Choosing an ethical pension
Ethical Consumer helps you navigate the stormy seas of saving for later life.
“There is a spectre haunting the global pension fund industry. It is the spectre of a complete failure of common sense. It is driven by an outdated and increasingly dangerous ideology of infinite growth, and is held in place by structures of power and cultural inertia.”
Brett Scott, A hacker approach to rewiring pension funds. 
The world of pensions in 2014 is contested territory. An increasingly confident environmental lobby is now single-mindedly focused on pension funds’ backing for oil and gas. And anxious governments in economies with ageing populations are looking for ways to entice people to save for the future.
There are four (sometimes overlapping) options in this increasingly complex area:
1. You’re in an occupational pension scheme
Most financial advisers are agreed that, if you are lucky enough to be in one of these, staying put makes financial sense. However, if you are at all concerned about climate change, a number of increasingly vocal campaigns are beginning to plead with you to help them lobby your scheme on their behalf.
The intellectual heart of these campaigns is www.carbontracker.org which is asking pensions how confident they are in valuing their oil, gas and coal shareholdings into the future.
The campaign group ShareAction has a website where you can select your pension scheme from a dropdown menu and send them a prepared email asking about their ‘carbon bubble’ assets. They also have loads of detail on the work they’re already doing with individual pension schemes. This is covered in a separate article on their Green Light campaign.
The website ‘Push Your Parents’ encourages students to push their parents into asking their pension funds to assess the risks of climate change when investing their money. Its succinct, if profane, messaging approaches the subject from a different angle.
The EIRIS website has a whole section for people working to engage their funds on a whole range of ethical issues even to the extent of becoming a trustee of the pension fund.
2. You want to organise a personal ethical pension
Whether you want a stand-alone fund, or to top-up an occupational scheme, the score table above ranks some of the main companies you are likely to come across. The way ethical pensions usually work is that they are ‘linked’ to an existing ethical investment fund which we have covered in more detail in our guide.
Many of the companies on the score table above will offer lots of different linked options. For example, you can get an Aviva Jupiter Ecology Pension or an Aviva F&C Stewardship Pension or a Legal & General Kames Pensions, and so on. There were 147 different options when we last looked and there is an excellent listing facility on the trustnet.com website.
Using the same approach as the Ethical Investment Fund ranking, we have marked companies down for shareholdings in problem companies except for the two (F&C and Standard Life) scoring best in the ShareAction ranking of transparency and engagement and where there are direct external criticisms. 
This area is so complicated that seeking independent financial advice is usually recommended. It should also be noted that commentators are also divided as to whether this type of pension arrangement is still a good option (see ‘Off-piste saving’ below).
3. You’re (about to be) ‘auto-enrolled’ in the new government scheme
Most employees in the UK, not already in a pension scheme, will be auto-enrolled in a widely-praised new compulsory arrangement. Fortunately there are some reasonable ethical options available within this project.
If you’re already in a scheme, and it’s not with an ethical fund, then you could lobby it on climate issues like an ordinary occupational scheme member above. If you’re in a smaller company and yet to be enrolled, you could try to persuade your employer to set up a scheme linked with an ethical fund.
The following companies are on the list of those providing auto-enrolment options: Scottish Life, NEST, Standard Life, Friends Life, AEGON, Legal & General, Aviva, Prudential, Scottish Widows.
Also on the table (and scoring highly) is the ethical fund on offer from NEST – the National Employment Savings Trust. NEST is a government-funded body set up to provide clear, low-cost options to the pension market. Its ethical option is linked to the F&C Stewardship fund – one of the Best Buys in our ‘Choosing an Ethical Fund’ guide. Smaller companies will also benefit from an IFA’s advice prior to setting up a scheme.
4. Off-piste saving
According to the Guardian, in 2012 just 46% of UK employees had a pension scheme, down from 55% in 2002.  Some of this is caused by growing inequality and poverty wages – leaving people with nothing to put aside for the future. But it is also a consequence of pension saving (outside of occupational schemes) looking like a poor financial option. Even though you are not forced to buy an ‘annuity’ (fixed income for life) upon retirement any more, the restrictions that remain may still outweigh the tax advantages of saving in a pension fund for some people.
Financial journalists appear genuinely divided on the subject, but many are giving voice to the idea that a combination of property investments and ISAs will give you greater flexibility in later life. 
At this point, it is worth noting that off-piste saving in this way is also – in some senses – quite an attractive ethical option. For all their ‘ethical’ screens and engagement and transparency, almost all of the formal pensions options are based on funds which invest a least some money in mainstream stocks in global companies, many of which are involved in the kind of issues – tax avoidance, animal abuse, short-termism, fossil fuels – that Ethical Consumer chooses to draw attention to.
Of course, property investment itself is not free of ethical pitfalls. For some it just means downsizing the family home when the time comes, but for others it can mean amassing buy-to-let properties in a way that has been accused, not least in these pages,  of forcing first-time buyers out of the market. There’s a big difference between owning streets of run-down housing and letting out a flat at reasonable rent and with great service and repairs.
But the idea of a ‘pension pot’ made up of cash ISAs, bits of property, and even a few direct investments in renewables, gives a glimpse of what might be possible without the compromises of using ethical investment funds with their mainstream shareholdings. It doesn’t take a genius to spot that the off-piste approach would be both problematic and risky from the traditional point of view. And of course there is much more complication in all this than we can do justice to in this short space, but in the fine words of Brett Scott who opened this article:
“Financial professionals arbitrarily fetishise the monetary returns rather than the world in which those returns mean something … We are incrementally building a blueprint for a hypothetical alternative pension fund, one which does not extract value from dwindling resources in an attempt to hoard wealth for wasteful consumption.”
This hypothetical off-piste pension pot could back sustainable energy, health food production, affordable housing, mutual financial institutions and resource efficiency. We’re not there yet, but it might just be possible.
1 Brett Scott: A hacker approach to rewiring pension funds. Guardian Professional, 12th Nov 2013
2 As in the case of the recent report on Nuclear Weapons financing
3 Pension Schemes have fewer members. Guardian 16/7/13. Patrick Collinson
4 www.theguardian.com/money/poll/2011/oct/20/pension-still-worth-it, www.theguardian.com/money/2009/apr/12/alternatives-to-pensions, www.theguardian.com/money/2013/mar/17/isa-save-retirement