Pension Fund



Pension funds are pooled contributions from pension plans set up by employers and other organizations to provide for the employees’ retirement benefits. Pension funds are large investment blocks in most economies and a major factor in the stock market. These funds are managed by professional fund managers and fall under the institutional investor category. Pension funds are exempt from capital gains tax, and earnings from their investment portfolio are tax exempted.[br]


Pension funds are in the national public interest and the legislative language explicitly defines such funds in various laws. Pension funds perform important economic functions, such as mobilizing and managing savings, providing income stability, making labor markets more efficient and providing exposure to systemic risk in the financial markets.


Pension fund investments

Pension fund investments include conventional securities, such as stocks and bonds, real estate and alternative investments, such as hedge funds and structured securities. Pension fund investment portfolios also include derivatives.


Making pension fund choices

Making a pension fund choice is important, since it will affect your income after retirement. Different types of investments in pension funds have different levels of volatility. Usually the funds offered fall into the following categories:

·        Cash: This means money saved for deposit either in a bank or financial institution.

·        Bonds: These are either government or private loans that pay a rate of interest until the loan is repaid.

·        Property: This is money invested in land or buildings.

·        Equities: Are shares in private companies.


Classification of pension fund

There are two types of pension funds:

·        Open Fund

·        Closed Fund

o       Single employer pension funds

o       Multi employer pension funds

o       Related member pension funds

o       Individual pension funds[br]


Types of pension funds

The types of pension funds are:

·        Pension fund

·        Provident fund

·        Retirement annuity fund

·        Preservation fund


Choosing a pension fund

Choosing the right pension fund requires extensive due diligence and research. Ideally, you should look for fund managers who are regulatory compliant and can assure maximum returns on your investments. The best bet is to read the fund’s guide and assess the risk associated with each area and weigh the options.


You also need to carefully balance investment growth and risk, such as changing the fund choice or splitting the pension savings. There has to be a tradeoff between upper and lower growth and volatility in a pension fund.



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