Why Lifestyling Pension Funds May Be Costing You Thousands (And What to Do Instead)

Lifestyling Pension Funds

If you have a workplace pension, there’s a high chance your money is invested in a lifestyling fund – a default strategy that may seem safe on the surface but could quietly reduce your long-term returns by thousands of pounds.

In this post, we’ll explore:

• What a lifestyling pension fund is

• Why employers use it by default

• The problems it creates for modern retirement planning

• What you can do instead to maximise long-term pension growth

🔍 What Is a Lifestyling Pension Fund?

A lifestyling pension fund automatically shifts your investments from higher-risk, growth assets (like equities) into lower-risk, defensive assets (like bonds and cash) as you approach retirement age.

The idea is to reduce volatility and preserve the value of your pension. It made sense in a world where people:

• Bought annuities at retirement

• Needed stability at the point of purchase

• Didn’t manage or access their pensions flexibly

But that world has changed.

🏦 Why Do Employers Use Lifestyling as the Default?

Many workplace pension schemes offer default funds for employees who do not actively choose their investments.

Employers typically select lifestyling for three reasons:

1. It reduces perceived risk – safe by default

2. It simplifies auto-enrolment compliance

3. It’s considered “one size fits all” by many providers

However, default does not mean optimal – especially for individuals who intend to draw their pensions flexibly over decades.

⚠️ Why Lifestyling May Be Costing You Thousands

By automatically de-risking your portfolio before retirement, you may:

• Lose out on stock market growth during strong years

• Lock in low yields from bonds and cash

• Reduce the real (after-inflation) value of your pension

Let’s take an example:

Imagine you have £250,000 in a pension. If it remains invested in a well-diversified global equity portfolio, you might earn an average of 6% per year.

If, instead, it gets moved into a bond-heavy lifestyling strategy five years before retirement, and earns just 2% per year, the difference over five years is:

• Growth portfolio: £250,000 → £334,000

• Lifestyled portfolio: £250,000 → £276,000

That’s £58,000 of lost growth – just from being too cautious, too soon.

🧠 The Modern Retirement Reality: Drawdown, Not Annuities

Since pension freedoms were introduced in the UK, many retirees do not buy annuities.

Instead, they:

• Leave pensions invested through retirement

• Take flexible drawdown to supplement income

• Live well into their 80s and 90s

This means your pension may need to last 30–40 years after retirement – and needs to stay invested for long-term growth.

Lifestyling assumes you cash out on Day One. But most people don’t.

✅ What to Do Instead: Review and Reposition

If you’re in a default lifestyling fund, consider taking these steps:

1. Review Your Current Pension Fund

Log into your provider’s platform and check:

• What fund you’re invested in

• Whether it follows a lifestyling model

• When it starts de-risking (often 5–10 years before retirement)

2. Understand Your Retirement Plan

Will you:

• Buy an annuity on Day One?

• Or draw flexibly for 20–30 years?

If it’s the latter, you may want to remain in growth-oriented investments for longer.

3. Consider switching to a Model Portfolio

Some pension providers offer model portfolios that are:

• Aligned with your risk tolerance

• Built for long-term drawdown

• Reviewed and rebalanced regularly

These typically provide better diversification, global exposure, and cost efficiency than default lifestyling strategies.

4. Speak to a Financial Planner

An experienced planner can:

• Model your retirement needs

• Help you choose the right investment mix

• Minimise fees and tax leakage

• Ensure your pension strategy evolves with your life

  
  

🧮 Bonus Tip: Consider Fees and Charges

Even a small difference in annual costs – say 1% versus 0.3% – can erode your pension by tens of thousands of pounds over time.

Make sure your fund choice is:

• Low-cost

• Well-diversified

• Free from hidden platform or adviser fees (unless value is being added)

📞 Next Step: Get a Personal Pension Review

Worried your lifestyling fund might be dragging you down?

In a free 15-minute strategy call, we can:

• Analyse your current pension setup

• Forecast your retirement drawdown strategy

• Suggest model portfolios or better fund options

• Help you save time, tax, and unnecessary losses

👉 Book your free review today and take control of your financial future.