Lifestyle Funds - They need a health warning!

We are often asked to look at a client's company pension arrangements, as these will often be a major bedrock of their retirement plan.

More often than not, we will discover they are invested in lifestyle funds, which we think are a product of yesteryear and should be avoided at all costs.

In 2015, the Pension Freedoms Act was brought in, which allowed you to access your pension fund in whichever way you wanted, rather than being "encouraged" to buy a fixed income for life, also known as a lifetime annuity.

Previously, when you retired, you would normally swap your pension fund for a fixed income for life and you can imagine the devastation you would feel if your pension fund dropped 25% the day before you retired. Would you accept 25% less income for life or delay your retirement?

So a lifestyle fund automatically phased you out of equities and into bonds, starting around 10 years before you retired. The aim was to minimise the chances of losing a large chunk of your retirement pot dues to a stock market collapse just before you retired. So it made sense then.

However, since 2015, most investors no longer buy annuities but would rather remain invested for life, to minimise the chances of running out of money in retirement. So it is bordering on criminal to switch a 50 year old into bonds (often without their knowledge) when they have maybe 40 years of life ahead of them.

We believe you should remain fully invested for life.

So if you, or someone you know is invested in a lifestyle fund via their company pension, please contact us. It is costing you or them thousands of pounds in lost returns.

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