We need a movement to take pensions out of financial markets

Photo: Coordinadora No+ AFP (Chile)

Labour unions and social movements in Brazil have been fighting a pitched battle to stop their far-right president, Jair Bolsonaro, from pursuing his drive to privatise many of the country’s most important public assets. But last year they suffered a major defeat when Bolsanaro’s government sold off the nation’s largest public water utility to a Brazilian private equity fund.

It soon emerged that this private equity fund was in fact owned by two of Canada’s largest pension funds. Workers in Canada were understandably outraged to learn that their deferred wages were being used to privatise an essential public service in Brazil, which serves 30 municipalities with a population of 13 million. Several labour organizations called for these pension funds to pull out of the deal.

But this was not an isolated incident. Canada’s pension funds are also deeply involved in a massive land grabbing drive in Brazil’s biodiverse Cerrado region, as are pension funds from the US, Europe and Asia. The reality today is that pension funds are involved in pretty much every form of predatory financial capitalism affecting the planet — whether it is fossil fuel extraction, for-profit health care, real estate speculation, farmland and water grabbing or the privatisation of essential public services.

Today, the world’s top 22 pension funds have over US$56 trillion in assets under management, making them, collectively, the biggest source of money for financial investment. Moreover, pension funds depend on high, or at least decent, returns in order to provide workers with pensions in their retirement. As a result, an increasing share of pension fund money is going into such things as private equity, real estate, farm and timber land and other so-called “alternatives” to more traditional investments in stocks and bonds. Pension funds are even playing an active role in lobbying for policies and regulations to privatise more public goods and services so that they have more lucrative investment opportunities.

Pension funds have been able to grow in size and power without any serious governance by the workers who participate in them. Workers have, in fact, become dependent on the financial returns that pension fund investments bring, and the conditions that create those returns, such as privatisation. As Canadian workers found out with the Brazilian water case, the way pension funds have been structured gives workers only a very limited capacity to influence investment decisions, even in cases such as this one where the investment is so clearly against the interests of working people.

Nor are most workers benefiting from the pension fund system. Only a small percentage of workers around the world participate in financially invested pension funds. Just seven countries (Australia, Canada, Japan, Netherlands, Switzerland, UK, US) account for over 92% of all assets held by pension funds. And even for workers in these countries, only a fraction of them will receive a liveable pension from the funds they are contributing to. Over the last decades, there has been an important shift away from social security plans and defined benefit pensions (where workers are guaranteed a percentage of their annual salary upon retirement) to more precarious systems where the risks from financial investments are borne by individual workers. This shift has coincided with the lifting of legal restrictions on what pension funds can invest in, making it possible for pension funds to invest in riskier financial asset categories like real estate and private equity, and moves to give private financial companies more control over public pension fund management. Several countries with large pension funds, like China, India, Japan and South Africa, are still in the midst of moving in this direction.

Pension funds are clearly too big of a problem to ignore. So what can we do about them?

In May and June 2022, GRAIN and A Growing Culture organised two online conversations to try and inform and stimulate collective thinking about what actions we can take. Several hundred people from around the world and from different backgrounds signed up to participate. The sessions provided a space to learn more about pension funds and to share about the initiatives that groups are taking in different sectors and in different parts of the world to challenge them.

Activists from Chile spoke about the mass movement there that has been pushing for an overhaul of the country’s neoliberal pension fund system. The movement, which brings together a broad spectrum of society, from students to retired workers, has made impressive gains, and has articulated a vision for a new system, based on solidarity and removed from financial markets. But they are up against a powerful lobby of corporations and financial management companies who profit from the current model, and who are scaring people into thinking that they will lose their individual pensions if the reforms are carried out.

Brazilian activists highlighted the importance of building local and international coalitions in their efforts to stop pension funds from fueling land grabs in the Cerrado region. The pension funds counter that they are following strict environmental and social guidelines, but the activists explain that all the foreign funds directed into the region are going into the hands of agribusiness companies that are concentrating land, destroying biodiversity and making life miserable for the local communities. The commodification of farmland into an “asset” for investment is itself a problem, and this is why the international campaign has focused on stopping pension funds from making any investments in farmland, not “improving” such investment.

Labour groups in Canada are also showing the need to think beyond actions aimed at influencing the companies pension funds invest in. When public sector workers recently found out that their pension fund was the owner of a for-profit long-term health care company at the centre of a tragic Covid scandal, they decided not to devote their energies into pressuring their pension fund to improve conditions, but to lead a larger campaign to nationalise the company and make all long-term health care public.

At one point in the conversation, a labour organiser based in Brazil pointed out that if the Canadian pension funds had not bought up the Brazilian water utility then another corporation would have, whether a sovereign wealth fund or a Wall Street investment bank. Given that Brazilian social movements had lost the battle to stop the privatisation, wasn’t it better that the utility was at least in the hands of a pension fund, where surely there must be strategic openings to pressure it and curtail the worst abuses?

This notion that pension funds can be influenced from the inside has informed activism around pensions for many decades now. The strategy relies on such tactics as shareholder activism, dialogues with companies, environmental and social governance (ESG) commitments and placing worker representatives as trustees on pension governance boards. But the reality is that these strategies have proven to be very limited. Workers exercise almost no influence over investment decisions, even with worker representatives as trustees, and the structural dependency of pension funds for high returns on financial markets makes it very difficult to mobilise workers into challenging their pension fund managers. In case after case what we see is, in fact, the opposite: pension fund managers refusing to engage in any meaningful way with concerns raised by those affected by their investments – and getting away with it without any real accountability.

What we heard from activists over these two sessions has reinforced our view that we need to focus on what we might call “outsider” strategies (see table below). Pension funds are a major part of the global financial system, and that system is, in turn, causing enormous inequality and injustice. Tweaking it as “insiders” will not resolve the systemic problems it generates; the same is true for pension funds.

Ultimately, we need to fight for retirement schemes that are not secured by financial markets. This means, on the one hand, building large, diverse movements to reform pension fund systems, as social movements are doing in Chile, and to prevent the privatisation and financialisation of public, solidarity-based retirement schemes, as labour unions are doing in India. At the same time, we need to build movements to “ring fence” public goods (water, food systems, transportation, health services, education, housing, etc) and keep them out of the predatory hands of financial capital.

It is a huge challenge to even imagine transitioning away from the dominant pension fund systems. But given their growing grip on our food, health, water and other sectors, and poor outcomes for so many retired workers, it is urgent to learn more and see what we can do.

Table: Two strategic orientations for resisting ‘pension fund capitalism’