Investment
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The investment of your pension fund is a very important issue. However it is
not very difficult to understand and will pay dividends (no pun intended) if you
spend a little time understanding your options. You can be as active or as
inactive regarding your investments as you like. It would generally be
considered sensible though to set an initial strategy and then to reconsider
this every 5 years or so. So this is not going to take a lot of work on your
part. As with many decisions it would be wise to obtain financial advice to
ensure you have properly understood the risks you may be taking with your
pension fund.
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What is a fund?
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It is quite unlikely you will be picking individual shares, bonds and other
investments when investing your pension fund. i.e. you will not be deciding
whether to buy shares in Marks and Spencer or not. You will normally be
presented with a choice of 'funds' in which to invest.
These funds are generally run by investment and/or insurance companies and
consist of lots of different peoples money all pooled into one fund of money. To
keep track of who's money belongs to who the funds are 'unitised'. This means
that the fund is notionally divided into a number of units (i.e. a fund of £1
million might be divided into 1 million units of £1 each). Units are really just
a share of the total fund. The value of a unit will change in line with the
investment returns earned on the fund (if the £1 million fund doubled in value
to £2 million then each unit would then be worth £2). When your money is paid
into the fund a record is made of how many extra units that money will have
bought you at the current unit price.
As you will generally be investing in some form of unitised funds you need
only know how the different types of funds work and the charges they make to make an informed choice as to
how to invest your total fund. It is quite possible to invest your pension into
a number of different funds. In respect of each fund in which you invest you
need to make essentially two decisions
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You firstly need to decide what types of investments you wish to invest in
given their different levels of risks and characteristics. Different types of
investments are discussed below under the heading "Fund Types"
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You then need to consider how your funds will be managed. We will
discuss different ways the funds may be managed below under the heading
"Management style".
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Tell a friend about
Essential Pensions. Send an automatic message to your friends
email account about the site.
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If you have a pensions
related question then please let us
know.
If it's something other people
would find useful then we will post an answer in our Frequently Asked Question
(FAQ) area.
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Read the guide to
investment in the pensions guide. It explains what you need to
think about before investing for your retirement.
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Use our online calculator
to get an estimate of your basic state pension.
Its free and
simple to use you can even include it on your own website!
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