Designing your own green pension

Perhaps I’ve read too much science fiction, but I have long been fascinated by the future, and impatient for its arrival. I want to see the advanced, ecologically sustainable world that technological innovation indicates we could have: cars, trains, ships and airplanes powered by batteries and hydrogen fuel cells; gleaming solar and wind farms; artificial proteins cultivated without animal slaughter; garden cities; the automation of humdrum work and more free time.

We’re getting there, but it could be happening faster. I’ve participated in some of the usual political channels for trying to make it happen, but it took me years to realise there’s another, powerful way we as individuals can help force change: investing our savings directly in companies pioneering green technologies. Investment works with the grain of a world driven, whether we like it or not, by finance and global markets.

Taking control with ISAs and SIPPs

I got started with investment by putting what I could afford into an Individual Savings Account — usually known as an ISA — that allowed me to invest up to £20,000 a year tax free in stocks and shares, or just keep it as cash. Choosing the investments that went into it proved to be much more interesting than I had expected. If you look into it there are a huge range of options out there for specifying exactly where your money goes: not just shares in particular companies, but literally thousands of funds and trusts dedicated to every sector of the global economy, and every shade of green technology.

Following advice about investing cautiously — which I’ll discuss in a future article — I picked out a few funds and started seeing some returns, on the green investments just as much as the more mainstream choices. So, being rather unhappy with what had been painstakingly accumulating in the private pension I had started quite a few years ago, I started looking into a less well known investment vehicle, the Self-Invested Personal Pension, usually referred to as a SIPP.

A SIPP combines the flexibility of an stocks and shares ISA with the long-term outlook of pension plan. You might call it a DIY pension scheme: instead of handing your money over to a pension fund manager to invest on your behalf you choose your own shares, funds and trusts, just like a stocks and shares ISA.

A SIPP has the tax benefits that apply to other kinds of pensions, with the Government paying 20% tax relief on your contributions. You can contribute up to 100% of your annual income, or up to £2,880 a year if you have no UK earnings. It’s quite a way off for most of us, but it’s worth knowing you can add up to £40,000 a year to it, and up to £1,073,100 over a lifetime. And it is all tax free — as with an ISA you won’t be taxed on any of the money that builds up in it.

A SIPP can run alongside, or even replace, an occupational pension scheme. You can ask your employer to pay some or all of your workplace pension into it. If you are self-employed it can run alongside or replace a personal pension scheme. Your savings have to stay in your SIPP until you are 55 (rising to 57 from 2028) when you can use some or all of them to buy a pension annuity, or just start withdrawing the money.

After my positive experience with the ISA I decided to go ahead and transfer my personal pension to a SIPP. There are different ways of doing it. I use an investor platform for managing my ISA, which like most platforms has an option for starting a self-invested pension. They made it quite easy to set up. I just gave the platform the basic information about my personal pension and they handled the transfer process in a couple of weeks or so. I pay them a monthly fee of a few pounds.

Choosing with care

I can’t say I didn’t hesitate. There’s a lot to be said for just handing over something as important as your pension to a fund manager. But if you value the freedom of selecting your own investments, and are prepared to do a bit of reading about what’s worth putting your money into, a SIPP can work very well. Remember that no-one cares more about your savings than you do yourself. Financial professionals will only do so much for you.

I really value the freedom of choosing between the huge range of investment options available. I’ve gradually built up a portfolio that blends a wide range of sustainable technologies, including solar photovoltaic panels, wind turbines, hydrogen fuel cells, flow batteries, public transport, lab grown foods, and electric vehicles. And I’ve indulged in a few rather more speculative investments. I coudn’t resist putting a little bit into space exploration, for example. Things like satellites that deliver global broadband connections and offer new insights in weather forecasting, global logistics, crop harvesting, insurance pricing and disaster response data. And one or two zero-gravity manufacturing technologies investigating new drug structures, possibilities for growing organs for transplant, and strong ultra-thin new materials.

As we’ll discuss in future articles, you do need to be careful: there’s a lot of highly speculative stuff that sounds great but won’t yield much of a return for some time, if ever. You can tread cautiously by investing in funds and trusts rather than directly in companies. These allow you to invest in a particular sector without having to pick the individual shares yourself: you entrust those decisions to the fund manager. You can also invest in Exchange Traded Funds, usually known as ETFs, which track a certain industry sector without an active fund manager: battery technologies, say, or solar power.

Everyday futurism

Investing your pension yourself isn’t for everyone. You do need to spend a bit of time looking into what stocks might make for good returns. And you need to keep an eye on your choices and be prepared to change things if one isn’t working out. But for me starting a SIPP has made the rather dry business of building up savings rather addictive. Choosing where to put my money among the funds showcasing tomorrow’s economy is a kind of everyday futurism that helps make the world I hope to see a little more tangible.

Photo by Jamie Street on Unsplash.