Pensions

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12. Choosing a fund

The two most obvious factors which will affect the value of your pension fund at retirement are performance and charges.

Cheap is not necessarily cheerful, so don't buy on the basis of low cost alone. Some of the best long term performing funds carry above average costs - but are worth every penny.

There are several types of personal pension, but they can all invest in the same range of assets - namely UK and overseas equities, gilts, bonds, cash (deposits) and in some cases property. Certain structures offer an element of capital protection but they achieve this in different ways, to different degrees of success and at a different cost to you, the investor.

Broadly speaking, the choices are:

• Unit linked and unit trust:
  Your contributions buy units in a fund which invests your money across a range of assets. The value of the units is linked arithmetically to the market value of the underlying assets.
• Investment trust:
  Your contributions buy shares in an IT which is listed on the stock exchange and which invests in the shares of other companies. The share price is partly determined by the value of the underlying assets, but is also affected by supply and demand (just like any other share). This means that, compared to a unit trust, IT shares are more volatile.
• With profits:
  This fund invests mainly in UK and international equities, gilts and fixed interest securities and property. Part of the return or "bonus", once allocated, is guaranteed not to be taken away (like interest on a deposit account). The rest of the return is allocated at retirement and is discretionary.
• Guaranteed equity funds:
  These claim to offer the capital growth associated with equities but reduce your exposure to stock market volatility. They also carry a cost and limit the gains, so use them in the years before retirement but not for the long term.
• Lifestyle funds:
  Choose the asset mix for you according to age. Typically they invest all your contributions into an equities fund until you are about 10 years away from retirement when your fund is gradually switched into gilts and cash.

1. Don't rely on the state scheme! 2. Private pensions: your most tax efficient investment 3. Company pension schemes 4. How to top up your company pension 5. Factors when topping up a company pension 6. What if you change jobs? 7. SSASs for small companies 8. Personal pensions 9. Value for money personal pensions 10. Aim for a balanced pension portfolio 11. How much can you invest in a personal plan? 12. Choosing a fund 13. Personal pensions with greater investment scope 14. Use your plan to get out of S2P 15. Do you need an adviser? 16. Conclusion

• Pension Power