

Automatic enrolment and the loosening of restrictions on accessing your pension from next April could open a new and complex world to ordinary savers not accustomed to investing their own money.

Workers and retirees are being asked to take a keener interest in how their pension pots are invested to give themselves a better chance of seeing their funds last throughout their later years.

But anyone going it alone when they're investing could be met with a confusing array of jargon, even when presented with the most limited and simple of choices.


To help you on your way, This is Money, in conjunction with BestInvest's David Smith and Gary Smith, explain some of the abbreviations and jargon you might encounter.



Rather than investing in individual companies, a fund manager pools together the cash invested by everyone in the fund and then uses it to invest in a broad range of assets, such as shares, bonds and property. (Change - some may be 100 per cent shares, others may have mixture).


When you invest in listed companies you hold a physical number of 'shares', when you invest in a pension fund, life fund, unit trust, or open-ended investment company (OEIC) you hold 'units'.

So if the unit price of a given fund is £1 and you hold £1,000 worth, you have 1,000 units in that fund.


Pension fund. Insurance companies will offer different versions of funds to reflect the product or 'wrapper' the fund is held in. Standard Life for example has versions of its flagship fund that can be bought as a pension fund, a life fund or as an ordinary investment.

Performance of the different versions will differ to reflect the taxation of the funds they're held under. Pensions, for example, are the most tax efficient so logically pension funds should outperform other versions of the fund, though that's not always guaranteed.

If you are in any pension scheme other than a self-invested personal pension (SIPP), the funds you can buy will be classed as pension funds.


Accumulation units. Any income generated by the fund - such as dividends or interest - is automatically reinvested.


Income Fund. This means that the fund physically generates income and pays it out on set dates throughout the year instead of being reinvested. If you have a SIPP, payouts to your pension will be held in cash until you decide to reinvest it. If you don't, it will be automatically reinvested.


Distribution fund - similar to an income fund. The difference is if you're in an equity income fund, the income effectively is the dividends generated from the investments, while with distribution funds the insurer agrees to pay you out a fixed amount each year.

Foreign: For some, studying investment information is like reading a different language.


Capital units. These are units with very high implicit charges. These are the funds you tend to be invested in when you first join a pension scheme and you have to stay in them for a certain time. Tend only to be found in older pension schemes now.


Initial units. Another name for capital units.

S1/2/3 etc

Insurance companies have over the years offered a variety of different pension plans to reflect changes in leglislation. Each pension plan will often only be able to buy a certain series, or edition, of a given pension fund. So S 1/2/3 will refer to the series number.


Means that the funds trades in pounds. For euros it will be EUR and for dollars it will be USD.


Means it is a Stakeholder Pension fund and therefore the annual management charge will be capped. Those with Stakeholder pensions will automatically be invested in Stakeholder funds. You can invest in these through other personal pension products, but they are designed for Stakeholder savers.


Annual management charge. Fund managers must give details of their set management charges, but usually just give an 'annual management charge' or AMC. However, this is incomplete as dealing, administration and other charges can add significantly to the cost. For other, better measures see below.


The 'total expense ratio', or TER, is a more accurate measure of what a fund costs than the AMC, although it still doesn't include everything,

New EU disclosure rules have seen the TER replaced by the 'ongoing charge' or OCF which is similar.


Ongoing Charge Figure. Similar to the TER, explained above. Read a guide to fund charges here.

Clean funds

'Clean funds' are versions of existing investment funds that include no commissions for financial advisers, supermarkets or brokers - just the fee levied by the fund manager.

The difference between clean funds and the traditional kind is down to their cost structure once this commission is taken out. 

As a rule of thumb, the old charge usually came in at around 1.5 per cent. The way this breaks down is about 0.75 per cent goes to the fund manager, 0.50 per cent to the adviser and 0.25 per cent to a supermarket or broker who does the administration.

So when commission for the adviser and platform is stripped out, that just leaves the fund manager charge of around 0.75 per cent to pay on clean funds. Read a guide to clean funds here.

Provider charges

Charges levied by the pension provider (ie. Aviva, Scottish Life etc) for the running of your pension product/workplace scheme.



Reduction in yield. The total charges levied on your pension scheme, which includes the TER, the provider charges, and any adviser fees.

This will generally be found in a calculation of your charges. So ,if your pension investments had projected a growth of 5 per cent, but charges meant this would reduce to 3.8 per cent, there would be a reduction in yield of 1.2 per cent.

Performance fee

These are extra fees a fund manager takes when performance exceeds a certain level. They are not levied by the majority of funds and are typically found in hedge funds.


Lifestyle fund. These are common investment strategies found within pension schemes that see you placed in riskier funds when you're young, before moving you into safer assets as you get closer to retirement. They are typically found in auto-enrolment schemes and often used as the 'default' investment choice for workplace savers.


Initial charge. These are a rare breed now but they used to be levied on unit trusts, pension funds and life funds and were typically about 5 per cent in total. Nowadays these charges are few and far between, but they do crop up in offshore investment bonds, and some of the older unit trusts.

Perplexing: Anyone looking to invest their workplace or personal pensions are met with a dazzling array of jargon and acronyms.

Type of pension limits the type of investment

While certain savers may encounter all of the abbreviations above, for many in workplace pensions, their choice of investments may be somewhat limited by the kind of scheme they are in and how much choice their employer wishes to provide.

Those in auto-enrolment schemes, for example, may find that they have as few as five funds to choose from, which typically will be lifestyled funds.

If you're in a Stakeholder scheme meanwhile, your choices are limited by caps on costs, that means you may only be able to invest in Stakeholder funds, which tend to be 'tracker' funds that aim to mirror the performance of the stock market, and a small number of funds run by fund managers.

The widest range of pension investment options is available to those with self-invested personal pensions (SIPPs).


What you can invest in with a SIPP


Open-ended investment companies. Pooled investments that typically invest in a certain asset class or geographical area. A UK Equity Fund will invested in a portfolio of equities (shares) listed in the UK. Unlike closed funds, there is no limit to the amount of units that can be sold.


Unit trusts. Operate in the same way to OEICS, but the main difference being with unit trusts you buy units at an 'offer price' and then sell them at the 'bid price', as the trust is bidding to receive units from you. With OEICs it's only one price.


Investment trusts. Similar to OEICs and unit trusts, but are tradeable on the stockmarkets and so have a share price rather than a unit price. They also have a Net Asset Value (NAV), which represents the current value of the assets within the investment trust, but which does not always match the value of the investment trust based on its share price. If the NAV is below the share price, then the trust is said to be trading 'at a discount'. If it's above, it's trading 'at a premium'.

If there is not great demand from investors, or there's a feeling the asset will go down, then the shares will trade at a discount. If there's large demand and it's predicted to rise, they will trade at a premium.


Pension fund, see above.

Direct equities

SIPPs can buy shares of individual companies listed on recognised stock exchanges in the UK or overseas. They can also invest in unlisted shares but the rules are more restrictive.

Commercial property

SIPPs can be used to invest in commercial, but not residential, property. These investments do incur additional costs, such as insurance and utility charges, but can also benefit from rental income being paid directly into the SIPP.

Fixed-term deposits/savings accounts

You can hold savings as cash in fixed or easy access savings bonds, though not all accounts on the market will be available to SIPPs and they offer slightly different rates from retail investors.

Structured products

These offer a fixed investment return if a certain set of targets are achieved within a period of time. They are typically linked to the performance of an index, such as the FTSE 100 Index, or a selection of investments.

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