Pension beneficiaries’ and fund managers’ perceptions of responsible investment: a focus group study

• DOI: https://doi.org/10.1108/CG-05-2015-0070
• Date: 01 February 2016
• Pages: 1-20
• Published date: 01 February 2016
• Author: George Apostolakis,Frido Kraanen,Gert van Dijk
• Subject Matter: Strategy,Corporate governance

Pension beneficiaries’ and fund

managers’ perceptions of responsible

investment: a focus group study

George Apostolakis, Frido Kraanen and Gert van Dijk

George Apostolakis is

based at the Center for

Entrepreneurship &

Stewardship, Nyenrode

Business Universiteit,

Breukelen, The

Netherlands.

Frido Kraanen is Director

Cooperative and CSR at

the TIAS School for

Business and Society,

Tilburg University,

Tilburg, The Netherlands.

Gert van Dijk is Professor

at the Center for

Entrepreneurship &

Stewardship, Nyenrode

Business Universiteit,

Breukelen, The

Netherlands and TIAS

School for Business and

Society, Tilburg

University, Tilburg, The

Netherlands.

Abstract

Purpose –This study aims to explore the views of pension beneficiaries and fund managers regarding

greater involvement and investment autonomy and the attitudes toward diverse responsible investment

criteria. The conventional form of investing is usually vulnerable to high financial market volatility events

and financial crises, and most importantly, it has proven insufficient in addressing important social

issues. A newly introduced investment culture known as impact investing strives for social gains in the

long term rather than the maximization of financial returns by aiming to tackle social problems. However,

some in the field claim that implementing such investment policies compromises the fiduciary

responsibility of pension funds’ trustees to manage trust funds in the best interest of beneficiaries.

Design/methodology/approach –This study uses qualitative methods to explore the perception of

proposed pension policies, such as beneficiaries’ greater involvement in determining pension

investment policies that can have a positive long-term impact on their lives and on the provision of

investment autonomy. For this purpose, the study investigates beneficiaries’ positions regarding

responsible investment criteria from a freedom-of-choice perspective. The study sample consists of

members and managers of a Dutch pension administrative organization with a cooperative structure.

Three semi-structured, homogeneous discussions with focus groups containing between seven and

nine participants each are conducted. The data are coded both deductively and inductively, following

the framework approach, which is a qualitative data analysis method.

Findings –Participants demonstrate positive attitudes toward greater involvement and freedom of

choice. However, the findings also indicate that members and pension fund managers have different

views regarding responsible investment criteria. Members have more favorable attitudes toward

responsible investment than do managers.

Research limitations/implications –This research is limited to focus group discussions with

managers and members in the Dutch healthcare sector.

Practical implications –How little the current pension system matches people’s investment

preferences is a matter of concern, and the main implications of this research thus center upon

designing a more democratic pension system for the future. Greater involvement by pension fund

beneficiaries, whose roles are currently limited, would help legitimize responsible investing. This

research implies that pension policies should be designed to align with the preferences of pension fund

beneficiaries and be accompanied by diverse intervention strategies.

Social implications –Pension reforms that encourage pension beneficiaries to exert greater influence

in determining pension policy will help shrink the democratic deficit in collective pensions.

Originality/value –This study contributes to the literature on pension fund governance and long-term

responsible investing by examining the attitudes toward impact and sustainable investments and by

making suggestions for future research. To the best of the authors’ knowledge, this study is the first to

investigate the attitudes of pension fund participants toward targeted impact investments.

Keywords Socially responsible investment, Cooperatives, Healthcare sector, Impact investment,

Investment autonomy

Paper type Research paper

1. Introduction

In the aftermath of the global financial crisis, pension funds’ coverage ratios deteriorated

due to sharply lower long-term interest rates, which underlined the financial situations of

Received 31 January 2015

Revised 27 May 2015

Accepted 7 October 2015

The views expressed in this

study are those of the authors

and not the views of their

affiliated institutions.

DOI 10.1108/CG-05-2015-0070 VOL. 16 NO. 1 2016, pp. 1-20, © Emerald Group Publishing Limited, ISSN 1472-0701 CORPORATE GOVERNANCE PAGE 1

these funds (Pino and Yermo, 2010). As a consequence, asset managers who act on behalf

of pension fund boards are now required to maintain larger reserves. Therefore, these

managers must choose between lowering payments to pensioners (and impacting the

pension entitlements of active pension beneficiaries) or increasing pension premiums for

younger employees who are building their future pension rights. These developments have

piqued the public interest in pension matters and, in particular, in the institutional design of

pension funds. To date, this increased attention has been limited to the direct debate on

present and obvious interests: those who receive their pensions may say, “We have full

rights to receive the pension payments as agreed because we were obliged all of those

years of our working career to save and pay premiums. We had no choice.” Younger

cohorts now feel the threat of having to pay increased pension fees. They often take the

following position: “Why should we pay for the luxury of all of those elderly people who do

not contribute to national income anymore? A luxury we are not likely to ever enjoy

ourselves?” This debate regarding the conflicting interests involved in pension funds also

leads to more fundamental questions. In particular, it has been nearly universally assumed

(until recently) that the conventional investment and asset management of pension capital

would yield financial returns at least five times the normal interest rate on savings[1];

however, we should consider whether this assumption remains realistic for the future

(Aglietta, 2000).

The increased uncertainty of the economic environment hinders predictable forecasts

regarding financial returns. Nevertheless, we offer two remarks about the prospects for

future returns. First, the economic reasoning behind the expectation of high yields appears

to assume that capital remains scarce in the world economy. However, it is notable that

market interest rates on capital remain at historically low levels, while expectations for high

returns on investments remain as high as ever. Second, the political influence of emerging

economies has increased substantially. The excess availability of non-priced scarce

resources (water, soil fertility, the exploitation of child and female labor, animal welfare,

etc.) has aroused global concern. The effect of this concern is that these scarce,

non-priced resources have increasingly become priced. Of course, these explanations

offer only two possible understandings of why high returns on investments are less

common and why expectations for high returns in the future are even less likely to be

fulfilled.

In light of these considerations, investment fund policy makers must decide how to design

future pension funds. These decisions are informed by the social-cultural trend toward

decreasing support for mandatory plans, which stems from the emancipation of the

individual and the accompanying willingness of individuals to assume control over

investment decisions rather than accepting forced collective investment arrangements.

Goudswaard et al. (2004) demonstrate that individuals are more willing to pay the costs of

collective provisions if there is transparency regarding how this money is being spent or, in

the case studied here, how pension assets are invested. In essence, we question whether

policy makers can continue to obligate people to pay pension fees with the expectation that

they will be able to reap sufficient financial dividends in their old age. The natural follow-up

to this question is whether this approach guarantees pensioners adequate security in the

final phases of their lives and the certainty of sufficient financial resources when they are no

longer contributing to the national economy.

To date, these questions have been left for pension fund boards and governments to

address. In addition, limited attention has been given to individuals’ views about freedom

of choice and the criteria according to which long-term investments should be examined.

This study aims to fill this research gap by exploring the views of pension participants

regarding greater involvement and investment autonomy. Furthermore, in a scenario in

which there is increased freedom of choice and higher transaction costs, we explore the

attitudes toward diverse responsible investment criteria. We find a variety of terms

regarding responsible investing in the literature, such as sustainable, green or ethical

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