So, I hear you’ve been working on making your pension climate-friendly. Have you succeeded?
I’m reminded of all the times during family conversations when my son quietly left the room and closed the door, then rolled around on the floor outside yelling: ‘Ha! Ahahaha! AHAHAHAHAHA!’
How do you know he did that if he left the room?
It was a glass door.
Ah, I see. As, presumably, did you. Well, anyway … I take it that’s a no?
Well, we’re well on the way to having a pension fund that’s more climate-friendly than most. That’s the best I can say.
But isn’t it straightforward these days to invest your pension however you like?
Kind of. You can set up a SIPP (Self-invested Personal Pension), and invest in something close to the whole gamut of funds, shares, bonds etc. There are also financial advisers specialising in ethical investing who can do this on your behalf.
That sounds good. So what were the problems? Was it difficult to transfer your existing pension into a SIPP?
Actually, no – that went fairly well. If you don’t count the fact that during the time the funds were on the move the pound fell, meaning that by the time they arrived in our SIPP, we had several thousand pounds less than we would have done if we’d started a couple of days earlier or later.
Yes, but it was a good lesson. Even cash, which the portfolio modelling tools regard as zero risk, can be a hazardous place to hold your assets.
So what other issues did you have?
Pension funds are a mainstay of capitalism. Managing one is all about making financial transactions. Not to put too fine a point on it, the use of money creates something like a pathological disconnect between you and the thing(s) you’re affecting. To put it another way, when you deal in money, you’re potentially a bit like a blind psychopath flailing around with an axe with the vague idea of ending up with a pile of firewood.
Hang on – you can’t be against money? That raises problems way beyond pensions …
I know 😦 What can I say, I read too much Mark Boyle, and it all makes sense.
Moving on … what were your hope and dreams for your pension investments?
I suppose we hoped to be able to support things like climate-friendly farming and land use, green building, community projects, recycling and repurposing, renewable energy, workers’ co-operatives, the arts …
I get the picture. How did that go?
Not too well. Pension funds mainly hold shares, and shares are in big companies. The kind of enterprises we had in mind are not usually traded on the stock exchange. Digging into the funds, we found that those with words like ‘ethical’ and ‘sustainable’ in the title tend to trade in big corporations specialising in things like software, pharmaceuticals, packaging, clothing, services, technology, banks, insurance companies etc etc.
So not as positively climate-friendly as you’d hoped?
A few ‘ethical’ funds do have some shares in renewable energy companies. And many fund managers say they work with companies to ensure they have strong environmental policies etc. These funds exclude, and sometimes include, funds based on certain criteria – though one ‘environmental’ fund holds shares in a natural gas company. Healthcare is often a theme. It all feels a bit BAU, tbh.
Show some restraint with the acronyms, please. What’s BAU?
Business as usual. i.e. the thing that is destroying the climate and the ecosystem as we know it.
Ah right, yes, I see what you mean. Are there exceptions? What about Triodos?
We had high hopes for the Triodos funds, but they don’t seem to be available for pension investment. The world of funds is not entirely without light however – there are a few that are apparently a bit more promising, like the Jupiter Ecology Fund.
Can you only buy funds that trade in shares?
No – you can buy funds that trade in bonds as well.
What exactly *are* bonds?
Bonds are fixed interest loans, either to companies or governments. Often bonds funds look pretty BAU-ish too, investing in banks and such. Quite a lot of these funds are low return and ‘low risk’ (I’m using quotes because the risk of catastrophic financial meltdown doesn’t seem beyond the bounds). Others are riskier, for various reasons.
What about Abundance Investment? I hear you can invest your pension in interesting green projects through them?
It’s true, Abundance does look interesting. We’re planning to dip a toe n that water. But there is the question of risk to be considered.
The Abundance projects offer fixed interest, and they seem to have a pretty reliable track record. Often the projects are run by local councils, for instance – surely that’s low risk?
When you set up a portfolio of funds, there are modellers which have a go at quantifying risk – there are a couple of scales on which risk is rated. (I’ll do a post about risk later.) But individual, small-scale schemes by their nature are probably off that scale – that’s the rumour I heard, anyway.
Where are you putting your ear to the ground?
On the Money Saving Expert pensions forum in this case.
So is Abundance not the answer?
It depends on your ‘attitude to risk’. (And that’s a whole other can of worms, of which more anon.) Received wisdom within the finance world appears to be that such investments ought only to form a modest part of a pension portfolio, certainly for anyone nearing retirement. And when I went through the process of setting up an Abundance SIPP, if memory serves me, I had to promise I wouldn’t invest more than 10% of my pension fund there on my own initiative.
Oh. Any other bright ideas?
You can also invest your SIPP in corporate property.
That sounds interesting.
It can definitely be done. And you can even rent the property from yourself, though it has to be on commercial terms.
I’m beginning to feel befuddled. I’m going for a cuppa.
I haven’t told you all the problems yet!
Quickly then, I’m about to reach overload.
Here are the main ones – we’ve talked a bit about the first three.
- Money is intrinsically dissociating.
- Investments tend to be in big corporations.
- It’s scary. Money can disappear in a gust of wind, like the abstract concept that it is. When you’re managing your own pension fund, you’re exposed to a lot in the way of vagaries.
- There’s no obvious way to get financial advice whilst managing your own pension.
- There’s no obvious way to design an optimal portfolio that considers ethics, risk, reward, geographical spread, sector spread etc etc etc.
- There’s no obvious way to mitigate against the risk of financial collapse like the one being seen in Belarus right now.
- There’s a secret language.
We can talk more about all these things another time. Now where shall we go for that cuppa?
Look, you can come, but no more talking about money today.
Understood. You really should read that Mark Boyle book …
Part 2 of this blog series is here.