Your pension is only one piece of your personal finance puzzle. The other parts build the world around us too. These are your next steps once you’ve ticked off your pension.
When you put money in a bank account it doesn’t just sit underground in their vault. Banks use this money to provide loans to businesses. These businesses do things in the world, some do good and some cause harm. Without funding from banks, many businesses and projects would struggle to operate.
Decisions about which businesses banks lend to are usually made on financial grounds. However, there are banks that won’t fund certain companies or industries. If this is important to you, you can choose to entrust your savings with them. Then you can feel secure knowing that your money isn’t being loaned out to fund a project or company you disagree with.
What can you do? You can research which ethical banks are out there and switch if you want to. Here are a couple of resources to help you do that:
Investment accounts such as ISAs work quite similarly to pensions. Your money goes into a fund which is used to buy lots of different financial products. There may or may not be ethical criteria that guide investment decisions. It could be that the money in your investment account is building a world you’re uncomfortable with.
What can you do? Start by searching the name of your ISA/investment provider plus ‘responsible investment policy’. Look out for information on investments (do they say they exclude or target investment at any companies or sectors?) and engagement (they might this stewardship). Then shop around for a good ethical investment.
ShareAction is a campaigning charity who believe that our money can change everything. We are trying to make sure the investment system acts responsibly by prioritising the long-term health of people and planet over short term-profit. Our money should power social progress.
Some of the biggest players in the investment system are the pension providers who manage our money. We work to make sure they aren’t using our money in a way that clashes with our values, but instead are using it to build the world we want, and helping it to grow so we have enough to retire on. We work across the system, lobbying policy-makers and pension schemes directly as well as educating and mobilising individual people around the power their pension has.
Find out more here.
Found a word on this site you don’t understand? You’re not alone. The world of money can be quite confusing, filled to the brim with a load of jargon that makes our pensions seem a lot more complicated than they actually are. Use our handy jargon-buster to get on top of the lingo.
AGM Questions: Shareholders have the right to hold companies accountable at their Annual General Meetings (AGMs). One of the ways they can do so is by asking questions directly to the board.
Annual management charge (AMC): The amount of money your pension provider charges you for managing your money – usually expressed as a percentage. This is capped at 0.75% for default funds.
Asset manager: A company which receives money from investors such as pension providers, and manages some investment processes, such as the buying of company shares and engagement.
Automatic enrolment: A government policy, brought into force in 2012 which meant that every employee is automatically enrolled into a pension provider by their employer. In the past, employees needed to opt-in to save for a pension. Now, they have to opt-out.
Bond: a type of investment that pension providers invest in. When companies or governments want to fund a project, but can’t afford it, they will offer bonds to investors like pension providers. Investors lend money for the project and receive it back with extra interest as the project makes money.
Company shares (also known as equities): a type of investment that pension providers invest in. Publicly listed companies are divided into shares. If you own all of the shares in a company, you own all of that company, if you own a tenth of the shares, you own a tenth of the company etc… Shares go up and down in value depending on how a company performs. Owning shares means you can hold companies to account, for instance by asking questions and voting on company matters at their annual general meetings (AGMs). As more investors buy shares, share price goes up. As more investors sell shares, share price goes down. Having a high share price makes it easier for companies to raise new funds, takeover other businesses and keep hold of staff. Our pensions being invested in the biggest companies keeps their share price high.
Contribution: The percentage of your income that you and your employer pay into your pension every month.
Default Fund: The fund you automatically go into if you’re in a defined contribution pension.
Defined benefit (or final salary scheme): A type of pension scheme where the responsibility for retirement income lies with the employer. Both employer and employee contribute money to the pension, but ultimately the employer guarantees a certain amount of retirement income – usually based on the amount of time spent working for that employer. If you’re in this type of scheme, you rarely have more than one fund to choose from.
Defined contribution: A type of pension scheme where the responsibility for retirement income lies with the employee. Both employer and employee contribute money to a pension pot, but the retirement income isn’t guaranteed. It’s based on how much money you build up from your contributions and, because your money’s invested for you, how well your investments perform. You usually have at least 2 funds to choose from in these schemes.
Divestment: Selling all of your shares in a company or those in a certain sector, done on both ethical and financial grounds.
ESG: Environmental, Social and Governance factors that responsible investors should take into account when investing in, and engaging with companies. An environmental factor could be a company’s carbon emissions, a social factor could be whether a company pays a living wage, and a governance issue could be whether a company board is diverse.
Ethical Fund: A fund you can usually choose to switch into in a defined contribution scheme. It will choose to not invest in certain companies or sectors on ethical grounds.
Fiduciary Duty: A law which governs the duties of a person or organisation that manages money (a fiduciary, such as your pension provider) to those whose money it is (the beneficiary – you). Under this law, your pension providers must act in your “best interest.” Classically, this has been interpreted to mean they should make you as much money as possible. From October 2019, a clarification is coming into place stating that providers must consider ESG issues such as climate change when making investment decisions.
Fund: A pool of lots of people’s money that is invested in company shares, bonds and more.
Paris Agreement: An international agreement to combat the climate crisis, by providing measures that aim to limit global heating to 1.5 degrees Celsius. Read more here.
Pension Provider: A company who manage pensions for people. They create funds, make decisions about how to invest people’s money and make sure you get your pension money when you retire.
Personal pension: A pension which you arrange for yourself with a pension provider, rather than having your employer do it for you.
Responsible investment: “Responsible investment is an approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns.”
Risk: The chance that the value of your investments (and so your pension pot) could go down in value. Certain types of investments are riskier than others. Company shares, for instance, fluctuate in value on the stock market. So they’re risker than investments such as bonds, which deliver a consistent return.
Shareholder Resolutions: Shareholders have the right to hold companies accountable at their Annual General Meetings (AGMs). One of the ways they can do so is by filing and voting on shareholder resolutions. These are votes on a proposal, such as whether a company should tie its business model to the Paris Agreement. For a shareholder resolution to pass in the UK, you need 75% of shareholders to vote in favour of your resolution.
SIPP: A self-invested personal pension is a type of pension which you arrange for yourself with a pension provider, rather than having your employer do it for you. In a SIPP you make investment decisions for yourself.
UN Sustainable Development Goals: Internationally agreed goals to tackle global challenges such as poverty, inequality and the climate crisis. Find out more here.
Voting on company matters: Shareholders have the right to hold companies accountable at their Annual General Meetings (AGMs). One of the ways they can do so is by voting on company matters. These are a list of votes including approving accounts and electing board members. Voting against the re-election of the Chair of the company board is one of the most common ways for shareholders like our pension providers to make their dissent heard.
Does investing my money responsibly mean I’m going to lose money?
This is a worry that we hear from a lot of you. There is increasing evidence to suggest that you are not going to lose money by investing your money responsibly. In fact, it may actually be the most sensible thing to do. NEST for example – one of the biggest UK pension providers – aren’t going to invest in tobacco anymore because they think it is an unsustainable industry that isn’t going to make money in the long-term. Check out Good With Money’s Good Guide to Pensions for comparisons of how ethical funds do against default funds across different providers. Their comparison of the performance of NEST’s funds over the past 5 years indicates that ethical funds hold their own financially.
Remember there are other factors at play, such as the skill and experience of the people managing your money. It often it costs more to invest sustainably, as more work has to go into researching companies for their sustainability, and engaging with them to get better.
Why does my ethical fund option have companies I don’t think are ethical in it?
It’s not unusual for ethical funds to invest in some companies you don’t think are that great. Sometimes this will be because they are trying to use their power as an owner of that company to change their practices. However, there are definitely examples of ethical funds where the definition of ethical given by the provider is inadequate. We understand that can be frustrating, and that’s why we’ve got other actions for you to take. If your ethical fund suits you more than your default fund, then switching can still be a good shorter-term first step, as long as you’re comfortable with the differences in risk and cost. Over the longer-term, talking about this in your workplace or signing our petition could make a big difference to the funds available to you. The more people who learn about the impact of pensions, and start taking action, the more those who design funds will have to listen.
Who is the most responsible pension provider?
ShareAction have ranked some of the biggest UK pension providers on how they do on responsible investment. Have a look to see if your provider was ranked:
Am I saving for a pension?
Almost certainly. 45 million people in the UK are enrolled in a pension scheme. These provide retirement income on top of the state pension. Since the introduction of automatic enrolment in 2012 most people are now paying into a pension. As long as you’re over 22, earning over £10,000 a year, not yet at state pension age, and being employed by someone, you’ll be paying into a pension. You do have the option to opt-out. You can find out who your pension is with at this government website.
How do I log-in to my online pension account?
When you were enrolled in your scheme, you should have received a letter with instructions. If you can’t find this, speak to your employer (probably your HR department). You could also give your pension provider a call or send them an email. You can find out who your pension is with at this government website.
Can I and how do I switch between pension providers?
Your employer chooses which pension provider you are with. You can switch to pay into another provider by opting-out of your automatic-enrolment provider and paying into a personal pension or SIPP. However, you will almost certainly lose your employer’s contribution to your pension pot if you do so.
How do I find out if I have a choice between funds? And how do I switch?
If you’re in a defined contribution2 (DC) pension scheme you’ll usually have the choice between 2 or more funds. If you’re in a defined benefit2 (DB or final salary) pension scheme you normally don’t. In this latter case there is just one fund that the pension provider manages which you go into. Use this flowchart from Good With Money’s Good Guide to Pensions to work out which you’re in.
Have a look at our take action page to find out how to switch.
If you’re unhappy with your fund but don’t have the option to immediately switch into a different one, then try some of our other actions, such as speaking about this in your workplace or signing our petition. These are longer-term ways of changing what your money is doing. The more of us that start demand better to the people who build funds, the better they’ll have to be.
defined contribution1 – A type of pension scheme where the responsibility for retirement income lies with the employee.
defined benefit2 – A type of pension scheme where the responsibility for retirement income lies with the employer.
How do I know if my employer has helped decide which funds are available to me? And how does helping decide funds work?
Some pension providers offer a large number of funds (in the hundreds) which employers choose a select number from (normally around 8) that you then get to choose from. Other pension providers offer fewer funds, and you get the choice of all of these (between 5 and 10). It tends to be larger employers who choose the first option, because they’re more likely to have the time and money to choose funds. Examples of pension providers that offer a large number of funds include Aviva and Legal & General. Smaller employers usually go pensions providers which offer fewer funds. Examples of these include NEST and The People’s Pension. Ask your HR or operations department to be certain.
What if I’m self-employed?
If you’re self-employed you won’t be automatically enrolled into a pension scheme, you’ll have to register for a pension yourself. If you want to choose a responsible pension, then have a look at Good With Money’s Good Guide to Pensions.
I’ve got multiple pension pots – can I combine them?
Yes, there are a couple of ways to do so:
– Most pension providers provide a service where you can transfer your past pots over to your current one. You can should be able to find out how to do so for your provider on their website.
– Some providers such as PensionBee combine your old pension pots into one for you.
If you’ve ever been in a defined benefit scheme, it won’t be possible to combine this pot of money.
Why is the risk rating of an ethical pension higher?
One of the main ways to tackle investment risk is to ‘diversify your portfolio’. This means buying lots of different financial products, so that you don’t have too many eggs in one basket should that investment fail. As responsible pensions won’t invest in certain companies, you may have fewer baskets. This means the risk to you is higher.
Have you got a template letter I could send to my pension fund?
We’re not focussing on sending letters to pension funds at the moment. ClientEarth do have a letter you can send if you’d like to.
Are there any pensions divested from fossil fuels1 ?
Yes. If your pension provider is NEST, their ethical fund is divested from fossil fuels. We think all pension providers should have this option.
divested from fossil fuels1 – Selling all of your shares in a company or those in a certain sector.
Where can I find groups campaigning for pensions to be divested from fossil fuels?
We campaign on responsible investment, which is a toolkit of investment and engagement approaches that include divestment. We say that divestment is the right tactic when meaningful engagement with companies hasn’t had an impact. Fossil Free UK have a map of groups lobbying pension funds to divest from fossil fuels which you can use to find a divestment campaign.
Why isn’t is always easy for pension funds to simply pick good companies to invest in and bad companies not to?
Pension providers can’t charge you more than 0.75% of your pension pot per year to manage your default fund. To keep costs down they do what’s called ‘passive’ investment. Minimal research goes into finding out whether companies are doing good or bad, and next to no staff time is spent on engaging with companies. Because there is less work involved, this is cheaper. Doing lots of research on companies and practising meaningful engagement (called ‘active’ investment) requires more staff time and is more expensive. However, some pension providers are showing that responsible investment that doesn’t cost you lots of money is possible. NEST for example scored highly in our ranking of the biggest UK pension providers, doing well on both how they invest and how they engage.
How can my pension be used to achieve UN Global Heating goals such as the Paris Agreement?
Pension providers can use their power as owners of companies to carry out engagement – where they try and change the practices of companies they invest in. By asking AGM questions, and filing and voting on shareholder resolutions, they can push companies to align their business model to the goals of the Paris Agreement – a world with only 1.5 degrees of global heating. If companies refuse to engage or take action, then the pension provider should divest.
Send us any more questions to email@example.com
our pension has an impact on the world around you right now. But don’t forget it’s there for your retirement – to give you money to live on when you want to work less, or stop working altogether. Here are some useful links to find out more about saving for retirement: