What bonds do in a pension
Bonds are loans to governments and companies that pay regular interest. In a pension they play two roles: they cushion your pot when shares fall, and they provide income in retirement. They are not risk-free - bond prices fall when interest rates rise, and the longer a bond's duration, the more it moves. But a good bond fund still wobbles far less than equities, which is exactly why it earns its place as you approach drawing your pension.
Bond pension funds compared in 2026
| Fund | OCF | Type | Approx yield |
|---|---|---|---|
| Vanguard Global Bond Index (GBP hedged) | 0.15% | Global gov + corporate | ~3.5% |
| iShares UK Gilts All Stocks Index | 0.10% | UK government | ~4.0% |
| Vanguard UK Investment Grade Bond Index | 0.12% | UK corporate | ~4.5% |
| L&G Short Dated Sterling Corporate Bond | 0.14% | Short-duration corporate | ~4.3% |
| Royal London Short Term Money Market | 0.10% | Cash-like | ~4.5% |
The standout all-rounder is the Vanguard Global Bond Index, hedged to sterling. "Hedged" matters: an unhedged global bond fund would add currency swings that defeat the point of holding bonds for stability. For savers who only want UK government debt, the iShares UK Gilts All Stocks Index is cheaper still at 0.10%.
Duration: the risk people overlook
Duration measures how sensitive a bond fund is to interest-rate changes. A fund with 8-year duration could fall around 8% if rates rise one percentage point - and rise similarly if rates fall. Short-dated funds like the L&G Short Dated Sterling Corporate Bond move far less, which suits savers who want stability over the next year or two without locking in long-term rate risk.
- Want maximum stability: short-dated or money-market funds.
- Want income and diversification: a global aggregate bond fund, hedged to sterling.
- Want the highest yield: investment-grade corporate bonds, accepting slightly more risk.
Government versus corporate bonds
Not all bonds carry the same risk. Government bonds (gilts in the UK) are backed by the state and are the safest, which is why they rally hardest when investors panic and flee to safety. Corporate bonds pay more because companies can default, and they tend to move a little more like shares in a crisis. Within corporates, "investment grade" issuers are financially solid, while "high yield" (junk) bonds offer tempting yields but behave almost like equities in a downturn - generally unsuitable for the defensive part of a pension. A broad aggregate fund blends government and investment-grade corporate bonds, giving you the diversification of both.
Why 2022 spooked bond investors
For years bonds were seen as the boring, safe ballast in a portfolio - then 2022 saw bonds and shares fall together as interest rates rose sharply, shaking that assumption. The lesson is not that bonds are pointless, but that they are not risk-free and that duration matters enormously. With interest rates now at more normal levels, bonds again offer meaningful yields of 3.5-4.5% and renewed potential to cushion equity falls. For a pension, they remain the most reliable diversifier from shares, provided you choose a sensible duration.
Verdict
For one bond fund that does the job, the Vanguard Global Bond Index (GBP hedged) is the best choice in 2026 - broad, cheap and currency-protected. Pair it with equities in proportion to your time to retirement. See how bonds fit a balanced blend in best multi-asset pension fund, use them for stability in drawdown via best pension fund for income, and model your equity/bond split with our pension calculator.