How do accumulation funds work?

Your understanding is right. But there is a difference between profits (or capital gains). And income (cash which profitable companies pay out to shareholders which is called a ‘dividend’ and is treated as income). Accumulation units mean that any dividends (or income) the underlying holdings in your funds pay out are added up and used to buy more units in the fund. So you are continually re-investing the income rather than taking these dollops of cash out. This is nothing to do with the ‘profits’ or capital gains made by the investment – this will be reflected in the ‘unit price’ of the funds which will go up or down in line with this.

So – if your fund has Shell shares for example, and say Shell pays a dividend of 5p for every £1 invested - this 5p (income) would go into a pot which would be used in total to buy more units in the fund. If Shell’s share price goes up from £28 to £30, that’s a capital gain of £2 which would have the effect of increasing the unit price of the fund (assuming other holdings didn’t go down and negate this). If you have bought accumulation units, you are instructing your fund to use that 5p to buy more units in the fund, and not to send it to you as cash.

If you don’t need income from your investments, then accumulation units are broadly sensible I think. I’m not sure why your SIPP provider confused you – they may have been talking about the tax treatment of these units, but as you have them in the tax-efficient pension, you don’t really need to worry about this. If you want to keep reinvesting as you go, then you are doing the right thing.