A lifestyle strategy automatically changes what it invests in as you get closer to retirement. This is where you’ll be invested if you don’t choose your own investment fund. 

Below we give examples of the typical types of lifestyle strategy, but you’ll have to sign in to your TargetPlan account and go to View and manage to find out about your specific lifestyle option. You’ll also find details of the default option for your scheme in your Investment options brochure in the Documents tab.

What are lifestyle strategies?

Lifestyle strategies are designed to be simple. They offer a single investment option or fund that automatically changes what it invests in as you move through your career towards retirement. They all have certain features in common. They aim to grow your pension pot over the course of your working life, then gradually switch into different investments as you get close to retirement. The types of investments they switch into depends on the retirement outcome you’re targeting – cash, annuity or flexible (see below for details).

There are three main types of lifestyle strategy or fund:

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Flexible income Lifestyle

For those who want to keep their pension pot invested at retirement with a view to taking income from them (referred to as income drawdown). 

This option is designed to keep your options open at retirement and allows you to adapt to changes in your circumstances. However, it also means leaving your pension pot exposed to the ups and downs of investment markets, which could affect the income you can take.

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Lump sum Lifestyle

For those who want to take their pension pot as a cash lump sum.

This option assumes you’ll want to cash in your pension pot at retirement. This gives you the flexibility to use your money however you want, but it won’t provide you with a regular income and only 25% (currently) will be tax free. The remaining 75% is taxed as income.

This option ends up in cash-like investments that aren’t designed for long-term investment.  As a result, you shouldn’t leave it too long before deciding what to do with your pension pot. Over time, inflation will reduce the spending power of your pot. 

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Income for life Lifestyle

For those planning to buy an annuity (guaranteed income) at their target retirement age.

Buying an annuity provides the comfort of a guaranteed income for life, but for this you sacrifice flexibility. You should shop around as different annuity providers will offer different rates and different options depending on what kind of annuity you want.

At your target retirement age, these types of lifestyle funds usually end up invested 25% in cash like investments and the rest in a mix of government and/or corporate bonds (fixed interest loans to governments and companies).

Like the lump sum lifestyle, the spending power of your pension pot will be reduced by inflation if you leave it too long before you buy an annuity.

For all three Lifestyle strategies, the value of your pension pot can fall as well as rise and the final value when you come to take benefits may be less than has been paid in. When you come to take benefits, you can normally take up to 25% of your pension pot as a tax-free lump sum. The remainder is taxed as income. This information is based on our understanding of current taxation law and HMRC practice, which may change. The amount of tax you’ll pay will depend on your circumstances.

It’s important to remember that the lifestyle fund chosen by your employer hasn't been designed specifically for you. It may not suit your needs - for instance, it may be targeting a retirement outcome – annuity, cash or staying invested – that you don’t want. These funds are also hard-wired to change your investment mix to match your target retirement date. If you change your target retirement date, you should tell us so we can switch you into an appropriate version of your lifestyle fund.

If you’re not sure which lifestyle strategy is right for you, you may want to talk to a financial adviser. If you don’t have a financial adviser, you can visit MoneyHelper to find the right one for you. MoneyHelper also gives free and impartial guidance to help make your money and pension choices clearer.

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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.