Types of Pension Fund Management

There are many different ways to invest your pension plan and it can be a bit overwhelming to decipher, but luckily there are many options when looking for pension advice.

Your pension advisor or provider will explain all the differences in detail, but the two major categories of pensions are either ‘with profit pensions’ or ‘unit-linked pensions.’

The first option with profits, the money you invest is pooled together with money from other people and invested in the company’s with profit fund.  The fund is managed by investment manager, who invests the funds money into different types of investments, such as shares, property, cash and bonds and is generally managed as a cautious fund. The costs of running this fund is deducted from the fund and what is left over the profit, is available to be paid to the investors.  You get this share via bonuses which are added to your plan, the size of your bonuses generally stay the same from one year to the next as the fund will hold back paying out all of the bonuses from good years to boost the profits in bad years, this process is called smoothing.

The second option, ‘unit-linked pensions’ do carry a little more risk than the ‘with profits’ option because the overall value can fluctuate, but although there is more risk, the benefits can be higher. The main types of ‘unit-linked pension’ include: