When a decision is taken out of your hands and made for you, what is the likelihood that it is going to suit your needs?  

This is exactly what happens with workplace pensions, your initial choice is whether you remain a member and we would advocate that in almost all circumstances, staying in the workplace pension will be of benefit. Yet further decisions are taken for you, such as your retirement date, your investment choices, your contribution rates and your investment pathway - these will all have an impact on when you can retire and how much you can afford to spend when you do.   

Most of us will leave our workplace pension scheme as is, because we are either not sure what to do, unaware of the options or are unable to make an informed choice, to then revisit this decades later nearer retirement. However, is this too late? could any damage already be done? You could have been selling yourself short and inadvertently postponing your retirement.  

By not actively making a choice on your investment strategy, you will be defaulted into the lifestyling investment strategy your employer has found most suitable for the average employee in the pension scheme. 

What does Lifestyling mean? 

For most of us this will be a lifestyled investment pathway.  Lifestyling simply means the investment strategy adjusts the balance of investment risk your pension takes over time to help reduce volatility as you approach retirement while still offering the potential for some growth when markets rise. In practice, this means your exposure to stocks and shares reduces the closer you get to retirement. So your investment changes without an active choice of this being right for your retirement plan. 

Even pension providers don't agree on the Lifestyling journey. Some pensions will reduce the equity exposure from 15 years to retirement, some will reduce it from 5 years to retirement and others are in between. Yet the date the provider counts back from is the retirement date set on the scheme chosen from the employer at pension set up, which may not be when you plan to retire. So, if you have a loose idea of when you want to retire does your pension and investment pathway reflect this? 

Is Lifestyling right for you? 

Lifestyling facilitates automatic investment management and can give peace of mind, potentially helping shelter the final value of your pension from negative market movements approaching retirement. It can, however, also reduce the potential for your money to grow in value. It changes the type of assets your invested in and the type of risk you are exposed to, it is not risk free. With a larger exposure to bonds being the common route for a lifestyling investment path, this has actually been detrimental to savers with interest rates rising,  hitting bond holders hard whilst equities have performed positively. 

So, is Lifestyling right for you? Possibly. But it will be no substitute to fully understanding your plan to retirement and having an investment strategy to suit.  

What should you be considering? 

Do you know when you will need your pension and does your investment strategy reflect your goals? The further you are from spending your pension (not retirement age) may mean you could have a more growth focussed path and vice versa, the closer you are to spending your pension (not retirement age) you may want to be safeguarding the value.  

Is your retirement age consistent with your plans? Do you even have a plan? If you are 30 years old, this may not be an issue but if you are 50 years old and onwards, or are looking down the barrel at retirement, you want to start understanding what this next stage looks like and how your finances will fit.   

Could you be contributing more to your retirement? Often the most effective way of saving will be to a pension. Increasing contributions can help you to fast forward your retirement journey. When younger, considerations will be around what else could you need this money for and paying down mortgages could be more attractive. If you are approaching retirement, you may find yourself with disposable income having become mortgage free or your kids may have flown the nest, and you may be in a position to increase contributions to pensions.  

Are Lifestyle funds still fit for you? 

Potentially, they could be. However a one size fits all approach will never be a replacement for a financial plan for your own circumstances that considers your retirement wishes, your life, and everything else that is important to you.  

How can we help? 

If you would like to plan beyond the ‘one size fits all’ approach and make sure you are making the right choices for retirement we would be delighted to discuss your circumstances over a coffee. 

Disclaimer  

Johnston Carmichael Wealth Limited is authorised and regulated by the Financial Conduct Authority. 

Please note: This communication should not be read as financial advice. While all possible care is taken in the completion of this  article, no responsibility for loss occasioned by any person acting or refraining from action as a result of the information contained herein can be accepted by this firm.