What is pension lifestyling?
Learn about what pension lifestyling is and how auto switching works as an investment strategy for pensions.
Investments can go down as well as up, and you may get back less than what you put in.
Key points
- Lifestyling gradually shifts your pension from higher‑risk assets to lower‑risk ones as you near retirement, often starting from between 5-15 years before your selected retirement age.
- Strategies now align with how you plan to take benefits, which could be an annuity, drawdown, or lump sums, following the 2015 pension freedoms.
- It’s mostly a hands-off approach but changes based on if you change your retirement age.
You may have heard the terms lifestyling, life staging or auto‑switching used interchangeably. While they’re closely related, there are some small differences.
In this article, we focus specifically on pension lifestyling and how it can affect your pension.
How pension lifestyling works
Pension lifestyling puts you into a specific set of investments and then slowly changes them over time as you get closer to your chosen retirement age. In some cases, this is selected automatically when you open a pension, especially workplace pensions.
Generally, your investments will start changing from between 5-15 years before your chosen retirement date. Setting a retirement date doesn’t mean you must retire at that point. A lot of pension companies will use them for lifestyling strategies such as this, and also to help get an idea of when to talk to you about your options at retirement.
How and what they move to depends on the lifestyle strategy chosen, as some might come with different goals, whether that be to aim for an annuity, or drawdown. But the general idea is, your investments will switch from traditionally higher-risk assets, like equities, into lower-risk assets, like bonds or cash.
It’s worth noting that although you might move into lower risk funds, the value of your pension can still go down as well as up, and you may get back less than what you put in.
Lifestyling is designed to reduce the impact of market volatility as you approach retirement. It won’t guarantee outcomes, but it helps ensure your pension isn’t exposed to the same level of risk as it was 20 or 30 years ago.
Head of Investments, Consumer Wealth Donato Boccardi.
These strategies are often switched on automatically for workplace pensions, and similar options are usually available with other pension types, including SIPPs. You can sometimes move between different lifestyling strategies if your goals change.
It’s worth noting that, in some schemes, if you opt out of a lifestyling option you may not be able to rejoin it, meaning you’d need to choose your own investments or pick another automated switching option.
Aviva’s low-involvement investment options
Depending on the type of pension you have with us your lifestyling options will be slightly different.
If you’re considering opening a SIPP we have the Universal Retirement Fund.
It’s a lifestyling option that's actively managed by experts, who might switch around the assets if some aren’t working, or don’t work for the approach and its aim. And then as your chosen retirement date gets closer, the fund gradually reduces its risk to help protect your savings. If you decide to change your retirement date, the fund will automatically adjust accordingly.
The investment transition typically looks like this:
Early investment stage — focuses on growth.
Midway to retirement — balances risk and reward.
Approaching retirement — reduces risk.
Why pension lifestyling exists
Pension lifestyling was developed as a way to reduce the impact on savers’ retirement pots from unexpected financial shocks in the years before retirement, when a sudden market change could have a noticeable impact due to the limited time to recover losses.
Donato adds.
This has historically made sense as some pensions only allowed you to buy an annuity, so lifestyle strategies were designed to prepare people for annuity purchases.
Since Pension Freedoms were introduced in 2015, pension savers now have more options at retirement. Some savers instead choose options like income drawdown or taking lump sums, meaning the original purpose of lifestyling might no longer match how retirees want to use their pensions. But this has shifted, as pension providers also have now focused their lifestyling around the newer retirement options.
What are the pros and cons of lifestyling?
There are pros and cons to every financial decision, and balancing those out can help you make decisions. With lifestyling there are a couple of pros and cons:
Pros of lifestyling
Reduction in risk as retirement approaches.
As lifestyling automatically moves your savings into lower-risk assets as you get closer to retirement, you reduce your chances of short-term market volatility which can significantly impact your pension pot.
It’s a hands-off approach.
Unless you’re choosing your lifestyling plan, most auto-switch options are entirely hands-off. Most of them are actively managed funds, allowing you to sit back and let the experts do the work.
Cons of lifestyling
Potentially missed investment growth.
De-risking doesn’t automatically keep you safe from drops in the market. On the other hand, it can also stop you from benefiting from investment growth.
Risk of mistiming if your retirement date changes.
As lifestyling automatically de-risks based on a pre-set retirement date, accessing your pension earlier or later than planned can mean your investments are shifted at the wrong time, either moving into low-risk funds too early or remaining in higher-risk for too long.
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