Can you tell me how I find out how my pension is invested?
I am in the civil service retirement scheme and I am interested in how the money is being invested, that it is not invested in fossil fuel industries and that it is invested ethically. I couldn’t find any data on this.
Can you send me a link to a reliable source if it exists?
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Research into a pension fund: how do I find out whether my civil servant’s pension is invested ethically and not in fossil fuels?
Steve Webb replies: With literally trillions of pounds invested in UK pension funds, interest is growing in how that money is being invested and whether it is being put to good use and to maximize the value of your retirement.
For reasons I’ll explain, this problem doesn’t really arise in the case of the Civil Service Pension Scheme, but I’ll also discuss how other readers can learn more about how their money is being invested.
The pension plans for civil servants, NHS employees and teachers are so-called “unfunded” plans. This means that no money is being set aside for your future retirement and thus there are literally no investments – ethical or otherwise.
Instead, your contributions and those of your employer simply go into the government treasury every year. Then when you retire, your pension will be paid from the contributions of tomorrow’s civil servants and tomorrow’s taxpayers.
However, these types of ‘unfunded’ retirement plans are virtually 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 plans may have questions about how the money is invested in their fund.
It is worth thinking first about traditional salary-related (or defined benefit) pensions and then more modern ‘pot of money’ (or ‘defined contribution’) pensions, as the issues differ somewhat.
What happens in defined benefit plans is especially important when it comes to ethical or ‘responsible’ investing, as this is still where most of the pension money resides.
In defined benefit plans, a set of trustees is responsible for overseeing a fund that is invested to provide pensions to all members for as long as they live.
As a member, you historically have nothing to say about how that money is invested. But while participants in such schemes have a clear interest in ensuring that their pensions are paid in full, interest is growing in what goes on ‘under the hood’ in such schemes.
As a result, the government and pension regulator are gradually tightening the rules to ensure that such schemes report on their investments, especially with regard to their impact on climate change.
Most of the larger schemes have websites, produce annual reports, and so on with information about investments.
There are also various official documents, such as “statements by the chairman” and “statements of investment principles,” which give members more citation.
A growing number of schemes are announcing their plans to go ‘green’ or to stop investing in industries such as tobacco.
However, these types of schemes have a strong ‘collective’ character. There is no individual enclosed pot with your name on it.
As a result, there is no simple answer to the question of how ‘your’ pension money is invested. The fund as a whole will be invested in a wide variety of assets, in different financial markets, and usually in quite complex financial products.
Understanding all of this can be very difficult for the regular participant, and you should definitely contact the scheme if you feel you are not getting a clear answer on how they handle investments.
With a premium pension it is easier in some ways. In that case, there is generally a segregated set of assets related to your individual pension.
What is a ‘standard’ pension fund?
It’s the mid-sized t-shirt version of investing – but is it right for you? Read more here.
While this can be reinvested across a range of funds and products, it can be a little easier to see how ‘your’ money is being invested.
In addition, many such schemes give you some choice of how your money is invested.
While there is usually a standard ‘standard’ investment scheme for those who are not making an active choice, you can generally opt for a different investment mix, although you are aware that there may be a higher cost involved.
Because of the challenges individual investors may face in understanding all of this, and in making sure the collective voices of concerned investors are heard, there are several information and campaign organizations that promote responsible investing.
A recently launched campaign, which is very much aimed at the general public, is ‘Make My Money Matter’ which emphasizes the importance of individuals finding out how their money is being invested and trying to ensure that it is consistent with their values.
Ask Steve Webb a retirement question
Former Pensions Secretary Steve Webb is the uncle of This Is Money.
He’s on hand to answer your questions, whether you’re still saving, quitting work, or juggling your finances when you’re retired.
Steve left the Department of Work and Pensions after the May 2015 elections. 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 email@example.com.
Steve will do his best to respond to your post in a subsequent column, but he won’t be able to reply to everyone or correspond with readers privately. Nothing in his answers constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime telephone number with your message – this will be treated confidentially and not used for marketing purposes.
If Steve can’t answer your question, you can also contact The Pensions Advisory Service, a government-backed organization that provides free assistance to the public. TPAS can be found here and the number is 0800 011 3797.
StevE gets a lot of questions about AOW forecasts and COPE – the Contracted Out Pension Equivalent. When you write Steve on this topic, he responds to a typical reader question here It contains links to Steve’s various previous columns on state retirement forecasting and outsourcing, which can be helpful.
TOP SIPPS FOR DIY PENSION INVESTORS
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