Providing for your own future need not mean you have to compromise on your principles. In fact, greening your pension is one of the most powerful actions you can take for the future of the planet (alongside your own).
According to Make My Money Matter (MMMM), greening your pension is 21x more effective at reducing your carbon footprint than giving up flying, going veggie and switching energy provider combined. Research by MMMM has also found your pension is likely to be contributing to deforestation, with £2 out of every £10 you pay in helping to fund it.
Saving into a pension is a wise decision, and one you should prioritise at an early age to ensure that you take full advantage of tax breaks and compound interest (this is where you earn interest on your interest, which over time makes a huge difference to your pot).
You can build your own pension portfolio using any number and combination of sustainable funds, trusts and shares through a SIPP (self-invested personal pension) – see the Good Investment Review for more – or through a normal private pension.
Here are some Good options to consider.
1. PensionBee Climate Plan
PensionBee’s planet-positive Climate Plan was launched in 2024 to replace the popular Fossil Fuel-Free plan.
The Fossil Fuel-Free Plan was one of the UK’s first mainstream private pension plans to completely exclude companies with proven or probable reserves in oil, gas or coal when it launched in 2020.
The new “upgraded” Climate Plan continues to exclude fossil fuels but goes a step further by also pro-actively investing in companies at the forefront of the transition to a low carbon economy.
It adds to the previous plan’s commitment not to invest in fossil fuels by adding to the types of companies it won’t invest in. It will not invest in any firm that has “ties to fossil fuels based on revenues, power generation and reserves”. This is because companies without fossil fuel reserves can still have significant exposure to fossil fuels; for example many utility companies use fossil fuel-based power generation but don’t own the reserves themselves.
The move came in response to feedback from PensionBee customers that they wanted to send a stronger message to big polluters by excluding fossil fuel producers and other sectors while also investing in companies better prepared for the shift to a low carbon economy.
The plan is designed and run by global asset managers State Street Global Advisors. It follows the ‘EU Paris-aligned’ benchmark, which ensures its investments are aligned to the Paris Agreement goal to limit the rise in global temperatures to below 2°C on pre-industrial levels.
Like the Fossil Fuel Plan, the Climate Plan is 100 per cent invested in equities (company shares) and therefore considered a higher-risk option than PensionBee’s other plans.
What’s the cost?
You’ll pay one annual fee of 0.75 per cent. This fee is halved on any amount in your pot over £100,000.
2. NEST ethical fund
NEST, the National Employment Savings Trust, is a not-for-profit organisation set up by the Government as part of its commitment towards auto-enrolment. Its pension funds are only available to people who are either self-employed, or who have been enrolled by their employer.
The ethical fund, which NEST says is slightly higher risk than its standard fund, invests in companies with positive records on human rights, fair labour practices and fair trade policies – especially with developing countries and the environment.
NEST is fully transparent with its investors about where their money goes and has a comprehensive exclusions policy. It avoids investing in tobacco, arms and corrupt states including those with a bad human rights record, as well as companies that damage the environment. NEST announced in 2020 that it will decarbonise all of its investments, making it an industry leader in this area. It also scores comparatively well for its climate action plan in Make My Money Matter’s climate rankings table.
On deforestation, NEST says: “We’ve joined Global Canopy’s Deforestation-free pension funds guidance working group to help develop guidance on and help us work towards reducing deforestation exposure across our investments. We’ve already started work to identify deforestation risks across our portfolio and are currently undertaking a market warming exercise to consider whether we will invest directly into forestry (natural capital).”
On food sustainability, it says: “We’ve joined the Farm Animal Investment Risk and Return (FAIRR) initiative, a network of investors managing over $69 trillion (£54.8 trillion), to push companies like Tesco and Sainsbury’s away from intensive livestock production and unsustainable business practices.”
Research by Ethical Consumer magazine has found that NEST gives excessive remuneration to its top level staff, with its highest paid director paid over £337,000 in total compensation in the tax year 2021/22.
However, the NEST ethical fund still tops the magazine’s table for ethical pensions.
What’s the cost?
NEST’s 0.3 per cent annual management charge (AMC) is one of the lowest on the market, though there is a 1.8 per cent charge for contributions (it’s free to transfer existing pots in or out).
So if you paid £1,000 into your pot over a year, the contribution charge would be £18. If your pot was then worth £10,000, you’d pay an AMC of £30.
See our full review of the NEST ethical fund
3. Penfold Sustainable Plan
The Penfold Sustainable Plan uses a mix of ESG (environmental, social and governance) screening and enhancing as well as a focus on socially responsible investing. It invests a larger percentage in companies with the highest ESG rating compared to their peers and removes any investments that underperform.
The plan is based on BlackRock’s MyMap 5 ESG fund, which aims to reduce its portfolio’s carbon emissions intensity by 30 per cent compared to an equivalent non-ESG fund.
The fund must invest at least 80 per cent of its assets in sustainable strategies and at least 80 per cent of its government bonds into sovereigns issuers with ESG sovereigns who have improved their ESG credentials.
While Penfold does apply screening to its Sustainable Plan, research by Ethical Consumer found it had no detailed company-wide exclusions of destructive industries and practices. It also didn’t make clear how (or if) it was addressing issues such as water usage, waste, pollution, biodiversity, and other environment issues within its own operations or portfolio companies.
What’s the cost?
You’ll pay one annual fee of 0.75 per cent on savings under £100,000, and 0.4 per cent on anything over £100,000.
UK pension firms’ climate rankings
4. Aviva self-select pension
Pensions giant Aviva has a huge number of ethical funds that can go into a personal pension. Top performers with strong sustainable investment policies include the Liontrust Sustainable Future range, all of which are available through Aviva (you can also invest in the Liontrust Sustainable Future range directly through Liontrust).
Others include Royal London Ethical Bond, Rathbone Ethical Bond, Baillie Gifford Responsible Global Equity funds, and the Pictet Multi-Asset Portfolio. For more on these funds, see Good With Money’s latest Good Investment Review. Aviva topped the table in Make My Money Matter’s climate rankings.
What’s the cost?
You’ll pay an annual fee of up to 0.40 per cent (depending on the size of your pot) plus fund charges.
Top 9 ethical financial advisers
5. Royal London pensions
Royal London runs both a workplace and a personal pension plan. The former will be decided by your company while the latter is available to buy through a financial adviser. The firm has a number of ethical and sustainable funds, including its ethical bond product, as well as Royal London Sustainable World and UK Ethical Equity.
What’s the cost?
See the full list of fees here.
6. Zurich Henderson Global Sustainable Equity Pension
The Henderson Global Sustainable Equity fund, which has a five star sustainability rating with data providers Morningstar, is available through the Zurich pension scheme. After the Liontrust Sustainable Future range available through Aviva, it is one of the better ethical pension funds.
Unlike most, the fund does not invest in oil and gas with the manager seeking to actively invest in global companies whose products and services are considered as contributing to positive environmental or social change. It also regularly publishes all of its holdings as well as an annual Impact Report.
Zurich says it aims to be one of the most responsible and impactful businesses in the world. This includes cutting down on paper and single-use plastics, using 100 per cent renewable energy in its offices, and planting trees on behalf of its policyholders.
What’s the cost?
You’ll pay an annual fee of 0.75 per cent.
7. Aegon pensions
Aegon offers a range of ethical pension funds, including the Ethical Equity Fund, which all screen out companies involved in activities that harm the environment or society. These include animal testing, alcohol, the extraction of fossil fuels, nuclear power and oppressive regimes.
They also invest in sustainable themes such as education, good health and well-being, environment, climate change and renewable energy, social housing and infrastructure, and software delivering solutions.
Aegon conducts a survey on ethical and sustainable investing every two years that asks investors and advisers for feedback on its approach, and makes tweaks when necessary. In its most recent survey, Aegon found that 71 per cent of respondents are already investing ethically.
However, Ethical Consumer found Aegon’s policy left it able to invest in fossil fuels. It says: “Its exclusions policy only restricted companies that generated more than 25 per cent of their revenues from the exploration, mining, and refining of thermal coal. While Aegon was gradually lowering these thresholds, Ethical Consumer considered any new investment in thermal coal to be highly damaging.”
What’s the cost?
You’ll pay an annual management charge of up to 0.6 per cent depending on the size of your pot.
If you’d like help with building an ethical personal pension, look for a financial adviser that is skilled in this area. Our Good Egg companies EQ Investors, Path Financial, Bluesphere Wealth and Switchfoot Wealth are all great options.
Risk warning: With pensions, as with all investments, your capital is at risk. The value of what you put in may go down as well as up.
