How can I tell if my pension is ethical?
31 July 2024
Question by Amy
I have a £50k pension pot with PensionBee (I’m 45, self-employed), currently on their Tracker plan. I’ve been looking to switch to their Fossil Fuel Free plan as I’d like to feel more ethically sound about my investments. I’ve also looked at Moneyfarm although I'd prefer to stay with PensionBee. My question is, what should I look for in an ethical pension plan to know it's pretty sound? The PensionBee FFF plan is heavy on tech (30%) and the US (63%). Is that good? I don’t really know what I should be looking for!
Answered by Boring Money
It's hard to answer this question precisely! "Good" depends on perspective - general principles of investing suggest that diversification, which involves spreading investment across different regions and sectors, is pivotal.
Stock markets in the US account for roughly 60% of world stocks, so from that perspective, 63% in the US is not alarming. Tech stocks have been huge drivers of growth in the past and have delivered amazing returns, particularly in the past decade.
There is much debate between investment managers as to whether tech as a sector will continue growing at the same rates or whether it is reaching/has already reached the point where it is overvalued.
In truth - no one has a crystal ball and it is up to you to find exposure you feel comfortable with!
One way to do that could be to take our sustainable investing quiz. Answer some questions about your investment preferences and we'll suggest a range of funds that may align with your beliefs. You can find a shortlist of funds at the end of the quiz and then find the regional and sector exposure with some further research on Google.
It is worth noting that the change from PensionBee's tracker plan to the FFF plan will also increase your exposure to stocks. The Tracker Plan has an 80/20 split between stocks and bonds, whilst the FFF plan is 100% invested in stocks. The Tracker plan is also classified as medium risk by PensionBee, compared to high risk for its FFF plan.
Higher risk profiles are associated with both positive and negative things. On the positive side, higher risk solutions often outperform lower risk counterparts as stocks generally outperform bonds over longer time periods and have significantly more upside potential. On the flip side, higher risk funds are often more volatile than lower-risk options and you are likely to see more fluctuation in the value of your pension.
Hope this helps to answer your question!
