In the UK, employers provide income for employees after they retire in the form of a pension. There are several types of pension funds available with varying investment options. A Self-Invested Personal Pension, or SIPP, is a type of UK pension fund, which allows individuals to make their own investment decisions from the full range of HM Revenue & Customs, or HMRC, approved investments. In the United Kingdom, benefits are typically indexed for inflation known as Retail Prices Index, or RPI, as required by law for registered pension plans. Inflation during an employee's retirement affects the purchasing power of the pension. This means that the higher the inflation rate, the lower the purchasing power of a fixed annual pension. This effect on UK pension funds can be mitigated by providing annual increases to the pension at the rate of inflation. The increase usually has a ceiling of five percent. This method is advantageous for the employee since it stabilizes the purchasing power of pensions to some extent. One subset of this type of UK pension funds is the Stakeholder Pension Plan. SIPPs allow tax rebates on contributions in exchange for limits on accessibility. The HMRC rules allow for a greater range of investments to be held than Personal Pension Plans, notably equities and property. Rules for contributions and withdrawals for SIPPS are the same as for other UK pension funds. Investors make the decisions on when investments are made and when shares are sold.
All assets are permitted by HMRC in UK pension funds; however, some are subject to tax charges. Some assets that are not subject to a tax charge include: stocks, futures, options, and shares listed on a recognized exchange, authorized UK unit trusts and OEICs and other UCITS funds, commercial property, and gold bullion. Investments in residential property, wine, stamps, vintage cars, art, and other exotic assets can incur heavy tax penalties. In a funded plan, contributions from the employer, and sometimes also from plan members, are invested in a fund towards meeting the benefits. The future returns on the investments, and the future benefits to be paid, are not known in advance, so there is no guarantee that a given level of contributions will be enough to meet the benefits. UK pension funds are funded plans because the government offers tax incentives to companies that have funded plans for their employees.
UK pension funds, which are also called pension schemes, are paid in regular installments, just as pensions are paid in the United States. Whether pensions are from employment in the private sector or from the government, they are investments and should be researched well. UK pension funds are numerous and the investment styles and portfolios vary widely.