Home Switching your pension could be the secret to reducing your carbon footprint

Switching your pension could be the secret to reducing your carbon footprint

Switching your pension could be the secret to reducing your carbon footprint
by bespoke

Do you want to reduce your environmental impact? Your pension could provide a way to substantially reduce your carbon footprint in just a few clicks.

A study by Scottish Widows suggests changing how your pension is invested could have a much greater environmental impact than other lifestyle adaptations.

Shipra Gupta, responsible investment lead at Scottish Widows, said: “Understanding of the climate crisis has changed dramatically over the last few years, with countries and organisations being bolder in their net zero targets and individuals making changes in their lifestyle to cut their household carbon emissions.

“Yet, most people are unaware that pensions are one of the most powerful tools at our disposal to make real progress towards net zero.”

Making your pension green could reduce your carbon footprint more than cutting out flying

When you think about how your lifestyle contributes to climate change, your mind might turn to the fossil fuels that could be used to heat your home, or the last long-haul flight you went on.

But how you invest your money could add up to far more than other lifestyle decisions. Indeed, Scottish Widows estimates that switching to a green pension would save emissions equal to 11 return flights from the UK to New York every single year.

Collectively, the research estimates that if UK consumers switched to sustainable pension funds, carbon emissions could be cut by up to 386 million tonnes every year.

If you underestimated the effect your pension investments could have on the climate crisis, you’re not alone. Brits ranked savings and pensions last for perceived environmental impact.

Making your pension sustainable doesn’t mean missing out on investment returns

Your pension is typically invested as this presents an opportunity for your contributions to grow. As your pension is likely to be invested for several decades before you access it, investment returns could play an important role in securing a comfortable retirement.

The good news is that choosing a sustainable pension fund doesn’t have to mean accepting lower returns and, so, a potentially reduced income in retirement.

However, that doesn’t mean you should automatically change your pension investments without weighing up the implications first.

A sustainable investment fund will often avoid certain industries or businesses. For example, those with a focus on tackling climate change might avoid investing in fossil fuel companies. Alternatively, the fund might choose to invest in firms that are taking steps to reduce carbon emissions. These investment decisions could affect the performance of the fund.

There might be other factors you need to consider too. All investments carry some risk, but it varies between opportunities. A pension fund with a different risk profile might not be appropriate for you, even if it aligns with your values.

So, as well as being aware of the environmental impact of your pension, consider how your decisions could affect your retirement plans.

Switching to a “green” pension is often simple

If making your pension savings greener is something you want to pursue, the good news is that three-quarters of companies in the UK offer a green or ethical pension fund to their employees.

74% of pension savers said they were keen to learn more about sustainable options for retirement savings. Yet, despite this sentiment, switching to a sustainable pension fund is something only 10% of the UK population has done.

The research suggests it’s a lack of awareness that’s holding many people back from switching their pension – 67% of pension savers said they didn’t know how to change to a responsibly invested fund.

Usually, a pension provider will have a selection of funds you can choose to invest through. They’ll often have a range of investment risk profiles, as well as those that are “sustainable”, “responsible”, or “green”. If you’ve never selected an investment fund, your retirement savings will normally be in the default option.

If you have an online account for your pension, you may be able to change how it’s invested with just a few clicks on your phone. Alternatively, you can contact your pension provider to request a change.

Keep in mind that different sustainable investment funds will set their own criteria, so how they invest may not align exactly with your views. You can review the fund’s asset allocation and principles to assess if it’s right for you.

Get in touch to talk about sustainable investments and pensions

If you want to make your finances more sustainable, we could help.

As well as reviewing how your pension is invested, you might also want to consider your wider investment portfolio. With an investment strategy that’s tailored to you, we could help you balance your retirement and sustainability goals.

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 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.

Workplace pensions are regulated by The Pension Regulator.