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How “greening” your pension could help you reduce your carbon footprint

Many of us are looking for ways to reduce our carbon footprint. Learn why “greening” your pension could be an effective way to do this.

28/02/2024
Benchmark customer focused

Environmental awareness has grown considerably in the last few decades and many of us are making positive changes to reduce our carbon footprint.

According to the Climate Change Committee [1], its Fifth Carbon Budget revealed that 40% of UK carbon emissions came from households. This includes emissions from heating, electricity use, waste, and transport.

So, by managing energy use at home, driving less, and being mindful of waste, the average person could reduce their carbon footprint. However, it’s important to remember that only 40% of the emissions are generated by households, so personal changes at home can only do so much.

That’s why it’s important to consider the businesses you support, both by spending and investing. In fact, changing the way that your pension is invested is one of the most powerful ways you can reduce your effect on the environment in 2024.

Read on to learn how “greening” your pension could help you notably reduce your carbon emissions.

“Green” pension funds support sustainable businesses and avoid investing in harmful practices

When you pay into a pension, the funds are invested with the goal of generating growth over time. Often, people don’t consider where their pension savings are invested and may not realise that they have a choice about this.

However, many pension providers offer different funds you can choose, and sustainable funds are becoming more common. Your financial adviser can help you choose an appropriate fund to fit into your financial plan.

Usually, a sustainable or “green” pension fund pledges to avoid investment in businesses that contribute to environmental damage. They might also focus on investing in areas that drive change and provide solutions, such as clean energy companies.

Some funds position themselves as “ethical” funds so, as well as considering the environment, they also avoid investing in businesses that are designated as socially problematic – weapons or tobacco companies, for example.

“Greening” your pension by moving your savings into one of these funds could mean that your retirement plan more closely aligns with your morals and wider priorities.

Moving your pension into sustainable funds could save emissions equal to 11 return flights to New York

There is some scepticism about sustainable investing, especially after reports of “greenwashing” – companies presenting themselves as “green” despite their practices damaging the environment.

So, you might wonder how much difference greening your pension actually makes.

According to Scottish Widows [2], it is one of the most powerful ways to reduce your carbon footprint. The company found that 67% of people do not know how to switch their pension savings to responsibly invested funds. Yet, by closing this knowledge gap and switching to green funds, UK pension holders could collectively save 386 million tonnes of carbon emissions each year.

That is equal to the emissions generated by 11 return flights from the UK to New York for each person.

For comparison, the Independent [3] reports that following a vegan diet for two years saves less emissions than you produce by taking a single return long-haul flight.

This means that choosing a sustainable option for investing your pension funds could make more of a difference than most regular lifestyle changes you make.

You should speak to your adviser before making changes to your pension

Greening your pension might be an effective way to reduce your carbon footprint but it’s important to consider how it could affect your retirement plan.

Each fund has a different level of risk, and the growth you achieve will depend on how your savings are invested. When choosing a fund, your adviser will pick one that aligns with your retirement saving goals.

For example, if you’re relatively young and have decades before you retire, they may decide to opt for a high-risk fund that could potentially generate more growth. This might be suitable because you have more time to allow investments to recover from a period of volatility, and your primary goal is likely to accumulate wealth. Your financial adviser will determine a level of risk that is appropriate for your personal circumstances.

Conversely, if you are close to retirement, they may opt for a lower-risk option instead as you have already accumulated enough in your pension and don’t want to risk your investments losing value.

What if you don't have a financial adviser?

While you might be willing to make some sacrifices to reduce your carbon footprint, it's important to get financial advice before making any changes to your pension. That way, you can understand what effect moving your savings into a different fund could have. Bear in mind that the sustainable fund offered by your current pension provider won’t necessarily be the most suitable choice for your retirement plan.

Ultimately, this means you can make an informed decision and ensure that you balance your retirement plan with your ethical views.

Get in touch

We can help you find ways to adjust your retirement plan to align with your morals and wider goals.

Please visit our contact page or speak to your adviser.

Please note

This article 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.

[1] 19.01.2024 The Fifth Carbon Budget The Climate Change Committee

[2] 19.01.2024 Greening pensions Scottish Widows

[3] 19.01.2024 Climate crisis: Two years of vegan living cancelled out by one long-haul flight, study suggests the Independent

Important information

The views and opinions contained herein are those of Benchmark Financial Planning. They do not necessarily represent views expressed or reflected in other Benchmark Financial Planning communications, strategies or funds and are subject to change. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable, but Benchmark Financial Planning does not warrant its completeness or accuracy. The data has been sourced by Benchmark Financial Planning and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. Benchmark Financial Planning is not responsible for the accuracy of the information contained within linked sites. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past Performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Issued by Benchmark Financial Planning Limited. An Appointed Representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority, the registration number is 223112. Registered office: Broadlands Business Campus, Langhurst Wood Road, Horsham, West Sussex, RH12 4QP. Registered in England and Wales No 07572431.

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Benchmark Financial Planning is an Appointed Representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority, the registration number is 223112. Registered office: Broadlands Business Campus, Langhurst Wood Road, Horsham, West Sussex, RH12 4QP. Registered in England and Wales No 07572431.

The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service, please visit www.financial-ombudsman.org.uk

The guidance and/or advice contained within this website are subject to the UK regulatory regime and are therefore targeted at consumers based in the UK.