Americans don’t save for retirement as much as they should. Mandatory programs run by states or the federal government, such as the Saving for the Future Act, could boost their retirement savings and, through economies of scale and default investments, boost the return on those investments. Opt-outs could be added to the program to satisfy objections to compulsory savings or the requirement could be placed on employers instead. It’s the retirement savings equivalent of a Medicare-for-All proposal, with the same kinds of promises of efficiency.
It all sounds so simple – so why am I so ambivalent? I’ve shared some of my concerns in the past (e.g., risks of corruption, high administrative fees for small accounts, lack of a single “right” savings rate for everyone), but a new survey and a news item brought the issue to my attention again.
The survey comes from the UK, and a company called PensionBee, which provides the UK equivalent to IRA/401(k) rollovers, and was released in late January. It asked customers in its largest pension fund, an “auto-pick option,” for their opinions on the so-called “environmental, social and governance” issues in investing, and found that:
“Over 80% of consumers want transparency about which companies their pensions are invested in, along with information about their business activities. More than half of respondents across all age groups would prefer to balance making money with creating positive social outcomes, while a further 16% of all respondents would advocate for entirely removing companies that focus solely on profit at the expense of social outcomes.”
Among specific “social” issues, 35% don’t want their retirement account invested in tobacco companies. 15% object to oil company investments, and a further 63% want an “engage with consequences” approach (this is not defined but one imagines this refers to the fund manager pressuring the company in one way or another). 61% object to companies involved in “banned weapons” (remember, this is the UK, where handguns are banned and rifles require proof of a “good reason” for ownership, such as sporting use). And 65% wanted their pension providers to be activist investors, either privately (33%) or through public voting (32%).
Is this right or wrong? I’m all for investors choosing to make their investments based on a higher standard than merely that companies follow the law. But this choice should be left to the individual — after all, there is hardly a uniform consensus on what standards “ethical investing” should follow. (Consider Chick-fil-A and its funding of the Salvation Army: does “ethical investing” mean divesting, or intentionally choosing to support them?) And this means that the one-size-fits-all approach of a nationwide IRA is not the right answer.
The news item?
Also from late January, for example, in this Reuters report: “New York State pension fund puts 27 coal companies under review.”
“New York state’s top pension fund official said it was reviewing whether to divest from 27 coal companies and could make decisions on $98 million in holdings within two months.
“The reviews by the third-largest U.S. state pension system, with $211 billion under management, could set the tone for other retirement plans facing public concerns about climate change.
“New York State Comptroller Thomas DiNapoli in an interview on Tuesday said his office began reaching out several weeks ago to companies with at least 10% of revenue from thermal coal, or coal burned to produce electricity.
“The pension fund sent letters asking how much they are spending to move away from coal burned to produce electricity, how much of their revenue stems from low-emission technologies, among other factors. He declined to estimate how many companies might be excluded. . . . ”
If that name sounds familiar, that’s the same individual who previously used his control over New York State pension assets to attempt to push General Motors to make concessions to striking workers.
And, yes, you can probably guess where I’m headed: would a national IRA give politicans a bigger pot of money with which to grandstand and try to drive their preferred public policy?
Which means that, however much promise those proposals hold, I’d still prefer to find another solution.