who are leading on stewardship – use the opinions we collect from our users to help them engage with companies in their funds and to decide what financial products they create for the investors they serve. Our solution has been extremely well received by the industry and users so far and we continue to work closely with brilliant NGOs, progressive trustees and supportive partners to create long-lasting, positive change in an industry that sorely needs it, to close the monumental savings gap.”
