How to do your pension ethically?
A personal experience of trying to ensure all finance is ethically grounded.
In today’s world of the ongoing financial crisis that seems to be affecting all of us, i have been encouraged to write this article to share my experience of what I’ve been doing to clean up my own finances over the last ten years away from the stock market.
In my opinion the stock market certainly seems to be part of the root cause of global uncertainty and exploitation. This can be looked at in a few ways. one of the ways is analysis of the accountability mechanisms for money that is held in pension related funds on our behalf are very limited. Yet the power in terms of the financial power, of that area of the free movement of capital market is phenomenal. I think, although I am not an expert on this, the pension pots account for 75% of stock market transactions. Yet the accountability of this market towards people and planet ethics and values is very weak – perhaps even weaker than the accountability of banks!
So where do I start? It is my own story that I have been encouraged to share. About four years ago I went independent/freelance as an organisational consultant, seeking to help all sorts of organisations be more effective in creating a more just world. I therefore needed to think about what pension I might have for my own future that would be acceptable to the Chancellor, in terms of my tax return, so that I don’t get taxed on it. I didn’t want to have a pension linked to the stock market. My experience is, even of ‘ethical’ investment providers and pensions (which is an area I’ve been a fan of for 25 years), is that they are actually, if not more, driven, by the pension managers/ investment managers keeping an eye on the % return, than of the ethical benefits.
As well as this, the best the pensions do on ethics is negative screening of companies. So they say who and where they won’t invest in, arms trade, tobacco etc. Most banks are the same, even the Cooperative Bank is based only on negative screening. It can be done on a positive screening basis. If you look at the huge difference between Tridos Bank and the others is that they go out and positively seek the right sort of companies and opportunities that fit the declared ethics. Tridos look for wind farms, organic producers and social enterprises that need capital and enter in to pro-active banking risk relationships to help facilitate the growth of that part of the economy to happen, our capital is then the fuel that is at their disposal.
One of the truths that I felt was coming through our discernment process was that I wanted all my finance to be closer in relationship to me than the stock market based pensions would offer. One of the problems that I think is in the system is that our capital money is very often traded and invested by people 3 or many more steps removed from ourselves. How can they really know our ethics if they are so far from relationship? The truth is the closest they get is that they know that Duncan Wallace as an investor wants a 5 or 7 % return, and they keep their eye on performing to the % return measure much more vigourously as a performance indicator than the relationship to my ethics.
So I wanted to do something similar for my pension, a pro-active relational approach that isn’t too distant from myself. It is after all my capital, I have significant responsibility for where and how it is used. If I’m lucky enough, privileged enough to have some capital then I believe I need to rise to the responsibility that comes with having some capital.
It boils down to that I simply don’t trust anyone, three or more steps removed from me, to follow my ethical standards. Not with all the other forces and factors that those who are connected to the stock market and many steps removed have to contend with to make their living.
I searched around, did a lot of connecting to people I knew who do some serious discernment in this area and came up blanks. Eventually I was put in touch with a tiny green investment firm down in Devon, that has been trying to advise on ethical and planetary just investments since the 1980’s. Barchester Green Investments, really provided advice for free, because they totally got my ethical parameters but there wasn’t much they could sell me. What they advised me was that the way to do it is to use the mechanism that is mainly used by the rich, Self Invested Personal Pensions (SIPP’s). This is a route that costs a bit more, where the individual in effect becomes their own pension provider. You put your money in a SIPP wrapper, through an intermediary (of which there are many and most charge a 2% management fee, which is why it costs more), and then you can direct where that capital is invested in. So I can then choose when Triodos Renewables is raising capital by limited share issue, or the Phone Coop, or Traidcraft, or x y z green energy company, then as long as it fits my ethics and isn’t on the stock market, I get my pension pot to buy a share under the terms and conditions of the release. In fact it is incredibly easy. It is now days all done on the internet 24/7, and because my ethics aren’t that interested in moving my money around or playing of one percentage point off another, then it only takes a few hours a year.
There are lots of other parts of the market our pensions could be investing in other than the stock market. Depending what your ethics are you could be taking out investments in social housing providers capital raising, or in commercial property, or bonds, or government capital raising issues or directly in individual businesses.
That’s my story. I think what is important about sharing it, is that I really want to encourage us all to seriously think about how can we collaborate individually or collectively in order to change these financial instruments that are wielding so much un-ethically-accountable power in the financial markets. In order that our many many individuals, churches, partners, client organisations, institutions of faith can start to make some serious decisions about their pension pots being managed for pro active good, and investing in things that are closer in relation to their own ethical purpose. We continue to see lots of ethically purposeful organisations have a significant blind side on this area – feeling powerless to do anything.
Via the Craighead Institute, and others we have people who can help facilitate in this area, of financial governance and trustees understanding of charitable primary and secondary purpose. I would be interested in hearing from anyone who knows other pieces of this story and getting some dialogue going about what we can do.
For the odd car usage and unfortunately for our house we have to buy in to insurance products which are stockmarket based!! That will be another story.
N.B. I am technically advised that virtually all potential pension investments are traded on the stock market and it is illegal for IFAs to make formal recommendations for anyone to invest in holdings which don’t qualify for this. Which is because the Financial Services Authority (FSA) who manage the finances believe that non-traded holdings are more risky than the alternative.
Moreover, it is virtually impossible to invest in non-traded holdings within pensions. Things as low risk as ethical corporate bonds (which are loans made to relevant companies) will offer a regular return but their trading price will go up and down because of how market traders are anticipating what’s going to happen and how they can make money. The only way you can get into non-traded holdings is by investing directly into them or occasionally via organisations such as Triodos.