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7 steps to take when you receive an inheritance to make the most of it

Receiving an inheritance can be life-changing. It could provide you with the financial security to pursue your dreams or make significant changes to your lifestyle. However, it can be overwhelming, and you may worry about making the “wrong” decision that could impact the rest of your life.

According to a report in Your Mortgage, 11.6 million people in the UK have received an inheritance in the last 10 years. For more than half of beneficiaries, the inheritance was left by parents, and a fifth received an inheritance from grandparents. The average sum left by parents is £65,600, while grandparents leave £24,200 on average.

If you’ve received an inheritance, here are seven steps that can help you understand how to get the most out of it.

1. Understand the probate process

The first thing to do is make sure you understand the process and what you’ll inherit.

In some cases, the process can be time-consuming and complex. For instance, if the deceased has not left a will or they have complicated assets, it can take more time. In rare cases, a will may also be contested. Make sure you know what the timescales are and any potential issues. The executor of a will can help you with this.

If your benefactor’s entire estate is worth more than £325,000, Inheritance Tax may also be due. This could reduce the inheritance you receive.

2. Take a step back

When you receive an inheritance, you may feel like you need to make immediate decisions. But taking a step back can give you the space to think about what you want and consider the long term. Making immediate decisions may mean emotions have an impact.

It’s not uncommon for beneficiaries to worry about how their benefactor would want them to use the inheritance too. It can result in conflicting decisions and may mean you make choices that aren’t right for you. If you have the means to do so, leaving your inheritance largely untouched, until you have a plan is a good idea.

Under the Financial Services Compensation Scheme, your money is protected when it’s held in a UK-authorised bank, building society, or credit union if it fails. So, you don’t need to make quick decisions to ensure your money is safe.

Under normal circumstances, up to £85,000 is protected per eligible person per financial institution. Up to £1 million is protected for six months from when the amount is first deposited for certain qualifying temporary high balances, which includes inheritances. If your inheritance is higher than this, you should spread it between several accounts with different financial institutions.

3. Review your current financial situation

By reviewing your finances now, you can understand where the inheritance will have the biggest impact. It provides a baseline to start making changes to your finances and lifestyle. Going through your statements now can help you take stock of your situation. For example, do you have debt that the inheritance could help you pay off? And how much do you have saved in your pension?

4. Set out what you want to achieve

Setting out your goals and priorities can provide some direction when you’re deciding how to use an inheritance. Think about the lifestyle you want and how an inheritance could help you achieve that.

You may want to spend more time with your family, and the inheritance can provide you with the financial security to reduce your working days. Or you may hope to retire early, so adding an inheritance to a pension can help you towards this goal. Your aspirations should inform the financial decisions you make.

5. Speak to a financial planner

From tax liability to investment risk, there are a lot of things you need to consider when deciding the best way to use an inheritance to help you reach your goals. A financial planner can help you create a blueprint that will enable you to get the most out of your money, with your goals in mind. Financial planning isn’t just about calculating how much you have either; it’s a chance to understand how your decisions will affect your overall lifestyle now and in the future.

If you’ve received an inheritance and would like to talk about your plans and options, please contact us.

6. Schedule a review

While setting out a plan is great, things do change. Whether it’s your finances that change or your wishes, scheduling regular reviews and taking time to think about what you want is important. It can help make sure everything stays on track and you’re not faced with any unexpected surprises. The frequency of reviews will depend on your circumstances but, as a general rule, once a year is a good idea.

7. Plan your own legacy

Having benefited from an inheritance, it’s worth setting out your own legacy. When you pass away, who would you like to benefit from your assets? The decisions you make about your estate could impact the lives of your loved ones. Think carefully about how you’d want your assets distributed and then write this into your will.

Even if you already have a will in place, you should review it. As your circumstances have probably changed over time, your wishes may have to, too.

We understand that receiving an inheritance can be a confusing time when you’re expected to make decisions. If you’d like to talk to a financial planner about your plans, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

The Financial Conduct Authority does not regulate will writing, tax planning, or estate planning.

5 reasons you need to write a will (and keep it up to date)

National Insurance and Dividend Tax rise as government suspends State Pension triple lock

Investment market update: August 2021

While economies continue to recover from the effects of the pandemic, there are signs that the pace of growth is beginning to slow.

According to the Organisation for Economic Co-operation and Development (OECD), the recovery of the world’s major economies is losing momentum. The organisation said consumers remain reluctant to eat out, visit attractions, and shop like they did pre-pandemic. As a result, growth figures are expected to slow over the coming months.

Businesses around the world are also being hampered by supply and stock issues, with many struggling to access the materials and skills they need to maximise operations.

Globally, the situation in Afghanistan is also impacting markets. As of 30 August 2021, the last American military plane departed from Afghanistan, ending the 20-year long Afghanistan war. However, a huge amount of uncertainty remains, and the situation could affect markets for some time.

UK

The National Institute of Economic and Social Research has revised UK economy forecasts upwards. The organisation now expects the UK to grow by 6.8% in 2021, an increase of 1.1% on the forecast given in May, and by 5.3% in 2022. However, the figures will still mean the UK economy is behind where it would have been expected to be if the pandemic had not occurred.

One of the challenges investors could now face is rising inflation. In the latest report from the Bank of England’s Monetary Policy Committee, inflation was forecast to rise significantly. The Consumer Price Index (CPI), which measures the rising cost of living, is expected to increase by around 4% in the fourth quarter of 2021. This is double the Bank’s 2% target. The committee has not taken any action yet, but acknowledged that it could in the coming months to stay on target in the medium term.

UK wage growth also jumped 8.8% in June, the highest since records began in 2001. It could mean interest rates, which have been low for over a decade, begin to rise sooner than expected.

From a business perspective, shortages are causing problems. Brexit combined with the impact of Covid-19, including staff self-isolating, is affecting business operations.

A survey conducted by the Institute of Directors found that 44% of businesses are currently experiencing staff shortages. 65% attributed this to the UK’s long-term skills gap. However, 4 in 10 said they are struggling with a lack of workers from the EU, and 2 in 10 said self-isolation was having an impact.

The latest Industrial Trends Survey from the Confederation of British Industry also found UK factories are being hit by the worst stock shortage since records began in 1977. Businesses are struggling to access electronics and plastic products, in particular.

Other headline figures this month include:

• UK factory output remains in growth mode. According to IHS Markit data, the PMI (Purchasing Managers Index) for July was 60.6, where a reading over 50 indicates growth. The reading is below May’s record high, but is still positive.
• The service sector is also growing with a reading of 59.6. Again, it’s fallen from 62.4 when compared to a month earlier, but remains in growth territory. Shortages, in both staff and supplies, are one of the reasons for the fall.
• Overall, the UK PMI fell from 59.3 to 55.3 in July. It’s the lowest reading since February 2021 and worse than expected. However, it signals the UK economy is still growing.

Europe

IHS PMI data shows that business activity in the eurozone remains high, reaching an almost 15-year high.

Factory output, in particular, remains high. The PMI for July was 62.8, well above the 50 benchmark that signals growth. In line with rising demand, Eurostat data reveals factories are increasing their prices, which could signal rising inflation. In June, factory prices increased by 10.2% year-on-year.

Despite positive economic data overall, research group Sentix find investor morale is falling. A survey found investors are fretting about economic prospects and the risk of new lockdowns after 18 months of uncertainty.

US

Figures from the US show signs of a strong recovery, but business confidence is weakening.

US manufacturing has now risen about pre-pandemic levels after output increased by 1.4% in July. US job openings have also reached a record high. According to the US Bureau of Labour Statistics, there were over 10 million job openings at the end of June – 590,000 more than May.

The job opening figures suggest businesses are reopening, and perhaps expanding. But it also highlights that some firms are struggling to attract workers to fill vacant roles. The National Federation of Businesses found that confidence is falling, with labour shortages playing a key role in this sentiment.

Tesla stocks have experienced high growth in the last year as pioneers of self-driving technology. But after a series of crashes, Tesla’s autopilot feature is being investigated by US regulators. The results could impact not only Tesla, but other businesses in the industry.

Asia

China continues to recover from the impact of Covid-19. However, industrial output hasn’t been as strong as expected. Year-on-year industrial output increased by 6.4% in July, according to the country’s National Bureau of Statistics. The figure is below July 2020’s figure.

However, the PMI data for China’s recovery sector is accelerating. The PMI in July was 54.9, up from 50.3 in the previous month. While positive, there are concerns that the spread of the delta variant of Covid-19 could affect the recovery.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Guide: Leaving an inheritance vs gifting during your lifetime

Have you thought about how you’ll pass wealth on to those who are important to you? Traditionally, this has been done through inheritance, but it’s becoming more common to gift during your lifetime.

Our latest guide explains why more families are choosing to gift during their lifetime and the pros and cons of each option. Whichever option you decide is right for you, our guide will enable you to fully understand your situation and make sure your wishes are carried out, and will explain everything from writing a will to calculating the long-term impact of gifting.

It can be difficult to think about how you’ll pass on wealth to loved ones, but it’s important to set out a plan.

Download Leaving an inheritance vs gifting during your lifetime to discover the steps you should take.

If you have any questions about passing on wealth, please contact us.

After 2 “once in a lifetime” economic events in 12 years, how can you protect your assets?

In the space of just 12 years, the global economy experienced two events that are considered “once in a lifetime” occurrences. As well as having an impact on economies, the 2008 financial crisis and 2020 Covid-19 pandemic are likely to have affected your finances too.

Many people will remember the impact of the 2008 financial crisis that triggered a global recession and the uncertainty it caused. From job insecurity to large falls in the markets, it had a far-reaching impact. Then, just 12 years later, the Covid-19 pandemic created uncertainty again.

While government support in the UK through the furlough scheme has helped to protect jobs and limit redundancies, it’s come at a cost. The latest fiscal report from the Office for Budget Responsibility show that over £1 trillion was added to the public debt, which is now above 100% of GDP for the first time since 1960.

With two unlikely events occurring so close together, can this be put down to bad luck? The report warns that while there are no guarantees, larger economic shocks could become more common.

The report says: “The arrival of two major economic shocks in quick succession need not constitute a trend, but there are reasons to believe that advanced economies may be increasingly exposed to large, and potentially catastrophic, risks. While the threat of armed conflict between states (especially nuclear powers) appears to have diminished in this century, the past 20 years have seen an increase in the frequency, severity, and cost of other major risk events, from extreme weather events to infectious disease outbreaks to cyberattacks.”

The report outlines the fiscal impact of the events and how to mitigate risk at a national level. But what can you do as an individual investor to protect your assets?

1. Think long term

One of the most important things to do when making financial decisions is to keep the long term in mind.

While investors experienced high levels of market volatility in 2020 due to the pandemic, this has calmed in the space of a year. Many investors who held their nerve and stuck to their investment strategy have seen their investment values recover or even rise in the months since. The same can be said of the 2008 financial crisis. It may have taken longer for the market to recover, yet, when you look at the bigger picture, investments overall did recover from the crash.

It can be easier said than done when an event is happening, but focusing on your long-term goals can help. If you’re saving for retirement in your 40s, market volatility is unlikely to knock your plans off course. That’s not to say you should never make changes to your plans or adapt. However, these should be carefully considered rather than knee-jerk reactions to what’s happening now.

2. Diversify your assets

Both the 2008 financial crisis and the 2020 pandemic have highlighted how interconnected the world is. Events happening on the other side of the world can quickly spread and influence markets globally.

However, even during these periods of downturns, some sectors were stable and, in some cases, even thrived in the circumstances that were negatively affecting others. Spreading your wealth across various assets and investments can help reduce the impact should markets experience volatility. This may mean choosing to invest in companies that operate in various industries, geographical locations, and have different risk profiles.

3. Understand the risks

You can’t eliminate risk entirely, but that doesn’t mean you can’t manage risk or ensure that you take an appropriate amount for you.

All investments come with some risk. However, investments can have very different risk profiles. An established company with a record of delivering profits and growth is likely to be far less of a risk than a start-up. It’s important to understand your own risk profile, which should consider a range of factors, from goals to other assets, when making any decisions.

As a general rule, higher-risk investments have the potential to deliver higher returns. So, it can be tempting to invest in higher-risk ventures. However, if this doesn’t align with your risk profile, you could end up taking far more risk than is appropriate for you and potentially lose your initial investment.

Not all your investments need to have the same risk profile. As you create a diversified portfolio, you want the overall portfolio to reflect your investment needs.

If you would like to discuss your financial plan and the decisions you need to make about assets, please contact us. We can work with you to create a plan that puts you on the right path to reach your goals, with potential risks in mind, so you can pursue your goals with confidence.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Scams rarely result in fraud convictions; most victims lose their money

While protection for scam victims is improving, the startling truth is that most scammers are not caught, and victims lose their money. It can have a devastating impact on your financial security now and in the future.

According to new statistics from Quilter, just 1 in 700 incidents of fraud resulted in a conviction in 2019. The findings also show that the conviction rate is falling. Since 2011, fraud convictions have fallen by 10% on average year-on-year. With many cases of fraud thought to go unreported, the gap could be even larger.

There are many reasons why convictions for fraud are low. It can be difficult to prove, and the cost of investigating is high. However, for victims, it often means they don’t get the justice they deserve or compensation. Being vigilant is important to keep your savings safe.

It can be easy to think you’ll never fall for a scam. But the last year has proven how inventive scammers can be and that they will pray on victims when they’re vulnerable. Taking advantage of pandemic confusion, some fraudsters have been posing as NHS Test and Trace staff to gain access to people’s home and personal details, leading to Action Fraud issuing a warning.

Figures from Action Fraud highlight the huge impact fraud can have on financial security:

• In the first four months of 2021, £1.8 million was lost to pension fraud
• Over £63 million has been lost to social media investment fraud.

Just as worrying is that victims of scams are often targeted again. Fraudsters may pose as someone offering help or even share your details with other scammers. According to data from the National Fraud Intelligence Bureau, over £373 million was lost by repeat victims in 2019/20, with the average victim losing £21,121. For those falling prey to investment fraud, the figure was £84,604.

What protection do scam victims have?

In many cases, victims of a scam cannot get their money back. However, there are some protections in place.

Banks have often refused to provide compensation because, in many cases, the customer has technically authorised the transfer. This applied even when a victim was targeted by a sophisticated scammer, who may have appeared to be calling from the bank or other reputable organisation.

Since 2019, some banks have committed to a code of conduct to refund victims of scams. However, this usually requires customers to take due care when authorising payments, such as checking bank details. As a result, it’s not guaranteed that you’ll receive the amount you’ve lost back even if you use one of these banks.

There is also little protection in place if you transfer money from an investment account or a pension. In most cases, the money is not recoverable. As a result, it’s vital that you take steps to protect your assets and carefully think through any financial decisions you make.

If you’re making financial decisions, here are three things to keep in mind to reduce the chance of falling victim to a scam.

1. Don’t rush into making decisions

If you’re approached with an exciting offer, it can be tempting to jump right in and start benefiting from it. Even more so if the offer has a time limit on it. But you should always take a step back and thoroughly weigh up the pros and cons.

What may seem like a good choice when you first hear about it, can rapidly change when you delve into the details. A fraudster will try to encourage you to make a knee-jerk decision and limit the amount of time you have to think an offer through. Always take a step back to look at the finer details and think about how it’d fit into your overall plan.

2. Always check who you’re speaking too

Scammers may pose as someone genuine and trustworthy to gain your confidence. Some may even appear to be associated with genuine businesses. For instance, through number spoofing, a call may look as though it’s coming from your bank when it’s not. Or a scammer may claim to be from a real financial advice firm.

Don’t take someone’s word for it when they say where they are calling from, especially if the contact is out of the blue. A genuine professional will understand why you’re being cautious. Your first step should be to check the Financial Conduct Authority register. Here, you can find the details of regulated financial firms. You should use contact details here to get in touch with the firm directly.

Those few minutes you spend checking could save you thousands of pounds.

3. Compare the offers to other options

When you look at other options, how does the offer compare? Remember, if it sounds too good to be true, it probably is.

For example, all investments come with some level of risk. An opportunity that claims to provide guaranteed returns or to be low-risk, high-return is likely to be a scam. Or a pension that you can access earlier than usual, currently 55 and rising to 57 in 2028, should set alarm bells ringing.

If you’ve been approached with an opportunity and aren’t sure if it’s a scam, please contact us. We’ll help you understand what your options are and highlight the risks.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Good Money Week: The beginner’s guide to “ethical” money

Have you ever thought about the impact your money has? You may have considered how your money is invested, but how about where your money is saved? Good Money Week raises awareness of sustainable, responsible, and ethical finances. This year it runs between 2–8 October, making now the perfect time to learn more about the impact your money has.

But what does “ethical” money mean?

There are pressing global issues, from climate change to inequality, and, in many cases, companies are contributing to these problems in some way. You may already make decisions in light of these challenges, such as choosing fair trade grocery products or clothes made from sustainable materials. Ethical finance means making the same thought process a part of your financial decisions. How you use money, whether spending or saving, has an impact on the world.

When you think of ethical decisions, climate change and the environment may spring to mind, but the term encompasses far more than this. It could also mean how a company treats its employees or an executive’s bonus pay, and whether these reflect your values.

Ethical money decisions are becoming more popular. According to an FT Adviser report, ESG funds, which take environmental, social, and governance factors into consideration, accounted for 90% of equity inflows in July.

If you want to reflect ethical values in your financial decisions, where should you start?

Review your savings account

When saving, you probably focus on the interest rate, but the account and provider you choose can have an impact on the world too.

You can choose a bank or building society that has internal ethical policies, such as promoting gender equality within the workplace or paying a living wage to all staff.

It’s common to view savings as static, that the money you place there simply stays in your account. However, providers use this money for a variety of purposes, such as lending money to people and businesses. Does the bank or building society use your money in a way that aligns with your values?

It can be difficult to know if your bank is ethical or how it compares to your views. The Good Shopping Guide provides a rating table that allows you to compare different options and see how different organisations are rated across a range of criteria, from political donations to environmental destruction.

If you decide to switch your current account, there is a seven-day switch guarantee that makes it simple. Your new bank will switch your payments, such as direct debits, then transfer your balance, and close your old account within seven days.

Choose ethical investments

As mentioned above, ESG investing is on the rise, and it may be something you want to consider too.

ESG investing doesn’t mean discounting the usual considerations you make. You should still consider things like your investment goals and risk profile. However, in addition to these factors, you’ll also look at how a company’s practices have an impact on environmental, social, and governance issues.

It is possible to select investments with your own ESG criteria in mind, but this can be a time-consuming process and requires a lot of resources. For most investors who want to incorporate ESG issues into their portfolio, they can choose an ESG fund that aligns with their financial situation and values. This allows you to invest in a variety of companies that meets the fund’s criteria.

Remember, your pension is invested too. As your pension is typically invested over decades, the decisions you make can have a large impact. Usually, your pension will be invested in a default fund if you don’t choose one. However, there will often be several funds you can choose from, including an ethical fund or ones with different risk profiles.

You should consider your risk profile before switching your pension, as returns could affect your retirement plans. If you do decide to switch your pension fund, it’s often possible to switch by logging into your online account.

Do you want to reflect your ethical values in your financial decisions? We can help you understand what changes you could make to your finances. Please get in touch if you have any questions.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

Has Covid-19 affected your pension? Here’s how to weigh up the impact and rebuild it

Lockdowns and restrictions have affected the financial security of millions of people. While the short-term impact has been the focus, it could have a long-term effect on your financial security too if it affected your pension savings.

Over the last 18 months, those who faced financial uncertainty in the pandemic may have cut back pension contributions, stopped paying into their pension altogether, or even dipped into their savings. These actions can have a long-lasting impact at any point in your working life. But it’s particularly worrying for those who are nearing retirement.

The over-50s have been among the most affected by the pandemic. According to a Scottish Widows study, this age group were the most likely to face job and income losses. Almost a quarter (23%) of people in their 50s lost their job or income due to the impact of Covid-19.

This age group also has more self-employed workers. Some 17% of people in their 50s are self-employed, compared to only 12% of 25–49-year-olds. With less job security and gaps in government support, self-employed workers have faced challenges. More than half of self-employed workers said their finances have suffered.

As a result, it’s not surprising that more than half of over-50s fear running out of money in retirement.

Did you reduce or stop your pension contributions?

When money is tight, the first step is often to review where you can cut back. As your retirement might be some time away, reducing or stopping pension contributions can seem harmless. But the impact might be bigger than you think.

Your pension doesn’t only miss out on the contributions you make. You could also lose tax relief and employer contributions. On top of this, your pension is usually invested and benefits from the effects of compounding over the long term. A relatively small break or reduction in pension contributions can have a much larger impact when you assess the forecast value.

So, how does this affect your retirement?

In some cases, you’ll still be able to meet your retirement goals even though you’ve changed your pension contributions. But it’s important to check. A quick review means you can still look forward to your retirement in confidence or highlight where there may be a shortfall.

A pension shortfall doesn’t mean you have to give up retirement dreams. The sooner you know, the better the position you’ll be in to make changes. A small increase in pension contributions once you’re more financially secure could mean you bridge the gap by the time you retire.

What’s important is that you understand the long-term implications changing your pension contributions could have. If you’d like to talk to a financial planner, please contact us.

2 things to keep in mind if you’ve dipped into your pension savings early

If you’re over the age of 55, you may have accessed your pension to tide you over during the pandemic. While useful, you also need to consider whether it could affect your retirement lifestyle.

According to Scottish Widows, the number of over-55s dipping into their pension savings has jumped 10%. In the first three months of 2021 alone, 383,000 people withdrew money from their pensions. While some may be ready to retire, the jump suggests that thousands of people are using their pensions to cover the financial impact of the pandemic.

If you dipped into your pension early, here are two questions to answer.

1. Will it affect your retirement?

As with changing your pension contributions, you should first assess the impact of making an early pension withdrawal. Your pension is designed to provide you with an income throughout retirement. Taking a lump sum early could mean that you’re no longer on track to achieve the lifestyle you want.

Do you still have enough to reach your retirement goals, or do you need to increase your contributions? It can be difficult to understand how a pension will translate into an income. If you need some help with this, please contact us.

2. Has it reduced your Annual Allowance?

If you’re not ready to retire yet, you may want to continue paying into your pension. Accessing your pension can trigger the Money Purchase Annual Allowance (MPAA), which reduces the amount you can tax-efficiently save through a pension.

Usually, you can save up to £40,000 or 100% of your annual earnings, whichever is lower, into your pension each tax year while still benefiting from tax relief. However, once the MPAA is triggered, this is reduced to just £4,000. It can have a huge impact on the amount you’re able to tax-efficiently save between now and retirement, and, therefore, towards your retirement income.

If your pension savings have been affected, you don’t need to panic. There are often steps you can take to ensure your retirement plans stay on track. Being proactive and assessing the impact now means you can bridge a gap if necessary. Get in touch if you need to assess your pension.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

Why switching to a sustainable pension is the best thing you can do to tackle climate change

From ditching the car to recycling your waste, you probably take a range of steps to help protect the environment and our planet. As the world slowly moves towards sustainable, green energy, perhaps you want to do even more to help fight climate change?

You might think you’re doing everything you can to go green, but did you know that you can help the environment with your pension? By investing your pension into a sustainable, or ethical fund, you could significantly reduce your impact on the environment.

The Financial Times reports that a pension worth £100,000 invested in a sustainable fund could be the equivalent of taking five or six cars off the road a year.

Ethical pensions have recently risen in popularity, alongside many other funds with a focus on ESG principles. ESG stands for “environmental, social, and governance”, which cover some of the factors sustainable portfolios may consider, alongside financial factors, when making investment decisions. And investing through ESG funds doesn’t mean your investments will yield lower returns either.

Read on to find out more about sustainable pensions.

Switching to a green pension could be 57 times better for the environment than going vegan

With the power to tackle climate change by simply switching your pension, there’s no need to drastically overhaul your lifestyle.

As Pensions Age report, your pension pot alone could do more for the environment than 57 people switching to a vegan diet. In fact, a sustainable pension could be 21 times more effective than giving up flying, becoming vegetarian, and switching to a renewable energy provider combined.

They even claim that a sustainable pension could be 20 times better for the environment than switching to an electric car, which is already one of the other most effective methods of tackling climate change.

Euronews reports that transitioning an average-size pension pot (around £30,000) to a sustainable pension could reduce as much as 19 tonnes of carbon emissions a year.

If you have a pension pot of £100,000, you could be cutting as much as 64 tonnes of carbon emission each year. That is the equivalent of nine years’ worth of the average citizen’s carbon footprint.

A sustainable pension is a way to fund ideas you believe in

Which? states that there is an estimated £3 trillion in UK pensions that are used to fund everything from wind farms to essential government services. However, only 22% of pension holders know the types of company that their pension is invested in.

A sustainable pension avoids putting your investments into certain companies, depending on the policies of the specific fund you choose. For example, they may not invest in the assets of oil companies and instead invest in electric motors.

If you don’t like the thought of your money going towards tobacco producers, weapons manufacturers, or high-emission companies, a sustainable pension may be right for you.

From climate change, to education, and gender equality, there are plenty of options for your investment. After all, the main goal of an ESG pension is to represent the views of those invested in it.

A significant number of pension providers have announced their plans to make their default pension services have net-zero carbon emissions by 2050. For some providers, this is the goal with their entire portfolio.

Investing in a sustainable pension helps both your future, and the planet’s

One concern is that there is too much focus on sustainability instead of profitability. With more than 200 pension funds already being labelled as “sustainable”, do they really perform as well as those without such a strict focus?

The data suggests that yes, they do. Which? reported the findings of a Morningstar analysis, which found that three-quarters of ESG funds performed above average when compared with similar, standard funds.

They may also provide greater longevity and security, as 77% of ESG funds available from 2009 were still going in 2019. This is compared to just 46% of non-ESG funds.

The pressure of well-performing ESG funds is also encouraging firms to improve their pension policies. The more sustainable pensions that are made available, the more widespread the positive impact.

Sustainable pensions are a step forward

It is no doubt that sustainable pensions are a step forward. Switching to a sustainable pension is a great way to help support ideals that you believe in while also supporting yourself in later life.

A sustainable pension fund invests in the ideas you believe in. And, with the returns often just as positive as traditional pension funds, sustainable funds provide a beneficial alternative for pension contributors.

Are you interested in learning more about sustainable investments? We’re here to help you understand how ESG factors can be incorporated into your portfolio.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.