By Ewan McGaughey

The quality of democracy in our economy depends on the governance of capital, but Europeans are still deprived of real voice over their retirement money: the single biggest source of capital in the 21st century. This paper outlines three major problems facing EU pensions: precarious retirement, escalating inequality, and mounting climate damage. These problems start with the places where we work, the institutions that control our retirement savings, and the votes on shares that come with them. The central argument is that pensions will only be sustainable once they are democratically, prudently and loyally governed. First, member states have wide experience with co-determination in capital funds, which can inform the basis of minimum standards in EU law for ‘pension fund democracy’. Second, a growing number of investment rules draw upon member states’ fiduciary duties, and standards for prudence or care, but these do not yet codify the requirement that beneficiaries’ environmental, social and governance preferences are followed. Third, votes on shares, bought with pension fund assets, are still being cast by banks and asset managers who manage ‘other people’s money’. This is a serious problem because banks and asset managers have interests that systematically conflict with the ultimate investors: they vote in companies on other people’s money, and at the same time sell financial products, like pensions, to those companies. The problems are soluble with careful amendments to existing policy, to ensure elected representatives of pension beneficiaries are the sole determinants of voting policies, with prudence, and no conflicts of interest. A draft EU Directive, based upon emerging best practice, is proposed.

Source: SSRN