/ Money

Is your pension losing out to lifestyling?


It’s not often that you peek under a stone and find a hundred billion bugs. But that’s what happened when I looked into the scale of workplace pensions that are invested in default funds that use ‘lifestyling’.

Lifestyling is an investment technique where your portfolio is automatically shifted out of shares and into gilts and cash over the five to fifteen years before your selected retirement date.

We estimate that there could be £100 billion in these default schemes – and if people don’t take action they could lose out on tens of thousands of pounds of their retirement income.

Lifestyling schemes

There are a couple of reasons for using lifestyling, although both only really apply if you plan to buy an annuity.

First and foremost, lifestyling schemes take the risk out of your portfolio as you approach retirement. Shares are generally seen as the riskiest mainstream asset class, being more volatile but also tending to grow in value faster than government bonds or cash. Moving into the less risky (but less ‘growthy’) gilts and cash reduces the chances of suffering a sudden dip in pot value just before retiring.

Second, gilts and annuity rates have traditionally been seen as negatively correlated – in other words, they tend to move in opposite directions. So by holding a large chunk of gilts, the idea is if rates fall, the value of your portfolio goes up. So although you might get less bang for your buck, you’ll have more ‘buck’ to make up for it.

This is fine if you’re planning on buying an annuity.

But if you’re planning on living off your investments, then you could be in for a nasty surprise if your pension portfolio has been shifted out of high-growth shares to low-growth gilts and cash. When we looked at one model in our investigation, we found that the majority of portfolio growth happened in the final ten years before retirement.

A nasty surprise

With the new pension freedoms in force, it looks like most are choosing not to use their entire pension pot to purchase a guaranteed income for life. Instead, it would seem that most are opting to either live off their investments in flexible drawdown or use some kind of combination of annuity and drawdown to fund their later years.

We’re concerned that millions could be unknowingly sleepwalking into a less prosperous retirement. We’re calling on pension providers and the Financial Conduct Authority to do more to inform savers of their options and warn them of risks of not taking action – you can back our call by supporting our campaign for Better Pensions.

If you think you could be invested in one of these lifestyling schemes then contact your provider to discuss your options.

Do you know where your pension is invested? Could your pension be invested in one of these schemes? Have you heard from your pension provider at all?


Personally, I’m waiting for the age of 55 then I’ll be moving money out of pensions as fast and as cheaply as I can do. Certainly not impressed paying pension fees only to see the value of my pension go down. Just hoping that some government reins in the silly fees for drawing down.

There could be significant tax implications if you move a lot of money out of your pension fund, William.

Philip SOwden says:
26 April 2016

I retired 3 years ago, and with interest rates at an artifical low, shamelessly manipulated by the governemnt, the resuting pension was much lower than I expected. When will the government compensate those affected by their desire for low interest rates? Being able to sell my annuity for a lump sum with a further fee and tax to pay will waste even more of my savings.

Annuities are for many a poor choice now, but for some the assurance of a known income for life is the attraction. Low interest rates have helped many – home buyers, businesses, for example – and I believe brought the UK off te brink of a financial disaster that would have damaged many, including your pension, in a far more serious way.

In reply to the Convo introduction when annuities are not the norm, so you don’t have to buy one at a time not of your choosing (which was the need for safer investments as you approach retirement) I agree the mix can be more adventurous. But you should be given this choice by your fund administrator. I was, in discussion with them, asked what level of risk I thought advisable. This does of course depend on a number of factors, but particularly other sorts of income you will get in retirement, like the state and supplementary pension, income from savings, investments, property if you are fortunate to have such assets, for example. The less dependent you are on your invested pension fund, the more risk, and potentially greater gains or losses, you might take. I’d advise talking to an independent Financial Adviser unless you are very savvy on investments. The fee they will charge will probably be more than repaid in wise decisions.

I hope in 2017 I can have the freedom to take my Pension out of my pot. I retired in 2013 on a low income from my Annuity provider and would very much like to take the money out of my pot to live on and have a better life. People now who have retired recently have had the opportunity to take there Annuity to have a better life and I would like to have that freedom . I do think many people in retirement for many years would be better off if it was implemented in 2017.

I’ve always thought this ‘lifestyling’ business was rather pointless. I took early retirement in 2008, aged 52, because the firm wanted to make redundancies. There’s no way a pension scheme could have predicted that. Now the rules have changed, there’s no way schemes should be doing it without getting permission from the member – looks like something that the legislators/reglators have overlooked.

Bernie says:
8 May 2016

I feel totally cheated. As a 64 year old woman when I was younger the husbands had the pensions, few women did. I got divorced 20 years ago and got nothing of my ex husbands pension pot. I could not afford a pension as I was left bringing up 2 children so had to use all of my income to support them. The firm I worked for did not have a pension scheme. I did manage to start a very small pension when my children left home but this had gone down in the last few years because of the abysmal interest rates. I was made redundant 3 years ago and have had to use the small amount of savings I had to pay bills as I could not claim my state pension but as I had a little savings couldn’t claim benefits. I now can look forward to a poverty stricken retirement. So much for working hard all your life.

i know that feeling .my pension is increased yearly but our DLA HAS NOT BEEN FOR 2YEARS .THIS IS ONFAIR BY THIS GOVENMENT.mrs sue jansen

On the subject of pension value, I have not seen any comments on the recent fall in pension payments due to the change in savings tax allowance. My pension has recently fallen by over £35 a month, apparently due to the fact that under the new rules tax on my savings is now paid from my private pension via PAYE instead of by the bank. HMRC have upped my tax code by over £3000 for ‘untaxed savings’ (the total amount of savings interest I earned in 2014). Can this be correct, or is it yet another HMRC con to add to all the others I have had to fight off since 2004?
I have seen no announcements warning of this effect on pensions – it seems I will have to make arrangements for regular withdrawals from my savings account to compensate for the PAYE payments.

How does the Government get away with telling everyone the New State Pension is worth £155+ today? It’s a huge con advertising what the basic maximum is, especially as so many people in their lifetime have at some point been opted out of SERPS. Those workers will NOT receive that basic maximum unless qualifying with 35 alternative (extra) years paying into SERPS. At the last company I worked I had to opt out of SERPS, there was no employee option, just a compulsory company decision. Very little is said about certain criteria needing to be met before the £155+ is actually achieved. It’s going to be a very, very long time before the SERPS issue has faded away and other criteria can be met before the full amount is achieved by most. Until then there will be many people ill prepared for life as a pensioner – no info but plenty of spin!
(If you are 35+ now and will collect the New State Pension after April 2016 it more than likely will effect you!)

If you opted out of serps you paid lower National insurance and contributed instead to a personal pension, as far as I know. If so, you can’t really have it both ways.

This comment was removed at the request of the user

I am a widow in receipt of a widow’s pension from my deceased husband’s government employment.
I am 69 years old and need this money to pay bills etc., regardless of my personal circumstances.
I cannot remarry and continue to receive this pension. I know that widows whose husbands were also in government employment can remarry and continue to receive their pensions.
This seems unfair to me.

This comment was removed at the request of the user

This comment was removed at the request of the user

Hopefully this could lead to some transparency for pensions. What does everyone think? https://www.which.co.uk/news/2017/10/pension-schemes-to-face-50000-fine-for-failure-to-disclose-fees/

This is long overdue. With something as essential as a pension we should be told exactly how our contributions are invested, and who gets a cut of that investment, whether in fees, commission or other charges.

We do have to be careful, though, when asking for “caps”. Someone puts in work to administer these schemes and trade investments on our behalf, and they need paying for this. Try to do this on the cheap and you may reap the disbenefits. If someone suggests a cap they should be prepared to justify why, and show how it is reasonable – comparing known costs involved, for example. We need to know what is realistically value for money.

I assumed that all organisations involved in investing our money were obliged to declare charges. There has been enough discussion about charges for management of unit trusts etc. I wonder how many companies are affected and what the deadline will be to put their house in order.

Obviously there needs to be a charge to manage pension funds and looking at what successful companies achieve should give a good indication of what the cap should be set at.