Real-world questions Flashcards
What is a unit trust?
How do they work?
Unit trusts manage investments by pooling money from multiple investors to create a single, large fund.
This pooled fund is then invested by a professional fund manager in a diversified portfolio of assets, such as stocks, bonds, and other securities.
The value of each unit is simply the value of the fund assets divided by the number of units in issue - units are sold at the offer price and bought back
from the investor at the bid price. A typical bid/offer spread would be 5 per cent.
What happens to my employee pension when I retire?
With defined contribution pension arrangements, the most common process if for the provider of your pension scheme to purchase an annuity with the value of your pension pot.
An annuity is a contract between you and an insurance broker to provide an income for life.
The amount of income provided by the annuity depends on a number of factors, such as:
- Your age and health (Those in poor health may receive a beneficial rate, known as an enhanced annuity - as income may not be paid as long due to reduced life expectancy).
- The amount of funds in your pension pot
- The performance of the underlying investments that the annuity is associated with (usually bonds and gilts - if gilt yields are low, this may provide a lower income for the client)
