How "green" is your pension? Here's how a change could benefit you and the planet

On 5 June 2024, the Kingdom of Saudi Arabia will host the 50th annual World Environment Day. Celebrating environmental action and our collective power to create a more sustainable world, the event could be the prompt you need to assess how your lifestyle and investment choices impact the environment.

If so, you may be fascinated to learn that “greening” your pension could be a relatively small yet powerful change to help protect the planet.

Indeed, committing to move to a green pension today could reduce your carbon footprint more than you might think. Switching your retirement savings to a green pension is more effective than giving up flying, cutting meat from your diet, or transferring to a cleaner source of energy.

British pension schemes invest an eye-watering £88 billion in fossil fuel companies

According to research from Make My Money Matter, a UK-based collective committed to creating a sustainable future for all, British pension schemes invest an eye-watering £88 billion in fossil fuel companies.

100% of UK pension providers have so far failed to deliver adequate policies around fossil fuel investments. And few do much better when it comes to climate plans – only 15% have a decent climate plan in place.

While UK pensions have funds equalling around £3 trillion, there’s a total of more than $50 trillion invested in institutional pension funds globally.

With such substantial sums involved, there’s a wealth of opportunity to make significant moves towards creating a cleaner, greener, future-proofed planet.

A green pension aims to generate returns through environmentally positive investments

Green pension funds aim to generate returns though investments that protect, or at least reduce damage made to, the environment.

Typically, funds will have a clear objective to avoid or reduce investments in fossil fuel industries that generate significant carbon emissions, or will invest in companies that support reductions in carbon emissions.

Over recent years, ESG (environmental, social, governance) funds have been growing in both number and popularity. And a growing number of green pensions means that there are now more options when you’re looking for a fund that focuses on environmentally friendly investments.

And, as performance and choice of funds is growing, so too are the positive reasons to switch to a green alternative.

4 compelling reasons to switch to a green pension

1. You could reduce your carbon footprint significantly

As you learned above, a green pension could significantly reduce your carbon footprint. Research from Scottish Widows suggests that switching to a green pension fund could equate to saving emissions equivalent to 11 return flights from London to New York every year.

The more people who make the switch, the more positive overall effect we could have on global carbon emissions.

2. There’s more choice than ever

With both new and more established providers offering green pensions, it’s easier than ever to find a fund that meets your needs and values.

The downside of this is that you may find it tricky to compare funds and choose one that is right for you. This is where we can help.

After talking to you about your specific values and your long-term financial goals, we can help you understand all the appropriate options and explain how a transfer may benefit you.

We’ll also take the time to assess your appetite for risk and help you diversify your investments to align with your long-term goals, and ethical values.

3. You may find it easier to switch than you might imagine

Once you’ve reached a decision, making the switch itself is usually relatively straightforward.

Transfers can usually be completed within a few weeks. However, first you need to check with your provider to make sure there aren’t any restrictions, or particular benefits that you may lose by transferring to a different fund or different pension provider.

Some providers won’t allow you to transfer funds after you’ve started drawing money from your fund or up to one year before you intend to retire. So, this is especially important if you are at or nearing retirement.

4. Sustainable funds may deliver higher returns

Historically, green pensions have been regarded as lower-performing than more traditional funds.

However, data from Morgan Stanley reveals that, in the first half of 2023, sustainable funds saw a median return of 6.9%, compared to 3.8% returns from traditional funds.

With this in mind, switching to a green pension may benefit the environment and your wealth. Remember though, past performance is not a reliable indicator of future performance.

By working with Alexander Peter, you’re already making a positive impact on the planet

If you’re happy with where you pension savings are invested, rest assured that working with Alexander Peter means you’re already doing your bit to help protect the planet.

For example, every time we take on a new client, we plant a tree. Since signing up to tree-nation, we have planted 577 trees all over the world. From California to Indonesia, and dozens of locations in between, we’re giving back to the planet one tree at a time.

We also operate a net zero website that automatically compensates for all the CO2 emissions the site generates. By measuring the website usage and calculating its related emissions, a clever algorithm knows how many trees we need to plant to offset these emissions.

Get in touch

To find out more about switching to a green pension or other ethical investment opportunities, please get in touch.

Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455.

Please note

This article 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 not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

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