Pension lifestyling removes the risk from your pension pot, as you get closer to retirement. Lowering risk might sound sensible, but depending on when and how you want to retire, lifestyling can damage your wealth.
What exactly is pension lifestyling?
Typically lifestyling works by shifting your pension money out of investments in the stock market (for example company shares) and into more bonds and cash when you reach a certain age
Lifestyling is the default option for many defined contribution pension schemes. This means your pension provider could carry out lifestyling automatically, unless you actively choose to do something else.
It can start anywhere between 15 years and five years before your retirement age - which for defined contribution pensions is 55 (rising to 57 from 2028).
In theory, moving into lower risk assets helps lock in gains and protect your pension pot from suddenly slumping in value, if stock markets plummet. It recognises that investments can fall, as well as rise. However, lifestyling also strips out any potential for investment growth in future.
Pension lifestyling and annuities
Pension lifestyling was a popular strategy before pension freedoms - when most people had little option but to use their pension savings to buy an annuity. Pension freedom rules gave individuals more choice over how to access pension money at retirement. For example, leaving your pension money invested in the stock market and taking an income as and when you need it. Also known as pension drawdown.
Whereas with annuities, you hand your pension pot (or a portion of it) to an insurance company at retirement. In exchange, they provide you with a guaranteed income for the rest of your life (or for a specified period of time).
You really don’t want the value of your pension pot to drop just before buying an annuity. Think of it like putting down a deposit when buying a house. You need a specific lump sum on a specific day. You can’t say to the seller “oh sorry, share prices dropped so I no longer have enough money, can we delay the sale for several months until markets pick up again?”.
Gradually switching your money from company shares into lower risk cash and bonds in the run up to retirement, so the value can’t be impacted by stock market volatility, can therefore make sense if you want to buy an annuity.
Pension lifestyling and drawdown
The big difference these days is that annuities aren’t as popular. Annuity sales topped 460,000 back in 2009, according to the Pensions Policy Institute. Whereas in 2024/25, there were only 88,430, while sales of drawdown increased to nearly 350,000, according to the Financial Conduct Authority (FCA).
If you need your pension pot to stretch for 10, 20 or even 30 years, shifting all your money into cash and bonds at the start of retirement might not make any sense.
Lower risk assets (such as bonds and cash) tend to have lower growth potential than investing in the stock market. Keeping some money in higher risk investments via the stock market means your remaining pension pot has more chance of continuing to grow, and doesn’t get eaten away by inflation. Otherwise, you may end up with less to withdraw, and are more likely to run out of money.
Lifestyling and the current pension age
Pension lifestyling can also cause problems if it targets the wrong retirement age, as people end up working - and living - longer. With lifestyling, the ‘de-risking’ starts automatically based on the retirement age selected way back when you started your pension scheme. Fast forward many years later, and the reality might be very different.
You might, for example, choose to work flat out for longer, or switch to a part-time or lower paid but less stressful role. Your actual retirement age could be much older than the age you optimistically put down on the original paperwork. But if lifestyling starts moving your money into less risky assets too early, you could miss out on the chance of higher returns and a bigger pension pot.
What to do about pension lifestyling
Don’t sleepwalk into a smaller pension pot. Just because, typically, pension lifestyling is automatic, that doesn’t mean it’s right for you.
Here’s what to think about and how to take control if you want to make the most of your pension money:
Look out for letters or emails from your pension provider which will have details about the plan you’re invested in and whether it’s a lifestyle fund.
Check your pension account to see where your money is invested and whether lifestyling has already started. This could be via your annual statement or online. You could choose to delay lifestyling or switch it off altogether.
Work out when you’re realistically likely to retire, and update the retirement age with your provider. Currently, the State Pension kicks in at 66 (rising to 67 from 2028), but you might choose to retire earlier or later.
Think about how you want to use your pension money to provide an income in retirement. Whether potentially by using an annuity, drawdown or a combination of both.
Review where your pension money is invested, and what kind of balance you want between lower risk and higher growth investments.
If you’re feeling clueless or overwhelmed, you can book a free PensionWise appointment. The free, government-backed service can help explain your options. You can book an appointment with them via MoneyHelper once you’re 50 or over. Or, consider whether to pay for expert advice from an Independent Financial Adviser (IFA).
Faith Archer is a Personal Finance Journalist and Money Blogger at Much More With Less. Check out Faith’s YouTube series about retirement planning.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
