Why are pensions important?
As outlined by Holly McElhone in her podcast episode, there are about £2.6 trillion invested in UK pensions. That’s a lot of money! This money can be invested in a myriad of organisations covering sectors such as food, IT services and housebuilding, or less desirably, tobacco, firearms and fossil fuels. If you have a pension, care about the environment and want to mitigate climate change, you should avoid investing in the oil, gas or coal industries.
The Make My Money Matter campaign calculated that making your pension green is 21x more powerful than giving up flying, going veggie and switching your energy provider! Your pension has power, and you can influence where you invest it.
Check whether your pension reflects your values
Looking at your pension might not be at the top of your fun things-to-do list, but now you know it’s a decent form of climate action, it will hopefully make it more motivating. First things first, dig out the paperwork or look online and figure out what pensions you have. There are different types of pension:
- A workplace pension – offered by your employer when joining a new company; UK legislation ensures automatic enrolment. They are most commonly a defined contribution scheme, whereby what you put in is agreed; the employer will hopefully put some in too. Defined benefit schemes operate on defining the pension you get when retiring; you might have one if you worked in the public sector, for example.
- Personal or SIPP (self-invested personal pension) – set up directly with the pension provider and are ideal for the self-employed.
Then, you can check out the fund portfolio and find out if your money is invested in unwelcome sectors. Hopefully, this will be easy to find in your paperwork or online, but if not, you can talk to your employer or contact your pension provider. Make My Money Matter has template letters to help you communicate this.
Like many people, I imagine, I have multiple pensions. The first one I checked out provided lots of information online, readily available and transparent, an excellent start. However, the smile quickly disappeared from my face when I could see almost £10million invested in U.S. oil and gas. Not to get too despairing (and trying to make myself feel more optimistic), I checked out the proportion of this investment against the size of the fund; it stands at about 0.2%. Obviously, I would prefer it to be zero. I also have to consider the possibility of other companies and funds in this massive portfolio investing in fossil fuels too.
It is also sensible to consider what the pension provider says about its ambitions for future investments. The fund I cited above does have a document dedicated to climate strategy. It says it “supports the ambitions of the Paris Agreement1 and aims to achieve a portfolio of assets with net-zero carbon emissions by 2050” and has set up a 3-yearly review. It aims to reduce the carbon footprint (Scope 1 & 2) by at least 30% by the end of 2025 and plans to invest at least 30% of the fund in low carbon and sustainable investments by the end of 2025. Make My Money Matter suggest a statement pledging a reduction in carbon emissions of 50% by 2030 is a good sign of intent.
What action can I take if I’m not happy with my current pension?
If you are unconvinced by the information you uncover about your pension, then seek out more; keep asking questions until you have the answers you need, whether they are the ones you were hoping for or not. Let your provider/employer know what you want from your pension investment.
You may decide the investments in your pension fund does not reflect your values, and you cannot see evidence of a move away from undesirable investments or a move towards more environmental, social and governance funding (known as ESG). You do have the choice of moving your money. At this point, you might require expert help, especially if you have quite a bit of your money invested (unless you are that super-savvy finance type). The UK Sustainable Investment and Finance Association have ethical financial advisors listed, and Good With Money also recommends these.
Money has power!