Your ‘ethical’ pension isn’t as ethical as it seems
Do you know where all your pension money goes?
Most people probably don’t think about it, but all that money is being invested by pension fund managers in the hope that by the time you retire, it’ll have grown with interest.
Where exactly that money is being invested is harder to figure out, most of the time it’s boring stuff like government bonds and FTSE 100 tracker funds, but sometimes your money can end up in rather unethical businesses like tobacco giants or mining corporations.
But today there’s a growing unrest, especially among younger savers, around where their money is being quietly invested — leading to the rise of ‘ethical pensions’.
What is an ethical pension?
“People are really starting to care about these things.”
It makes sense, especially with the rise of auto-enrolment in the UK, that more people have pensions on their mind.
But what exactly is an ‘ethical’ investment? It’s not an easy question to answer.
Different things for different people
“For some people it needs to be solar energy and green, green, green,” says Martens.
“For other people it just means that companies are responsible with their employees or workplaces. It really could mean anything.”
The lack of any standards around what is or isn’t ‘ethical’ has led to a situation where many ‘ethical’ investment funds are actually less socially responsible than ‘normal’ funds.
But surely ethical investments won’t be as profitable as more unethical ones? Well, kind of.
The hidden costs
There is a cost for being more ethical, mainly because there are just fewer ethical ‘things’ to invest in.
“A lot of ethical investments are potentially higher risk because their investment pool is so much smaller,” Charlie Nicholls, managing partner of Equality Capital, told The Memo.
Equality is a wealth management firm which invests exclusively in LGBT+ friendly companies and countries.
Generally the ‘stricter’ the ethics of the fund, the more its performance may suffer.
An ethical future
Are you worried your pension might be funding nasties, whether arms, oil or tobacco?
“People are becoming more aware of how globalisation doesn’t actually benefit everyone, and you have to be more sensible with your investment choices if you want to make a difference,” says Nicholls.
As more people become more aware of where their money is going, it’s not surprising that we want to take more ownership over what we’re funding.
As Martens of PensionBee — which is preparing to launch its first ethical pensions products — says:
“Some will want ethical pensions, other will want one with the lowest cost structure, but that’s a decision people will want to take.”
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