Best Investment Trusts to Have in a Pension

What should you be investing in with your pension? We asked Laith Khalaf, Head of Investment Analysis at AJ Bell, to tell us his top investment trust picks to help those who don't know where to start when it comes to investing for retirement.

Why should you have investment trusts in your pension?

If you’ve got a Self-Invested Personal Pension (SIPP), you might be wondering what to put in it to build your retirement savings and supplement existing savings from a workplace pension scheme. But where to start? Pensions can be mind-boggling at the best of times, and though many SIPP providers allow you to pick and choose what to invest in, they don’t always give you much help on what you should be looking for.

So what should you invest in with your pension? The often-overlooked investment trust is a good place to start. These somewhat intimidating-sounding products are similar to funds, but are actually public companies which trade on the stock market. They’re essentially just another way of pooling lots of investors’ money together and leaving it to the experts (the fund managers) to decide how to invest it with their hard-won expertise.

You can buy and sell shares in an investment trust – like you can with normal funds or ETFs, for example – and they are widely-considered to be a good choice for ‘income’ investors. That is, investors who are prioritising investments which pay out a regular stream of income. That’s because many investment trusts have a long and esteemed history of consistently paying out dividends (a bit like a cash bonus to say ‘thank you’ for investing in them).

This makes investment trusts a natural addition to a SIPP portfolio. They often have track records of dividend payments dating back decades – meaning decades of cash top-ups which you can either take straight into your bank account or reinvest back into the trust. This is useful as it helps you to accumulate wealth as you approach retirement. ‘Dividend reinvestment’ - the process of using the money earned from dividends to purchase more shares in the same company - is a particularly powerful tool for building wealth. In the UK, for example, reinvested dividends have made up 67% of total returns over 20 years.

Income-generating investments like investment trusts can also be a powerful tool to ensure your retirement income keeps pace with rising inflation. If you reinvest any dividends you receive and use these to purchase more shares, you can keep adding to your portfolio and growing your wealth over the long-term.

And on top of that, investment trusts invest under the scrutiny of an independent board that ensures the trust’s objectives are being met. In other words, it reserves the right to intervene on the shareholders’ behalf if the trust veers too far off course. This means investors can focus on the long-term without worrying too much about the day-to-day, leaving all the complex fund management business to the experts.

Piqued your interest? You can read more about how investment trusts work in our full guide below to see if they could be the right addition to your investment portfolio.

If you’re feeling keen, we asked expert Laith Khalaf from AJ Bell to weigh in with the top investment trusts he thinks retirement savers should consider including in their SIPP. Let’s dive in.

Top three investment trusts for a SIPP