What is a green pension and could one be the right choice for you?

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Life can be hectic and reducing your carbon footprint might not be your top priority. But even small changes can make a big difference to the environment.

Perhaps you already take steps to live more sustainably – recycling waste, buying environmentally friendly products, and so on.

But you might not be aware that switching to a “green pension” might be one of the most impactful changes you could make to protect the planet.

According to research published by Make My Money Matter, opting for a green pension is 21 times more effective at cutting an individual’s carbon footprint than adopting a vegetarian diet, changing energy suppliers, and giving up flying combined[1].

Read on to find out what a green pension is and how making the switch could benefit both you and the planet.

If you have a green pension, your savings will be invested in environmentally positive companies

When you pay contributions to your pension fund, your money is invested to grow your savings pot until you retire and need to draw on it.

If you have a green pension, your provider will ensure that your money is invested in companies that actively promote sustainability. Alternatively, your provider might avoid investing in companies that contribute to environmental challenges. Some providers combine both approaches.

Either way, opting for a green pension could be a positive step towards reducing your carbon footprint and supporting companies that aim to protect the environment.

Green pensions have become more attractive and are growing in popularity

Until relatively recently, if you wanted to switch to a green pension, your options may have been limited.

Historically, sustainable funds also had a reputation for delivering poorer performance than more traditional funds that invested in lucrative industries such as fossil fuels.

But over the past few years, things have shifted, and savers now have a greater choice of sustainable pensions. Indeed, many of the biggest providers, including Aviva and NEST, as well as newer companies such as PensionBee, now offer green pensions. 

And research shows that people in the UK are increasingly interested in sustainable savings options. According to survey results published by This is Money more than half of workers desire a green pension that helps tackle climate emergency[2].

If you’re similarly curious about greening your retirement savings, a sensible first step might be to explore the options available.

Choosing a fund that’s right for you

Having a greater choice of green funds could make it easier for you to find a pension that aligns with your values and financial goals.

However, there’s minimal standardisation in the way funds are described, which could make it hard to compare different funds – terms such as, “responsible practices”, “impact investing”, and “ethical exclusion” might not mean much to you.

So, if you’re interested in switching to a more environmentally positive pension, it may benefit you to seek help from a financial professional. They can help you understand the different options available and support you in setting clear goals about your green values and how this translates to your portfolio.

If you’re finding the choice a little overwhelming, it’s worth persevering because…

Switching to a green pension could benefit you and the environment

There are several compelling reasons for considering a green pension.

Switching may be easier than you think

While comparing different funds and choosing which is right for you may feel confusing, once you’ve made a decision, making the switch itself is relatively simple and usually only takes a few weeks.

However, it’s worth checking with your provider if there are any restrictions on when you can transfer your pension. This is particularly relevant if you are at or nearing retirement, as 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 do so.

There’s more choice than ever before

With both new and more established providers now offering green pensions, it’s far easier than it was previously to find a fund that matches your needs and values.

However, comparing different options may be tricky. Also, if you’re switching from a default fund – where your savings are invested for you by your provider – to one where you’ll be taking a more active role in picking investments, it may be worth seeking professional advice before making any changes.

A financial planner can assess your appetite for risk and help you diversify your investments to align with your long-term goals.

Sustainable funds may deliver higher returns

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

However, research published by Morgan Stanley has revealed that sustainable funds saw a median return of 6.9%, beating traditional funds’ 3.8%, in 2023[3]. Remember though, the performance of pension funds can’t be guaranteed.

So, switching to a green pension could not only support the environment, but it could also be good for your wallet.

You could align your pension with your values

If you’re currently enrolled in your employer’s default pension scheme, you may not know where your money is invested.

By asking your provider for more information about how they invest your savings, you could decide whether this aligns with your values.

If not, it could be worth transferring your money to a more sustainable pension.

Reduce your carbon footprint

According to research published by Lloyds Banking Group, FTSE 100 company pension funds currently finance seven times more carbon emissions than their own company operations, resulting in 131 million tonnes of unreported carbon emissions each year. And there is nearly £3 trillion invested in UK pensions [4].

So, by opting for a green pension, you could potentially reduce your carbon footprint. And, if more people switch to sustainable funds this could have a positive impact on the UK’s overall carbon emissions.

Get in touch

If you’d like to find out more about green pensions and how you could make the switch, please get in touch.

Please email us at info@aspirafp.co.uk or call us on 0800 048 0150.

Please note

The information contained in this article is based on the opinion of Aspira and does not constitute financial advice or a recommendation for any investment or retirement strategy.

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.  

[1] https://makemymoneymatter.co.uk/21x/

[2] https://www.thisismoney.co.uk/money/pensions/article-10468749/Green-pensions-desired-half-savers-poll-shows.html

[3] https://www.morganstanley.com/ideas/sustainable-funds-performance-2023

[4] https://www.lloydsbankinggroup.com/insights/do-green-pensions-matter.html

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