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‘Lifestyling’ – do you know if it’s affecting your pension?

Model of man stood on coins

We all know that stock markets have had a tough time in recent years, but did you know this could have an impact on your pension? This is why protecting your pension fund is vital, but how can you do it?

I recently asked my parents, who are both approaching retirement, what they knew about pension ‘lifestyling’ and they looked at me like I was speaking another language.

Why? Because they’re both entitled to defined benefit pensions, so it’s not their problem.

But those of us in a defined contribution pension scheme could be affected by ‘lifestyling’, even though many of us don’t know what it is.

What is lifestyling?

Most pension providers use lifestyling to protect your funds as you approach retirement, automatically shifting them away from risky stocks and shares and moving them in to safer government bonds and cash.

Lifestyling is often criticised for being too simplistic and if it occurs soon after a stock market crash, you’ve got no chance of recovering your losses.

It’s really designed as a ‘better than nothing’ approach for pension fund members that have no interest in engaging with their fund provider to establish what’s best for them.

Which is exactly why, whatever age you are, it’s worth taking an active interest – it could have a big effect on your final pension pot.

Time to take an active interest

Pension funds tend to offer a range of options aside from a ‘default’ fund, and choosing carefully is one simple way to ensure your money’s being managed in a way that best suits you.

Lifestyling may not be your best bet if you don’t plan to buy an annuity when you retire. But if you’re engaged in your investment you can notify your fund manager if things change, such as your proposed retirement age, as this may alter the way they manage your money.

You might go even further and decide to arrange some investments directly with the help of an independent financial adviser. But if that’s not your thing, taking an interest in your pension fund should be done as a minimum.

NEST versus lifestyling

The introduction of the National Employment Savings Trust (NEST) is a big opportunity to do that, particularly for those of us with a long way to go to retirement.

NEST will use something called ‘target date funds’ rather than lifestyling, which pool together and invest your money with that of other people who plan to retire at the same time.

How much profit can be made on your contributions is impossible to predict, but by knowing what your provider is doing with your money and taking action if you’re not happy about it, you can at least have more confidence that it will meet your expectations.

Are you aware of lifestyling? Do you know if your funds will move? Have you had a go at managing your pension savings yourself?