Your employer, in conjunction with their scheme adviser, may have designed a lifestyle strategy fund specifically for your scheme. This will be unique to your scheme and you can find out more by logging in to TargetPlan(Opens new window).
Lifestyle strategy funds have the advantage of offering a single strategy that changes automatically as you move through your career towards retirement. They all have certain features in common: they aim to provide scheme members with an opportunity to grow their savings over the course of their working life, whilst moving their savings into more appropriate investments as they near retirement.
There are three main types of lifestyle strategy:
- Flexible income Lifestyle – this lets you leave your retirement savings invested at retirement and take income from them (referred to as income drawdown). This has the advantage that it keeps your options open at retirement and is better able to adapt to changes in your circumstances but it also has the disadvantage of leaving your money exposed to the ups and downs of investment markets, which could affect your income.
- Lump sum Lifestyle – this lets you take your retirement savings as a cash lump sum. This again allows you the flexibility to use your money however you want, but it won’t provide you with an income and only 25% (currently) will be tax free. The rest will be taxed as income.
- Income for life Lifestyle – for those planning to buy an annuity (guaranteed income) at your target retirement age. Buying an annuity provides the comfort of a guaranteed income for life, but for this you have to 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.
It’s important to remember that the lifestyle strategy chosen by your employer hasn't been designed specifically for you. If this is a concern, you may want to talk to a financial adviser about building your own investment strategy.