News | Sleepwalking Into Retirement: A Cautionary Tale

Share this story:

24th October 2023

Sleepwalking Into Retirement:
A Cautionary Tale

Many individuals come to A&J Wealth Management to discuss a plan for their retirement and are seeking the reassurance that they will be able to retire when they desire with a sufficient income to provide the discretionary and essential spending that they will require. The majority of people have private pension plans they would like to talk about. This has certainly been the case ever since the government made it a legislative requirement, in October 2012, to automatically enrol eligible employees into a workplace pension. The government took this decision with an understanding that the State Pension was simply not enough to provide a good standard of living for many people.

However, this created an issue regarding investment which needed to be addressed. Pension assets are usually invested in a range of asset classes i.e equities, bonds and cash. With each asset class, there could be a certain amount of investment risk depending on the proportion you hold in each asset. This can determine whether you are a low or high risk investor. When speaking to a financial adviser, you would be advised which risk category is suitable for you according to many factors but mainly your aims and objectives around retirement. This is vitally important because one of the largest components which will determine your overall investment return is the asset allocation or risk categorisation of your portfolio.

In terms of workplace pensions, the government had to create a simplified solution to automatically place individuals in risk categories to cater to a guesstimated retirement age (normally the State Pension age).  As a result, “Lifestyle” funds were used. Lifestyle funds cater for people who do not actively select funds throughout their career. Pension savings are systematically shifted from higher-risk funds, which invest in assets like stocks, to lower-risk funds, like cash or bonds. On the face of it, it is a simple solution and has some logic behind it. Younger individuals are placed into higher risk assets and over time the risk is gradually lowered as they become older or closer to retirement.

However, what happens when the so called “lower” risk assets unexpectedly behave like “higher” risk assets?  This is what happened last year when we saw the volatility of gilts (UK government bonds) rocket with losses of 20%+ in some funds as a consequence. 

Source: FE Analytics

This graph illustrates UK Gilts versus Global equities in the year 2022. It is clear to see the large downside that was present in UK Gilts in what was historically considered as a lower risk asset versus Global equities.

Investors who were close to retirement that were invested in a “Lifestyle” fund during this period would have been shocked, and rightly so, if they suddenly saw their pension fall by 20%+, when they had the understanding that their assets were being automatically “de-risked”. Unfortunately, this has been the experience for some individuals and it has highlighted the potential pitfalls of an automated strategy.

This is why we think it is vitally important that appropriate financial advice is given based on the whole picture of each client. It is not always right to assume that stock markets are going to function as they have performed in the past and this is why our Investment Committee are constantly monitoring the situation with the objective of avoiding market shocks such as the Gilt market in 2022.

The question to ask yourself is whether you have a “Lifestyle” pension fund and whether you are aware of the automated strategy and what this could mean for your retirement? Consider whether a bespoke strategy aimed at your specific goals and objectives surely is a better method than letting your pension to sleepwalk into your retirement.

The content of this publication is for information purposes and should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy.  It does not provide personal advice based on an assessment of your own circumstances.  Any views expressed are based on information received from a variety of sources which we believe to be reliable but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice.

Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.

Get In Touch

Leave us a message

A&J Wealth Management Ltd


Bigfrith Lane

Cookham Dean



01628 480200

© 2023 A&J WEALTH MANAGEMENT LTD A&J Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. Financial Services Register, no 428590, at Registered in England, Company no: 5105933. Registered Head Office: Sawfords, Bigfrith Lane, Cookham Dean, Maidenhead, Berkshire SL6 9PH

Scroll to Top