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Managed pension

A significant number of you will probably have come across the term managed pension at some point in your lives. And, you may (or may not!) have wondered what it actually means? The name managed pension describes how your pension savings are invested and overseen, so in a sense how it is actually ‘managed.’ But, the term managed pension is most often associated with a type of investment fund that your payments go into and which grows your money.

Of course, all pensions are managed in some way or another and this includes handling your payments, sending you regular updates, and making sure your pension complies with the many legislative and regulatory requirements.

What type of schemes include a managed pension?

The typical schemes are what are known as money purchase or defined contribution schemes where your pension depends on how much you (and your employer if relevant) pay in and how well it grows over time. Workplace pensions such as the group personal pension are the best known schemes that are linked to managed pension funds, but company pensions and stakeholder pensions can be too.


Managed pension

What is a managed pension fund?

In a managed fund the money you and other savers pay into your pensions is grouped together and then your provider will invest that money in a few different types of investment. The fund managers make all the decisions so that you don’t have to, and that approach suits most people. By spreading your money out across these different investments your provider ensures that you are not relying solely on just one type of investment to grow your pension pot.

The mix of investments can include stocks and shares, property, bonds (effectively your money is loaned to governments or companies and in return they pay you interest) and cash deposits. A managed fund can vary the amount of each investment it includes, and you then simply choose how much risk you want to take, so typically a low, medium or high risk.

Are all managed funds the same?

The short answer is no. There are literally thousands of different managed pension funds in the market and your provider could offer dozens of different options. Even within say a medium risk fund how much of your money invested is stock and shares can vary from provider to provider. As an example, managed funds investing 40-85% of your money in stocks and shares are often grouped together on comparison sites. That’s a pretty broad church!

What are default managed pensions?

Choices, choices, so what do you do? Recognising the huge selection of funds that are available to savers these days most employers select a managed pension as their recommended choice for the scheme members. It’s known as a ‘default fund’ and it’s a very popular choice if you can’t decide where to invest your pension contributions. The default managed fund is generally medium, or average risk and that outlook suits most people.

What’s the future for managed pensions?

They continue to be a popular choice for pension savers as they offer a good spread of investments and are value for money when it comes to charges. In recent years millions of new savers have started pensions because of auto-enrolment and there are now many more choices of how to take your pension at retirement, so change is in the air.

The providers are seeking to change the managed pension funds into something that is able to more easily change the amount and type of investments used more readily when markets are doing well, or in tougher economic times. They’re called diversified growth funds and are essentially still a managed pension but with a slightly different approach and name!