Thursday, 22 March 2012

Where does the money go?

I recently got signed up to a company pension. I was given an appointment with a financial adviser, and presented with reams of documents to read through (if I chose - most people didn’t) beforehand. The documents were full of “tech specs” about the different pension schemes, likely growth and returns, projections of how much the pension would be worth on retirement under a myriad different conditions, financial jargon aplenty.

But there was one piece of information I couldn’t find, no matter how hard I tried: Where, exactly, were they going to invest my money?

I read through all the factsheets, found portfolios with names like “Sustainable” and “Ethical”, tried to work out what the words “Sustainable” and “Ethical” meant (short answer: they won’t invest in companies that gain more than 10% of their profits from arms dealing), went to my appointment, got talked at for five minutes about how much my pension would be worth when I retired, and the adviser was on the point of signing me up for the standard “new graduate who knows nothing about finance” package before I said “hang on a minute, I have ethical and sustainable priorities” and ey let me get a word in edgeways about what sort of scheme I actually wanted. And even then, ey couldn't really answer my question: where were they going to invest my money?

Banks like to tell you a lot about what you’ll get back if you invest with them, but they’re less keen to tell you what’s in it for them. As we’ve discovered in recent months, years even, the answer is often “quite a lot”. They’re even less keen to tell you how it all even works. And as I discovered, the answer is often “nobody knows”.

The bank will invest your pension money in whatever stocks and shares are likely to get you the best returns. They can't tell you what companies your money will be invested into, because even they don't know from day to day. This means it could be going virtually anywhere. It means it could be funding virtually anything. And the more of your money that goes into some promising new up-and-coming arms dealership, the more said dealership will be able to expand its business, and it’ll become even more promising and up-and-coming, and even more banks will invest even more of even more people’s pension pots into it, and...

In the “About Me” section of this blog, I state that I’m an anti-capitalist. That’s not entirely true. In the purest sense of the word, the non-ideological sense, I’m a capitalist.

My pension money (capital) is being loaned to businesses, who knows which, could be Vodafone, could be HSBC, could be Prudential*, and this capital is allowing them to expand their activity and make more money in turn, and they’re thanking me by giving me returns on my capital. In fact, if you have any form of savings (and I’m pretty sure most people reading this will, even if they also have a far greater amount of student debt), you’re a capitalist too. Your money, whether you like it or not, is being reinvested by your bank in whatever industries they think best. (Protip: these will be the ones that create lots of wealth for their customers and keep them from all walking out in search of a better interest rate. Conscience be damned.)
*all of these were among the top holdings last year for the pension scheme I now have; judge their sustainable and ethical credentials for yourself.

You might be the type to boycott Nestle or Unilever or Shell, or to buy fairtrade products when you can, but your money might be supporting all those companies and enabling unfair trade practices behind your back, to the tune of a lot more profit than you're withholding from them with your consumer choices. Even if you’re not the type to do any of those things, your savings money is probably one of your greatest sources of consumer power. If you’re investing it blindly, concentrating only on which investments will get you the highest returns (which is the only thing banks encourage you to concentrate on), you’ll gain marginally more interest, sure. But you’ll be contracting out your (small but significant) individual power to another much bigger, much more powerful entity - which can use your power, combined with everyone else’s power, to do basically whatever the fuck it likes.

Then again, once you start thinking about this, you realise that actually you do have a small but significant source of power which you never really thought about before. And that’s where being a capitalist becomes fun.

Around the same time as I was badgered into getting a pension of questionable ethical credentials, it was beginning to dawn on me that, for the first time in my life, I had regular income in excess of my outgoings. As a hopelessly naive idealist with a fuckton of middle-class guilt an aspiring young ideological anti-capitalist with a social conscience, I wanted to dispose of the disposable portion of my income responsibly. Giving to charity is what usually comes to mind for people of that inclination; microloans are another canny idea that’s been floating around my social network.

But what I was really excited to learn was that there are banks, proper banks, that offer a limited but functional range of common or garden personal savings products, and only invest your money, transparently, into sustainable, ethical, socially positive industries and charities. That way, once the capital’s been used to help one loan recipient get one project off the ground, and they’ve paid it back, it can be reinvested in another project, and another, and another... Why just give your money to charity when you could invest it in charity as well?

We're currently halfway through Move Your Money Month (okay, more like three-quarters - I'm sorry, I had a busy March...). The campaign is designed to harness the collective hacked-off-ness of everyone outraged by the recent (and not so recent) banking scandals, encouraging them to show their banks who really holds the (small, but collectively very significant) power, and vote with their feet, moving all that lovely capital to a more ethical alternative. Ethical Consumer, which has detailed reports on many companies' social and environmental impact but unfortunately charges a subscription fee to access them, has even joined in by giving free access to their Banking Special Report until the end of the month.

It would be great if this campaign meant more power to the elbows of Triodos, Shared Interest, or Charity Bank (to name a few). But it would be equally great if it also encouraged people to think about their own consumer power. The dominant narrative in our culture is that money gives you power to improve your own quality of life - which, of course, it does. But it's a very individualist, limited view. Once you get past a certain level of income, there's really not that much more improving you can do - would you really like to think that the only significant power or influence you could exert in the world was to buy yourself an iPad 2 to replace your iPad?

Personally, I'm happier forgoing that 0.25% extra on a competitive interest rate from a high street bank (which I think would translate roughly in buying terms to one bonus bottle of gin per year - 70cl, mind, and not the good stuff), if it means I can use my savings, my capital, my power, to enact my principles in the world and support the things I believe in. And that doesn't just go for charities - there are also crowdfunding websites springing up which let you "invest" in awesome projects your friends are working on. That's real consumer power, right there - directly funding the kind of arts and entertainment you'd like to see get produced. 

It's real capitalism, too (albeit with somewhat non-traditional returns on your investment). No indeed, there's nothing wrong with good old-fashioned, non-ideologically-perverted, base-form capitalism... (as for the kind of capitalism that I do think there's something wrong with? that'll be a whole 'nother post...)

As Move Your Money Month draws to a close, the end of the financial year approaches, and we continue to reel in shock after the Budget, why not have a think about what your money's doing behind your back, and what you'd like it to be doing? An extra bottle of gin per year, or the chance to reconnect with your neighbours (both local and global), play a part in shaping society and culture, and know that you are in control of all that hidden fiscal power... the choice is yours.

1 comment:

  1. One of the things that people often overlook is that shareholders don't just provide capital to the companies they invest in - they also take on a share of responsibility for the governance of the company. Anyone who holds shares is entitled to ask questions of the board of directors and to attend and vote at the company's AGM on a whole range of governance issues (executive pay having been the big one in the news recently). Sadly at the moment, the majority of shareholders on the boards of the UK's largest companies don't exercise this right, and many of those that do are funds who invest on behalf of a lot of people, rather than individuals - and the sole concern of funds is usually to make as much money as possible rapidly before selling on the shares again (often to give a higher return to people with savings accounts!) It's this that has led to the troubling "culture of short-termism" in UK banks and equity markets that's probably responsible for the big mess we find ourselves in now, as has been high-lighted recently by the interim report of the Kay Review - My point being - don't just consider trying to find an ethical fund to invest with as a way of being ethical. It might be harder and take a bit more time to do the research, and there's almost certainly more risk attached, but the world needs more ordinary people willing to invest not just as a place to put their money but also as a way of actively having a say in how companies - small and large - are run by exercising their rights to vote and to hold the board to account. After all, a company will only ever be as ethical as its shareholders tell it to.

    Also, R - have you considered a Self-Invested Personal Pension? As with investing on the stock market, generally its riskier and much more effort than a standard pension plan, but you get to choose all the shares you pick yourself rather than relying on a fund manger to do it for you so you can be happy that everything you're investing in is something you want to be investing in. Also, I read an article the other day where the office cat at the Evening Standard picked a better performing range of shares than a genuine fund manager so you may even be better off :)