Understanding your pension or investment fund

Perhaps you’ve got a pension or a few schemes from different periods of employment, but do you know what you are actually invested in? 

Pensions and ISAs

The majority of people now have a Workplace Pension Scheme as a result of the Auto Enrolment laws being rolled out progressively since 2012. Others may have individual or group personal pensions from the past, and some have explored the power of the stocks and shares Individual Savings Account (ISA) since the limit was raised to £20,000 per person.

A recurrent theme is that many people do not understand how their pensions/ISAs are invested by the fund managers. This is especially common with a Workplace Pension Scheme, as each employer is required to choose a default fund that is least unsuitable for the majority of their workforce. This ensures the money is invested in something, as many staff sadly still do not engage with their pension choices.

Investment choices

There is a common occurrence where there is a disconnect between what the client expects the ‘social norm’ position to be on certain issues and what is the large market investment norm in reality. This is especially true in the under 40s, who look unfavourably on gambling, tobacco, animal testing, political lobbying, sub-standard labour practices and unaddressed gender pay inequality.

Decarbonisation

Some older pensions use the FTSE 100 Index as the basis for their growth funds. The FTSE 100 at 31 December 2019 was populated with 11.8% companies in the Fossil Fuels sector. So, for every £100pm pension contribution, £12pm is allocated to such companies. This means a 22-year-old auto-enrolled worker could potentially be funding these firms until 2066 16 years after the UK is supposed to be net-zero for carbon/greenhouse gas emissions.

Most default pension funds will have some pre-requisite conditions before a company is considered ‘investable’. These conditions are generally:

  • Market capitalisation (size of the company);
  • The liquidity of the shares (being easily bought/sold) and;
  • The index on which they are listed (being recognised).

They do not restrict, exclude or screen out investment in any of the previously mentioned ‘sensitive’ sectors.

Ethical investments

A lot of Workplace Pension Schemes now offer ethical investment solutions (Socially Responsible Investing (SRI), Environmental, Social and Governance (ESG) and Sustainable), within their core offering. If they do not, they are certainly available in the open market. These types of solutions no longer suffer from higher fees, small choice and low performance.

The investment universe for ethical (as well as the number of savers interested) has grown exponentially over the last decade and is now a fully functional and accessible alternative to ‘mainstream’ investment choices. Individuals have never had greater choice or control over how their pension or investment capital is allocated.

We owe it to ourselves and the next generation, to make a proactive choice and align our invested capital with our view of the world. This can and will make a difference in the long term.

How can we help?

We offer Workplace Pension Seminars to the businesses we support. These businesses have found that staff have subsequently taken control of their pension savings trajectories, achieving better outcomes.

If you would like to discuss the above issues or any other financial planning needs for individuals, trusts or companies, please get in touch with one of our Financial Advisers.