Hello, I am Iona Bain, and welcome to another episode of A Little Bit Richer. Today we're going to find out what happens to the money you invest into your pension. Where does this money get invested so that it grows for your retirement? And how is some of that money being used for a greater benefit, not just for
us, but our community too? From regeneration projects with the local council, youth health technologies, and affordable housing, there are many tangible ways our pension money can be used to help build better and healthier communities for generations to come. Here with me to discuss all this is Pete Gladwell,
who oversees social impact investment decisions at Legal &; General. Now, as part of his role, he works with local councils, government, universities, and their advisors to decide where money saved into people's pensions can be used for wider benefit. Welcome, Pete.
Thanks, good to be here.
So let's start with the basics. What happens to the money that I put into my pension?
Well, typically what happens is that money is brought together with millions of other people's pensions and it's invested into funds. And that can be very simply invested into buying shares in the biggest companies in the UK, the FTSE 100, so the 100 biggest companies in the UK. Or it could be invested in lending to the government, government bonds.
Or it could be invested into things that are a bit more beneficial to society, and I think that's one of the things we're going to talk about today.
Okay. So my pension money is being invested in all sorts of stuff, including stuff that is out there in the world doing positive things. And that's where social impact investing comes in.
Yes.
Break that down for me. What does that mean?
So I think first and foremost, we've got to remember that pensions need to be a source of financial security. So social impact investment isn't about giving your money away to good causes. It's not a charitable thing, but it is recognising that your pension can be a source of financial empowerment for you, but it can also empower other
people. It can change people's lives for better. It can change towns, cities, even drive whole countries' economies to greater success. And so-
Because it's such a massive amount of money that we're talking about here.
Exactly. You're talking about tens of billions of pounds. And when your pension is brought together with everyone else's pensions, that can be a real force for good in society. As I say, it's also about making a really strong financial return, but it's trying to get that flow of money going back to improve people's lives as well.
Sounds fantastic, but how does this actually work in real life? Hit me with some examples, Pete. What can you bring to the table that shows that this actually can work?
So this isn't just something that Legal &; General does. It's really important to say it's something that lots of pension providers and managers are trying to do more of. But at L&; G it's something we're really passionate about. So even 11 years ago, we invested in 4, 000 affordable homes, and that provides safe, secure, affordable housing for people,
obviously improving their quality of life. But it also provides really strong stable income that we can use to pay people's pensions and provide that financial security for people. Then you've got big city centre regeneration schemes, where there can be whole areas of towns or cities that haven't had
the investment they need for decades in many cases. We're looking at how we can reinvest people's pensions and savings back into those places to create economic growth, but also meet the needs for that city in this decade, which will be very different to what they were 20, 30, 40 years ago.
So how do you assess what projects to take on, and how do you pull together the partnerships to make these happen?
That's the kind of secret sauce, that's the difficult bit. Because you can't really do it just sat in an office in the city in London and think somehow I'm going to know what needs to be invested into in Sunderland, so yeah.
Yeah. I can imagine that a lot of people have to be involved in that decision- making process.
Yeah, absolutely. So that's why it's really important to spend a lot of time engaged with local communities, local authorities in particular often, really good guides as to what the place needs. They will have understood what could really drive local economic growth. What's the need? Is it affordable housing? Is it housing for rent or is it housing for key workers? Often people like a local authority or a combined
authority will have a good picture of that. And then, as you say, it's about creating the right partnerships that enable pensions to be invested to meet that need locally.
Can we just dig a little bit more into what that looks like, who else you might be partnering up with to make these kind of projects happen?
That really depends on the need locally and once we've worked with community groups or local authority or combined authority to understand the need. Sometimes it will be a local developer. For example, Cardiff is a city where Legal &; General, for example, has invested hundreds of millions of pounds in a partnership with a local developer. But sometimes it will
be working with local businesses. For example, we own a lot at the centre of Poole and we've been working very closely with local businesses there. We've been providing them with space so that they can grow and really bring vibrancy to that high street. It's just really important to stress that makes it a more attractive financial investment for us because we've got more people in that high street.
It's more vibrant. We're working with the local NHS trust to provide better primary healthcare there, but it also meets the needs of the local community and is working with those partnerships. And so, those are L&; G examples. As I say, other investors and providers will have other examples, but it's that working with the right type of partners to meet that need to create the social impact that we want to have.
How do you help the community have that sense of ownership and not feel that something is being imposed on them without their say so?
First and foremost, I've got to say I'm a big believer in local democracy, so we will very purposefully and intentionally engage with local leaders and politicians. But it's really important to understand the breadth of lived experience and views within different communities. And so, that can be anything from going out knocking on doors to going and doing exhibitions in kind of the local hole, or even using a
lot of tech. Now we can use tech platforms to engage in different languages so that when local people are browsing a social media platform, they have the opportunity to engage with what we're thinking about the local regeneration scheme. And again, we're trying to make sure that it's not just about any kind of tokenism.
Yeah, I can imagine there is a big difference between just ticking that box and saying, " Yep, we had an event in the community and that's it, job done." But actually getting people to buy into it and feel excited about it and feel like they want it in their area, that is the true measure of success.
Yeah.
That's good to know. So you've spoken about how this isn't charity, this isn't just doing nice things for the community. This is about also bringing in an income for pension scheme members. How do you ensure that these are actually solid investments for people's pensions?
That's the fundamental point of the job, is to cross those double hurdles. But it's tempting to think of the two as competing and as to think, " Well, we are either doing as much good as we can or we're choosing to make us a long- term financial return." And actually, if you find the right projects to meet that need, to be the investor in that project, you can
see both achieved. So for example, I mentioned affordable homes earlier. That can be a really exciting investment for someone who's looking for a long- term stable income, because we know that there will be a long- term enduring need for affordable housing in many regions around the country. Now that's great if you want a long- term stable income. But actually on the other hand, let's say you're looking
for shorter- term returns. We do a lot of work with universities, for example, and they have some really exciting startups that might be new health technology companies. So you're investing in a company. It's probably going to mean in the next few years whether you find out whether it's a real success or not. It's the same principle where you're identifying
that company could meet a real need in society. That health tech company is doing something really innovative that could improve thousands if not millions of people's lives. So we're going to invest pensions and savings in that health tech company. It's higher risk, it's shorter term, it's a different type of return from investing in affordable housing, but it can generate a really powerful social impact. Does that make sense?
That makes total sense.
Yeah.
And actually, it's really interesting that this isn't just about solid worthy projects. It's also actually about anticipating what we will all need in the future.
Yeah. It comes out of a partnership we have with a university; then we can really understand the exciting technology that's coming out that could benefit society and start to invest in those startups again. So it is about getting away from the desk and building those partnerships to understand the social need better.
So how do you track and monitor the progress and the impact of these investments? What targets do you have for these kinds of projects?
What we try to work through is a really clear theory of change, we call it. So how is this investment going to make a difference in society or in someone's life or in a place?
And this is known as theory of change.
Yes. How does the money translate to the impact and the outcomes, often social but sometimes environmental outcomes, that we want our investment to deliver. Just to pick an example of one we've done, when we worked with Newcastle City Council and University, we invested tens of millions of pounds in the centre of Newcastle to create this really exciting startup space for spin- outs coming out of the university.
And it's a whole ecosystem there. But we worked with them really closely to understand what would success look like if we invested tens of millions of pounds into that project? What difference would it make to Newcastle? Off the top of my head, I can remember 30, 000 tonnes of CO₂ saved was one of the specific outcomes that we identified we wanted to
try and drive through that investment. There'll be jobs, there'll be economic growth, there might be new research, impact on health inequalities. You can see the impact specifically that your investment is having in places.
Something topical at the moment is how do we solve the problem of growth? How do we get our economy growing? Do you think that this could be part of that solution? Because pension funds have been spoken about as potentially helping in terms of investing in infrastructure and driving growth in the future. What do you reckon?
Absolutely. I couldn't agree more. And it starts with a fundamental premise that is why I'm very excited to be on this podcast, which is this is people's pensions and savings. It's so easy for us as society to drift into, " That's the private sector, and this is the public sector. And it's the public sector job to do good, and the private sector job to make as much money as
possible." And this whole industry, the pensions industry, is actually about the public's pensions and savings being invested into things that drive economic growth and improve places. Now, infrastructure is a fascinating example of something that actually can generate a really stable long- term return. People will continue to use a train line or a doctor surgery. People's pensions and
savings could be deployed to help drive that growth. Housing, key worker housing, the NHS is in huge need of investment as well. So for me, a lot of this comes with having that shared mission, being clear on what we're trying to drive as a country, and then finding the right types of investment to meet that need. Sometimes it will be taxpayer money, sometimes it will be people's pensions and savings.
So when I'm automatically enrolled into a workplace pension, where does my money go?
So typically, your pension provider will put you in something called a default fund. And the whole aim of that is to provide something that is a good solution for the majority of people. That tends to be where your money starts. And then, you can look more deeply into, " Well, what is that actually being invested into? Is that stocks? Is it shares? Is it corporate bonds? Is it property?
And if it's stocks and shares, what kind of companies is my pension being invested into?" And then, that gives you the opportunity to consider if it's aligned with your values and if it's the kind of things you'd like your pension to be invested into.
But that default is required to meet a standard that will work for everyone. Right?
Yeah, it's often a pretty good starting place, pretty good solution. It's definitely great to have your money invested in a pension fund.
Better than nothing.
Yeah, much better than nothing. I think the point of this discussion is thinking about the impact your pension can have. So often you can enhance the impact of your pension by considering other options. There's costs to be considered if you move your pension from the default to something else. So it's worth carefully considering that decision and certainly
not doing it all the time. But the default's been designed to be a great starting place for the majority of people.
So how do people actually find out information about what their pension is invested in? Because I can imagine people might feel a bit daunted at that task and think, " Well, where do I go?" Where is this information?
So you should be able to go on your pension provider's website or an app and log in there, and you can then look and see what mandate you've given them. Have you told them to invest in all of the companies in the FTSE 100? That may be the default setting. Have you asked them to invest in an ethical
fund or commercial real estate, for example? So you can dive in, and typically you can look at the funds and the fund fact sheets and get an idea of what your pension is actually being invested into.
So it's the fund fact sheet that we should look out for that's going to give us some of that helpful info that we are looking for.
Yeah. Yeah. Yeah. And then as well, you may find that there's a service called Chimelo, which gives people the opportunity to get more details on when your fund money is invested into it. So some providers will provide you with that option as well. And so, you're using that combination of things
to work out where your pension is currently going. And then, you can think about, " Well, does that align with my personal values of the companies I'm seeing on this fund fact sheet, companies that I want my money to be invested into?"
But shifting your money around isn't cost- free, I assume.
So it's not something to be done lightly. You may need to take some advice on whether that's the right decision for you. But the first step is just getting informed. Where is your money being invested? And then thinking, " Am I happy with this?" And then, as you say, it's something to consider whether you want to move funds within that platform, if there's any cost to be incurred
by doing that. And you don't want to be moving your money around every day or every week.
No, no.
Not at all.
And I imagine that a lot of pension providers now are trying to make that default fund, i. e., the one that most of us will just be automatically put into, they're trying to make those default funds more socially responsible. Is that process ongoing?
I think the industry generally is becoming more cognisant of the impact that it has. But again, you've got the power to change the industry. Where people put their pensions
is what the industry then moves to accommodate. So if you have lots of people telling their providers, " I don't want to be invested in these sectors, and I really care about these things," then providers like Legal &; General and others will start to create funds for you to invest
in those. So even within your choice, you can affect what the industry does in future and affect that trend in the industry towards being more considerate of the environmental and social impact of the billions of pounds of money that we steward.
Brilliant. So finally, Pete, what are your three top tips for anyone who wants to learn more about social impact investing?
Yeah. Well, the first one, we've covered it but I can't stress it enough. Your pension does have a power. It can have real impact. It is worth thinking about who you're entrusting your pension pot to. Because when it's combined with millions of other people's pensions, it starts to be a game- changing, a town- changing, a city- changing, a country- changing amount of money.
Oh, I like that. That's great.
It's true. I think the second one is identifying the need for investment in society. So making sure that whoever it is who's stewarding your pension, they're thinking about the needs for investment in places, but also what the right
type of investment is to meet that need. So we discussed this earlier, but just to try and put some meat on the bones, it's about making sure that if you're looking for a long- term stable investment, you might be thinking about lending money to the government. That's very long- term, very secure, where you could also be investing in affordable housing. If you're thinking about something short- term, then
you might be investing in health and tech startups. Those are just two examples, but it's about meeting the social need with the right type of money. And I can't advise people on what the right type of manager is or the right type of fund for them. That's why you've got pensions advisors. But it's that understanding of what's beneficial for society, but also your own stage in life.
Mm- hmm. Because we've spoken about the fact that it doesn't have to be one or the other. It can actually be a win- win if you get it right.
Exactly. And actually, my personal thesis is you could potentially get enhanced financial returns if you're investing in things society really needs. And that's where it gets really exciting. And then lastly, we talked a bit about this, but making sure your pension aligns with your own beliefs. That could be
religious beliefs, it could be personal beliefs. So looking at what your pension is actually invested into at the moment, is that aligned with your own beliefs? And then thinking if it isn't, about how you can move it to something that is more aligned. As I said, at the time you need to think about the charges you might incur, but it's still worth considering. Get advice if you
need to. But that's a really good way to make sure that your money, including your pension, is empowering the right types of companies, the right type of investments, and not ones that you fundamentally personally disagree with.
Great. Okay. So I can summarize those tips as understand the power that your pension has. Get informed about whether your pension is indeed doing social impact investing. We've talked about what you think that should look like today.
Yeah.
And thirdly, make sure that whatever you are investing in is aligned with your own values. And if you're not happy, then speak up and make that change.
Yeah.
Have I got that right?
Perfect.
Oh, good.
Thank you.
Excellent. All right.
My job here is done.
Thanks very much, Pete. So interesting to hear about all the ways that our pension money is being used for good out there in the world. We're going to come back to the topic of pensions, including the big debate, property versus pensions. But in the meantime, I'd love it if you could follow the podcast, leave us a review, and help others get a little bit richer too. You can keep up
with the show on TikTok, Instagram, and YouTube. Follow us at Legal &; General. Thanks for listening. Until next time, see you soon.