Who Does What With Your Pension? – Using A Tree To Explain The Roles & Responsibilities


I’m often asked to explain the different roles and responsibilities of the companies involved with a pension fund. Because there are different parties doing different things it can be hard to know who is responsible for what.

It used to be the case that pensions were more straight forward, not great value, but easier to understand who did what because it was all one company. Traditional pension providers like Equitable Life, Standard Life, Norwich Union (now Aviva) administered the contributions, invested them and paid an income when the policyholder reached retirement.

Nowadays, there are more companies involved each with different specialisms. To explain it visualising a tree can be helpful.

The Roots – Your Financial Adviser

Every healthy tree needs a strong root structure and this is where the financial adviser fits in. A good financial adviser provides a structure to your money, making sure it is being used (and growing (!)) appropriately.

Like the water and nutrients in the soil,  your financial adviser will make sure your money is being distributed appropriately in all the right places.

The Trunk- The Pension Provider

There has been a consolidation of the number of pension providers over the past twenty years with many closing their doors to new business, others merging and others being bought out. There has also been a rise in platforms; companies that provide a range of different products in addition to pensions: ISAs, investment accounts, life assurance bonds and direct share dealing.

The role of the pension provider is to take your money in the form of contributions and make sure it is being sent to the right place. In the terms of the tree, that is to the branches and leaves, and where your money is concerned it is to the investment funds where it can grow.

Higher Trunk – Investment Manager

Depending upon how your pension is invested you might have an individual or organisation helping with the investment decisions: how much risk to take, where in the world to invest and which investment funds to invest in.

This might be your financial adviser who takes on the job of researching all the funds available on your behalf or specialist firms who use their resources and expertise and work with financial advisers to make investment recommendations for their clients. These specialists are referred to interchangeably as Discretionary Fund Managers (DFMs) or Discretionary Investment Managers (DIMs).

Branches – Investment Funds

To get a return on your money it needs to be invested in the world’s investment markets (typically stock markets such as the FTSE100 in the UK, the S&P500 in the US or equivalents in the major developed and developing countries around the world).

Some people choose to invest directly in the shares of companies but for most people, the most efficient and effective way to do this is to pool their money with other investors and buy units in funds run by specialist fund managers. There are thousands of funds to choose from, each with specific objectives in what it will invest in, in which part of the world and how much risk will be taken.

Leaves & Flowers – Shares & Other Investments

Where your money is invested is the final part of the analogy. It will most likely be in companies, governments, commodities and property assets around the world. It is the flowers and leaves that enable trees to grow and it is the performance of these companies individually and collectively that will determine the return you get on your money.

And to complete the picture, we can say the fruit or nuts that are produced by the tree represents the return on the investment of your money that will enable your pension fund to grow.

So, that in a nutshell (pun intended :-)) is how your pension can be compared to a tree.


If you would like to make sure your pension and other wealth is growing appropriately get in touch for an initial discussion.


Photo by veeterzy on Unsplash