Is Your Pension on Autopilot? 5 Reasons to Ditch This Outdated Strategy
Are you sleepwalking into a retirement strategy that no longer works for most people? If you have a pension in the UK, there's a strong chance it includes a common, often default, feature that could be nudging you toward a catastrophic outcome without you even knowing it.
This feature, known as "lifestyling," is designed to automatically make your pension safer as you get older. But this outdated autopilot, built for a previous generation of retirees, can be a poor fit for modern retirement and may be quietly eroding your future financial security.
Here are five surprising reasons why this "set it and forget it" feature might be derailing your retirement plans, and what you can do to take back control.
1. You're Switching Off Growth Just When You Need It Most
It prioritises caution over necessary growth.
The core function of lifestyling is to automatically shift your pension funds from higher-risk investments like equities into "safer" assets, typically bonds, as you approach a target retirement date. The idea is to reduce volatility and protect your savings from a last-minute market crash.
But there's a glaring problem with this premise: retirement isn't a finish line. For most people, it’s a transition, an inflection point in your life that could last for 20, 30, or even 40 years. Over that kind of timescale, your investments still need to grow to beat inflation and maintain your spending power. By shifting into overly cautious assets too early, lifestyling takes too little risk at exactly the wrong time, which could mean your money runs out far sooner than you expect.
2. It's Designed to Be Ignored
It encourages a "set it and forget it" mindset.
Lifestyling is designed to run on autopilot, which is precisely what makes it so dangerous. It often operates based on a retirement age you might have chosen decades ago when you first joined a pension scheme, perhaps without giving it much thought. You join, forget about it, and just hope for the best.
This passivity is a huge risk. You wouldn't ignore your health or your career for 30 years and expect a great outcome, so why would you treat your pension any differently? A recent retirement confidence check revealed that a staggering 40% of pension holders either have lifestyling or don't even know if they do, highlighting a dangerous lack of engagement.
3. It's Based on an Outdated Retirement Model
It assumes you're buying an annuity.
Lifestyling was created for a world that, for most retirees, no longer exists. It was designed back when the vast majority of people used their entire pension pot to buy an annuity, a product that provides a guaranteed income for life. In that context, protecting the pot from a market crash just before this "cliff edge" purchase made perfect sense. If your fund fell by 20% six months before you retired, your income would be 20% lower for the rest of your life.
Today, the landscape is completely different. A study by the Financial Conduct Authority (FCA) found that only about 10% of people now opt for a lifetime annuity when they retire. Most now use flexible strategies like income drawdown, where you keep your pension invested and draw an income from it. For drawdown to be successful, sustained growth is essential to prevent the pot from depleting too quickly. Lifestyling's automatic de-risking is therefore actively harmful to the modern retiree's goal.
4. The "Safer" Assets Aren't Always Safe
"Safer" assets like bonds are not immune to risk.
The conventional wisdom that bonds are a safe haven was seriously tested in 2022, revealing a hidden risk in lifestyling strategies. While lifestyling automatically moves your money into supposedly safer assets like bonds, the idea that these are risk-free is a myth.
A perfect example occurred when interest rates began to climb. Bonds, especially long-dated UK government bonds (gilts)—"took a hammering." I had a client come to me who didn't know his pension was being lifestyled. He watched its value drop by 25% as the "supposedly safer investment mix just got beaten up by the markets." Blindly shifting your entire pension into bonds simply because an automated system thinks you should is not reducing your risk at all.
5. It's Inflexible in a World That Demands Flexibility
It's tethered to a fixed date that may no longer be relevant.
When you first set up your pension, you may have picked a retirement date without much thought. Perhaps the default pension age was the state pension age, or the normal minimum pension age (currently 55, soon to rise to 57). The problem is that lifestyling is mechanically tethered to that original date. It doesn't care if your real-life plans change.
Whether you decide to work longer or aim for early retirement, the lifestyling strategy will continue to quietly adjust your investments based on that outdated, irrelevant date. If a strategy is de-risking your portfolio based on a date that bears no relation to when you actually plan to retire, it's just all kinds of wrong.
So, What's the Alternative?
The answer is simple: take back control of your financial future. Instead of letting an outdated automation make critical decisions for you, adopt a more intentional approach.
Take control: Stop leaving your retirement on autopilot. Find out if your pension has a lifestyling feature and, if so, whether you can turn it off.
Review regularly: Assess your pension investments consistently, especially as your planned retirement gets closer. Your strategy should evolve with your circumstances.
Understand your needs: Get clear on your personal risk tolerance, your investment time horizon, and your likely income needs in the early years of retirement.
Consider the big picture: Know where your pension fits in with all your other sources of retirement cash flow.
Factor in your taxes: Understand what your tax situation is likely to be in retirement.
Seek help if needed: This can be a lot to think about. If you feel overwhelmed, don't be afraid to talk to a professional financial planner who can help you build a strategy that fits your unique situation.
Ultimately, the responsibility for your retirement rests with you.
Nobody cares more about your future than you.
Conclusion: Building a Plan for Your Real Life
Lifestyling may have made sense in the past, but for most modern retirees, it is too rigid and potentially damaging. The world has changed, and the way we fund our retirement needs to change with it.
Instead of relying on an inflexible, automated system, be intentional. Take control of your investments and build a retirement plan that is designed for your real life, one that is flexible enough to adapt as your goals evolve.
Is your pension truly aligned with the life you want to live, or is it running on a schedule set for you decades ago?
Take control of your retirement, starting today.
Use Plouta to track your savings, forecast your retirement, and get clear, practical advice tailored to your goals.
Disclaimer: This article provides general information and is for informational and educational purposes only. It does not constitute financial advice. The suitability of any financial product or strategy, including financial wellness apps, depends on your individual circumstances. Always do your own research and consider seeking independent financial advice.
