Why are you closing the Fossil Fuel Free Plan?
We’re closing the Fossil Fuel Free Plan for a number of reasons.
We introduced our innovative Fossil Fuel Free Plan in 2020 in direct response to our customers’ feedback. Customers told us they wanted to send a stronger message to big polluters by excluding fossil fuel producers and other sectors while investing in companies better prepared for the low carbon shift.
Over the past few years, sustainable investing has evolved and new types of climate funds have developed.
At PensionBee we use surveying to reaffirm that our pension plans continue to meet our customers’ investment expectations. From our February 2024 survey to our Fossil Fuel Free Plan customers we learnt that:
98% of respondents want to expand the plan’s exclusionary screens with one or more new screens;
62% of respondents want their pension to decrease exposure to carbon intensive industries over time, by investing more in green revenues; and
66% of respondents were happy to pay small one-off transition costs to move to an improved plan, provided the overall cost of the plan didn’t increase.
Why did you select the Climate Plan as an alternative?
At PensionBee, we’re committed to listening to our customers, therefore, we’ve been closely working with one of the world’s largest money managers, State Street Global Advisors, to create a new upgraded plan that reflects our customers’ views. The Climate Plan is our newest responsible plan and will bring with it many positive benefits to customers.
In recent years a new type of climate investing has evolved, which aims to incorporate a decarbonisation pathway. Paris-Aligned benchmarks (PABs) minimum standards include a set of baseline exclusions and a decarbonisation pathway, among other criteria, as defined by the EU Climate Benchmark regulation. This decarbonisation pathway aims to take the requirement of the world to meet net zero, and apply these to the Climate Plan.
This means that even if the global economy carbonises, the Climate Plan will move in the opposite direction by proactively investing in less carbon intensive companies, to ensure it’s meeting a 10% year-on-year carbon reduction.
The Climate Plan also has objectives to allocate more to companies with green business models, by proactively investing more in climate solution providers.
By investing in this plan, your pension would increasingly be investing in companies that are at the forefront of the transition to a low carbon economy, and those positioned to mitigate risk and capture the financial opportunities that it brings.
The Fossil Fuel Free Plan and the Climate Plan are both 100% equity based investments and therefore both considered higher-risk plans.
How does the new Climate Plan differ from the Fossil Fuel Free Plan?
The two key points of differentiation are:
Expanded fossil fuel free definition, moving beyond reserves to exclude companies with ties to fossil fuels based on revenues, power generation and reserves. This is because companies without fossil fuel reserves can still have significant exposure to fossil fuels, for example many utility companies use fossil fuel-based power generation, but they do not own the reserves themselves.
Net zero pathway, to incorporate a forward-looking decarbonisation pathway compatible with the EU’s Paris-Aligned Benchmark label.
As you can see from the table below, the company holdings look very similar at the present time.
Top 20 companies and their weights in each plan as of 22 July 2024.
Climate Plan | Fossil Fuel Free Plan | |||
---|---|---|---|---|
Company | Weight | Company | Weight | |
1 | Apple | 4.73% | Apple | 7.37% |
2 | Microsoft | 4.50% | Microsoft | 6.69% |
3 | NVIDIA | 4.10% | NVIDIA | 3.72% |
4 | Amazon | 2.30% | Amazon | 3.72% |
5 | Alphabet C | 1.62% | Alphabet A | 2.37% |
6 | Meta | 1.44% | Alphabet C | 2.05% |
7 | Eli Lilly & Co | 1.17% | Tesla | 1.70% |
8 | Alphabet A | 1.11% | Eli Lilly & Co | 1.29% |
9 | Broadcom | 1.10% | Meta | 1.27% |
10 | Tesla | 1.06% | JP Morgan Chase | 1.03% |
11 | JP Morgan Chase | 1.02% | Visa A | 1.01% |
12 | Schneider Electric | 0.98% | Broadcom | 0.98% |
13 | Taiwan Semiconductor | 0.92% | United Health | 0.93% |
14 | United Health | 0.78% | Novo Nordisk | 0.84% |
15 | Merck & Co | 0.76% | Costco | 0.72% |
16 | Novo Nordisk | 0.72% | Home Depot | 0.70% |
17 | Visa A | 0.69% | Cisco Systems | 0.64% |
18 | ABB Ltd | 0.67% | ASML Holding | 0.64% |
19 | Mastercard | 0.62% | Nestle | 0.62% |
20 | Johnson & Johnson | 0.62% | Merck & Co | 0.61% |
However, over time the holdings may start to change as the plan gradually decarbonises to meet the goals of the Paris Agreement. This will ensure that the Climate Plan meets customer expectations that their investments align with international climate agreements.
How do the fees compare for the Fossil Fuel Free Plan?
Your one simple annual management fee won’t change. The Fossil Fuel Free Plan costs 0.75% annually and the Climate Plan will also have an annual management fee of 0.75% of your pension balance.
Additionally, if you have more than £100K in your pot, your fee will continue to halve on the portion above this.
How will performance compare to the Fossil Fuel Free Plan?
As shown above, the starting position for holdings in the Fossil Fuel Free Plan and your new Climate Plan is very similar, although the new plan takes a stricter exclusionary approach. This means that in the short term, we would expect returns to be broadly comparable.
However, over time there may be increasing divergence in the companies that the new Climate Plan invests in. Whilst the old Fossil Fuel Free Plan continues to invest in non-fossil fuel companies that may be heavy carbon emitters or polluters, the new Climate Plan seeks to transition away from them. This type of proactive approach goes beyond the objectives of the old plan.
This means that if the rest of the market carbonises in the future, then you may see a more meaningful divergence in the underlying assets of the old Fossil Fuel Free Plan and your new Climate Plan.
One feature of the new Climate Plan is that it can take advantage of the growing opportunities in the shift towards a low-carbon economy, such as by increasing investments in environmentally friendly businesses. This approach also helps protect against risks by steering clear of industries and assets that might lose value if the transition to a low-carbon future doesn’t go smoothly. These “stranded assets” are investments that could become almost worthless due to new government regulations, changing public opinions, or shifting consumer preferences.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
What are the costs of switching?
Legal & General Investment Management, manager of your old Fossil Fuel Free Plan, and State Street Global Advisors, who will manage the new Climate Plan, will conduct an in-specie transfer for the bulk of the funds. This means the majority of your funds will not be out of the market during this time but it does mean there will be a “blackout” period when you cannot make withdrawals or contributions.
State Street Global Advisors estimates the cost of this in-specie transfer to be 0.09%, although it may be lower. At this higher estimate, the average cost for customers, based on an average pension pot size of £20K, would be £18. The annual management fee will remain unchanged at 0.75% of your pension balance.
What are the risks of switching?
Your old and new asset managers, Legal & General Investment Management and State Street Global Advisors respectively, will seek to minimise the risks of this switch by conducting the bulk of this switch in-specie.
In-specie switches are a business-as-usual activity for managers with dedicated transition teams on both sides handling the switch.
We will share more details on the dates that the switch will take place, and the associated “blackout” period. Currently we expect this to be from mid November to early December and we will confirm the exact dates in the coming weeks. During this time your balance will be unavailable but the majority of your funds will remain invested in the market.
In addition, there is no guarantee that the Climate Plan will perform better than the Fossil Fuel Free Plan in the short, medium or long term. However, based on the feedback we have obtained from customers, we are confident that the Climate Plan better aligns with our customers’ needs and expectations of this product.
What are my options if I don’t want to be switched to the Climate Plan?
If you don’t want to be automatically switched into the Climate Plan, you can switch into one of our other plans. If you want to switch plans, please log into your BeeHive.
With PensionBee you can switch to any new plan of your choice at any time. This switch will take around 12 working days to complete.
Can I continue to make contributions?
All your regular and ad hoc contributions will continue to be paid into your Fossil Fuel Free Plan until your switch begins. Once the switch begins, your BeeHive balance will be frozen until it completes. We estimate this will take 20 working days.
We’ll give you six weeks notice before the switch begins, so you have advanced warning to make contributions before or after this happens.
What if I want to withdraw funds at this time?
Once the switch begins, your BeeHive balance will be frozen until it completes. We estimate this could take up to 20 working days. You won’t be able to withdraw funds during this time. If you have regular withdrawals set up on your account we will contact you separately to discuss this.
If you were planning to make an ad hoc withdrawal in November or December this year, we’ll give you six weeks notice before the switch begins, so you can make any necessary withdrawals then.
Please note that if withdrawal requests are made before 12pm on a working day, we’ll aim to make a trade request on the same day. Requests made after 12pm may be processed the following working day. As long as there are no issues verifying your bank details, it should take around 12 working days for you to receive your money.
What if the stock market is volatile in the next month, will you still switch me?
We’re working in close partnership with State Street Global Advisors to optimise the switching process for customers. If any extreme market turbulence occurs in the run up to the fund switch date, we’d review the switch timeline and notify customers of any changes.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.