What are the risks of pension lifestyling?

Lifestyling was built for a world that no longer exists. Before 2015 you had to buy an annuity, so drifting into gilts as you neared 65 made sense those bonds moved in step with annuity prices. Most people now stay invested for 25 or 30 years after they stop work. The destination changed but the autopilot never got the memo. The bigger problem is that lifestyling treats bonds as safe. They aren't safe, they're just quiet. In 2022 long gilts fell harder than shares. Governments are carrying debts they can realistically only manage by letting inflation grind them down, and that quietly moves money from savers to borrowers. A pot that stops moving is still shrinking.

Lifestyling sounds reassuring because it is sold as “reducing risk” before retirement. But reducing one risk can quietly create another.
Many older default strategies were designed for a world where people retired and bought an annuity. They gradually move money out of equities and into bonds or cash as retirement approaches. If you actually plan to stay invested through drawdown for another 20 or 30 years, that can be completely wrong for you. You may sacrifice years of growth just because your pension provider thinks retirement means the investment journey is over. MoneyHelper explicitly warns that this can leave drawdown investors with less growth potential.
The dangerous word is “default”. Default does not mean suitable.
Ten years before retirement, check where your pension is invested, what retirement date the provider has recorded and what the lifestyle strategy is targeting. Your investments should follow your actual retirement plan, not an assumption made by an algorithm.

The principle of pension lifestyling isn’t bad in itself. As retirement approaches, you should consider when you’ll need the money and whether your investments remain appropriate. The problem is default lifestyling can encourage people to sleepwalk towards retirement, often moving them out of growth assets regardless of how they intend to use their pension. If you’re planning long-term drawdown, that could be inappropriate. Take an active interest: know where your pension is, how it’s invested, what it costs, how it’s performing and whether it’s on track to deliver the income you need. Most importantly, make sure your retirement date and investment strategy reflect your actual plans.

Lifestyling is a mechanical process to switch from shares to bonds as you approach retirement. The logic is that it looks to save you from a stock market crash as you approach retirement but it pays no attention to whether markets are up or down. Its presumes that bonds are less risk which is generally true, but isn't always the case. Bonds can fall in value if the interest rate goes up and they tend to be more sensitive to this the longer in the future they mature. There are so many different ways that a lifestyle profile can be set up. They might be expecting an annuity purchase at a certain date or going into drawdown. Some will start moving your funds 15 years before your retirement date whereas others might wait until 10 or 5 years before. As with anything with your pension, take a look. Don't leave it to chance. If the profile isn't aligned with your goals, it could cost you in retirement.

Pension lifestyling was built for the annuity era. It shifts your pot from shares into bonds and cash in the final 10-15 years before the scheme’s retirement age, protecting against a market crash that could permanently cut the income an annuity would buy.

That logic collapses for anyone using drawdown and staying invested 20 or 30 years. You lose growth assets just when the pot is largest, sacrificing compound returns, only to re-risk later at higher prices.

Worse, it often starts against a retirement age set decades ago — chosen at 23 when 57 seemed ancient. You may be in your forties, planning to work to 65, while the fund has already put the brakes on your pension growth.

Check every pension now: confirm the recorded age, whether lifestyling is on, and if this is suitable.

If not switch it off or choose a growth fund if plans changed. A box ticked in your twenties for a different pension landscape should not dictate your strategy today.

Pension lifestyling can end up solving yesterday’s retirement problem rather than the one clients face today

Lifestyling automatically moves a pension away from equities and towards bonds and cash as retirement approaches. Historically that made sense when many people were expected to buy an annuity on a particular date, but pension freedoms have changed how people fund retirement. Someone retiring at 60 or 65 could remain invested for another 25 or 30 years.

The danger is that people often don’t even realise the switch is happening, or their pension is targeting a retirement age they selected decades ago. It also cannot take account of their wider wealth, DB pensions, property, health, spending plans or capacity for loss.

De-risking can absolutely be appropriate, particularly where withdrawals are imminent, but it shouldn’t happen simply because someone reaches a particular birthday. The investment strategy should follow the retirement plan not the other way around

Lifestyling indiscriminately moves investments within pension pots from being focused on potential growth towards "stability". Whatever's going on in stock markets is irrelevant when it comes to lifestyling which can mean selling during periods where losses are permanently locked in.

The main problem however, is that growth is still needed when considering how to realistically provide a growing income over a typical 30 year retirement, and stability is anything but, when bonds lose capital value with no real prospect of recovery in a reasonable amount of time.

The big risk with pension lifestyling is that it isn't usually the saver's decision. In workplace pension pots run by trustees, 94 per cent of members were in the default fund in 2024, and your employer may have picked it. Lifestyling is what that fund does on its own as retirement nears: it moves your money out of shares and into bonds and cash. That can slow your pot's growth when it's biggest, and it only pays off if you take your money when and how your scheme has assumed you will. The FCA found it was built for the annuity most customers once bought to get an income from their pot, and that fewer chose one after the 2015 pension freedoms. Lifestyling isn't wrong in itself, but running on a plan you never set is. What to hold instead isn't mine to advise on, but MoneyHelper is free, and so is Pension Wise once you're 50 with a pension pot. Tell your scheme when you plan to retire and how you'll take the money.