Saving for retirement is boring. Seriously, seriously boring. The younger you are, the more likely you are to think you’re immortal and so the more boring pensions become. (This is ironic though, because immortals would need to eke out an income for even longer — all of eternity).
Millennials just don’t want to think about pensions. They don’t have any money and they’re not going to listen to some guy in a suit telling them to put their spare change into an Isa instead of funding their Spotify account and speeding about in an Uber car shouting “We can save for retirement when we’re dead!” out of the rolled down window.
But there’s another, more serious, side to millennials. We care about the world. And we like to be doing meaningful, worthy things with our time — the status quo is generally to be against men in suits, things that harm the environment and war.
One day in August I was stuck on a train in a small French town with three friends. None of them are particularly interested in ethics, but all of them are firmly against funding companies that produce weapons.
It transpired they were against funding a whole variety of companies that they didn’t like. They disliked G4S because of a run of recent stories about their badly run detention centres. They didn’t like Sports Direct, because they’ve treated workers badly.
When I told them that — given that they all had workplace pensions — they were almost certainly invested in weapons, there was outrage, particularly from the friend who had been talking about a world without borders and world peace only moments before.
The problem of obliviousness doesn’t just apply to millennials — it was neatly illustrated by an article in The Guardian this year which “exclusively revealed” that the pensions of scientists at Cancer Research UK were being ploughed into tobacco stocks. The Guardian — which described this investment as “controversial” — went on in a scandalised tone to note that the pension fund’s biggest investment was in Royal Dutch Shell.
Far from being a revelation, sadly, this sounds like quite an average portfolio. Both stocks are in the FTSE 100 and most pension portfolios in the accumulation phase will hold equity tracker funds.
A perfect storm is created when it comes to millennials — or at least, there would be if millennials knew their pension fund holdings were partly invested in producing assault rifles. Providing an alternative should be an opportunity for asset managers.
Because the government has cannily sensed a looming catastrophe when it comes to saving for retirement, it has stepped in to enforce auto-enrolment.
Being automatically scooped up into a pension plan means that many millennials in the workplace are investing while asleep at the wheel. But if they knew what they were investing in, would they suddenly sit up and take notice of pensions? Saving for retirement might be boring, but moral outrage is sexy and important.
Asset managers say there isn’t a market for ethical products, so they’re not keen on launching them. But there is plenty of research showing that among the younger generation there is very much a market.
A survey by the UK’s Sustainable Finance and Investment Association found that people under the age of 34 were almost twice as likely as older generations to want their bank to offer them a “fossil fuel free” option for saving and investing. They are not currently offered one.
A KPMG report produced last October noted that “younger generations are ever more critical of unethical behaviour”, adding that in an industry facing “high levels of consumer mistrust . . . honesty and integrity are likely to be regarded as more important buying criteria”.
There’s another big problem, though, which is that “ethical” fund options aren’t generally being offered. Take my own company pension. Let’s say I don’t want to invest in BAE Systems (I don’t). My only option is to switch out of the default pension fund option (which holds a FTSE 100 tracker) and to select the single ethical fund on offer — a passive fund tracking the FTSE4Good index. FTSE4Good is essentially the FTSE All-Share but with links to tobacco, arms and nuclear power stripped out.
Now, you could pick worse equity indices than the FTSE4Good. Over the past three years its up 23 per cent — less than the FTSE 250’s 26 per cent, but more than the FTSE 100’s 13.5 per cent. But I would not want to stick my entire pension in the FTSE4Good tracker. I want some global diversification too. That means I don’t just need one ethical fund — I need an ethical portfolio. But there seems little point in swapping my FTSE 100 tracker for a FTSE4Good if I’ve got large sums invested in cluster bombs via an Asian stocks tracker elsewhere.
There are a huge range of ethical funds, from those that screen out the odd “sin stock” to those that systematically block companies using child labour. For the really keen there are also proactively do-gooding “impact” funds. There are microfinance funds that lend money to businesses in developing economies, there are “water funds” that focus on investing in the infrastructure necessary to get clean water about the world.
But these funds are hard to invest in through a company pension, or even a stocks and shares Isa. The one “ethical” fund on Hargreaves Lansdown’s recommended buy list filters out booze and gambling. I mean — it seems to be assumed that if you object to funding weapons you must be some mad hummus-gobbling teetotaller. I don’t want to invest in BAE Systems but I have no problem with gin, craft beer or Blackjack. Conversely, it is worth pointing out that even in the FTSE4Good index there are companies who I consider to be tax dodgers, who have been Libor-riggers, or are fond of exploitative labour practices or pumping out fossil fuels. “Ethics”, it seems, means different things to different people.
Ethical investing needs to be more sophisticated. People of all ages need better options so that investing feels like something interesting and worth doing — and no more so than a generation uninterested in material wealth for its own sake. “If you don’t pay attention to your pension you’ll regret it when you’re old” is not a very compelling threat to make. “If you don’t pay attention to your pension you’re going to screw up the world” is far more likely to elicit a response.