Ethical Pensions

Finding an ethical pension: a guide with ethical and environmental ratings for 13 major pension providers, with recommended buys.

We rate the major pension providers which offer some kind of ethical option for clients. We look at different types of pension, what makes a pension ethical, tax, transparency, investments and carbon reporting, sharia funds and ethical pension campaigns. 

About Ethical Consumer

This is a product guide from Ethical Consumer, the UK's leading alternative consumer organisation. Since 1989 we've been researching and recording the social and environmental records of companies, and making the results available to you in a simple format.

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What to buy

What to look for when choosing a pension provider:

  • Is your pension free of investments in carbon-intensive sectors? Ensure your pension is not supporting industries that are significant contributors to climate change.

  • Does it have a strong exclusion policy for unethical sectors such as tobacco, arms, gambling? Check to see what sectors the fund excludes from its investments.

  • Have you sought advice? Either from an Independent Financial Advisor, or one of the institutions listed below.

Subscribe to see which companies we recommend as Best Buys and why 

What not to buy

What to avoid when choosing a pension provider:

  • Is your fund invested in carbon intensive sectors? It is vital that we move our money away from sectors that are incompatible with a transition to a low-carbon economy.

  • Is your fund invested in unethical sectors such as tobacco or arms? If your fund does not have a strict exclusions policy, chances are your money is invested in ethically unsound companies

  • Does your pension provider lack transparency? Only choose a provider and fund that is transparent about where your money is invested.

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Score table

Updated live from our research database

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Brand Score(out of 20) Ratings Categories Positive Scores

Our Analysis

Making sure your pension is invested ethically is a key element in a properly sustainable lifestyle, and also ensures that you are not the unwitting part-owner of any particularly unethical companies.

The pension market carries huge weight. In April 2016 to March 2018, aggregate private pension wealth in Great Britain was £6.1 trillion, which represented 42% of all wealth in Great Britain. In the UK, 77% of employees were members of a workplace pension scheme in 2019, up from 47% in 2012, when the government’s automatic enrolment initiative came into force.

It is vital that we all, young to old, take an interest in our pension, and not just for the sake of our (hopefully) wiser and more wrinkled future selves.

The impact of having an ethical pension

For many of us, a pension plan will be the largest investment we hold. 

As you pay money into your pension that money is being invested, and when it is invested in company shares (equities) you actually become a part-owner of that company. If your pension is not invested in an ethical fund you will likely be the part-owner of companies in a whole range of unethical sectors such as arms, tobacco, and fossil fuels.

Many are shocked by this realisation. One poignant example is Dr. Bronwyn King, an Australian oncologist, who gave a TED talk in 2017 in which she described the horror of finding out that while she spent her days trying to treat lung cancer patients, her pension fund was heavily invested in tobacco companies.

Positive investments

It is important not to frame our thinking around pensions as simply avoiding the negative consequences of investment. Moving your money to an ethical fund can mean that you are supporting important sectors such as healthcare or companies aiding the transition to a low-carbon economy.

One calculation by Nordea, a Nordic financial services group, suggested that ‘greening’ your savings such as your pension "could generate 27 times greater improvements in a personal carbon footprint than eating less meat, using public transport, reduc[ing] water use, and flying less".

There are problems with comparing carbon emissions across such different areas as consumption and investments, so such claims should be swallowed alongside a fist-full of salt. It should also be emphasised that statistics such as Nordea’s do not mean that moving your pension to a greener fund suddenly justifies biweekly flights to the Algarve. Reducing consumption is, of course, essential. The point is that, thus far, the importance of moving your investments has often been underappreciated.

Different types of pension

There is a huge amount of variation when it comes to pension schemes, but for our purposes, there are two main categories: personal pensions or self-invested personal pensions (SIPPs), and workplace pensions.

Personal pensions and SIPPs These are very similar in that both are generally set up by the individual and give you choice over your investments, with SIPPs giving greater flexibility.

It is important to emphasise that personal forms of pension are only suited to those who are comfortable with managing their own investments. It is usually recommended that you speak with an independent financial advisor or impartial organisation before opening a personal pension.

Workplace pensions These are set up by your employer and typically involve both you and your employer contributing to the fund. In 2012, auto-enrolment came into force, meaning that all UK employers had to set up pensions for all workers that met the following criteria:

  • Not already in a workplace pension.
  • Aged 22 or over.
  • Under State Pension age.
  • Earning more than £10,000 a year.
  • Working in the UK.

The scheme, a well-placed nanny-state intervention, has led to a substantial increase in the number of workers holding a pension. Most of the providers in our guide offered both workplace pensions and some form of personal pension.

It should be noted that Nest and The People’s Pension only offered workplace pensions.
 

Which type is more ethical?

Neither is necessarily more ethical than the other, but personal pensions give you more flexibility and choice, meaning you can be more discerning about where your money is invested.

Not everyone has the time or knowledge to manage their own pension, but there are ethical choices available for more managed pensions.The main issue faced by those placed into a workplace pension is that your cash is usually placed into the default fund, which rarely has robust ethical credentials.

Most workplace providers offer several different funds so it should be possible to switch to a more ethical fund or, even better, to persuade your employer to switch its default fund to an ethical fund.

Finding an ethical pension

According to research by Nest, the government scheme set up in 2008, 68% of UK savers want their investments to consider people and planet alongside profits, and 71% of Brits would opt for a fully or partially sustainable pension if they had the choice. But what makes an ethical or sustainable pension?

In this guide we have identified the major pension providers in the sector which offer some kind of ethical option for clients. Generally, you will choose a pension provider and then your money will be placed in an investment fund, which may even be managed by another company. It is the ethics of these funds which is key.

With all the providers in our guide, you can request some form of ethical fund, which are also called things such as ‘sustainable funds’ or ‘stewardship funds’. One key feature of an ethical fund is that it should have exclusions criteria, i.e. it should specify what it will not invest in.

For example, Aviva’s Stewardship funds will not have "Any involvement in the manufacture of whole weapons systems, components or support systems." Sometimes these criteria are vague or allow for a little too much leeway.

Most people will look for stringent and detailed exclusions criteria that complies with their ethical stance and we talk more about these criteria in our guide to Ethical Investment Funds.

Some funds will also state what they do invest in, although these commitments are usually more vague than exclusions criteria. For example, the Nest Ethical Fund guidance states, "We want to invest in companies that ... have a responsible approach to biodiversity." Although it is more difficult to set clear criteria for inclusions than exclusions, we hope to see more funds provide greater clarity on this in future.

Most providers will offer a small number of ethical options among many more less ethical choices. For example, Nest has seven pension options, but only offers one ‘Ethical Fund’.

Fidelity has nearly 50 ethical options among hundreds of less ethical choices. If you are looking for a more personal pension or SIPP then you are likely to have a greater choice.

The table below shows just some of the ethical funds offered by each provider to give an idea of the choices available and terms that pension providers use.

Provider Some of their ethical funds
Aegon

Ethical

Ethical Lifestyle

Scottish Equitable Ethical Managed

Aviva

Stewardship Life

Stewardship NGP

MyM My Stewardship

UK Equity

Fidelity

Fidelity Sustainable

Reduced Carbon Fund

Fidelity Water and Waste Fund

Fidelity Sustainable Global Equity

Legal & General L&G Future World Funds
LV=

L&G Future World Multi-Index

Liontrust Sustainable Future

M&G Sustainable Multi Asset

Nest Nest Ethical
Old Mutual Wealth

Quilter Investors

Ethical Equity

Prudential

M&G Multi Asset

Sustainable Allocation Fund

Kames Ethical Equity

Liontrust Sustainable Future Corporate Bond

Royal London

UK Ethical Pension Fund

RLP Sustainable Funds

Scottish Widows Scottish Widows Ethical Pension
Standard Life

Standard Life Ethical Pension Fund

SL ASI UK Ethical Equity Pension Fund

SL ASI Europe ex UK

Ethical Equity Pension Fund

The People's Pension B&CE The People's Pension Ethical
Virgin Money

Currently unavailable due to creating a new scheme.

Not taking new customers at present.

image: ethical pensions satirical cartoon

Sharia Funds

The world of Islamic banking has long placed rules on what practices are permissible or halal. Regarding investments, there are two key criteria. Firstly, as interest is not permitted under Sharia law, any return on investment must be from the actual share of profits made by a company or fund, rather than a fixed return based on charging interest.

Secondly, investments must not be made in companies whose activities do not comply with Sharia law, such as those manufacturing, selling, or offering alcohol or haram meat (e.g. pork), or those involved in gambling, night club activities, or pornography. The second criteria is therefore much the same as the negative screening process applied by many ‘ethical’ or ‘sustainable’ funds.

Most of the providers in the ratings scoretable offered access to Islamic funds, with many offering the HSBC Islamic Global Equity Index fund.

Our ratings for Pension Fund Providers

NEST and The People’s Pension both only provide workplace pensions. Both organisations receive a positive Company Ethos mark because they were not-for-profit institutions and neither received any negative marks in the Anti-Social Finance or Tax Conduct categories.

This is at odds with all other companies in the guide, with the surprising exception of Virgin Money which was not marked down for its tax conduct. (Virgin Money UK Plc is connected to the wider Virgin Group through the Virgin brand but operates as its own group of companies which includes Clydesdale Bank and Yorkshire Bank. No subsidiaries within this group were found to be in tax havens.)

While both Nest and The People’s Pension scored well, Nest proved to have better environmental reporting and also had more stringent exclusions criteria for its ethical funds.

All companies scored worst for our Carbon Management and Reporting rating. Companies need to meet a number of criteria to score well in this category, including not being involved in any projects that are considered to be particularly damaging in terms of climate impacts.

While most companies had policies around carbon and climate change, none went so far as to prohibit investment in all fossil fuel companies, and therefore they received our worst rating.

Despite this, Nest deserves particular mention for its climate strategy, announced in mid-2020, in which it stated it will decarbonise its investments. While other pension funds may have stringent climate rules when it comes to specific funds (ethical or environmental funds), Nest is leading the way among larger providers in terms of decarbonising its whole portfolio.

It has set robust phase out dates for investment in companies involved in carbon intensive sectors, such as thermal coal, oil sands and arctic drilling, and pledges to invest more in “companies that are developing solutions such as renewable energy infrastructure and low-carbon technologies.

The highest scoring provider that offered workplace pensions and personal pensions was Royal London, which gained half a Company Ethos mark for being a mutual foundation. Old Mutual Wealth is a mutual in name only.

There are several companies such as Pension Bee that we came across when doing this research but did not include in the scoretable ratings because they do not manage the funds themselves, as they are primarily providers of a user-friendly platform. You’ll find that each of Pension Bee’s funds are managed by other providers,for example it’s Future World Plan is managed by Legal & General.

Transparency & engagement

We have rated pension providers according to four categories for the tranparecny and engagement they offer: Top of the Pile, Getting There, Vague/Unsubstantiated, or Bottom of the Pile.

Among the providers in this guide, none were ranked as Vague/Unsubstantiated or Bottom of the Pile. It appears that transparency in the sector has improved somewhat since we last examined it in 2018, but there is still a long way to go.

Top of the Pile: Aegon, Aviva, Legal & General, LV= (Allianz), Nest, Prudential (M&G), Royal London, Standard Life, The People's Pension

Getting There: Fidelity (FIL Ltd), Old Mutual Wealth, Scottish Widows (Lloyds Banking Group), Virgin Money.

For more on our transparency rating, see the Ethical Investment Funds guide.

Campaigning for an ethical company pension

Persuading your employer to opt for an ethical pension fund as the default option is a fantastic way to increase impact. This may not be easy and will likely require the support of colleagues.

The investment charity ShareAction has a number of resources on their website to help you start the conversation to change your workplace pension. See shareaction.org.

A common concern is that ethical funds won’t perform as well as their traditional counterparts. But as discussed in our guide to Ethical Investment Funds, the opposite has more recently found to be true.

Ethical funds have fared particularly well during the coronavirus crisis because they are generally invested in healthcare and technology, and not invested in fossil fuels which have been badly hit by the falling price of oil.

Company profile

Nest Corporation is a non-departmental public body which is accountable to Parliament through the Department for Work and Pensions but, in practice, is relatively independent, operating at an arm’s length from the UK government.

It was set up in order to ensure that all employers had access to a high-quality workplace pension scheme following the 2008 Pensions Act, which introduced auto-enrolment. It is now the largest pension scheme in the UK by membership with 9 million savers.

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If you want to find out detailed information about a company and more about its ethical rating, then click on a brand name in the Score table. 

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