What is a pension fund?

Types of pension fund explained, how to invest into a pension fund and transferring or inheriting a pension fund.

Everything you (or your employer) pay into your pension is invested into a fund. The value of your pension pot at retirement depends on how much you've contributed, how long it has been invested and how your fund has performed.

In this article, we'll look at what a pension fund is, pension fund performance, and how to find the best pension fund for you.

What is a pension fund?

A pension fund is a special type of investment fund, created by a fund manager to help your pension grow.

They work by combining the pension contributions of different savers into one giant pot, which is then invested into a range of financial assets, including equities (company shares), bonds and gilts, property, and even cash.

How do I invest into a pension fund?

Every time you pay money into your pension, the fund manager uses your contribution to buy 'units' of whichever fund you're invested in. A unit is simply a small portion of ownership in the fund. The more units you have, the bigger your stake.

The exact makeup of a pension fund varies by provider and objective. Some funds make riskier, more aggressive investments in the hope of generating better returns, while others target safer investments.

The fund manager's job is to make sure all investments are made with these goals in mind to achieve the best return possible for you.

what is a pension

How does my pension grow?

Over time, the value of each fund unit will hopefully grow. This growth comes from stock price increases, interest earned on fixed interest investments, and dividends paid out from shares.

However, because these investments are susceptible to market forces, it's vital to remember that the value of your pot can go down as well as up.

What different types of pension fund are there?

As with most types of investment, pension funds come in many shapes and sizes, varying by investment style, goals, industry sector, or geographical location.

Here are two of the most common kind of pension fund.

Managed funds

Managed pension funds are put together by a fund manager (or group of fund managers) and actively managed to try to achieve the best returns.

The fund manager will change the exact makeup of the fund on a regular basis, taking into account recent performance and real-world events.

Tracker funds

Tracker pension funds are passively managed. Rather than picking investments to chase high returns, these funds aim to automatically follow a wider index such as the FTSE 500. They tend to have lower fees than actively managed funds.

"Pension growth comes from stock price increases, interest earned on fixed interest investments and dividends paid out from shares"

What funds do Penfold offer?

With Penfold, you have a few different options for your pension.

Our pension funds are actively managed, run by HSBC and BlackRock, two of the biggest fund managers on the planet. They look after these funds for you, taking away any stressful decisions on where to invest. You can see the full details of our pension plans here.

Our Lifetime plan is an automated pension that adjusts your investments for you. Managed by BlackRock, this approach aims to grow your savings early, before switching to protect your pot as you approach retirement. Managed by BlackRock, this approach aims to grow your savings early, before switching to protect your pot as you approach retirement.

Our Standard plan is managed by BlackRock, the world’s largest asset manager. BlackRock work hard to protect and grow your savings over the long term through a wide range of low-cost investments around the world. Pick from 4 different options to find the level of risk that suits you.

Our Sustainable fund invests across assets and companies with the highest ESG rating. ESG stands for Environmental, Social, and Governance criteria, and measures how a business performs in terms of sustainability, social responsibility, and executive management. Like our Standard plan, this fund is also managed for you by BlackRock.

Our Sharia-compliant fund is managed by HSBC, and it invests only in companies that are compliant with Sharia law.

Can I transfer my pension fund?

Most pension providers should let you switch between the different funds they offer.

As always, it's important to weigh up all the options and think about the pros and cons of each fund before switching. Moving funds normally takes a few days and you may also miss out on growth while your pension is between investments.

If you'd like to transfer your pension fund to a different provider, you'll need to request a formal pension transfer.

With Penfold, you can switch plans at any time for free. Simply sign in online or in our app and head to 'Your Plan'.

Inheriting a pension fund

When you die, your pension fund can be inherited by a named beneficiary. How this works depends on the type of pension you have and whether you've used your pot to buy an annuity. You may also have to pay tax on anything you pass on.

How can I see my pension fund investments?

When choosing your pension fund, you may also want to know where exactly your money is going. Your pension provider should be able to send you detailed information about each fund, outlining its investment objectives, charges and other information, such as where it invests (normally broken down into country and type of asset or sector).

With Penfold, you can see a complete breakdown of the investments in your chosen pension fund online, including which companies you're investing in. You can even use the power of your pension to vote on company policies!

Penfold are not financial advisers. The information above applies general rules of thumb when it comes to investing. If you’re unsure whether investing is right for you, consider seeking advice from a financial adviser who can help you with your personal financial circumstances.

As with all investments, your capital is at risk so your pension value may go down as well as up in value and you may get out less than what you invested.

Get started in 5 minutes

1. Get a Penfold account by registering your details online or with our app.

2. Transfer an existing pension, or make a one-off or recurring payment (pause or adjust any time).

Done! Check savings progress, change investment plan and more with our app or online dashboard.

Get started now