Getting older in the UK can be costly. Depending on the lifestyle, retirement spending can range from a low £18,000 to a high £42,000 a year. Note, though, that the most basic living would probably exclude even occasional wine nights.
Sadly, the average net income for retirees is already similar to the average earnings of the working population, mainly due to the high cost of housing, according to Unbiased. At some point, depending on wages alone may not be enough to support retirement later.
For this reason, many companies begin setting up pension schemes, including defined contribution plans. In this setup, both the employers and the employee contribute to the pension account. The money is then invested into different portfolios to maximize its growth while the worker is still not in retirement age.
What often escapes from the minds and actions of pensioners and the trustees of these schemes is that where they place their money can have ethical and environmental implications. That’s why Cardano Risk Management Limited highly recommends impact investing.
What Is Impact Investing?
Also known as sustainable investing, impact investing is a strategy with two objectives: (1) generate financial gains for the investors while (2) creating a positive impact on society or the environment. This may mean putting funds on organizations, businesses, non-profits, and other industries that:
- Support or promote protection and preservation of the environment, like green energy firms or solar panel manufacturers
- Campaign for equality, diversity, and just wages for employees
- Champion other social causes like LGBT communities, migrants, and human rights
- Uphold ethical practices in doing business or treating their employees, in particular, and the society, in general
- Display a strong sense of corporate social responsibility (CSR)
Note: While they may sound similar, impact investing is different from socially responsible investing. The latter often involves deliberately excluding assets from companies whose moral and social values can differ or go against those of the investor.
For example, a Catholic-based organization with a pension scheme may avoid portfolios from companies that may produce cigarettes or alcohol. However, if it is into impact investing, it may invest in businesses that provide microloans to disadvantaged women in developing countries.
The Value of Impact Investing to Pensions
The concept of impact investing sounds noble, but perhaps one can help but ask, what does it have to do with pension? The answer is a lot.
1. Climate Change Can Affect a Retiree’s Quality of Life
The effects of climate change go beyond the rising temperature of the planet or the less-predictable weather patterns.
It can increase the risk of food insecurity as droughts and floods become more common. Many plants will develop less tolerance to extreme cold or heat.
Climate change may also increase the presence of pests and fungal diseases that can kill plants, change the quality of the soil, and worsen the disappearance of agricultural helpers like bees.
Climate change can threaten the quality, volume, and cost of produce available in the future. For the retirees of this time, their income may not be enough to cover their food needs. The limited access to better nutrition may also possibly boost their spending on healthcare.
2. Decent Wages Can Have Positive Social and Environmental Impact
In 2019, the University of Surrey published a study that showed an association between living wages and their possible effect on climate change or environmental sustainability.
For the research, the team used a global model wherein they assumed that garment workers in BRIC (Brazil, Russia, India, and China) countries earned a living wage.
This means their earnings are enough to meet their daily needs or achieve a decent standard of living. A living wage is about twice what these individuals get paid today.
Based on their analysis under different assumptions, if these garment workers would earn a living wage, the cost of European clothing would increase by over 12 percent.
The level of carbon emission would likely remain the same, but Europeans might not buy more, so they would cause less environmental damage. On the other hand, people in BRIC countries would have higher disposable income to buy more, which will still generate jobs.
Impact investing isn’t the easiest strategy. That’s why groups like Cardano often rely on guidelines, such as the Principles for Pensions by the Impact Investing Institute.
Regardless, the message is clear: even future pensioners cannot be passive about societal and environmental issues. Their decisions today, including the support they extend to CSR-driven organizations and companies, can affect not only their pension income but their lives and those of their children and grandchildren.