Environmental concerns are of the utmost importance these days. So, while you may be recycling more or being mindful of how much you drive, have you ever considered how switching to a sustainable pension fund could be a way to help the planet?
Interesting new research from Aviva shows that 65% of employees think a sustainable pension is important, with 80% of employers agreeing with this sentiment.
Here, you can discover the potential benefits of a sustainable pension fund and how easy it would be for you to switch to one if it’s right for you.
Sustainable pension funds invest in ethically responsible companies
Sustainable pension funds are often offered by providers for your retirement savings. Though, unlike typical pension funds, the sustainable variety typically focuses on investing in companies that benefit the planet or communities.
They will typically invest in so-called “ESG” companies, an acronym for “environmental, social and governance”, which refers to businesses that aim to operate ethically.
For example, a sustainable pension fund may omit a company that pollutes the environment, instead favouring a green alternative such as an electric car company.
This doesn’t just involve environmental issues either; companies such as weapon manufacturers, or those that don’t prioritise gender equality, may be omitted from sustainable pensions too.
This could be a way to go green as pensions are long-term investments, so your capital will be invested in companies for years to come.
In fact, some providers have announced plans to make their pension pots have net-zero emissions by 2050.
Switching to a sustainable pension has many benefits for the environment
There are multiple socially-responsible advantages to choosing a sustainable pension fund for your retirement pot.
The Financial Times reports that a £100,000 pension pot invested in a sustainable fund could be equivalent to taking five or six cars off the road a year.
Similarly, information from PensionsAge shows that your sustainable pension pot alone could do more for the environment than 57 people deciding to go vegan. They are also reportedly 21 times more effective than giving up flying, becoming vegetarian, and switching to a renewable energy provider combined.
Furthermore, a sustainable pension is around 20 times better for the environment than switching to an electric car.
As for a sustainable pension’s impact on your carbon footprint, euronews declares that a £30,000 pension fund in a sustainable pot could reduce your carbon output by as much as 19 tonnes a year. Similarly, a £100,000 sustainable pension pot is the same as cutting 64 tonnes of carbon emissions each year.
A sustainable pension could help your finances as well as the planet
Alongside helping the world, figures have shown that a sustainable pension fund may potentially support your personal finances too.
Indeed, Nest reports that the five-year cumulative performance of their “Nest 2040 Retirement Date Fund” was 31%, with annualised total returns of 5.6% over the same period.
Meanwhile, the pension provider’s “Nest Ethical Fund” had a five-year cumulative performance of 39.9%, with its annualised total returns sitting at 6.9% over the same period.
As you can see, Nest’s sustainable pension fund has slightly outperformed its traditional counterpart.
To further show that a sustainable pension could potentially be a better choice than a traditional one, Which? states that three-quarters of ESG pension funds performed above average when compared with their conventional counterparts.
Also, they may offer greater longevity and security. 77% of ESG funds that were founded in 2009 were still going 10 years later in 2019. Compare this to non-ESG funds from 2009, of which only 46% were still active in 2019.
Switching to a sustainable pension is relatively simple
Now that you know what sustainable pension funds are, you may be wondering how to switch to one.
If your provider offers their own sustainable fund, you can typically switch to this by simply informing them that you’d like to do so. You can often do this online.
Meanwhile, you can also transfer to another pension plan with a different provider if you want or need to. It’s worth keeping in mind that you may be required to pay a fee to make the transfer, and there’s a chance you could lose any fixed or enhanced protection you had before the transfer.
However, before you switch your pension, make sure you review your goals and risk profile. All investments come with some risk and it’s essential that your decisions, including those about your pension, reflect this.
Get in touch
Sustainable pensions are just one of many different ways that you can save towards a happy retirement. If you would like to discuss different ways you can build your pension pot, please get in touch today.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
