Annuity target funds (and their predecessors, lifestyle funds) are a type of retirement target fund. Annuity Target funds are designed for pension scheme members who will buy a guaranteed annuity (pension) when they reach retirement.

There are two main stages



When savers are still some way from retirement.

In this stage these funds invest in a mix of investments designed to grow your pension pot.

You can choose the fund that best meets your savings needs and attitude to risk. 


Retirement target

When savers are approaching retirement

In the final years before you’ve told us you want to retire, we automatically start to prepare your pension pot savings for when you buy an annuity in retirement.

We’ll gradually move your savings out of its growth stage investments, and into long gilts, with the aim of preserving the size of annuity you’ll be able to buy.

When you're nearly at the date you've told us you want to retire, we'll also move 25% into cash to cater for your tax-free cash entitlement. You can currently take up to 25% of your pension pot as tax-free cash. This is based on our understanding of current taxation law and HMRC practice, which may change.

The value of investments in the growth and retirement target stages can fall as well as rise and isn't guaranteed. The value of your pension pot when you come to take benefits may be less than has been paid in.

Why we use long gilts

If the value of long gilts goes down, annuity rates tend to go up.  This means that whilst the value of your pension pot may fall, what that pot will buy in terms of an annual income in the annuity, will go up.

Likewise, if the value of long gilts goes up, annuity rates tend to fall.  This means that while your pension pot may go up in value, what it will buy in the annuity will go down.

So if the value of your pension pot fluctuates just before you retire, you should be able to buy roughly the same size annual income through the annuity - although this relationship isn't perfect and is not guaranteed.

An example

Here's an example of how the fund changes in the years before you retire:

Example annuity chart

Please note that this is just an example, some of our lifestyle funds have different starting risk levels and will move into gilts and cash at slightly different times.

Important information

The risk levels shown here are Aegon's and shouldn't be compared to any other providers' risk ratings.

The fund moves into long gilts and cash to try to neutralise the effects of interest rates on the annuity you can buy at retirement. The value of the fund at retirement can still fall as well as rise and isn't guaranteed. If you don't buy an annuity at retirement, returns may not keep pace with inflation over the long term.

We review these funds regularly and may change them if we believe it’s in the best interests of investors.

The choice is yours

Annuity Target and lifestyle funds are designed for use by workplace pension schemes. If an employer selects it as their scheme's default fund, members who don't make their own fund selection will be automatically invested into it when they join their workplace pension scheme. This means they're invested from day one.

Your employer will have chosen it because they think it best meets the average needs of their workforce, and because they think that most members plan to buy an annuity on retirement. However, it may not be the best fit for you.

If you want more control over where your money is invested, you can select a fund that's more tailored to your needs. If so, please review our other investment options.

Your choice of investment fund can have a big effect on your pension benefits. If you're in any doubt about which fund's right for you, you should speak to a professional financial adviser. MoneyHelper gives free and impartial guidance to help make your money and pension choices clearer. If you don't have a financial adviser, you can visit MoneyHelper to find the right one for you.

Your Retirement Planner

You have lots of choice about how to access your retirement savings. We're here to help. Our website, Your Retirement Planner, has information and tools to help you understand your options when you get close to retirement.