Series 2 of the podcast is focused around the topic of investing, something which I am really passionate about encouraging everyone to get involved with, especially women. Today we’re talking about ethical investing specifically via your pension.
One of the topics included in the investing and investment bracket is that dreaded word ‘pensions’. In this week’s episode we’re joined by Rebecca Jones who is the editor of the ethical money blog Good With Money and we are talking about pensions today. Good With Money is a fantastic resource, and is the UK’s best and only resource dedicated to helping us to do good with our money in all aspects of life. From banking and saving accounts to investing, mortgages, and even home insurance; Good With Money shows us how we can give back to the world and environment through these things.
Rebecca has been a financial journalist since 2012, and has been an environmental activist since childhood, beginning with insisting that her parents send all of her pocket money to the WWF to save the Rhino’s! Rebecca and I talk about some of the challenges that women face with money, especially around investing and pensions.
We talk about;
- Why we don’t invest in pensions
- Some of the jargon around pensions such as SIPPs
- Some of the statistics around pensions
- The missed opportunity cost for women when we don’t invest in pensions
- Why we historically rely so much on the state pension
- How much we should be investing in pensions
- The principles of ethical and sustainable investing
- How women can invest and save the planet at the same time
Listen to the interview
Hi Rebecca, great to have you with us! Could you start by telling us a little more about yourself?
Hi! I’m currently speaking with you from Vietnam, and I’ve been here for about a year and a half now. When I turned 30 I started to question what I was doing with my life and decided to go travelling for a year. I found myself in Vietnam and literally fell in love with the place. There’s so much good here; the people are great, the food is fantastic, and the cost of living is low. I’m learning the language still, which is difficult, but I just love living here.
I’m an editor over at Good With Money, and we are the UK’s best and only personal finance website that is dedicated to ethical and sustainable finance. The site was founded in 2015, and I’ve been the editor since November 2018.
Can you talk us through why sustainable and ethical investing is so important to you?
On a personal level, I was an eco warrior before i was a financial journalist. From age 5 I would insist that my pocket money was sent to WWF, and I’ve just always been really passionate about what we can do save the planet. My interest in money developed in my teenage years; my parents, bless them, were absolutely hopeless with money! When they split I ended up helping my father with things like mortgages and that sort of thing. So in that respect, I had some quite early exposure to the world of money.
Then in my early 20’s after graduating university, I found that I was able to bring the two things together as a financial journalist, and I decided to specialise in ethical and sustainable finance. I genuinely believe that one of the most powerful things any of us can do is to use our money to do good. If we really want to change the flow of money, we have to get involved, and it can be as little as something like £5 invested in your local renewable energy project for example. It’s something I’m enormously passionate about.
In your view, just how important is sustainable and ethical investing, and how can women go about saving the planet and investing at the same time?
I believe very strongly that we cannot achieve a cleaner and more equitable planet without all of us investing to do so. The world bank says that 80% of funding to achieve the UN Sustainable Development Goals comes from private finance. If we want to live in a better world, we need to invest in it.
On a personal level, I agree that in general women are more interested in aligning their money with their values. Time and time again studies have shown that women are more interested in sustainable and ethical investing. We recently did some research with Starling the digital bank which looked at the media representation of men and women when it comes to talking about money, and found some interesting statistics. For example, in 90% of articles about money aimed at women the focus was on spending less money, but in 75% of financial articles aimed at men the focus was on earning and investing more money.
So money is still to this day positioned as something that is quite aggressive, and for men. When money is positioned in that way, of course women perceive it that way. Positioning money in that way means that it is perceived as being something that doesn’t align with our values, and so we distance ourselves from it. It’s our job to show that personal finance and doing good are not mutually exclusive and that the two things can work together.
I completely agree that women are often depicted as being bad or frivolous with money, but actually that’s often not the reality.
Yes, that depiction flies in the face of reality; in terms of saving women save more than men. If you look at the latest HMRC stats, they show that 10.8m women currently have an ISA, while 10.3m men have one. The big difference is that women are putting this money in cash whereas men are investing, and that brings us on to the issue of pensions. Women have a tiny pension pot compared to men. There’s disagreement over the numbers, but for example the CII (Chartered Institute of Insurers) estimates that the average woman’s pension pot at retirement age is £35,800 which is a fifth of the average man’s pot. A J Bell which is an online investment platform estimate this figure at more like £59,000 which is two fifths of the size of the average man’s. Either way, what we do know is that women are approaching retirement with much less in their pension pot than men because they’re not investing it in pensions over the course of their lifetime.
Why do you think this is?
Don’t forget that when we’re looking at these figures we’re looking at the generations behind us, so there will be lots of reasons ranging from large career breaks, having families, inequality and the gender pay gap, and all sorts of other structural issues around women’s access to pensions historically.
I quite often find there is a lot of fear simply around the word ‘pension’. Would you agree with that? Do we need to change the way we communicate the idea of future investments?
The word pension is about the unsexiest word on the planet! And also the behavioural finance point is an important one here, because people don’t see their older selves as a part of them. We see our older selves as someone very separate from who we are now, so it’s difficult to make financial decisions for that person.
Then I think that the UK pension system is very complex. The average person has around 8 jobs in their working life which means 8 different pension pots. I speak to people who work in the finance industry who sometimes struggle to even keep track of the amount of pots they have. In the US and Australia they have systems whereby the pot essentially follows the worker, which is far simpler.
I think people feel very removed from their pensions, and also don’t even realise that they are investors through their pensions. People imagine that their pensions simply go into a pot and sit there until they draw upon it. Most people have no idea that their money is probably going into a mainstream tracker fund invested in things like American tobacco and other things that we might usually try to avoid in our lives.
That’s a great point – one of the first things our readers could do is to have a look at the pensions they currently have and decide if where their money is being invested aligns with their values.
Yes, absolutely. I did some freelance work for the i newspaper and put together a piece where I worked with some young women to invest £25 per month. One of the first things we looked at was their pensions; one of the young women had a NEST auto-enrolment pension as many of us do now, and we found that she was very easily able to switch to their ethical fund.
How would you describe ethical investing, in a nutshell?
This is an area of debate at the moment because it really is an evolving space. At Good With Money we have recently published a guide to impact investing which really makes it quite easy to understand. There’s really a whole rainbow, ranging from simply screening out the bad all the way up to really actively investing in green, ethical, grass-roots companies and schemes. There’s lots of choice and lots of diversity, which really is a great thing, so in that respect I don’t think it’s a bad thing that the idea of ethical investing can’t be defined in one sentence.
So bearing in mind all of the choices available, where should someone start if they are interested in ethical investing?
There are lots of guides and resources at Good With Money. But really it’s about going back to the basics of finance; what do you want to achieve with the money you have and what’s important to you? If you want to start with your pension then you need to look into the type of pension you have; are you in an auto-enrolment scheme or a workplace provided pension, and within those what options do you have? If you’re self employed and you can start from scratch then that’s great because you can start a self invested personal pension which gives you total control over where your money goes.
There are a lot of low cost funds available now, from as little as £25 per month, and many of them have lists of the sustainable funds they offer. Good With Money publishes the good investment review which is a great place to get an insight into funds that are really worth putting your money into and can be a great starting point.
Fidelity recently published some research which shows that 39% of people have never heard of SIPPs (Self Invested Personal Pension) which you mentioned. How would you describe a SIPP?
Essentially it’s a way for you to get the tax benefits of saving into a pension but outside of the workplace. Saving into a pension is one of the most tax efficient ways to save there is. If you’re using some other form of saving for your retirement than a pension, then you just won’t be getting that tax relief, which is 20% for basic rate tax payers.
And do you need to be employed to be eligible for that tax relief?
There are fees and charges involved, so it can be slightly more expensive than going down the old school personal or stakeholder pension route, but essentially no, you can start a SIPP fairly quickly online even if you are, for example, on maternity leave or self employed. If you’re really passionate about true sustainable and ethical investing, SIPPs are the way to go because you have true control.
I think it’s so important to talk about ‘old school’ pensions and modern pensions. There’s still very much this idea that a pension pot must be exchanged at retirement for a regular fixed income, which just isn’t the case anymore.
There are fees and charges involved, so it can be slightly more expensive than going down the old school personal or stakeholder pension route, but essentially no, you can start a SIPP fairly quickly online even if you are, for example, on maternity leave or self employed. If you’re really passionate about true sustainable and ethical investing, SIPPs are the way to go because you have true control.
In 2015 George Osborne opened up pensions which meant we were no longer forced to buy annuities with our pension pots (an annuity is something you buy that guarantees a fixed income for life). Historically, you bought an annuity with your pension pot, it guaranteed you a fixed income for life, but if you died 2 years later then all the money was gone. Now we can use our pots in pretty much any way that we’d like to, and we can also pass it down to our relatives which is great.
Investment is so important to talk about here; the missed opportunity cost of not investing is staggering. If you invested your full ISA allowance of £20,000 between 2014 and 2018 you would have ended up with £64,480 which is a profit of £17,000, whereas if you kept that in cash you would have made a profit of £290 from that money.
In relation to investing in pensions, Fidelity also found that 62% of self employed people aren’t investing in a pension, do you think that comes down to fear?
There are fees and charges involved, so it can be slightly more expensive than going down the old school personal or stakeholder pension route, but essentially no, you can start a SIPP fairly quickly online even if you are, for example, on maternity leave or self employed. If you’re really passionate about true sustainable and ethical investing, SIPPs are the way to go because you have true control.
I think it’s a mixture of things; people not being aware of SIPPs for example. And being self employed as you and I know, self employed income can vary, meaning that you have to be a bit more flexible with your investing approach. An auto-enrolment fixed investment amount might not be the right approach if you’re self employed. We really need to engage with our pensions, especially as self employed people.
There’s a great company called Pension Bee who do a fantastic job of helping people pull together all of their existing funds and they then have their own Future World fund available to invest in which is great.
How did you decide on the figure that you invest personally?
So I aim for around 5-8% of my earnings, and that’s really just based on government advice. When auto-enrolment was first introduced it was set at 2%, now it’s scaling up to 5% and the aim is to scale up to 8%.
But the real important thing is just to save and invest what you can. Whatever you can realistically afford, and whatever your circumstances are you just have to base it on that. The power of compound interest means that whatever you save will become something.
Do you have any particular do’s and don’ts around pensions that you’d like to share with us Rebecca?
Don’t think, just save!
Engaging with your pension feels like such a bore, but it’s also so empowering. If the only place you can invest is in your pension, then being able to engage with that, knowing where that money is going and knowing that it’s going where you want it to go, that’s so empowering. Aligning your money with your values and principles is such a big thing. It’s never going to be as fun as a night out, but it’s going to be so big for you. So grab your laptop, dig out the paperwork, and just do it!
That’s given me a great idea Rebecca. For anyone reading this right now – the first person to email me or message me on social media to let me know what fund your pension is currently invested in, I’ll have a little prize for you.
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Fidelity – Generation Self Employed
UN Sustainable Development Goals
Starling Bank – Make Money Equal
NEST auto-enrolment – how to change the fund your pension is invested in
Fidelity – Financial Power of Women
Pension Bee – Future World fund