How do Annuity Target and Lifestyle funds work?25 April 2018 Back to results
Annuity Target funds are designed for pension scheme members who will buy a guaranteed annuity (pension) when they reach retirement.
It automatically adapts as you get close to retirement, recognising that your priorities are likely to change.
There are two main stages
Growth - When savers are still some way off from retirement.
Retirement target - When savers are approaching retirement.
In this stage these funds invest in a mix of investments designed to grow your pension.
You can choose the fund that best meets your savings needs and attitude to risk.
Retirement target stage
Annuity Target funds are designed for savers who don’t make active fund choices, and know they want to buy an annuity when they retire. They’re also sometimes called Lifestyle funds.
These funds are a type of Retirement Target fund. Find out more.
In the final years before you’ve told us you want to retire, we automatically start to prepare your savings for when you buy an annuity in retirement.
We’ll gradually move your fund 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 retirement, we’ll also move 25% into cash to cater for your tax-free cash entitlement.
Why do we use long gilts?
If the value of long gilts goes down, annuity rates tend to go up.
And if the value of long gilts goes up, annuity rates tend to go down.
So even if your fund value goes down just before you retire, you’ll be able to buy roughly the same size of pension – although this relationship isn’t perfect.
Please note that this is just an example, some of our lifestyle funds will move into gilts and cash at slightly different times.
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 take a look at 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. If you don't already have one, you can find one near you at unbiased.co.uk(Opens new window)
The value of investments can fall as well as rise meaning the final value of your pension plan may be less than the amount invested. There's no guarantee that the fund objectives will be met.
All references to taxation are based on our understanding of current taxation law and practice in the UK and Ireland, which may change.
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 go down as well as up. 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.
You have lots of choice about how you 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.