Pension warning: 850,000 Britons ‘sleepwalking’ to lower retirement income | Personal Finance | Finance

An estimated 850,000 pension savers are invested in ‘lifestyling’ funds, which have fallen in value by 13 percent in the last two months. These funds are invested in long dated bonds, which have taken a hit due to high inflation and interest rate increases.

Britons’ savings are often shifted into these funds as they near retirement in order to hedge against movement in annuity rates.

An annuity is when someone swaps some or all of their pension pot for a guaranteed income for life.

However, these have become less popular in recent years since the pension freedoms were introduced in 2015.

Now only 10 percent of pension investors buy an annuity.

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“If these trends continue, things could get even worse from here.”

Mr Khalaf believes the funds are becoming less appropriate in the new pensions landscape.

He said: “The logic behind lifestyling funds is that if they are falling in value, annuity rates will be rising to compensate.

“But that’s little comfort if you’re not going to buy an annuity with your pension.”

Mr Khalaf urged savers to check whether their money is being invested in the best way, and explained how to spot a lifestyling fund.

He said: “Investors who are approaching retirement should definitely take a look under the bonnet of their pension plans to see what’s going on, and if any automatic switching is taking place, they can then make an informed judgement on whether it’s appropriate for them, based on what they’re going to do with their pension.

“If you think you might be invested in a lifestyling fund, check your latest valuation or speak to your pension provider.

“The funds in question will normally be called ‘long gilt’ or ‘long corporate bond’, and will invest in long-dated government or corporate bonds.”

People who are planning on buying an annuity with their pension might consider sticking with a lifestyling strategy.

Mr Khalaf concluded: “But if you aren’t, then you should give careful consideration to picking another type of fund to see you through to retirement, and beyond.”