PLSA Investment Conference tackles big risks and sin stocks

PLSA Investment Conference tackles big risks and sin stocks

Pension schemes across the country are attempting to become self-sufficient as funding crises threaten to strike those offering defined benefits, heard attendees of the Pensions and Lifetime Savings Association (PLSA) Investment Conference in Edinburgh this week.

Speaking on the topic of the next big risk was Elizabeth Fernando, head of equities at the Universities Superannuation Scheme (USS), which is currently at the centre of academic staff strike action, amid attempts to end the defined benefit element of its members’ plans.

Fernando cast defined benefits in the role of biggest risk, as they need to be “sustainably maintained”. USS has a deficit of approximately £7.5 billion and the cost of funding current benefits has risen by at least 11 percent, prompting calls for a change.

“[For USS], risk is about not delivering investment returns that will pay for scheme benefits,” she explained.

David Adkins, head of investment strategy at Lloyds Banking Group, said that the trustees of its three pension schemes want them to be self-sufficient by 2030.

Adkins went on to say that longevity risk must be dealt with before self-sufficiency can be achieved.

“If you want to call yourself self-sufficient in the future, you’re going to have to address longevity risk,” he said, adding that insurance was one way of achieving this.

Former deputy prime minister and MP Nick Clegg discussed how far financial services have come in the decade since the financial crisis of 2008.

He predicted that the fierce reaction of the UK’s coalition government—of which he was a part—from 2010 onwards, and as well as those of the major economies around the world, have seen to it that banking no longer poses a significant risk.

Clegg went as far as to argue that banking regulation might have gone too far and unintentionally pushed risk elsewhere. This means that the next financial crisis might strike from an unknown source.

Environmental, social and corporate governance (ESG) factors were a strong topic of debate at the PLSA Investment Conference, with speakers disputing their importance to investment strategies.

Christopher Snowdon, head of lifestyle economics at the Institute of Economic Affairs, doubted whether divesting of sin stocks such as tobacco would do anything for a pension fund other than cost it money.

“I don’t think a sell off would have a significant impact on demand for a product,” he said, arguing that the fundamentals of the company would remain.

He also argued that it would be “unethical” for public pension funds to divest themselves of sin stocks, because the missed revenue from what tend to be outperformers would have to come from taxpayers.

Mark Fawcett, chief investment officer at NEST, disagreed, pointing out that NEST had divested itself of cluster munitions manufacturer stocks due to ESG factors, and secured assurances from one that it would stop making the offending products.

“Maybe engagement does have an impact on the behaviour of companies,” Fawcett countered.


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