What Is a Pension Fund?

A pension fund is an investment product into which scheme members pay contributions in order to build up a lump sum to provide an income in retirement

Emma Wall 19 June, 2014 | 6:00AM
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A pension fund is an investment product into which scheme members pay contributions in order to build up a lump sum to provide an income in retirement. The Government also pays back the income tax deducted from these contributions. In many cases, this is topped up with contributions from the scheme member’s employer.

This money is invested in a suite of themed funds – much like retail funds, run just specifically for retirement savers. These are combined in a portfolio, benefit from extremely low charges and are tax-free.

These underlying pension funds are run by insurance companies and a small section of asset managers. In 1997 the Association of British Insurers (ABI) introduced sectors as a system for the classification of life and pension funds so that consumers and financial advisers can compare them on a like-for-like basis. Every sector sets clear criteria that must be followed by funds wishing to belong to that sector.

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About Author

Emma Wall  is former Senior International Editor for Morningstar

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