How can I find out if my civil service pension is invested ethically?

Could you please tell me how I find out how my pension is invested.

I’m in the civil service pension scheme, and I’m interested how the money is invested, that it is not invested in fossil fuel industries and that it is invested ethically. I could not find any data on this.

Could you send me a link to a reliable source if it exists?

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Researching a retirement fund: How can I find out if my civil service pension is invested ethically, and not in fossil fuels?

Steve Webb replies: With literally trillions of pounds invested in UK pension funds there is growing interest in how that money is invested and whether it is being used for good as well as to maximise the value of your pension.

For reasons I will explain, this issue doesn’t actually arise in the case of the civil service pension scheme, but I will also cover how other readers can find out more about how their money is invested.

The pension schemes for civil servants, NHS workers and teachers are what are called ‘unfunded’ schemes. This means that there is no money set aside for your future pension and therefore there are literally no investments – ethical or otherwise.

Instead, your contributions and those of your employer simply go into the government’s coffers each year. Then, when you retire, your pension will be paid out of the contributions made by tomorrow’s civil servants and by tomorrow’s taxpayers.

These sorts of ‘unfunded’ pension schemes are however pretty much unique to the public sector.

Even within the public sector, the Local Government Pension Scheme has a large investment fund, and private sector pensions are also backed by investment funds.

STEVE WEBB ANSWERS YOUR PENSION QUESTIONS

       

Members of these schemes may well have questions about how the money in their fund is invested.

It is worth thinking first about traditional salary-related (or ‘defined benefit’) pensions and then about more modern ‘pot of money’ (or ‘defined contribution’) pensions as the issues are slightly different.

What happens in defined benefit pension schemes is especially important when it comes to ethical or ‘responsible’ investment because this is still where the bulk of pension money is sitting.

With defined benefit pensions, a set of trustees is responsible for overseeing a fund which is invested in order to deliver pensions to all members for as long as they live.

As a member you have historically had no say in how that money is invested. But whilst members of such schemes are obviously interested in making sure that their pensions are paid in full, there is a growing level of interest in what is going on ‘under the bonnet’ in such schemes.

As a result, the Government and the Pensions Regulator are gradually stepping up the rules on making sure that such schemes report on their investments, especially with regard to their climate change impact.

Most larger schemes will have websites, produce annual reports and so on, with information about investments.

There are also various official documents such as ‘chair’s statements’ and ‘statements of investment principles’ which give members more to go on.

Growing numbers of schemes are making announcements about their plans to ‘go green’ or to pull out of investing in industries such as tobacco.

However, these sorts of schemes are very much ‘collective’ in nature. There is not an individual ring-fenced pot with your name on it.

This means there isn’t a simple answer to the question as to how ‘your’ pension money is invested. The fund as a whole will be invested in a wide range of assets, across different financial markets, and usually in quite complex financial products.

Making sense of all of this can be very difficult for the ordinary member, and you should certainly contact the scheme if you feel you are not getting a clear answer on its approach to investments.

With a defined contribution pension, things are in some ways simpler. In this case there is in general a ring-fenced set of assets which relate to your individual pension.

What is a ‘default’ pension fund? 

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Although, again, this may be invested in a range of funds and products, it can be slightly easier to see how ‘your’ money is being invested. 

In addition, many such schemes allow you some choice over how your money is invested.

Whilst there will usually be a standard ‘default’ investment arrangement for those who make no active choice, you can generally opt for a different investment mix, though recognising that there may be a higher cost for doing so.

Because of the challenges which individual investors can face in making sense of all of this, and to make sure that the collective voice of concerned investors is heard, there are various information and campaigning organisations which exist to promote responsible investment.

One recently launched campaign, very much designed with the general public in mind is ‘Make My Money Matter’ which stresses the importance of individuals finding out how their money is being invested and trying to make sure that this is in line with their values.  

Ask Steve Webb a pension question

Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.

He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.

Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.

If you would like to ask Steve a question about pensions, please email him at [email protected].

Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.

Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.

If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0800 011 3797.

Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.  

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