![]() However, the timing of this shift from risky to less risky assets can make a huge difference to the overall size of the pension pot. Lifestyle pensions will focus on ‘growth assets’ in your early and middle years and, based on your ‘glide path’, will phase-in less volatile investments as your retirement date approaches. When you start your lifestyle pension, you are expected to name your retirement date. Lifestyle strategies may not deliver the retirement flexibility you needĪnother important factor associated with lifestyle pensions is their relative rigidity. In recent years, using income drawdown has become a more effective way of receiving an income during retirement, as this avoids locking into the low annuity rates that we have currently. ![]() But since compulsory annuities were scrapped back in 2015, it’s no longer a requirement to have a large pot of cash ready to buy an annuity when you hit retirement age. Others may want to reduce hours prior to retirement and begin taking pension income a little earlier.Īlso, lifestyle pensions were introduced back when it was compulsory for UK retirees to purchase an annuity in exchange for a guaranteed pension income for the rest of their life. Some people are now choosing to retire later, either because they need to keep working or they don’t want to retire just yet. ![]() Retirement needs have changed considerably in the last few years. Perhaps the biggest irony with lifestyle pensions is that they do not quite fit with the lives of today’s retirees. That being said, lifestyle pension strategies still have a few drawbacks that anyone with a company pension would do well to be aware of. In theory, lifestyle pension strategies are a good idea, and certainly provide more certainty to individuals who do not wish to make investment decisions within their pension funds. What are some of the advantages/disadvantages? ![]() A lifestyle pension takes away this risk because the pension has already been moving away from higher-risk assets into more low-risk investments over a number of years. After all, the last thing anyone just days from retirement would want to happen is to learn that stock markets have crashed, and a huge amount of their pension has suddenly been wiped out. Pension providers like to talk about lifestyle strategies as offering a ‘glide path’, and there is a very good reason for doing it this way. The aim is that when you retire, and want to begin drawing your retirement benefits, you have a pot that is invested largely in a mix of cash and bonds and is less exposed to stock market volatility. As you get older, and closer to your retirement date (typically 5-10 years before retirement), your pension will automatically start switching into lower-risk holdings, such as cash and bonds. A lifestyle pension will start by investing a larger proportion of your retirement pot in equities, which offer the best potential for growth, with higher levels of risk. Lifestyle strategies are designed to effectively ‘lock in’ the investment growth built up in your retirement pot as you get closer to your designated retirement date. However, adopting such lifestyle approach may well not be suitable for everyone. Within many pension schemes, default investment strategies now employ a process known as lifestyling, which claims to do the hard work of managing your pension assets for you as you get closer to retirement.
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