Best Pension Investment Funds

Pension Investments Funds UK

Investing in the right funds is very important for securing a comfortable retirement life. You should invest some portion of your income into the right pension plans. 

By the end of 2020, pension fund investments in the UK amounted to more than $3.59 trillion.


A balanced portfolio includes a range of equity funds, bonds and cash funds. In the UK, there are several pension plans available, and you can choose to invest in the one that you are most comfortable with.


What are pension investments?

Pensions investment are the contribution made to get a regular income once you have retired. These funds are then invested on the employee’s behalf to generate earnings. These pension investments can be private or government. 


The main objective of a pension fund is to ensure that there will be enough money to cover the pensions of employees after their retirement in the future. 

How do pension funds work? 

Pension funds are funded from defined percentage contributions made by the pensioner from the salary they earn. The employer also makes a defined contribution to your pension plan. 


You may also get tax relief from the government. The amount of funds depends on the work period of the employees and the salary incurred by them. 


After employees retire, they receive monthly benefits from the plan. These benefits depend on a percentage of their average salary over their last few years of employment. It also considers the number of years for which they worked for that company. 

An overview of the pension funds in the UK  

Some of the updates from 2022 are stated below: 


  • State pensions and benefits will be increased by 3.1% from 2022 to make them in line with the Consumer Price Index. It implies that the basic State Pension will increase to  £141.85 per week and the full rate of the new State Pension will increase to £185.15.

  • Sponsoring employers of defined benefit (DB) pension schemes will be well aware of the new criminal offences introduced by the Pension Schemes Act 2021. The Pension Schemes Act 2021 includes significant changes relating to employers’ reporting obligations. The intention is to alert the Pensions Regulator and trustees at an earlier stage to financial decisions which could impact the pension scheme. The Government has consulted on draft regulations that set out the details of these changes and they are expected to come into force on 6 April 2022.

  • Under the Pension Schemes Act 2021, the Pensions Regulator is consulting on a proposed new regulatory approach to funding for defined benefit (DB) pension schemes, which will be the most fundamental shift in the scheme funding regime since it was introduced in 2005. The sponsoring employer will be consulted on the draft DB funding code of practice by the regulator later this year.

  • A legislative framework for pensions dashboards for the online platforms will be launched under Pension Scheme Act 2021, which will allow users to view information from multiple pensions in one place. Trustees will need to start thinking about what they need to do to get their data “dashboard ready”.

  • The Government has published a consultation on draft regulations that set out the authorisation and supervision regime for collective defined contribution (CDC) schemes. The regime is similar to that for the authorisation and supervision of master trusts.

  • From 1 October 2022, schemes with £1 billion or more in assets will be required to align their governance processes and disclosures with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. The trustees are required to measure and report on the extent to which their investments are aligned with the Paris Agreement goal of pursuing efforts to limit the global average temperature increase to 1.5°C above pre-industrial levels.

  • The Government has already published a consultation seeking views on the effectiveness of trustees’ current policies and practises concerning social factors. The consultation was an information-gathering exercise which the Government said may or may not lead to new requirements for trustees, but it seems likely that changes will be forthcoming. 

  • There will be a provision to increase the Normal minimum pension age from age 55 to age 57 from 2028 in the Finance Bill 2021-22

  • The Government has confirmed that low earners making contributions to net pay schemes from 2024-25 will be eligible to claim a top-up. The intention is that these top-ups will help to better align outcomes with equivalent savers in relief at source schemes. The Government has also confirmed that it intends to modernise the administration of pensions tax relief.

  • From 1 October 2022, new regulations will require DC schemes used for auto-enrolment to provide annual benefit statements not exceeding one double-sided sheet of A4 paper when printed. The Government is also expected to consult on a mandatory approach to the timing of annual benefit statements so that all members receive their statements during a short “statement season”.

  • The Government has consulted on regulations that will require trustees to ensure members wishing to access or transfer their pensions are referred to appropriate pensions guidance and have either received or opted out of receiving such guidance before accessing or transferring their benefits. The intention is that the regulations will come into force on 6 April 2022. 


What are the different types of pension schemes?


There are three types of pension schemes from which you can choose to contribute to your retirement financial plan. They are:


1- Workplace pensions


Workplace pensions are the pension plan arranged by your employer. Under the Pensions Act 2008, there are automatic enrolment duties employers have to follow. 


They have to offer a workplace pension scheme to their employees where both the employer and the employee have to contribute to this pension scheme. It is sometimes also known as ‘occupational’, ‘company’, or ‘work-based’ pensions.


Workplace pensions scheme can be of two types which are defined benefit pension and defined contribution pension.


  • Defined benefit pensions schemes pay income depending on factors, such as the salary at your retirement (Final salary pension) or at the average salary (Average salary pension) during your career, the number of years you were a member of the scheme, and the accrual rates of the scheme.


  • Defined contribution pension schemes are the pension schemes where your pension pot is invested in various types of investment such as stocks so that in the long run it gives a better return. The minimum level of contribution to be paid by you and/or your employer is pre-set by the Government. Following three types of defined contribution pension scheme options are available to the employers to choose from: 

  • An individual trust pension scheme: a pension scheme that’s only available to that employer and its workers. Trustees run the scheme in the best interests of members (i.e the workers of that company).

  • A master trust pension scheme: a pension that can be used by separate employers and their workers. Trustees run the scheme in the best interests of all the members (i.e. the workers of all the companies that are using the pension).

  • A group personal pension: It is a collection of individual pension plans set up by your employer. One of these plans will belong to you.


  • Hybrid pension schemes are the combination of defined benefit pension schemes and defined contribution pension schemes. Unlike DB pension where the provider usually takes all the risk, and DC pension where the members bear the full risk, in hybrid pension the risk can be shared between the employer and employees.   


2- Personal Pension Scheme


Personal pension schemes are a type of defined contribution pension scheme where the minimum contribution level is not set by the government. 


In this pension scheme, you choose the provider and the contributions are paid by you. This pension plan is normally taken by people who are not working or self-employed or not eligible to join their company’s workplace pension


There are different types of personal pension schemes. Some of the common schemes are:

  • Standard personal pensions: Standard personal pensions offer a range of investment choices having lower charges than stakeholder pensions 

  • Stakeholder pension: The stakeholder pension scheme allows making a low and flexible minimum contribution and the annual charges are capped. You can stop and start payments, and transfer out at no cost.

  • Self-invested personal pensions (SIPPs): SIPPs offer a variety of investment options and can offer greater flexibility. They allow you to control the specific investments that make up your pension fund. So They do need hands-on management, so if you have experience in investing, and who have the time to monitor these investments, you can manage by yourself or else allow some financial adviser to manage your SIPP.


3- State pension


The State Pension is the pension you get from the Government when you reach the State Pension age of 66 years


The amount you receive depends on your National Insurance contribution record. You need a minimum of ten qualifying years on your National Insurance record to get any State Pension. 


Also, for getting a full State Pension of £179.60 per week, you should have 35 qualifying years.  


Key Characteristics of the UK Pension fund market


The United Kingdom occupational pension funds are largely focused on defined benefit and hybrid pension schemes, which account for 79.1%2 of total pension fund assets. While the remainder focuses on defined contributions schemes.

From an asset exposure perspective, the pension funds market in the United Kingdom is mostly invested in bonds which accounts for  63% of total Investments. 

Within these bond categories, the pension funds market is primarily exposed to 43.2% sovereign securities with the remainder 19.2% in financial debt. 32.8% of the total investment constitutes equities ((29.4% in listed equities and 3.4% in unlisted equities) and other variable-yield securities. Lastly, Real estate investments correspond to the remaining 4.2% of the investment portfolio.

Pensions Funds in the UK are subject to a special tax regime called “Exempt-Exempt-Taxed” (EET) where beneficiary’s contributions and funds’ returns on the investments (including equity and dividends) are exempted, while withdrawals are subject to taxation with 25% exemption on withdrawals.

In 2013, the UK’s legislation introduced a 100% limit on direct equity exposure. In addition, pension funds are subject to a 100% ceiling in equity investment from a single issuer and a 5% limit in employer-related investment.

Typically, United Kingdom pension funds produce their financial accounts by the GAAP (Generally Accepted Accounting Principles). Yet, under the EU Accounting Regulation, all domestic publicly traded companies are required to produce their financial accounts following the IFRS (International Financial Reporting Standards).  IFRS are permitted for unlisted companies but their use is not mandatory. Hence, most British pension funds apply local GAAP in their financial reporting.

Government Vs Private Pension Schemes


Here are the difference between government and private pension schemes:


  • Private Pension scheme consists of defined benefit pension scheme and defined contribution pension scheme. The government pension scheme generally consists of the state pension scheme.

  • Private pension schemes are contributed by the employer and the employee. Government pension schemes are contributed by the pensioner and the government.

  • In a private pension scheme, a minimum contribution of 8% should be made. In a state pension, the National Insurance rate you pay depends on how much you earn. If you earn between £184 and £967 (2021/22), then you have to contribute 12% of your weekly earnings.  If you earn above £967 (2021/22), then you have to contribute 12% of your weekly earnings.

  • If you are employed, you should be earning more than £120 a week to be eligible for a workplace private pension.  For state pension, you should earn more than £184 a week.

  • If you have 35 qualifying years, you can get a full new State Pension of £179.60 per week. But there is no fixed maximum pension income in a private pension scheme.

  • Overseas pension scheme transfer is possible in a private pension scheme but you could not transfer to the state pension scheme.


Who is eligible for Pension schemes in the UK?


The State Pension is based on people’s National Insurance records. To qualify for the station pension, you need to have at least 10 ‘qualify years’ in your national insurance record.


A qualifying year for State Pension can be made up through combining earnings, National Insurance credits, self-employment, and voluntary contributions. Quality years can be build-up if 

  • You are employed and earning over £184 a week (2021/22) from one employer and paying National Insurance contributions

  • You are employed and earning between £120 and £184 a week (2021/22) from one employer and are treated as having paid National Insurance contributions

  • You are self-employed and paying Class 2 National Insurance contributions (£3.05 a week in 2021/22)

  • You make voluntary National Insurance contributions (£15.40 a week in 2021/22)

  • You receive National Insurance credits when you’re not able to pay National Insurance due to your illness or unemployment.

  • You are claiming certain working-age benefits such as Working Tax Credit, Jobseeker’s Allowance, or Employment and Support Allowance

  • If you are a registered parent of an under 12-year child or a foster carer. 

Under the automatic enrollment duties, all employers must enrol an employee into  a workplace pension scheme and make contributions to your pension if the following conditions are satisfied:

  • You are classified as a worker

  • Your age is between 20 and state pension years( 66years)

  • you earn at least £10,000 per year. (If you earn between £6,240 and £10,000 you have the right to opt-in. But contribution will be made only to you).

  • you ordinarily work in the UK


Which is the best pension investment fund in the UK


Here are the best pension investment funds in the UK:

1- Halifax Portfolio


Halifax holds a Times Money Mentor gold award in our customer experience ratings as the best personal pension in the UK. 


It is low-cost with a 0.24% platform charge and fund management charges are between 0.25 and 0.26% on top. There is no fee to open the pension, nor any exit fees or costs to transfer to another pension provider.


2- Fidelity Personal Investing Cost Focus Portfolio 


It scores five out of five for its pension plans, plus earns a silver award in our independent customer experience ratings. They are reasonably priced personal pension funds.  It charges the 0.35% platform fee and management costs of  0.20% a year.


3- Nutmeg Fixed Allocation Portfolio


It offers three different types of ready-made portfolios, including fixed allocation, fully managed, and socially responsible. Its socially responsible and fully managed portfolios are invested in a range of exchange-traded funds but are actively managed. 


It charges a platform fee of 0.75% for less than £100,000 to invest and 0.35% above £100,000.  For the fixed allocation portfolio, it charges a platform fee of 0.45% for less than £100,000 to invest and 0.25% above £100,000. 


Average fund management charges, including transaction costs, are an extra 0.19% on top of the platform fee.


4- Vanguard Target Retirement Portfolio


You choose your pension portfolio based on the approximate date when you think you are going to retire. The pension plan then changes over time, moving into lower-risk assets, such as bonds, as you get older and closer to stopping work. 


It charges a platform fee of 0.15%, management costs of 0.24%, and a transaction fee of 0.04%. 


How much should I invest in my pension plan?


According to the Pensions and Lifetime Savings Association, a single pensioner would need a pension income of £10,200 to live a “minimum level” lifestyle in retirement.


The amount you invest in your investment plan depends on how much you desire your retirement income to be to live a comfortable life.


 Some of the factors in deciding your retirement income are:

  • Deduct your regular costs such as pension contributions and regular savings from your current monthly expenditure. Then deduct other expenses due to reduced housekeeping costs such as food, energy, etc. Adding expenses that can be needed at retirement such as medical expenses, home repairs, etc.

  • When are you planning to retire? The normal age of retirement is 65 years. If you retire later than 65,  then you may not need to save as much.

  • The amount of guaranteed state pension you will receive for life.

  • Desired pension pot

  • The amount that can be saved in the pension scheme depends on the annual allowance limit and lifetime allowance limit.


Some advisers recommend that you save up to 10 times your average working-life salary by the time you retire. Therefore, if your average salary is £30,000 you should aim for a pension pot of around £300,000.


How to choose the right pension fund?


Choosing the right pension fund is the most important decision for a secure retirement. You should take sufficient time to understand before choosing the investment. 


You should also consider the investment style you are comfortable with. If you are a cautious type, then you will be comfortable with investing in lower-risk assets. If you are an aggressive type, you will be happy to invest in higher-risk assets for potentially higher returns. Finally, if you balance type You will like a balanced mix of higher and lower risk assets. 

Before investing you should be aware of the following point:

  • You should read the Key Investor Information Document (KIID) carefully which will explain the fund's investment objectives, charges, and other information.

  • You should view the volatility rating of the fund regularly as they can change over time. 

  • Performance of the assets it invests in 

  • When investing in overseas assets,  exchange rates, political and economical situations of the country to be considered.

  • The return on funds depends on the charges on the fund.

  • The type of assets on it is invested such as equity, fixed interest, property, or cash funds.


When should I take the help of a financial advisor?


Taking help from a financial advisor depends on the product and services you opt for and the purpose of the investment.


Financial planning can become complex and time-consuming, thus taking financial advice is important. They will help in making financial decisions and ensure that your tax and general household finances are in order.


Some of the financial products like saving accounts and fixed-rate savings bonds are self-understandable while comparing websites and tables, thus you can directly buy from the provider.


Some of the financial products like shares and unit trusts are harder to understand. So if you do not have much experience, knowledge, skills on these investments and neither you do not have time to research them nor are willing to take risks, then it is better to take a financial advisor.

Insurance products and mortgages are easy to understand by comparing prices on websites. 


Thus, you would buy directly from suppliers.

Pensions decide your retirement income, thus ensuring your financial security. They are long-term investments, thus a big chunk of your life earnings is invested here. So it is best to get advice from a financial advisor who would help to make crucial decisions for your retirement plan.  

Pension Fund FAQs


How much can I invest in pensions each year?


There is no annual limit on how much money you can also contribute to your pension. However, there is a limit on how much is tax-free. There will be no tax on your contribution till the annual allowance of £40,000 (2021/22). 

The above contribution comprises personal contributions, employer contributions, and government tax relief received. Under the right circumstances, you may have the option to carry forward any unused allowances from the previous three years, totaling up to £120,000, on top of your current year’s annual allowance.

What is the state pension age?


The state pension age is 66 years.


How much will I get from the state pension?


If you have made full National Insurance payments and you reach state pension age on or after 6 April 2016, you will receive the new state pension of £179.60 in 2021-22 or £185.15 in 2022-23 weekly. 

And If you reached state pension age before 6 April 2016, you will receive the state pension of £137.60 in 2021-22 and £141.85 in 2022-23 weekly. 

What is a defined pension?

A defined pension is the pension scheme where you and your employer pay a defined regular amount into your pension plan. But you may or may not know how much you will get when you retire depending on the type of defined pension scheme offered.

The types of defined pension schemes are: Define benefit pension scheme and Defined contribution pension scheme.

What is a defined-contribution pension?

It promises a guaranteed income at the time of retirement but the income you get will be determined by the value of your pot when you retire. It can be set up by you or your employer. 

The income you get depends on how much you pay during your working life and how well your investments do. It may not provide income throughout your life as it will depend on your financial pot.

Can I have more than one pension?

Yes, you can have more than one pension. Workplace pension will be offered by your employer where both the employer and the employee have to contribute to this pension scheme. 


If you have at least 10 qualifying years on your National Insurance record, you will be eligible to get State Pension. You can also set up a self-invested personal pension or a Self-invested personal pension (SIPP).

Can I consolidate my pensions?

Not all pension types can be transferred. You will not be able to transfer unfunded public sector pension schemes such as the Teachers’ Pension Scheme and the NHS Pension Scheme. 

You can transfer to a private-sector defined benefit scheme or a funded public sector pension scheme such as the Local Government Pension Scheme  Or defined contribution pension scheme.

How can I increase my workplace pension?


If your employer is providing you with a defined contribution scheme, then you can talk with the employer regarding raising the regular contribution made by you. After that, you will also get extra contributions from the government in the form of tax relief. 


If you top up extra pension contributions in the years before retirement, it brings an immediate boost in the form of tax relief. But there is a limit of annual allowance of £40,000 for most people for the entitlement of tax relief benefit. 


If you can further top up your pension pot by making an ‘additional voluntary contribution’ to your pension fund, in addition to your regular contributions.


How much money do I need when I retire?


According to the Pensions and Lifetime Savings Association:

  • A single would need a pension income of £10,200, and a couple would need a pension income of  £15,700 to live a “minimum level” lifestyle in retirement. 

  • A  single would need a pension income of £20,200, and a couple would need a pension income of  £29,100 to live a moderate lifestyle in retirement.

  • A single would need a pension income of £33,000, and a couple would need a pension income of  £47,500 to live a comfortable lifestyle in retirement. 


In this income, pensioners could  enjoy regular beauty treatments, theatre trips, and three weeks in Europe a year.


Thus, the above research does not consider a mortgage, rent, social care costs, or other costs such as taxes on pension income. Normally, people at the time of retirement do not have the above liabilities.


Can I invest in a joint pension scheme?


No, there are not any joint pension schemes. Pensions are held in separate names, not joint names.

But you have the option to buy jointly an annuity from the retirement savings after reaching 55 years of age. 


Can I get a guaranteed retirement income?


Defined benefit pension provides a guaranteed retirement income for life, thus offering certainty to retirees that they will not run out of money at retirement. 


The amount of income you will receive will depend on factors like the salary at your retirement or at the average salary during your career, the number of years you were a member of the scheme and the accrual rates of the scheme.


Another option is to use money from the pension pot to invest in an annuity. An annuity will provide a regular guaranteed retirement in retirement.  It will pay you income either for life or for an agreed number of years.


Can I get guidance on my retirement savings?

Yes, you can take guidance from an advisor regulated by Financial Conduct Authority (FCA). They will compare different products from the markets and make a personal recommendation to you. 


Thus, ensuring a comfortable and financially secure retirement.


Final Thoughts


You must have understood all the pension schemes such as Defined Benefit, Defined Contribution and state pension available in the market. However, there are certain defined criteria of pension schemes set up by the government upon which the functioning of these pension schemes work. 


Therefore, you should understand the complexity of these schemes before investing the money for ensuring a comfortable life. The percentages of distribution of all pension schemes in the UK and the distribution of the assets where these schemes are invested. It is wiser to take advice from a regulated advisor before investing in a pension scheme.