PensionBee, a leading online pension provider, has calculated that moving £1 trillion, the approximate value of UK defined contribution pension funds of around 28 million UK savers that are mostly held in ‘default’ investment plans, to ‘positive impact’ funds, could reduce the carbon footprint of UK pension savers by up to 48 million tonnes.
Each saver moving from a higher carbon intensity typical ‘default’ pension fund to a lower carbon intensity ‘positive impact’ fund would reduce their carbon impact by 1.7 tonnes (1).
The majority of defined contribution pensions are invested in ‘default’ funds, which, based on an industry benchmark, could be responsible for a carbon footprint of around 129 tonnes of carbon per £1 million invested (2). The same amount invested in a PensionBee Impact fund would have a carbon footprint equivalent to an estimated 81 tonnes of carbon emissions - some 48 tonnes fewer - a difference of 37%.
The majority of default workplace pension schemes remain invested in fossil fuels, with UK pension schemes investing an estimated £128 billion in coal, oil and gas (3). Although many are now aligned to Net Zero goals or follow responsible investment strategies, they do not usually go as far as positive impact investing in lowering the carbon intensity of underlying pension investments.
Becky O’Connor, Director of Public Affairs at PensionBee, commented: “Money makes the world go round and often the most money any of us will have to our names is in our pensions, so what we invest them in can be the most difference we can make to the world.
In imagining what the impact on carbon emissions could be if the £1 trillion invested in UK defined contribution pensions was moved to positive impact funds rather than sitting in default schemes, it becomes clear how much difference pension savers can make.
Not only can positive impact investments help the planet and society, they can also generate returns for investors, preserving the ultimate financial goal of a pension - to generate growth over the long term and help people provide for retirement.
According to PensionBee research* over half of savers would move their pension to a positive impact fund if they had the choice - equivalent to around 14 million Brits.
It is possible for people with defined contribution pensions (as opposed to defined benefit) from previous employment, or with personal pensions, to move their pensions to other funds that better suit their values or retirement goals. There may be options to switch to more sustainable funds for workers who are actively paying into a current workplace pension, who would risk losing employer contributions if they moved to another provider.
Appendix
Table 1: Emissions intensity (carbon footprint) from various pension funds
| Type of fund | Tonnes of carbon per £1 million invested | Tonnes of carbon per £1 trillion invested | Tonnes per £1 trillion invested |
|---|---|---|---|
| Benchmark | 129 | 129,000,000 | |
| Impact | 81 | 81,000,000 | 48,000,000 |
| Impact per person | 1.7 tonnes |
Source: PensionBee, February 2023. Based on data from ONS which shows £1 trillion is roughly the amount invested in UK Defined Contribution pension (table 6.11) and that global emissions are more than 34 billion tonnes a year. Calculations based on data from BlackRock. Emissions intensity calculated by metric tonnes divided by $million total capital using an exchange rate of $1 to £0.815. Assumes 27.6 million savers as per ONS data on Funded occupational pension schemes in the UK (December 2022).
Table 2: Number of Defined Contribution UK pension savers
| Number of DC UK pension savers (million) | Assuming that 50% transfer to an Impact plan (million) |
|---|---|
| 27,610,000 | 13,805,000 |
Source: PensionBee, February 2023. Based on ONS data and PensionBee survey data which indicated that 50% of respondents would switch into an Impact pension plan if available.*
Footnotes
- See table 1
- The MSCI ACWI
- Divest
