Are income or accumulation units better in retirement?

10 November 2023

5 minute read

For an income-seeking investor in retirement, income units might be the obvious choice but are they necessarily the right one?

Who's it for? Confident investors

The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

What you’ll learn:

  • The difference between income and accumulation units
  • The pros and cons of income versus accumulation units
  • Whether income or accumulation units are better in retirement.

The type of unit you hold in a fund determines how any income generated from the fund's underlying investments is treated. With income units, income is paid out as cash. With accumulation units, income is retained within the fund and reinvested, increasing the price of the units.

Not all funds offer both income and accumulation units. In fact, there are many more accumulation options available, which gives you more choice when it comes to selecting a fund. But when you do have the choice, there are factors to consider.

A variable income

The distribution from an income unit is variable. The income derived from an investment in a government bond fund, for example, will be affected by interest rates. The income from an investment in a global equity fund will be determined by the dividends that are paid out by the underlying companies and are discretionary and dependent on the profits that they make. As a result, the income you get from the fund will rise and fall over time. An ‘income investor’ may need to supplement any income shortfall by selling units in the fund, or other assets, to match their spending needs (such needs may change over time due to personal circumstances as well as inflation impacts).

With accumulation units, the compounding effect (the increasing value of an asset due to the return earned on both the capital and accumulated income) would be expected to significantly boost the value of your retirement pot over time (provided you don’t cash in any of your holdings to generate cashflow).


Selecting a fund based on the income distribution on offer may result in a loss of focus on risk management. There’s a risk of loss associated with whatever course of action you take. For example, a higher yielding fund that’s invested in non-investment grade (lower quality) bonds runs a higher chance of default risk (the chance that a company will be unable to make the required payments on their debt obligations) than an investment in a development government bond fund.

Similarly, a small cap (companies with a valuation of less than $2bn) emerging markets fund will potentially suffer a higher chance of illiquidity risk (the inability to buy or sell quickly without impacting the share price) and concentration risk (being over-exposed to a single company, sector or country) compared to a developed markets equities fund.

Income funds are often heavily tilted towards higher income paying assets – for example, shares in established companies with a strong dividend paying culture. This means that they rarely invest in ‘growth’ companies, such as many technology companies, which accumulation funds often hold.

One potential solution is to invest in a multi-asset class fund. These funds, which tend not to offer an income option, deliver the benefit of diversification and are automatically rebalanced (the process of realigning the weightings of a portfolio of assets to maintain an original desired level of asset allocation) at least monthly. This ensures that the fund is fully invested to maximise its potential for returns.


Investors with income units in a fund will usually receive a distribution on a quarterly or half-yearly basis. This can result in prolonged periods when a portfolio will hold excess cash levels in addition to any existing cash exposure in the fund. Higher cash holdings can result in lower potential returns. With accumulation units, this cash flow is automatically reinvested, maximising the potential for returns. However, holding accumulation units does require you to sell units to generate the cashflow you're looking for.


Buying income units, sitting back and receiving the income is easy, while investing in accumulation units requires a regular and proactive decision on behalf of the investor – how many units do I need to sell and when? – to suit their spending needs and match any liabilities as they fall due.

While this process is relatively simple and cost effective, the active decision to sell units has an emotional cost attached. Whether this ‘cost’ is outweighed by the benefits is ultimately your decision. What's important during retirement, however, is maximising potential returns while managing risk. To achieve this, you need to be fully invested. Accumulation units ensure your money keeps on working and offers you the flexibility to cope with whatever the future may hold.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ. Investments can fall in value as well rise; you may get back less than you invest.

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