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).
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 latest Good Investment Review for more – or through a normal private pension.
Here are some Good options to consider.
The Fossil Fuel Free Plan, created and managed by Legal & General, is one of the UK’s first mainstream private pension plans to completely exclude companies with proven or probable reserves in oil, gas or coal. It also excludes tobacco companies, manufacturers of controversial weapons, nuclear weapons and persistent violators of the UN Global Compact.
Following a survey in 2021 of customers invested in the Fossil Fuel Free Plan, PensionBee extended its exclusions to companies that provide services to the fossil fuel sector.
Alongside this, the plan invests more of your money in companies that are aligned with the Paris climate change agreement.
It does this by passively tracking the FTSE All-World TPI Transition ex Fossil Fuel ex Tobacco ex Controversies index, which was created specifically for this pension plan. In simple language, it means your investments will passively follow the market performance of a group of fossil fuel and tobacco-free companies within the index, instead of your money manager actively buying and selling stocks in these companies.
You’ll pay one annual fee of 0.75 per cent.
NEST, the National Employment Savings Trust, was set up by the Government as part of its commitment towards auto-enrolment. Its 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.
The ethical fund, which NEST says is slightly higher risk than its standard fund (but has performed better over the last five years), invests in companies with positive records on human rights, fair labour practices and fair trade policies – especially with developing countries and the environment.
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 mid-2020 that it will decarbonise all of its investments, making it an industry leader in this area.
Pensions giant Aviva has a huge number of ethical funds that can go into a pension. Top performers with strong sustainable investment policies include the Liontrust Sustainable Future range, all of which are available through Aviva.
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 charges an annual management fee of up to 0.40 per cent (depending on the size of your pot).
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 (see above), as well as Royal London Sustainable World and UK Ethical Equity.
The Henderson Global Sustainable Equity fund is an offshoot of the Janus Henderson Global Sustainable Equity fund and 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, it 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 sustainability report.
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.
App-based investment platform CIRCA5000 recently launched a Self-Invested Personal Pension (SIPP), which gives you the flexibility to choose what your pension pot is invested in.
All of CIRCA5000’s positive impact portfolios invest in globally-listed companies that aim to make a profit while also making a positive difference to the planet and society.
You can choose to invest in one of three separate themes – climate change, equality and disruptive technology – or a combination of all three, at a risk level you feel comfortable with. You also have the option to make a ‘custom portfolio’ where you can take one or more of the themes and tweak them to create a portfolio that matches your specific values.
CIRCA5000’s pensions are fee-free until April 2023. After this you’ll pay an annual platform fee of 0.45 per cent.