Financial experts warn automatic pension de-risking can leave savers with smaller pots if they remain invested throughout retirement
Millions of British workers could lose as much as £163,000 in potential retirement savings because of an investment strategy that automatically shifts pension funds into lower‑growth assets before retirement, financial experts have warned.
The strategy, known as “lifestyling”, typically moves pension investments out of equities and into bonds and cash as a saver approaches retirement.
It was originally designed to protect pension pots from stock market falls shortly before retirees used their savings to buy an annuity.
However, since the introduction of pension freedoms in 2015, many savers now remain invested for decades after they stop working.
Murphy Wealth has warned that automatically reducing investment risk could therefore limit growth during a retirement that may last 20 to 30 years.
According to calculations by the financial planner, a worker earning £30,000 who begins saving between the ages of 22 and 29 could build a pension pot of around £395,500 over 40 years, assuming annual growth of six per cent.
If their provider automatically moved investments into lower‑growth assets during the final 10 years, reducing returns to around two per cent, the pot could instead be worth about £232,500 — a difference of roughly £163,000.
The figures are based on assumed returns and do not represent guaranteed outcomes, with actual pension values depending on investment performance, charges, contributions and other factors.
Murphy Wealth said the projections highlight the potential impact of reducing investment risk for savers who may not need to access their entire pension pot at retirement.
Lifestyling became widespread when retirees commonly bought annuities, but pension freedoms have led many to use drawdown instead, keeping their money invested while taking income as needed.
Someone retiring at 60 may therefore need their pension to remain invested for another 20 or 30 years.
Adrian Murphy, of Murphy Wealth, said lifestyle strategies were designed for a different era, adding that pensions now need to continue growing throughout retirement, even if some risk is reduced to limit volatility.
Someone investing £500 a month over 40 years with average annual growth of six per cent could build a pot approaching £1million.
Under the lifestyling scenario, the projected pot would be around £558,000 — a gap of more than £400,000.
Mr Murphy also warned that inflation can erode the spending power of pension savings, meaning retirees must consider how their investments are positioned throughout retirement rather than focusing solely on the value of their fund at the point they stop working.
Rob Morgan, a wealth manager at Charles Stanley, raised similar concerns, saying lifestyling can create significant opportunity costs for people who do not intend to buy an annuity.
He said moving heavily into bonds and cash at 55 or 60 may result in a strategy that is too conservative for long‑term needs and may struggle to keep pace with inflation.
The debate over lifestyling comes as pension savers increasingly have to consider how their investments should be managed both before and after retirement, particularly where they intend to use drawdown.
The projections from Murphy Wealth underline the potential difference between remaining invested for longer and automatically switching into lower‑growth assets, although individual outcomes will depend on contributions, investment choices, charges, retirement dates and future market performance.
