In our email exchange, we established that you are already saving for your first home through a Lifetime Isa, which is a great call. That’s because you benefit from a 25% bonus from the government on whatever you save, up to a maximum of £4000 each year. You have one with Newcastle Building Society, which offers the best rate on the market at 1.1% – again, nice work.
The good news, Daisy, is that you can use your LISA to buy any property in the UK worth up to £450,000 – not just homes available through the Help to Buy equity loan scheme.
This now leaves the question of where to find a green pension. You can’t use a LISA for your retirement right now as you’re using it for your first home. In any event, I think it’s a good idea for all self-employed people to have a personal pension alongside or instead of a LISA, as you can contribute more into it, you get more investing options and there’s that all-important tax relief to consider.
You have three main options, Daisy. Firstly, there is NEST – the National Employment Savings Trust. This was set up by the government after auto-enrolment was introduced in 2012 to ensure all employers could offer a well-run pension scheme to their workers, whatever their size and resources. But what is less well-known is that NEST is open to the self-employed too.
NEST has been a pioneer in responsible, sustainable investing. It was one of the first pension schemes to screen out (i.e. remove) tobacco investments from its portfolios and is one of the most rigorous pension schemes in the UK when it comes to considering environment, social and governance (ESG) across its funds. It’s rated highly by organisations like Share Action and has a specialist fund to address what it calls “specific concerns about the impact organisations have on the environment and society, in areas such as human rights and environmental damage”.
There’s a contribution charge of 1.8 per cent on each new contribution into a member’s retirement pot and an annual management charge (AMC) of 0.3 per cent on the total value your fund each year. It’s not the cheapest option out there but it’s highly regarded and allows flexible contributions from as little as £10, which is great when your income is patchy.
The second possibility is a so-called robo adviser. This is basically an online money manager, albeit run by real people, that takes your money and invests it on your behalf. It’s a good route if you’re time-poor and don’t have the bandwidth to think too hard about your green pension. It’s also much cheaper and simpler than getting financial advice in the flesh. But you need to be prepared to let these guys make the decisions on your behalf – and perhaps pay slightly more in the process. Here are three to look into:
- Moneybox offers a pension, and this is invested in a fund that tracks – or copies – the performance companies which score well in terms of ESG factors – known as an index fund. Specifically, this is the Old Mutual World ESG Index fund. The downside is that Moneybox doesn’t properly spell out the full fees you’ll pay, directing you to Old Mutual’s (rather confusing!) fund factsheet. It seems you will pay in the region of 0.78 – 0.87% on your fund up to £100,000 which is on the high side. Charges matter because they really eat into your long-term returns. This tracker fund has also (so far) underperformed, generating slightly lower returns than its benchmark (i.e. the average performance of the market it’s in) to date. But this could change! You would also need to look at the top 10 investments and decide if you’re comfortable with them: they include Microsoft, Tesla, Procter & Gamble and Alphabet (Google).
- Nutmeg is another robo adviser offers a socially responsible investment (SRI) pension but has – arguably – put a bit more thought into its approach than Moneybox. You can read its free SRI paper here to judge whether it’s taking the right strategy for you. Again, the charges are quite high for my liking – 1.13% – though Nutmeg deserves credit for making this clear.
- An alternative with slightly cheaper charges (0.7% + 0.22-0.32% up to £100k) is Wealthsimple, which has an SRI pension that invests in a range of suitable exchange-traded funds. These are low-cost investment vehicles that track the performance of certain companies – in this case, socially responsible ones. Again, you’ll need to be the judge of the whether these underlying ETFs meet your standards – you can look up all their factsheets online by typing their name into your search engine and see what their main investments are.
The last option is a self-invested personal pension, which you can open through an investing platform like Hargreaves Lansdown, AJ Bell or Freetrade. This might be your preference if you really want to create your green pension from scratch, picking out the underlying companies, ethical funds or ETFs that you prefer. If you get it right, you can also keep your costs very low.
But if you choose this route, you need to get informed about how to create a properly diversified portfolio to manage your investing risks. You’ll also have to weigh up the different charges you’ll pay on each platform.
The decision is entirely yours Daisy, but I recommend three resources if you want to read up further: the excellent website Good With Money, Investing to Save the Planet by Alice Ross and my upcoming book, Own It, which you can pre-order now. But I hope this answer has been a helpful start!
UPDATE: Rachael from PensionBee got in touch to let me know about the app’s new self-employed pension – which can be invested in one of two sustainable plans. Rachael says:
“We launched this a couple of weeks back to help self-employed people save flexibly, whenever their business allows. Essentially we’re offering the same nine pension plans that are available to consolidators [those are customers switching all their previous pots into one plan through PensionBee], however the self-employed can choose to add a contribution of any size at sign-up rather than combining an old pension.
Of the nine plans on offer, two have a sustainability focus. Future World invests in companies that are committed to moving to a low carbon economy, and our new Fossil Fuel Free Plan, which excludes investment in companies with proven or probable reserves of fossil fuels, as well as tobacco producers, manufacturers of controversial weapons and persistent violators of the UN Global Compact.”
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