A Little Bit Richer

Kia: Hey, this is Kia. We love paying our pensioners some attention on this show. I want to make sure you're as passionate about pensions as I am, because it's so important to look after future you. Hopefully, spending your retirement on a sunny beach. Welcome to another episode of A Little Bit Richer, brought to you by my friends at Legal & General.

We've done a few episodes on pensions. And today we're going deeper on investment choices, what types of organizations they're invested in, and the choices that you have. Anyone looking to align their investments with their values, this is the episode for you. Joining me to guide us through this is Jesal Mistry. He works in asset management at Legal & General, so he's part of the team who decides the best places to invest people's pension savings.

Welcome, Jesal.

Jesal Mistry: Hello, Kia.

Kia: How are you?

Jesal Mistry: I'm good, thank you.

Kia: Good. I'm excited. As you heard, I love talking about pensions. One of my favourite topics, because it's not spoken about enough. Let's get into it.

First thing's first. Could you explain what happens to pension savings and where the money actually gets invested?

Jesal Mistry: The good news is that if you're in a pension scheme already, then you're actually an investor. There are a number of different investment options available. But if you haven't already made a choice, then the pension provider is probably doing that for you. In a workplace pension, that's called a default option. They do this to grow your money over time. It's really important that we grow your money, because you need that at retirement to be able to live off when you get to that point in time.

Now generally, the provider will invest your money in maybe more higher risk investments earlier on. It's because you've got a lot longer to go until you get to the point of drawing your money out. It means that you can see through all the ups and downs in investment returns. Then in the default fund, what tends to happen is that, as you get close to retirement, we reduce that risk so that when you get to the point of drawing your money out, your money's not moving around in terms of its value. That means you can get more certainty around what sort of value you might get at retirement.

But also, in the earlier years, there's lots of different options available in where to invest your money. Some of that might be in line with different risk profiles. Some of that might be in line with more around how you view investments and your own views.

Kia: How does an investment manager like Legal & General decide what types of companies the money goes into? Are there specific industries or areas that you will avoid all together when it comes to pension funds?

Jesal Mistry: There's lots and lots of different things that we have to think about when we're looking to invest money on behalf of savers that we look after. Things like regions or countries to invest in. Whether that's in the US, whether that's in emerging economies, those sorts of areas as well. But also, we're thinking about savers' personal views. Many of these are focused on things like investing responsibly. You might hear the term ESG, which stands for environmental, social, and governance issues. These are key things that we look at with companies.

You asked me about whether there are certain things we avoid. Some of the options that we have will avoid different types of companies, and that's called exclusion. We apply exclusions to the funds that we have. These might be companies that manufacture weapons, like land mines and cluster munitions, for example. Companies that manufacture tobacco, those sorts of areas. Companies involved in animal testing. And those that commit human rights abuses. There's lots of other things that we think about when we're removing companies. But different types of funds have those different types of exclusions. It's really important that you have a look at what types of funds you've got, and really try to say whether they're in line with your particular views, because each one of us has a different way of thinking about our own values and what we feel is appropriate for us.

Now, whilst exclusions might be considered to be a good thing, in that you aren't supporting companies. In some ways, actually, the flip side to that, because we own parts of companies, we actually can influence how they operate and what they do. By bringing all of that money together, we have a greater influence on those companies. We can engage with them, we can write to them, we can talk to their management teams. And be able to say to them, " Look, you need to operate more responsibly." You can have a real influence on day- to- day activity within some of these companies that really helps to move things forward. By investing in companies, you can actually have a positive influence over them.

The other aspect to, I think, the types of investments that we make is really trying to invest in line with beliefs or particular faiths as well. For example, we've arranged a Sharia compliant investment fund, so particularly focused on supporting Muslims to save in their pension scheme. Having those funds available means that they can actually join the pension scheme and invest in line with their own personal beliefs as well.

Kia: Hearing that explanation about different things that pension providers are doing to make change, and the things that you can do as an investor by putting your money into companies to make changes, it makes you feel quite empowered.

Jesal Mistry: Yeah.

Kia: I feel very empowered right now, knowing that I've got pension savings that are being invested, and I'm actually making a difference. I think people knowing that and understanding that can really empower people to say, " Do you know what? I want to make a change, and I want to make an impact, and I want my money to go into things that I believe in," which is great, and I think that everyone should know and be aware of.

Coming off the back of a little bit what you've touched on, what impact do pension fund providers have on organizations? I know you touched on it a little bit. But other impact do they have on organizations that they invest their money into?

Jesal Mistry: We take our responsibility to look after people's savings very, very seriously, and make sure that we're looking after them in a responsible way. That means two things. That means delivering the types of returns that people expect. But also, investing in the types of companies that are investing responsibly, run in a responsible way, and therefore then working with them in that respect.

We set some standards. That could be anything from environmental or climate change type of standards, all the way through to equality, gender equality, diversity within organizations, and to how they should be run. We set some standards with them. Then if they don't meet our standards, we will vote against them. It's not all just about voting. We actually then try to engage with them a little bit more and support them.

We have what we call a Climate Impact Pledge. This is where we are focused on the worst- offending companies across the world from a climate perspective. We'll try to engage with those and identify those that are most influential, that are maybe not hitting the right areas and work more closely with them. We set up very clear minimum standards as to what we expect from them, and where we expect them to go moving forward. Within the Climate Impact Pledge, if companies don't meet those minimum standards, we will remove them from some of the funds that we invest in, and we will vote against their management for everything else where we can't remove them. It's not just smaller companies. These are quite big, large, well- known names. ExxonMobil, the oil and gas company. And the miner, Glencore, as well.

Kia: I think often, we don't hear what things are going on behind the scenes, when it comes to our money and where it's going.

There is a massive topic when it comes to investing, and I'll be remiss to not mention it. We see crypto everywhere.

Jesal Mistry: Absolutely.

Kia: Right. Everyone's all talking about crypto. A couple of years ago, we had a massive boom, where everyone was insistent that you'll become a millionaire overnight if you put money into crypto.

When it comes to pension savings then, why isn't our money invested into crypto?

Jesal Mistry: Yeah, that's a great question actually. It is exactly that point, is that crypto investments have become really, really popular, so we see lots of demand for them. But it's also worth saying that crypto is very speculative, and actually very risky. For those of you that have some experience with it, will have seen how risky they can be, and go up and down. It also means that because they're not what we call regulated, so they're not overseen by professional bodies out there, like other types of investments. It also means that they're more open to things like fraud and to criminal activity.

What we want to ensure is that the money that you put into your pension savings are looked after and is there for you when you need it, at the point of retirement.

Kia: Off the back of that, we've mentioned a lot about different companies that your money can go into. How does someone check what companies and businesses they're money is being invested into with their pension?

Jesal Mistry: Yeah. The best place to check any information about your pension is actually to go online. Log in online, register for your account, and check the information that's available. You can do lots of great stuff on there. You can change your address. You keep track of your pension, and you understand how much it is, and you can see it grow.

Then within that online account, you can actually go to the investment section and learn a little bit more about your investments and see where they're invested. There's also some other further help that's there, in terms of the types of investments you have. We talked about investing responsibly, and I've covered some of the areas there, but there's more detail on that side of things as well.

Then within that, there's what we call a Fund Fact Sheet. A really good place to go and see all of the information about your investments, all in that one place. It lists out the top 10 investments, for example. It lists out where it's invested, whether that's around the world, or in the types of investment that it holds. You can look at things like how well it's doing. And compare it against what we call a benchmark, where you can see how it's performing relative to other similar types of funds or similar types of investments in that space. The idea behind that fact sheet is a great starting point. It also gives you some information about what the fund is trying to achieve.

Also online, you might see a link for a thing called Tumelo. Now that's a tool where you can see where you're invested, but it also allows you to go and see what sort of votes or what sort of resolutions are there that are available for you to express your views on. When they're talking to those companies or when they're voting, they can actually take into account your views and then vote on your behalf as well. Log in online and have a look at that, because that is the best place to get the information from.

Kia: I make it part of my financial habits. Every six months to a year, maybe, to check in on my pension.

Jesal Mistry: Yeah.

Kia: I find it quite interesting and quite fun. I know people don't always find those things fun, but I think it is quite fun just to see what's going on and keep on top of it.

Jesal Mistry: Yeah.

Kia: You mentioned that, when you get your pension, workplace pension, we often get put into the default fund.

Jesal Mistry: Yes.

Kia: If there is someone whose listening who says, " You know what, I've heard everything that you're saying, it sounds great. But I want to actually make a decision as to where my money goes," how easy is it for someone to choose their own investment funds for their pension savings?

Jesal Mistry: It's actually relatively straightforward to actually choose your own investment funds. The funds you have available to you will depend on the type of pension savings that you have. In a workplace pension, you generally have a range of funds that are often overseen by your employer, or a group of individuals called trustees who look after your interests in a pension scheme.

 If you have your own personal pension, then you tend to have a wider range of funds that are available. Quite often, hundreds of funds, so it can be more challenging to try to work out which of them are most appropriate for you. But again, there are tools available to help you understand different levels of risk, or different types of investments. You can go in there and filter that down and start to look at the ones that might matter to you the most. Then finally, people who might have a SIPP, a self- invested personal pension. That is something that offers an even wider range of investments and can get quite complex in that respect. There's different types of investment that's available to you.

Workplace pensions tend to include options designed to manage your savings for you as you get close to retirement, as well as individual funds. You've got the funds that are there in line with your own personal beliefs, but also there's some ready- made, for want of a better word, type of investment options that are available to you. There are target date fund range that change your investments as they get closer to retirement. A little bit like a default, but you can choose between different ones more in line with your own beliefs. Look at the types of investments that are available to you, and really go into that.

I think it's worth just saying that some of those types of investments have different risk profiles. That's the most important thing to think about is where you are on your journey. As I mentioned earlier, the further you are away, the more risk you can potentially take because you've got a long way to go until you get a hold of your money. But as you get closer to retirement, really think about the risk you're taking because at the point you want to access your money, you don't want to be taking too much risk because it could fall in value.

Kia: I feel like we've all got some homework to do today. We're all going to go, and log in, and check on our pension, and decide what you want to do with your money, if you did want to make a change.

Jesal Mistry: I feel like a teacher giving you homework.

Kia: Yeah, I feel like it's a teacher. But it's great. I feel like this homework is good for us to really engage with our pension and pay it some more attention.

Jesal, you have shared some incredible tips. But just to round up this episode then, what are your top three tips for anyone who wants to be more proactive with their pension investment?

Jesal Mistry: More homework, I think.

Kia: More homework.

Jesal Mistry: Yeah, absolutely. Get yourself up to speed with your pension, understand how it works. Log in online, understand how much money you've got, where you're invested, and what your options might be. That's a great way to start to think about where you can move. You can get lots of information on websites and in your own accounts. Pension providers tend to also produce things like annual reports and statements that you can read, and it gives you a bit more of a sense as to what's going on with your pension scheme. So have a look at that.

Secondly, just think about the impact of moving your investments around. There is a cost of buying and selling investments that just naturally happen. You just got to think through that, in terms of don't move it around too often. And also, just think carefully around when you start to move your money, don't make any jerk reactions. If you see the falling value of your money in the short term, then don't panic. Think carefully about how long you've got to wait until retirement and how your money's moving. Because if you sell at the bottom, you actually lock in those losses. We want to avoid that. Really thinking about how you move around your money and the options that you make.

Finally, if you're not sure, if you're in a workplace pension and you're in a default option, that is something that tends to be looked after for you on the long term. But you can actually go out there and get financial advice, and there's lots of support, as I said earlier, to help you with that. Saving into a pension is a really good thing to do, a really positive thing to do. Don't panic, stick with your pension, and really think about the types of decisions you've got to make, because actually this is a great saving vehicle for the long term.

Kia: That's a great way to end it. Don't panic, asses how much time you've got. And investment cycle waves, they can go up but they can go down, so just see if you weather out that storm, depending on how long you have until you draw down on your pension.

 Jesal, this has been an incredible episode. Thank you so much for sharing those gems, when it comes to pensions. I feel like every episode that we have on pensions, I become a little bit richer and a little bit wiser.

Jesal Mistry: Thank you. It's been great.

Kia: Thank you so much, Jesal. Lots of great information to help us understand pensions that bit more. Next time, we're talking weddings, how to manage the cost and be creative with budget with Ellie Austin Williams from This Girl Talks Money.

I'd love it if you could review the podcast, spread the word, and help others get a little bit richer, too. Keep up with the show on TikTok and Instagram at @legalandgeneral. Thank you for listening. See you soon!