Lifestyling Strategies for Pensions: Is Automatic De-Risking Right for You?

If you have a workplace pension and have never changed your investment options, you are almost certainly invested in a default fund with a lifestyling strategy built in. For millions of savers in the UK, this automated de-risking mechanism operates quietly in the background, shifting the shape of their retirement savings without them ever making a conscious decision.

That is not necessarily a problem — automatic strategies serve an important purpose for members who do not engage with their pension. But for those who are actively planning their retirement, and particularly for those who intend to use flexible drawdown rather than buy an annuity, lifestyling can impose a portfolio structure that is inappropriate, costly, and difficult to reverse at short notice.

We review clients' default fund choices as a standard part of our annual pension reviews. Lifestyling is one of the most common issues we identify.

What Lifestyling Actually Does

Lifestyling — sometimes called a "target date" or "lifestyle" strategy — is a pre-programmed investment transition. Every default workplace pension fund nominates a target retirement date, typically aligned to the member's state pension age or to an age provided at scheme enrolment. The fund manager then builds a glide path: a schedule of gradual portfolio changes that run automatically in the years approaching that date.

A typical lifestyling glide path looks like this:

• More than 10 years before target date: the fund is invested heavily in equities — often 80–90% — to maximise growth potential.
• 10 years before target date: the de-risking process begins. Equity exposure is gradually reduced.
• At the target date: the portfolio has arrived at a "pre-retirement" allocation — often 25% equities, 50% bonds, and 25% cash, or similar.

The idea is that by the time you reach retirement, your pension is positioned to support an annuity purchase or a stable, low-volatility income. The risk of a sudden market crash wiping out a large portion of your pot in the final years is substantially reduced.

Why Lifestyling Was Designed for a Different Era

Lifestyling originated in an era when the dominant retirement outcome was the purchase of a guaranteed annuity at or shortly after the target date. If you knew you were going to convert your pension pot into a fixed income for life in, say, June 2025, it made perfect sense to reduce investment risk in the years before — you were matching your portfolio to a known, imminent liability.

The Pension Freedoms legislation of 2015 fundamentally changed this picture. Since April 2015, defined contribution pension holders in the UK have had the right to draw income flexibly from their pension without purchasing an annuity, with no restriction on withdrawal amounts (subject to tax). The majority of those who reach retirement now choose flexible drawdown rather than annuity purchase.

In this context, the logic of lifestyling partially breaks down. If you are going into drawdown, you are not converting your pot to a fixed income at the target date — you are remaining invested, withdrawing income as needed, and allowing the rest of the fund to continue growing. Your investment horizon does not end at retirement; it may extend for another 20 to 30 years.

Arriving at retirement with 25% equities, 50% bonds, and 25% cash is, for a drawdown investor, likely to be far too conservative. The bond and cash heavy portfolio will generate modest returns, may fail to keep pace with inflation and income withdrawals, and leaves the client underexposed to the equity growth they need to sustain income over a long retirement.

The Three Specific Problems With Default Lifestyling in the Drawdown Era

Problem 1: It Was Designed for Annuity Purchase

The pre-retirement portfolio that lifestyling delivers is specifically calibrated for annuity purchase. Holding bonds makes sense if you are about to buy a product whose price is determined by bond yields. If you are staying invested in a drawdown arrangement, the rationale disappears entirely.

Problem 2: Moving to Cash at Exactly the Wrong Time

The most serious version of this problem is a pension that arrives at its target date holding 25–40% in cash. Cash generates little return and provides no inflation protection. In the early years of drawdown, when your pot is at its largest and the compounding of returns matters most, holding substantial cash is a significant drag on long-term outcomes.

Worse, if equity markets happen to be strong at the point lifestyling has moved you into cash and bonds, you have missed that growth entirely — and the target date fund will not automatically reinvest back into equities.

Problem 3: The Target Date May Not Match Your Plans

Lifestyling is triggered by the target retirement date on record with your pension provider. Many members set this date at scheme enrolment — sometimes decades ago — and never update it. The date may be wrong because:

• You plan to retire earlier or later than originally intended
• Your state pension age has changed (which affects the default date used by some providers)
• Your circumstances have changed significantly — a second career, a business sale, an inheritance — and your retirement plans are different

A wrong target date means the glide path runs on the wrong schedule. Lifestyling may start de-risking five years too early, locking in conservative positioning during years when you would benefit from remaining in equities.

When Default Lifestyling Is Appropriate

We want to be balanced here. There are circumstances in which the default lifestyling strategy is the right approach:

• If you genuinely intend to purchase an annuity at or close to the target date, lifestyling's asset allocation logic is sound. Moving toward bonds in the years before purchase reduces the risk that market volatility forces you to buy at a poor moment.
• If you will not be actively managing your pension and have no professional adviser engaged, lifestyling at least prevents the worst outcome: arriving at retirement with 90% in equities and suffering a major market fall in the week before you need to access funds.
• If your pension is a small satellite pot rather than your primary retirement asset, and your main provision comes from a DB pension or other guaranteed income, the precise asset allocation in the satellite pot matters less.

How to Override Lifestyling

If lifestyling is not appropriate for your circumstances, there are two routes:

Self-Selecting Funds Within the Existing Scheme

Most workplace pension providers allow members to override the default and self-select from a menu of available funds. You can typically access this via an online portal. Selecting individual funds — a global equity tracker, a multi-asset fund, a bond fund — and building your own allocation means the lifestyling glide path no longer applies. You take on responsibility for managing and rebalancing the allocation yourself.

The limitation is that the fund menu within a workplace scheme may be narrow, and the quality of available options variable. Index trackers are often available, but specialist funds, direct property, and alternative asset classes are rarely accessible.

Transfer to a SIPP

A Self-Invested Personal Pension provides full control over investment decisions, with access to a much wider range of assets. Transferring your workplace pension into a SIPP allows you to implement a bespoke asset allocation strategy appropriate for your age, risk profile, and drawdown plans — without any automated lifestyling imposed by the scheme.

SIPP transfers are not always appropriate — some workplace schemes offer valuable benefits (employer matching, guaranteed annuity rates, death-in-service) that would be lost on transfer. We review this carefully before making any transfer recommendation.

The Alternative: A Managed Drawdown-Oriented Portfolio

For clients approaching or in retirement, we advocate replacing the one-size-fits-all lifestyling glide path with a managed, drawdown-oriented portfolio designed specifically for their situation. This typically involves:

• Maintaining meaningful equity exposure — usually 40–60% — through and beyond the retirement date
• Structuring the balance in bonds, multi-asset funds, and cash to match anticipated income needs over a rolling three-year horizon
• Reviewing and rebalancing annually, adjusting the allocation as the client ages and circumstances change
• Taking an active view on whether annuity purchase becomes compelling (as gilt yields change) and holding the option open

Our Review Process

When a new client comes to us, one of the first things we do is identify every pension they hold and check the default fund status of each. For any scheme still in a lifestyling arrangement, we assess whether that arrangement is appropriate — taking into account the client's target retirement date, their intention to drawdown or purchase an annuity, their overall risk profile, and their other assets.

Where we find that lifestyling is imposing an inappropriate allocation, we help the client either self-select within the existing scheme or, where the case is strong, facilitate a SIPP transfer.

How Global Investments can help

We carry out full pension portfolio reviews for all new clients and include a lifestyling assessment as a standard element of our annual review process. If you have not examined the default fund settings on your workplace pension in recent years — or if you have changed your retirement plans since you last reviewed them — there is a meaningful probability that your current allocation does not reflect what you actually need.

Our pensions team works with clients across the UK and internationally to design pension investment strategies that match their individual retirement goals. We always recommend taking personalised, regulated financial advice before making changes to your pension: investment values can fall as well as rise, pension rules and tax treatment can change, and what works for one client may not be appropriate for another. Please contact us to arrange a pension review consultation.