Defined contribution participants should be able to finance social impact projects in the U.K. through the introduction of social investment funds as options in their plans, said a new report.
The report, published by think tank Social Market Foundation and social investment-focused financial firm Big Society Capital, calls for the introduction in the U.K. of these investment funds, which the report calls social pension funds.
These funds would finance projects including social housing, rehabilitation initiatives and environment-related projects, the report said.
“Good Pensions: Introducing social pension funds to the U.K.,” cited the estimated size of DC assets, which are expected to grow to about £600 billion ($941 billion) by 2030, as evidence that these assets could be targeted as a source of social investment capital. “As the DC market grows, further exploration of the potential for social investment in the DC sector is needed,” the report said.
It outlines the major barriers to introducing these funds in the U.K. that would need to be overcome: inertia, liquidity and the scale of money managers.
The report also examines France’s Solidarity Investment Fund as an example of how social pension funds can work. The fund has €4.6 billion ($5.2 billion) in assets, of which 10% is invested in social organizations that deal with housing, employment and environmental issues. The remaining 90% of the fund is invested according to environmental, social and governance criteria. The report recommends that this approach be replicated in the U.K.
Retirement funds “comprise huge reservoirs of capital,” said Nigel Keohane, research director at the Social Market Foundation, and author of the report, in a news release. “Putting these to productive use within the social sector has never been more important given further reductions in government funding. But with people increasingly wanting to see positive social as well as financial returns, this could also be a route to encouraging people to save and creating the savings culture that the chancellor (of the exchequer) has called for.”
The report is available on Social Market Foundation’s website.