Investment Trusts

How investment trusts could boost retirement savings

With life expectancy across the UK rising at a surprisingly fast rate, pension provision from company and state pensions being less generous, and poor returns from traditional savings such as cash and gilts, having enough cash to last for the whole of retirement is a sure-fire goal for most people.

The income you have to live on in retirement will be dictated by the success of the investments you make and the funds you choose. There is no one-size-fits-all approach to selecting investments for retirement – or anything else – and it is best to talk to a financial planner or independent adviser who can recommend funds if you are not confident to do so yourself.

Either way, it helps to understand what works for certain types of investing.

Investment trusts are an important consideration for any portfolio. They could be useful for long term retirement savings for a number of reasons. Here are seven reasons to consider an investment trust for your pension:

1. Long term investment approach

Investment trusts are closed-ended funds, which mean they have a fixed number of shares in issue. That can help investment trust managers take a long-term approach to fund management and look through short-term stock market volatility. This structure means the investment trust manager will not be forced to sell any of the fund’s underlying assets to meet redemptions, as may be the case in some open-ended funds. Forced selling can result in losses by the investor if you sell at a lower price. Gearing –the ability for the manager to borrow to buy assets – is another feature of investment trusts that can help them make long-term gains, as well as cope with stockmarket volatility. It is important to understand that while gearing can increase potential returns in a rising market, it can also magnify the extent of losses in a declining market.

2.  Dividend payments

One of the primary reasons that trusts could be good for pensions is because they can pay out regular dividends. These payments are crucial for boosting the size of your pension pot as they contribute to compound interest (which is interest on interest so your returns start earning their own returns). Of course dividend payments rely on annual success which usually means in good years bumper payments are made – but in trickier markets the income dips, or even disappears.

3. Access to specialist areas

Investment trusts can allow investors to get exposure to some specialist sectors in a better way than through other types of funds. More specialist investment trust options include funds that buy illiquid assets, such as property, infrastructure, private equity and smaller companies. Illiquid assets have the potential to boost returns substantially which are the reward for tying up your money. For long-term investors saving for retirement, easy access is not usually a requirement so they can capitalise on this.

4. Wide choice of funds

Investment trusts offer different types of assets at many different levels of risk. For long-term savings you might feel you can ignore volatility and choose some funds at the riskier end of the spectrum. That’s because there is plenty of time to ride out any short-term losses and see the value of the investment recover. For those closer to retirement, capital preservation is important, so a fund at the more cautious end might be preferred.

5. Low cost

Investing isn’t free – there are costs associated with each type of fund. Charges eat into your pension over time so it’s important to pick those funds that are good value for money. The good news is that investment trusts can sometimes be cheaper to hold than other types of funds.

6. Unique pricing

The pricing of investment trusts works in a unique way. When the price is greater than the value of the assets held in the company, it is known as a premium. At a time it is less, it is known as a discount. This allows returns to be magnified if you buy at a discount and subsequently trades at a premium. Of course it can also work the other way around. For those adopting a buy and hold strategy – that is, choosing an investment trust they believe in and sticking with it – the price fluctuations shouldn’t matter as much as long-term investment performance.

7. In retirement

Investment trusts can create steady returns using a unique feature. They are allowed to squirrel away up to 15% of their dividends each year and use this money to boost dividends in difficult years. This is an important feature for those already drawing on their pension funds using income drawdown. If a company hits hard times and reduces or even scraps its dividend payments, individual savers relying on this income will feel the hit as their income could drop substantially.

Further, in certain circumstances, investment company boards may elect to pay income out of capital. While this can erode the long-term capital returns generated by the funds, many investors who rely on the income might be happy to prioritise these short-term income payments over and above capital value.

Arming yourself with the facts is a must, and if in doubt, seek independent financial advice.  If you are thinking about making a new investment or changing your investment strategy, speak to your Financial Adviser. If you do not currently have a Financial Adviser, you can find one near you at

Please remember that the value of investments and the income from them may go down as well as up and you may not get back the amounts originally invested. 

Schroders launched its first investment trust in 1924 and our range provides investors with access to a range of nine distinctive investment opportunities including: UK and Japanese equities, Pan-Asian equities and real estate.

To find out more and to download your free Schroders Guide to Investment Trusts, please visit



Important Information

This article is intended to be for information purposes only and it is not intended as promotional material in any respect.  The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Schroders has expressed its own views and opinions in this document and these may change.  The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations.

Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.  Exchange rate changes may cause the value of any overseas investments to rise or fall.

Issued in November 2016 by Schroder Unit Trusts Limited, 31 Gresham Street, London, EC2V 7QA. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority. UK1055