Payday loan pension scandal? Disinvest or engage?

I have been very critical about the Social Housing Pension Scheme (SHPS) on their decision to raise contributions to the scheme for what I think are "artificial" deficits.

Yet I think that industry magazine "Inside Housing" has got the wrong end of the stick about its front page story on Friday "Revealed - Pay Day Loan Pension Scandal".

The "Scandal" is that the £2.6 billion SHPS invests less than 1% of its money in rip off Pay Day loan providers as does the Cheshire Local Government Pension Scheme (LGPS)

My view on this are similar to the post I made about the similar pickle the Church of England Pension fund found itself in last month.

Pay Day lenders have "despicable business model based on ripping off its vulnerable customer base but hey, "welcome to capitalism", this is what happens when you get poor corporate governance of a company coupled with wholly inadequate state regulation.....engagement by responsible investors with the companies they own is key".

Pension Scheme trustees have a fiduciary duty to run funds in the interests of beneficiaries.  They have an obligation to take advice from their professional advisers on where they should invest beneficiaries money.

To ignore this advice there is very slippery legal and practical slope if you decide to call for disinvestment on "ethical grounds". If you are a Muslim then you would probably want to call for disinvestment in all companies that lend money for interest (its all "usury"). So no investment in any banks or insurance companies then? If you are a vegetarian or vegan you would be unhappy in any investment in companies that take part in the production and sale of meat. So no investment in supermarkets or shopping centres?

Teetotallers would object to companies that sell alcohol, animal rights activists would object to investments in pharmaceuticals and environmentalists would not want their money in oil companies or mines. I can go on and on - but I think you get the picture.

What all pension trustees should be doing is making sure that they and their fund managers engage with all the companies that they own to try and ensure that they are socially responsible.  SHPS should be working with other pension funds to firstly in private, try and change pay day loan business models. If (and when) this fails then they should instructing their fund managers to vote out the company Board and Executive team at the next AGM.

Now, I am currently unclear whether SHPS do any engagement? I am not sure either about the quote in "Inside Housing" from Cheshire LGPS that  they do "not operate a socially responsible investment policy". Since it is clear from their statement of Investment Principles that they do (if appropriate) - and they are members of the Local Authority Pension Fund Forum (LAPFF), who are very well known for their active engagement with companies on a whole range of socially responsible investment issues.

I think that the key development in pension fund governance in recent years is the rising (not total) acceptance that you will in the long run get better returns from investing in well managed and responsible companies and that trustees have a duty as owners to try and ensure the companies they invest in act in this way.

The real "scandal" of Pay Days loans is the failure of successful governments (including Labour) to properly regulate the sector. Hopefully the next government will sort this out. In the meantime the SHPS, the Pensions Trust, the LGPS and all the Pension funds in the Community and Voluntary sector ought to be working together to bring about meaningful change in the companies they own.

Why the Archbishop is wrong over pension investing in Wonga

I think that the Archbishop of Canterbury is a decent, honourable man and I certainly support his campaign for the Church of England to help credit unions compete and drive Wonga out of the payday loan business.

It was obviously embarrassing for him to find out a day after the launch of his campaign that his £5.5 billion Church pension fund had a small investment in Wonga but I think he was wrong to call for its disinvestment.  Wonga has a despicable business model based on ripping off its vulnerable customer base but hey, "welcome to capitalism", this is what happens when you get poor corporate governance of a company coupled with wholly inadequate state regulation.

Engagement by responsible investors with the companies they own is key. If the Church of England pension fund just sells up and leaves every company it has a problem with then this will just undermine other responsible owners who may be trying to change it for the better.

According to this BBC report the Church Pension fund can already invest in companies that benefit from "3% of their income from pornography, 10% from military products and services, or 25% from other industries such as gambling, alcohol and high interest rate lenders". 

What the Church pension fund should be doing (and to be fair it does good work on this already) is working with other responsible investors in trying to challenge and change their business practices.

Engagement does have its limits. Last Wednesday evening I went to a social event run by the pension website Mallowstreet. I had a discussion with people present who support engagement but believe that fund managers should be allowed to invest in any publicly quoted company that complies with the law. I disagree. There must be the exception that proves the rule. What do you do with a company or market that engagement has just totally failed? Engagement must have some bite and as a last resort - disinvestment must be a final option. I think of South Africa in the 1980's and the worldwide Tobacco industry now.

Supporting the call for action on pay-day lending

It is the second reading of Paul Blomfield's Private Members Bill curtailing the excessive activities of payday lending companies today.



Yesterday I joined Paul and all the those calling for action on pay-day lending in Parliament to lend my support to his Bill.






Payday lenders are causing serious debt problems for so many people. Their massive interest rates, rip-off charges,

I am backing Paul Blomfield's private member bill to regulate payday loan companies

Last week Paul Blomfield introduced his Private Members Bill on High Cost Credit which aims to tackle the problems being caused by payday lenders. Paul has written the Bill in consultation with Citizens Advice, StepChange, Which?, and the Centre for Responsible Credit, as well as other MP's involved in the APPG for Debt and Personal Finance, and it has attracted broad cross-party support for

Payday Loans? Hopefully only the turkey will get stuffed this Christmas

I first saw this excellent poster in the window of the North Wales Credit Union branch in Denbigh. Check out their press release on the Christmas rip off here.

It shows up what thieves Payday loan companies are and how they exploit the poor and vulnerable.

You would pay over 4000% APR interest on a 38 day £400 loan from Wonga or 26.8% APR from a credit union loan over a year.

If you paid the £400 off over a year then you would still pay over £100 less in interest than with Wonga in 38 days.

Good luck to Stella Creasy MP and her #Sharkstoppers campaign.