Prince Charles on Pensions's John Rekenthaler gives a 'distinctly American reaction' to Prince Charles' proposals for the UK pension system

John Rekenthaler 21 October, 2013 | 10:09AM
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Last week, Prince Charles shared his views of investment management. This speech came as something of a surprise, because for the past 65 years the prince has been silent on the subject. Perhaps the occasion of reaching his retirement age has spurred his thinking on the matter. Or perhaps it was a recent report that the average British retiree is on track to have an annual income of £11,400, as opposed to the £25,200 that the public (per a survey) states as its desired amount.

I approached his talk with an open mind. After all, Prince Charles was widely mocked as a reactionary three decades ago when he ventured into architectural criticism, calling this proposed art-gallery expansion a "monstrous carbuncle" on the face of London. Today, however, his architectural views seem far from laughable. One might even call them farsighted.

For example, the prince in 1984 said, "Why can't we have those curves and arches that express feeling in design? What is wrong with them? Why has everything got to be vertical, straight, unbending, only at right angles - and functional?" Thirty years later, that seems spot on. In Chicago, pretty much all the office buildings constructed in the past quarter century incorporate curves and yes, sometimes even arches, as opposed to the boxes built from the 1950s through the 1980s.

The prince's comments on fiduciary duty will not stand a similar test of time. They are, in fact, loopy. Stated Charles: "We live in an increasingly uncertain time. We are facing what could be described as a perfect storm: the combination of pollution and overconsumption of finite natural resources, the very real and accumulating risk of catastrophic climate change, unprecedented levels of financial indebtedness, and a population of seven billion that is rising fast."

He continues, "With an aging population and pension fund liabilities that are therefore stretching out for many decades, surely the current focus on quarterly capitalism is becoming increasingly unfit for purpose.

"There is mounting evidence from the likes of Harvard and London business schools that those companies that improve the way they tackle environmental and social challenges prove to be the ones better able to deliver long-term returns - so you can have your cake and eat it."

He continued, "I know that old habits die hard and that it is difficult to make the first move, but is there not a case for ensuring your portfolios are resilient in the long term? Could you do so by incorporating sustainability into your mainstream strategy...?"

"By contributing to the long-term sustainability of nature's economy, in other words the maintenance of vital ecosystem services on which the durability of our own economy ultimately depends, pension funds can help to preserve the real value of beneficiaries' retirement income."

To which, I offer a distinctly American reaction.

This is not to disparage the concept of sustainability, or of protecting the planet, or even the claim that the stocks of green companies outperform those of other companies. (I have no idea if that is true, but it's possible.) However, those items cannot bridge the enormous gap that separates £11,400 in annual income from £25,200. As the saying goes, you won't get there by investment performance. The primary drivers for retirement income must be increased savings, either by the retirees directly or by an entity (corporate, government, whatever) acting in retirees' interest, along with perhaps a later retirement date.

Which, in fairness, was the conclusion of the report, prepared by the insurance company Scottish Widows. The prince would have been wise to follow the report's lead.

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John Rekenthaler

John Rekenthaler  John Rekenthaler is vice president of research for Morningstar.