Income funds a good choice?

rich_b

I am choosing the funds for my employee stakeholder pension scheme which is a scheme run by L&G with a choice of 40 funds. I was expecting the fund choices to be all accumulation rather than income funds but it seems that a couple of the funds I'm thinking of choosing are actually income funds. Bearing in mind that I'm nowhere near retirement, so am looking for long term fund growth, and am expecting any investment growth to boost the fund rather than be taken as income - is an income fund an ok choice?

It seems odd to me but there are quite a few income funds offered and I can't understand why they'd be offered if they were bad choices for someone building a pension pot! Can someone clear this up for me please?

Lokolo

The income could then be invested elsewhere.

mania112

In a pension, accumulation funds increase their UNIT value.

Income funds increase the number of units.

It's much ado about nothing, but accumulation is standard way to go for pensions.

mania112

Lokolo wrote: »

The income could then be invested elsewhere.

makes no difference in the product the OP is talking about.

Lokolo

mania112 wrote: »

In a pension, accumulation funds increase their until value.

Income funds increase the number of units.

It's much ado about nothing, but accumulation is standard way to go for pensions.

Surely thats only if the income funds have reinvestment set up? Is that the case with inc funds within a pension?

mania112

Well income funds in a pension have no place to go when income is paid, it's all reinvested back into the fund (assuming we're talking insured funds, as per stakeholders).

There's no manual set up of reinvestment, it all happens for you behind the scenes.

Income funds are 'seen' as post-retirement funds (and acc pre) but I really don't see the point.

EDIT: Just seems like another way to over complicate things. They should do away with options like that in my opinion. Stick with ACC.

Lokolo

mania112 wrote: »

Well income funds in a pension have no place to go when income is paid, it's all reinvested back into the fund (assuming we're talking insured funds, as per stakeholders).

Sorry I didn't think there would be a different between income funds being inside a pension. Why can the income funds not distribute cash but stay inside the pension? Just like an ISA would.

(by all means I could be wrong but I didn't think there would be any difference and not sure why the income is then reinvested)

mania112

What would you expect to happen to the income?

EDIT: Sorry I re-read your post and realised you're suggesting the income pays into a cash account in a pension.

Stakeholders don't have a cash holding (cash funds excluded).

Each fund must contain it's own value and growth (if that makes sense), it can't pay anything out.

EDIT2: That's how I understand it anyway. I could be wrong.

Lokolo

mania112 wrote: »

What would you expect to happen to the income?

Come through as cash within the pension.

So if you invested £1000 in HSBC Equity Inc. It then had a 5% dividend. Your pension would go from

100% L&G Global Equity Inc £1000
Total £1000

to

95.2% L&G Global Equity Inc £1000
4.8% Cash £50
Total £1050

I could then invest this cash elsewhere (within pension rules obviously, so I imagine in the OPs cause I could reinvest the cash into another differnet L&G fund)

EDIT: Sorry I re-read your post and realised you're suggesting the income pays into a cash account in a pension.

Stakeholders don't have a cash holding (cash funds excluded).

Each fund must contain it's own value and growth (if that makes sense), it can't pay anything out.

EDIT2: That's how I understand it anyway. I could be wrong.

Right, after all your edits

So if you can't hold cash then yes. In which case OP ignore what I've said, stick with Acc

mania112

That example is an individual share, in a fund (fund as in a portfolio of shares) you would never explicitly see a dividend paying out.

Perhaps your scenario is true of a SIPP, but in a stakeholder, i'd say not.

Benefit of ACC is that you can easily see the growth. If your units were bought for a £1 and they're now worth £1.20, bingo - easy to see.

With INC they'll always cost the same (although not exactly) but the number of them increases, bit trickier to navigate.

dunstonh

There are not income funds in pension funds. They will be accumulation funds. However, I suspect you are mixing up things like equity income or fixed income bonds etc which are not income funds.