An annuity gives you a guaranteed income for life. You usually buy it when you retire using the money you’ve built up in your pension plan.
An asset is anything of value that can be invested in. Assets with similar characteristics are grouped together to form ‘asset classes’. There are four main asset classes – equities (shares), cash, bonds and property – each with different pros and cons.
An investment fund will invest in one or more asset classes. We categorise a fund based on what type and share of asset class/es it invests in.
This is a government initiative to enrol millions of employees into workplace pension schemes. If you’re enrolled, a slice of your pay packet will automatically go into a pension plan for you - and your employer will pay into it, too.
Corporate bonds are issued by UK and international companies as a way for them to borrow money. The company pays interest on the loan and promises to repay the debt at a certain point in time.
Cash/Money market funds are lower risk investments aimed at giving similar growth to bank/building society interest rates, however, investing in these funds is not the same as saving in a bank or building society account.
Equities are shares in companies listed on stock exchanges around the world. Generally, the more specialised the fund is, the higher the risk to your investment.
UK gilts (also known as government bonds) are issued by the UK government as a way for them to borrow money, usually for a fixed term. The government pays interest on the loan.
An investment company pools the money of individual investors and invests it in a range of assets (eg equities (shares), and property) to achieve certain aims, such as investment growth. Well-known investment companies include Artemis, BlackRock and Invesco.
An investment fund invests in a range of assets (such as equities (shares), cash, bonds and property) with the aim of achieving certain objectives, such as investment growth. When you invest in an investment fund, your money is pooled with that of other investors’. This gives you access to greater management expertise and lower fees than you’d usually be able to get on your own.
Funds are a way for you to pool your money with other investors so you can:
You can usually choose which funds to put your money in and change the funds you invest in. There are lots of different types of fund and many options to choose from. If you're not sure which one(s) to pick, we strongly suggest that you talk to a financial adviser. They will be able to assess your personal situation and make recommendations for you.
Different funds carry different levels of risk. A low risk fund might aim for steady growth over a long period of time with a low risk of losing money but there's the possibility that it won't keep up with inflation. A high risk fund will usually aim for higher long-term growth, but there’s a greater risk of losing money.
The types of assets a fund invests in are important factors in the returns you're likely to get and the amount of risk that you're taking. A high risk fund might invest in shares of companies in either the UK or overseas. This gives the fund the potential to provide good long-term returns, but also means it’s likely to see large ups and downs in value. A low risk fund might invest in government bonds, which normally offer lower returns but should be more secure.
A pension plan helps you prepare for your retirement. You pay into your pension plan during your working life. Your employer may also pay into your pension plan. The government gives you tax relief on your payments, effectively paying into your pension plan too. Your pension plan provider pools these payments and invests them to build up a pot of money for when the time comes to retire. When you are ready to take your retirement benefits, you will have various options. We will write to you in advance to let you know what your options are. You can also find out about them now by visiting our Savings and Retirement section.
When we refer to a pension pot, we mean the total amount of money you have in your pension plan at that moment in time.
This is the total of all your salary, fees and other payments paid to you by your employer. It also includes any other payment or benefit defined as pensionable in your contract of employment. This is usually your normal salary or wages, plus any shift allowance, bonuses, honoraria, contractual overtime, statutory sick pay, maternity pay, paternity pay, and adoption pay.
(Honoraria means a voluntary payment for services you wouldn’t normally be paid for. You must pay income tax and National Insurance contribution on these payments).
These funds invest mainly in commercial property, such as shopping centres and business offices. They may also invest in indirect property investments, including quoted property trusts and unregulated collective investment schemes.
The value of all funds can go down as well as up. This means all funds carry the risk that the value could drop below the value of the money originally invested. Typically, the more the value of an investment fund changes, the higher the potential for gains or losses. For every fund, there is a certain amount of risk involved. This is often known as risk/return, so understanding your attitude to risk/return is important.
Risk and return go hand in hand. When it comes to investments, ‘risk’ refers to the possibility of losing money. ‘Return’, on the other hand, is any gain you make on top of what you originally invested.
High-risk investment funds tend to be capable of much greater returns than lower risk ones. But there’s more chance you’ll lose money with them. With low-risk funds, there’s less chance of losing money, but they tend to be capable of much lower returns than higher risk funds.
You need to remember that with both low and high risk investments, the value can move up and down and you may get back less than has been put in.
This is a regular payment you can get from the government when you reach your state pension age. To get it, you must have paid or been credited with sufficient National Insurance contributions. You might be entitled to other state benefits when you reach retirement age. Visit gov.uk to find out more.
Your pension contributions are deducted after tax is calculated and Aviva claims basic rate tax relief on your behalf and adds it to your pension plan.
For every 80p you pay into your pension plan, the government adds 20p in tax relief, boosting it to a total contribution of £1.
If you pay tax at more than the basic rate, you can claim even more tax relief when you complete your annual self-assessment tax return.
Tax information is subject to change and individual circumstances.