Some pension schemes include a “terminal bonus”, also known as a final bonus. This is added to your policy at the end of the term, when the pension is transferred or when the owner of the pension dies. Terminal bonuses are part of a “with-profits” pension scheme model, where a portion of the returns made on investments in good years is held back to subsidise or “smooth out” years of weaker investment performance.

Pension funds are institutional investors that typically invest in British and overseas companies, government stocks, property and other types of assets. Terminal bonuses are not guaranteed and depend on whether the pension fund’s investments have sufficiently gained in value across time.