Two important reasons to consider ethical investing for your pension
Considering your financial future? Find out why socially responsible investing might be the right choice for your pension.
For many of us, a pension isn’t something we think much about. At worst, we try to ignore a niggling worry that we haven’t done anything (or enough) to start saving for our future. And at best we automatically pay money into a pension we may have chosen many years ago without thought.
If you’re in the latter group, it’s highly likely you have no idea where your money is actually invested. Indeed, research by the Pensions and Lifetime Savings Association (PLSA) found that while 82% of pension savers understand that their pension is invested, only 26% actually know what it’s invested in.
So why does this matter? Aside from ensuring that your money is getting a healthy return, and you aren’t over-paying on fees, reviewing your pension and consciously choosing where your money is invested is a wise idea.
Here are two important reasons why.
1) You can put your money where your values are
Some people would never willingly support the fossil fuel, fast fashion, pornography or weapon industries. Or choose to invest their money in countries with regimes whose values they disagree with. However the simple truth is that, without knowing where your money is invested, you could be doing just that.
This is why it is important to make a conscious choice about how your pension is invested, and choose funds that align with your values.
According to the Make My Money Matter campaign, 68% of UK pension holders want their investments to balance people and the planet with profit. If this resonates with you, the good news is that you have plenty of options today.
For example, PensionBee’s Climate Plan aims to achieve net zero emissions by 2050, in line with the goals of the Paris Agreement. The plan is designed to gradually reduce your pension’s investment in polluters and heavy carbon emitting companies. It does this by continually reducing the total intensity of the greenhouse gas (GHG) emissions produced by companies in the plan by at least 10%. This helps you to take your climate action to the next level with your pension.
PensionBee also have a Shariah Plan that only invests in Shariah-compliant funds – a branch of socially responsible investing shaped by the Islamic faith. All investments are approved by an independent Shariah committee, and exclude alcohol, gambling, tobacco, military equipment or weapons, pornography and any products containing pork.
With plans like these easily available today, you can ensure that your money works not just for your good, but helps benefit the causes and business sectors you support, too.
Conscious investing means seeking out investment funds and pension plans that can help to support your values or beliefs, and avoiding your money contributing to industries you don’t agree with.
2) You can enjoy better financial returns
If you like the idea of investing in industries and companies you agree with, we have more good news: you don’t need to sacrifice returns in order to enjoy a clear conscience.
According to the latest Good Investment Review, over the past few years, actively managed sustainable funds (‘green funds’) have performed relatively well compared to more traditional funds (‘brown funds’) – despite tricky market conditions.
They may also be a safer choice for the future.
Thanks to a greater awareness of sustainability and increased criticism of companies that do harm to the environment, brown funds could be impacted by greater government regulation and financial penalties. They are also more vulnerable to environmental news stories. A study by the EDHEC Climate Institute found that, “brown assets are negatively exposed to climate risk (more risk and concern reduces their returns) as measured by climate news.”
And finally, sustainable funds have demonstrated a greater resilience in economic downturns; 61% of Morningstar’s ESG-screened indexes out-performed their market equivalents in 2021.
No wonder then, that analysts are optimistic green funds can potentially enjoy strong returns over the long term.
Of course, there are no guarantees that a more ethically responsible investing strategy will yield better, or even similar, results than investing in traditional funds – as with all investments, sustainable funds are subject to changes in market conditions so their value may go down as well as up.
However, as you can see there are good financial reasons to consider investing in the future of the world you want to see, while planning for your own.
Is an ‘ethical pension’ right for you?
Whatever your personal values or beliefs, one thing is absolutely certain – saving for your future, if possible, is important.
According to the The Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards, the State Pension alone will currently not enable a single person to afford a minimum lifestyle. And it will leave a couple £20,100 a year short of being able to afford a moderate lifestyle.
If you want to avoid struggling in your retirement – or being forced to work significantly past the age you wish to retire – you need to be saving into a pension now. (You can use the PensionBee Pension Calculator to find out how long your pension could last.)
There are potentially great incentives to do so, too. Not only will your money benefit from the power of compound interest, but you may also get help in the form of contributions from your employer, tax top-ups if you are employed or self-employed, and tax relief if you are a director of a limited company.
And you can enjoy all this while knowing your money is invested in companies whose values and vision aligns with yours.
If you’d like to know more about sustainable investing, or want to start or move a pension, you can read more here or listen to episode 36 of The Pension Confident Podcast. In this episode, the guests discuss how you can find out where your pension is invested, what makes a sustainable fund and what actions you can take to influence positive change with your pension.
Risk warning: As always with investments, your capital is at risk. The value of your investment can rise or fall, and you could receive back less than you invest. This information should not be considered as financial advice.
About PensionBee
PensionBee can help you combine your old pension pots into one easy-to-manage online plan that lets you keep track of your balance, make flexible contributions, invest in line with your values and make withdrawals from the age of 55 (rising to 57 from 2028). For more information, visit PensionBee.
Learn more about PensionBee’s Climate Plan.
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