Pooled Investments

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Pooled Investments

This is a form of investment-type life insurance (and also pension plan). The bulk of your premiums buys units in one or more funds investing in shares and/or other investments. The value of your policy depends directly on the value of these underlying fund(s), so if the prices of the shares in a share-based fund fall, so too will the value of your units. There is usually a very wide range of different investment funds to choose from, including:

• Deposit-based fund (often called 'money fund', 'cash fund' or 'deposit administration'). This invests in high-interest bank and building society accounts and/or money market funds. Like the underlying deposits, the value of these funds cannot fall, so a deposit-based fund is useful to switch into if you want to consolidate gains on a policy or you want to switch out of a falling stock market.
• Unitised with-profits fund. This works in a similar way to traditional with-profits insurance, with bonus units being added to the plan, but the charges are explicit and the insurer usually reserves the right to adjust unit values downwards in exceptional investment conditions (although there may be a value below which the fund is guaranteed not to go).
• Fixed-interest fund. This invests in gilts, corporate bonds, and so on.
• Property fund, investing in, say, shopping centres and office blocks which provide rental income.
• Managed fund, investing in a wide range of assets which might include gilts, shares and property.
• Share funds, e.g., those in the UK, Europe, the United States, Japan, or Australia, or shares in companies which are in the doldrums but expected to grow strongly in future.
• Commodities and metals.

Minimum investment Varies, depending on the type of policy. For regular-premium policies, payments start at under £10 a month. For single-premium policies, you might need a lump sum of at least £500, say.

Your policy builds up a value according to the value of the underlying investment funds. How this value is used depends on the type of policy: for example, a maximum investment plan is designed to pay out a lump sum at the end of ten years, but a single-premium bond can be used to provide an income. Tax treatment As for with-profits policies.

Special rules apply to single-premium bonds used to provide income. Each time you take any 'income' you are treated as cashing in part of the policy. Provided you cash in no more than a given limit, you can put off paying any tax due (which would be only higher-rate tax anyway) until the policy eventually comes to an end, and tax would be charged according to your tax status at that time. The limit on the amount you can cash in each year is one-twentieth of the premiums paid so far, any amount not used up in one year can be carried forward to future years. How long you invest for depends on the type of policy or plan. Many unit-linked life insurance products are designed to be long-term investments and will give you a very poor return if you pull out early.

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