Crawford's tips: how to avoid selling your units

When unit trusts are used as investment vehicles they must be sold - or redeemed - to raise cash for payments as your living annuity. Many unit trust portfolios are mixed, with varying proportions of shares, bonds and cash.

A typical living annuity investment might comprise 25% in a portfolio of bonds; 25% each in a conservative portfolio of say 40% equity and 60% bonds and cash; a moderate portfolio made up of 50:50 equities and interest-bearing; and a high equity portfolio which is anywhere from 60% to 100% in equities.

If the administrator has to draw a monthly pension for you, unless otherwise instructed, they will redeem enough units from each portfolio to make up 25% of that monthly pension. That is not a problem when markets are rising but if they are falling the equity portfolios will lose the most value. This means that more units will be sold to make up the same income.

The best idea is to protect your portfolios by ensuring that you have enough of your capital in a cash portfolio for your pension needs. A suggestion might be to have two years' worth of pension payments in cash, then another four years of pension payments in bonds and the balance in shares.

You can review this annually and decide from which portfolio to transfer money to the cash portfolio for the following year's income. This will protect equities from being sold in sudden value drops.