This CPP paper was published as part of the World Bank & IMF Annual Meetings 2020.

This paper focuses on the role of private pension capital in supporting economic and social renewal. The underlying thesis is intended as a provocation, containing new ideas about how and why pension capital could unlock productivity gains for developed countries while noting some of the big challenges. The paper is intended as a useful basis for debate rather than claiming to have all the answers.

Summary

The Covid-19 pandemic marks an epochal moment that must not be wasted. Our economic model is up for grabs and global finance must play a critical role in whatever is to come. Failure to invest now in a new economic model will result in more economic and social inequality alongside continued productivity and wage stagnation, all of which will further tear apart the damaged fabric of our societies.

Renewal of our social and economic infrastructure and the creation of a fairer capitalist system must be the headline aims. Renewal can be secured by finding solutions to the long run challenges of climate change, health inequalities, obsolete or low-level skills and poor quality/insufficient housing. Fairness can be delivered by a relentless focus on how companies treat their stakeholders, not just their shareholders – penalising the bad and incentivising the good.

In each of these domains, private capital has a crucial role to play – and this paper focuses on the critical role of private pension wealth. It argues that pension fund members can become the new activist citizen investors – demanding that their investments do social good. This will put institutional investors under increasing pressure to demonstrate responsible investment practices while delivering a financial return. With $32trn in pension assets, funds have the opportunity to be truly transformational – investing in the infrastructure and companies of the future and not the rentier capitalism of the past.

This change is happening, even if at times it feels fragmented and intangible. This paper outlines the potential roles for pension capital within the context of a generational crisis of capitalism exacerbated by a global pandemic.