10 Best Income Funds for Retirement

You’ve saved you whole life for retirement and built up a healthy nest egg – now what?

While it might feel good to have a six-figure sum in your savings account, many retirees find it hard to figure out how to turn this lump sum into a regular, long-lasting income that will help them to have the retirement that they deserve.

This is where income funds come in.

What are income funds?

Income funds are ideal for people who want to keep earning a monthly ‘salary’ in retirement.

They work by investing the capital (or lump sum) of a pension fund and investing it in a portfolio of stocks, shares and bonds which can deliver monthly dividends and returns.

These interest-based payments are then withdrawn and paid out, while the capital remains intact. In some cases, a portion of the capital investment can be used to supplement this monthly income.

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How can you invest in income funds?

Income funds can be self-managed through a tax-free wrapper such as a SIPP or a Stocks and Shares ISA, or they can be managed by a professional investment manager, who will track the market on your behalf and make real-time changes based on the performance of various investment strands.

Managed income funds can also be held within a SIPP or ISA, but you will have to pay management fees and performance-related commission to your fund manager, which will erode the value of your returns slightly. However, a good manager will take this into consideration and aim to recoup the cost of your fees before any returns are targeted.

Of course, the more money you have saved in your retirement fund, the easier it will be to secure a regular income.

To get an income of £1,000 per month from a pension fund worth £100,000, you would have to be making ten per cent in returns every month – a figure which is almost impossible to attain without taking on a level of risk that would be unacceptable to most pensioners.

Conversely, if your pension fund was worth £200,000, you would only need to target returns of five per cent per month in order to hit your £1,000 target. And a fund worth £400,000 would require just 2.5 per cent per month to deliver the same results – returns that should be attainable for even the most risk-averse investors.

If you want to convert your pension fund into a retirement income, there is no shortage of options.

In alphabetical order, here are a few of the best income funds for retirement in the UK right now.

1. Artemis Monthly Distribution Fund[1]

  • Yield: 3.98 per cent[2]
  • Ongoing fees: 0.84 per cent.

This fund invests in a combination of global equities and bonds, with the majority of the funds being held in financials, consumer products, and energy.

Launched in May 2012, it has been a strong performer with historic yields equivalent to 3.98 per cent per month.

However, the fund’s value has dropped somewhat in the first quarter of 2018, thanks to a “shocking time” with global bond investments and the effects of the US-China trade war.

2. Invesco Perpetual Monthly Income Plus[3]

  • Yield: 4.77 per cent
  • Ongoing fees: 0.7 per cent

This £3.2bn fund has been active since early 1999 and invests primarily in high-yielding bonds and other debt securities. Over the past ten years, it has returned more than 99 per cent to investors, and currently targets a distribution yield of 4.77 per cent, making it one of the most popular income funds on the market.

3. Fidelity Global Dividend Fund[4]

  • Yield: 2.83 per cent[5]
  • Ongoing fees: 0.97 per cent

Unlike other income funds, Fidelity Global Dividend Fund pays out quarterly, not monthly.

It has a global equity focus with a highly diversified portfolio that is intended to shield investors from stock market volatility.

Between June 2016 and June 2017, the fund returned a massive 25.41 per cent for investors, but performance has been somewhat muted over the past year, thanks to a combination of economic sluggishness and conservative asset allocation.

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4. LF Miton UK Multi Cap Income

  • Yield: 3.95 per cent[6]
  • Ongoing fees: 0.82 per cent

Another quarterly-paying income fund, the LF Miton UK Multi Cap Income has a great reputation among investors thanks to its long track record and strong historical yields.

More than 80 per cent of the fund’s portfolio is invested in UK equities with an emphasis on “growth” opportunities. This has allowed the fund to return more than 168 per cent since its launch in 2011.

5. Slater Income[7]

  • Yield: 4.29 per cent
  • Ongoing fees: 0.80 per cent

Managed by its namesake Mark Slater, this fund invests primarily in UK equities.

This is a relatively small fund, run by a relatively small investment house, which is a bonus for anyone who prefers to take a more specialist approach to their pension allocations.

6. Threadneedle UK Equity Income[8]

  • Yield: 3.88 per cent
  • Ongoing fees: 1.59 per cent

This is another fund which focuses on UK equities, with a slight leaning towards the pharmaceutical sector.

It is managed by veteran investor Richard Colwell, who targets “hidden gems” on the FTSE 500 and takes a long-term approach to each investment.

Colwell himself has described the fund as “plain vanilla”, making it ideal for risk-averse investors who like to know where their money is being invested, and don’t want to take any risks on unknown sectors or market.

7. MI Chelverton UK Equity Income[9]

  • Yield: 4.68 per cent
  • Ongoing fees: 0.86 per cent

This is one of the highest-netting income funds in the UK, but it is also one of the riskiest.

The MI Chelverton UK Equity Income Fund invests largely in the UK’s Alternative Investment Market (AIM). This means that it targets relatively small and growing companies which show a lot of potential but may not necessarily have a strong track record of performance.

Thanks to some savvy portfolio allocations, the fund has managed to exceed expectations over the past few years, but for more conservative retirees the risk factor may still be too high.

8. Marlborough Multi-Cap Income[10]

  • Yield: 4.18 per cent
  • Ongoing fees: 0.79 per cent

The Marlborough Multi-Cap Income Fund is one of the most diversified funds in the UK, investing in 140 different stocks from a potential pool of more than 700.

As the name suggests, this fund follows a multi-cap strategy, which means that it invests in companies of all sizes, from FTSE 100 big-hitters to higher risk small and medium-sized enterprises (SMEs).

This diversified approach has allowed the fund to avoid any major losses, while delivering steady returns for its income-seeking investors.

9. AXA Framlington Monthly Income[11]

  • Yield: 4.17 per cent
  • Ongoing fees: 0.84 per cent

One of the longest-running income funds in the UK, the AXA Framlington Monthly Income Fund was launched in 1988, and its remit has barely changed in the past 30 years: it invests in a variety of UK-listed equities of differing sizes, with a view to paying out a monthly dividend of more than four per cent.

Most analysts consider it to be a relatively low-risk fund, so it would suit investors who want to receive an income while supporting UK equities.

10. Premier Income Fund[12]

  • Yield: 4.42 per cent
  • Ongoing fees: 1.69 per cent

This £221m fund invests at least 80 per cent of its money in UK equities, and aims to beat the long-term performance of the FTSE All-Share index.

As a result, the performance of the fund is tightly linked with the UK’s overall economic performance, and the fund has struggled in 2018 thus far.

However, as a long-term income option Premier Income Fund is a strong prospect. In the five years to 30 April 2018 it returned 46.6 per cent to investors, despite periods of market volatility.

[1] https://www.artemisfunds.com/en/gbr/investor/funds/explorer/artemis-monthly-distribution-fund/class-i-distribution-units-gbp

[2] Historic yield as per http://www.hl.co.uk/funds/fund-discounts,-prices–and–factsheets/search-results/a/artemis-monthly-distribution-class-i-income

[3] http://www.hl.co.uk/funds/fund-discounts,-prices–and–factsheets/search-results/i/invesco-perpetual-monthly-income-plus-class-y-accumulation?theSource=PC004&Override=1&adg=G+FIPP+IMY&gclid=Cj0KCQjwjN7YBRCOARIsAFCb937EK4jLqaUb1303d7r9ANwkHWGjbTCUBrFwdF9zbf-mxxg_vp6Pn5gaAkGlEALw_wcB

[4] https://www.fidelity.co.uk/factsheets/Fidelity-Global-Dividend-Fund-W-Accumulation-(UK)/GB00B7GJPN73-GBP/?id=GB00B7GJPN73GBP&idType=isin&marketCode=&idCurrencyId=

[5] Based on historic yield as per http://www.hl.co.uk/funds/fund-discounts,-prices–and–factsheets/search-results/f/fidelity-global-dividend-class-w-income

[6] https://www.mitongroup.com/private/fund/uk-multi-cap-income-fund/#

[7] http://www.hl.co.uk/funds/fund-discounts,-prices–and–factsheets/search-results/s/slater-income-class-p-income

[8] http://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F0GBR04RSU

[9] http://chelvertonam.com/fund/pfs-chelverton-uk-equity-income-fund/

[10] https://www.marlboroughfunds.com/funds/Marlborough%20Fund%20Managers/MarlboroughMultiCapIncome/B42TBF4

[11] http://www.hl.co.uk/funds/fund-discounts,-prices–and–factsheets/search-results/a/axa-framlington-monthly-income-class-z-income

[12] http://www.hl.co.uk/funds/fund-discounts,-prices–and–factsheets/search-results/p/premier-monthly-income-class-a-income-inclusive

Also published on Medium.

Kathryn Gaw

Kathryn Gaw is a financial journalist based in Belfast, Northern Ireland. She has been writing about personal finance and investment trends for more than a decade, and her work has been featured in the Financial Times, City A.M., the Press Association, and The Irish Independent, among many other publications.

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