UK. Pension ‘lifestyling’ under scrutiny as returns vary widely
Returns gap exposed: Analysis finds five-year pre-retirement returns vary from 17.9% to 31.1% among major default lifestyle funds.
Strategy under question: Critics say automatic de-risking may harm growth potential for those planning to keep investing in retirement.
Check your fund: Experts advise savers to review glide path length, asset mix, and whether the approach aligns with their income plans.
New report questions pension ‘lifestyling’ effectiveness
Default ‘lifestyling’ strategies, which gradually shift pension investments from equities to bonds and cash before retirement, are delivering widely different results for savers. Department for Work and Pensions data shows average annual returns drop from 8.6% decades before retirement to 3.6% just five years out. CAPAdata’s review of major funds found five-year returns ranging from 17.9% to 31.1%, with glide paths starting anywhere from six to 35 years before retirement.
It is a classic example of how the pension industry likes to pigeonhole people. It thinks it knows best about people and it does not. It should not be taking people out of high return assets without properly asking them or telling them. You might get a letter from your pension fund saying it is going to ‘de-risk your portfolio’, but that means absolutely nothing to most people. You should not be made to give up on investment returns in your 50s and 60s if you hope to live to your 80s or 90s. That seems astonishing.
Why this matters for those nearing retirement
The timing and scale of de-risking can mean the difference between tens of thousands of pounds in extra growth or missed opportunities. For example, a £200,000 pot could grow to £262,200 in a top-performing fund versus £235,800 in a lower-returning one over the final five years. Critics like Baroness Ros Altmann argue that removing higher-return assets too early is damaging, especially when many retirees now keep funds invested under pension freedoms.
Industry divided over lifestyling’s future
Providers including Royal London, Standard Life and Scottish Widows defend lifestyling as a way to smooth risk reduction without requiring savers to make frequent investment decisions. They argue glide paths are tailored to expected pension access methods. However, experts such as Daniela Silcock and Stuart Lamont stress the importance of savers actively checking when and how their fund de-risks, and ensuring it fits their retirement income strategy. Broader pension planning advice also highlights reviewing investments regularly, as seen in guidance for those facing possible changes to the state pension age.
Scenario modelling for future pension strategies
If lifestyling remains unchanged, many retirees could see lower growth in the final decade before retirement, potentially reducing income sustainability in drawdown. Alternatively, a shift to more flexible, personalised glide paths could balance market risk with growth potential, especially for those retiring later or planning phased withdrawals. Savers who actively review and adjust their investment mix may capture higher returns while managing volatility risk, a principle echoed in advice on consolidating old pensions and optimising fund choices.
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