Pensions Overview

Search for your occupational pension amongst the UK's top 100

How your pension works

Different types of pensions

Your next steps

Top 100 UK occupational pension funds

EIRIS recently contacted the top 100 UK occupational pension schemes and invited them to take part in a survey to find out the extent to which they incorporate environmental, social and governance (ESG) issues such as human rights, poverty and climate change into their investment process. There was a 40% response rate.

If your pension fund is amongst the top 100 and responded to the survey or has published relevant ESG information publicly, you can view a profile we have built based on their policies here.

If your pension provider is amongst the top 100 but did not respond to the survey, check out our guide Next Steps - Pensions to find out how to contact them and what questions you should ask. You'll also find template emails/letters to help you.

How your pension works

The contribution that comes out of your monthly pay cheque, or that you invest independently, is used by your pension fund manager to buy shares in companies listed on the stock market as well as to invest in cash and bonds. When selecting who to invest in, pension fund managers have a choice of thousands of investee companies operating across a huge range of industries both in the UK and globally. But do they ensure that the companies they invest in conform to high green, ethical and governance standards?

All pension funds should ideally incorporate green and ethical considerations into their investment decisions. This could involve engaging with investee companies to improve their green and ethical performances and exercising their voting rights to encourage the same. The funds should behave in a responsible and transparent way, fully disclosing all their investment policies and practices. There is also a growing view amongst investment professionals that ESG issues can affect the performance of investment portfolios by mitigating risk in related areas.

There are a number of green and ethical initiatives pension funds can sign up to for guidance on responsible investment, including the UNPRI, Carbon Disclosure Project and Institutional Investors Group on Climate Change. These provide guidance on key green and ethical issues.

In July 2000, the UK government enacted a law that requires occupational pension funds to disclose whether or not they incorporate any social, environmental or ethical assessments into their funds' investment strategies. In other words, occupational pension funds are legally bound to state their ESG (environmental, social and governance) practices and policies. Funds are not obliged to incorporate these elements however, just to state whether they do or they don't.

Different types of pensions

Basic State Pensions

These are paid for by National Insurance Contributions (NICs) and the taxes of those in work. The amount you receive will depend on how many qualifying years you build up before state pension age.

Occupational pensions

These are set up by an employer for their employees. They differ from a government pension and personal pensions which are set up by the state or the individual respectively. In 'contributory' schemes both the employer and employee put money into the fund. In 'non-contributory' schemes, only the employer makes a contribution.

Personal pensions

These are where an individual has an agreement with a pension provider to save money for their retirement. Individuals pay a regular and/or lump sum to a pension provider, who invests the money on their behalf. Money which has built up is then used to provide an income upon retirement.

Self-invested personal pensions (SIPPs)

With standard personal pension schemes, investments are managed within the pooled fund, whereas SIPPs are a form of personal pension scheme that allows investors to choose and manage your own investments. Alternatively you can employ an authorised investment manager to make investment decisions for you. SIPPS may have higher charges than other personal pensions or stakeholder pensions. This type of pension is better suited to people with financial experience.

Stakeholder pensions

These are a type of personal pension where an individual has an agreement with a pension provider to save money for their retirement. You can make regular, or lump sum, contributions whenever you like. Your employer can also make contributions. Stakeholder pensions usually offer a range of investment funds, with differing degrees of investment risk and potential investment growth.

Visit the FSA's Money Made Clear site for further information on pensions.

Your next steps

By adopting ESG policies, pension funds can help to persuade companies to improve their green and ethical behaviour. As a pension scheme member you have a say in how your money is invested and the companies it is invested in. You can encourage better investment selection by your pension fund and help ensure that the fund's decisions more accurately reflect the interests of its membership - to whom it is ultimately accountable.

Check out our guide Next Steps - Pensions to find out how to contact your scheme and the questions you need to ask them. You'll also find information on steps you can take to ensure that green and ethical considerations become part of the pension fund process, such as becoming a trustee and combining your efforts with advocacy groups.

Reference

• ¹http://www.responsible-investor.com/home/article/nsfm/