How to make your pension more ethical

Awareness of environmental issues has grown over the years and many of us are concerned about the effect that our lifestyles have on the planet.

Indeed, according to the Office for National Statistics (ONS), 74% of people said that they were somewhat, or very worried about the climate crisis. 

As such, you may want to find ways to reduce your effect on the planet, and there are lots of different ways to do this. For example, lifestyle changes such as driving less, reducing energy usage in the home, or changing your diet can all cut your carbon footprint.

However, you may not realise that your pension could potentially be working against all the other positive changes you have made. This is because, although you may be unaware, your pension funds could be invested in companies that contribute to environmental damage.

The average UK pension holder has £3,096 invested in fossil fuels

If you are an environmentally conscious person, you likely wouldn’t use your savings to fund fossil fuel companies. However, if you have not checked how your pension provider invests your funds, you could be doing exactly that.

As reported by PensionsAge, the average UK pension holder has £3,096 of their funds invested in fossil fuel companies. 

This makes a total of over £88 billion invested in fossil fuel companies by pension funds – more than 10 times the amount of money invested in FTSE 350 stocks primarily related to clean energy production.

As such, your pension savings may be supporting practices that you are opposed to, without you even knowing it.

As well as the moral implications, there is a potential risk to your retirement savings if your funds are invested in fossil fuels. More countries are moving towards net-zero and governments could well put stricter measures in place to limit fossil fuel production. 

In this case, fossil fuel companies could lose value rapidly in the future, and your pension fund may reduce as a result.

Fortunately, you likely have some control over how your pension is invested and you can make it more ethical, so it aligns with your financial and lifestyle goals.

How to make your pension more ethical

An ethical pension fund is one that invests money in companies who meet certain Environmental, Social, and Governance (ESG) standards. 

The specific criteria vary depending on the pension fund, but they generally look to invest in companies that operate responsibly and exclude those who do not.

Companies that tend to be excluded include:

  • Fossil fuel companies
  • Businesses that contribute to high carbon emissions, deforestation, or other harmful environmental practices
  • Weapons companies
  • Tobacco companies
  • Companies with a poor record on workers’ rights.

As well as excluding these companies because of their negative practices, an ethical pension fund may also focus on investing in companies that provide solutions to pressing issues. This could include renewable energy companies or recycling programmes, for example.

You can make your pension more ethical by changing which fund you invest in. Your pension provider will typically offer a choice of several different funds, one of which may be an ethical or ESG fund.

If you have a DIY pension that you manage yourself, you may have a much larger choice of funds so you may need to do more research and consider speaking with a financial planner to determine which fund aligns with your goals.

5 things to consider when making your pension ethical

Selecting a more ethical fund may be the right choice for you. However, there are some important factors to consider before making any changes to your pension.

1. The fees

A new fund may have different fees to your existing one, and this can affect the total amount you accumulate in your pension pot. 

Typically, the fees for managing your pension fund are a percentage of the money you have saved, and there are two main ways that pension providers apply fees:

  • Stepped charges – The fees apply to the total fund, and you fall into a certain band depending on how much you have saved.
  • Tiered charges – Your money is split into tiers, which fall into different bands, so the fees charged vary for each tier.

As well as these charges, you may also have to pay transaction costs and trading fees, as well as a separate policy fee, depending on your pension provider.

Before you invest in a different fund, it may be useful to check all these fees and ensure that you understand exactly what your pension provider will deduct from your savings.

2. The level of risk

The level of risk is different for each fund because it is dependent on which companies the money is invested in. Funds may have a higher level of risk if they invest in more young, high growth companies, for example. 

As such, it is important to understand the level of risk associated with a given ESG fund and consider whether it aligns with your own tolerance for risk.

3. The potential for “greenwashing”

There are many companies that are genuinely dedicated to reducing the damage they do to the environment. 

On the other hand, some companies are guilty of “greenwashing” – making themselves appear to be ethical and environmentally friendly because it is important to consumers when, in reality, their business practices are the opposite.

Unfortunately, greenwashing can be difficult to detect and your pension provider may not realise that companies they invest in are guilty of it. 

So, it may be a good idea to do your own research into those businesses to ensure that their practices align with your moral and financial attitudes.

4. The diversity of your investments

Diversifying your portfolio could help you manage risk when investing, and this is something you may want to consider with your pension.

Although investing in ethical practices such as renewable energy might be important, you may need to check that the fund still spreads your investments across different sectors or regions. 

There are many different businesses that work to protect the environment and make positive changes, so an ethical fund can still be diversified. 

5. Changing your pension provider

Although many pension providers offer an ethical fund option, not all of them will.

If an ethical pension is important to you, and your current provider does not offer options that meet your standards, you can always consider changing pension provider.

The important thing here is that you take the time to research different providers and check what funds they offer, the fees they charge, and how you can manage your retirement savings. 

Working with a financial planner may be beneficial if you find it difficult to determine which pension provider is right for you.

Get in touch

You have many options for ethical investments and pension funds that align with your wider goals. Get in touch today to learn more.

Please contact us at or call 01904 655 330. As an award-winning financial advice company that was a 2022 VouchedFor Top-Rated firm, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.

Please note

This blog 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 results. 

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.

Get in touch

By talking about your current situation and listening to your aims, we create a personalised plan that will put you on a path to achieving your aspirations.

More articles

12 Jun 2024 News

A financial planner could help your clients avoid making these investment mistakes

Read more

12 Jun 2024 News

5 fantastic pieces of client feedback that demonstrate the benefits of working with Ardent

Read more