Although they may pay into a pension fund every month, the average pension saver doesn’t spend much time considering what uses their money is being put to. Their chief concern is how much they’ll get back when they retire.
When you put money into a pension fund, you’re giving someone else permission to invest it on your behalf. Control over your savings is passed on to a pension fund manager, who will usually be driven, almost exclusively, by the need to achieve maximum returns.
Some of the UK’s leading pension funds make general commitments to socially responsible investment, but many do not. Saving for your retirement with one of these funds could well result in your money being used to support a variety of industries and businesses whose actions or ethics may not match your personal principles.
Options for ethical pension saving
While the big personal or stakeholder pension funds offer simplicity and relatively low charges, they do not make it easy for the socially responsible investor to control how their savings are being used.
There are some ethical pension fund options, but these still put control of your funds into the hands of a fund manager. You have very little scope to influence investment decisions.
Flexible alternatives for pension saving do exist, in the form of a Small Self-Administered Scheme (SSAS) or a Self-Invested Pension Plan (SIPP). These are both designed to allow you to manage your ethical investment choices, making them well suited to the ethically or environmentally minded saver.
Making a difference with a socially responsible pension scheme
Both SSASs and SIPPs are types of Trustee Investment Plan (TIP), which means they are managed by trustees, who are responsible for making sure the arrangement runs according to HMRC’s rules for pension savings.
However, the investor or scheme member can direct the trustees to put the funds where they choose. They can also select investment options which are not permitted by a personal or stakeholder pension fund.
The more common choices for a SSAS or SIPP investment include:
- Unit trusts
- Unlisted shares
- Open Ended Investment Companies (OEICs)
- Single company shares
- Corporate bonds
- Investment trusts (ITCs)
- Direct investment in commercial property
The breadth of choice gives you much more opportunity to direct your investment into the areas you want to focus on.
At the same time, you benefit from the investment experience and expertise of trustees, who help you balance your commitment to social and environmental improvement with the need to generate a good return.
Through a SSAS or SIPP you could, for example, support businesses with a strong environmental track record, or who are developing clean energy sources. You could invest in companies who promote fair trade, or even support a local charity through investment in commercial property.
This article was supplied by Barchester Green Investment, the UKs longest established FSA-regulated independent financial adviser (IFA) specialising in socially responsible and ethical investment