Is your pension exposed to unnecessary risk?

Gareth Trainor

If you’re in a defined contribution (DC) workplace pension or have your own personal pension, you’re responsible for where your money is invested and making sure it meets your needs. And that it isn’t exposed to unnecessary risk.

In the early years, most people will focus on growing the value of their pension savings. But as you get closer to retirement, you should be making sure that where you’re invested is aligned to how you’re planning to take your pension savings.

If you don’t do this, your pension savings could be exposed to significant risk. In some cases you could suffer a noticeable fall in their value just by being in the wrong investment option.

Let’s look at why this is and what you can do about it. If you’ve already retired you might find our blog, What is the best way to invest for retirement, useful.

More choice means more reason to check what you’re invested in

Pension freedoms, introduced in 2015, have given us greater access to our pensions than ever before. Buying an annuity (a guaranteed income) is no longer the main option – you now have much more choice.

You can take all or part of your savings as cash lump sums, take your money out as a flexible income (drawdown), you can buy an annuity, or do a combination of all of these.

So what are most people doing?

We’ve learnt a lot about how people have been choosing to use their pension savings since the reforms were introduced. For instance, far fewer Standard Life customers are buying annuities and many more are choosing to take a flexible income1 (drawdown).

Wider industry data also backs this up – the Financial Conduct Authority’s (FCA) recent report 2 on retirement outcomes shows that twice as many pension pots are being used for drawdown than for buying an annuity.

But despite this major shift, some default investment options available through workplace pensions – 4 in 10 according to research3 – are still designed for buying an annuity at retirement.

These annuity-targeting investment options will reduce the risk in your portfolio as you get closer to retirement.

But, and this is really important, rather than reducing the overall level of investment risk, they’re specifically only reducing the risk of the level of annuity that you’ll be able to buy falling. This is because they move your money into investments (long-term bonds) designed to move in line with the cost of buying an annuity.

Because of this, these investments can actually be quite volatile – for example, although past performance isn’t a reliable indicator of future performance, in the past year the UK long-term bonds market has fallen around 6%4. So, unless you’re still planning to buy an annuity, you could be exposing yourself to more risk than you need to.

In simple terms, different types of investments may reduce risk if you’re planning to take your pension savings in one way but may actually be risky if you end up taking them another way.

So it really is crucial to check that your pension investments are aligned to how you’re planning to use your savings.

Recommended next steps

1. Think about what you want to do with your pension savings in retirement

You have a number of options. So ask yourself, do you want to buy an annuity? Withdraw some or all of it? Leave it invested? Do a bit of everything? Or maybe you’re not sure what you want to do.

If you don’t know, don’t worry – many pension plans have investment options designed to give you flexibility if you don’t want to decide straightaway.

2. Check what your pension is invested in

You should be able to find details on your annual pension statement.

If you’re in a default investment strategy, such as a lifestyle profile, take a closer look to make sure it’s aligned to your plans.

This is particularly important if you’re getting closer to retirement as this is when the strategy will start making changes to where your money is invested.

At Standard Life, we recognise that some customers may not know what they want to do right up until they retire, or may want to use a combination of options, so we have strategies that are designed to give you flexibility to take your money as you want.

3. If your investments aren’t aligned to what you plan to do – act now

Look at the other options available and what’s most appropriate for what you think you’ll end up doing.

Get professional financial advice if you need it (there may be a cost for this).

If you’re in a company pension, your employer may have plans to or may have already made changes to your default and other investment options to reflect the flexibility that pension freedoms have introduced. Check your pension website or speak to your employer for more information.

At Standard Life, we’ve also made changes to our range of lifestyle profiles to reflect the different ways our customers are now using their pension savings. This includes lifestyle profiles for buying an annuity, taking your money as lump sums or leaving it invested and taking a flexible income.

Find out more about our lifestyle options.

4. If things change in the future – act again

Remember, if you change your mind about what you plan to do with your pension savings in retirement, you may need to change your investments again to avoid being exposed to unnecessary risk.

Pension freedoms offer a fantastic amount of choice and flexibility, but they also put much more responsibility on your shoulders when it comes to managing your income in retirement. So now’s the time to make sure you know what you can do with your pension savings and that you’re invested appropriately for how you plan to take them.

We have lots of information to help you decide how you want to access your pension – get a free personalised report on your retirement options online.

And if you’re still not sure what’s right for you, speak to a professional adviser.

A pension is an investment. Its value can go up or down and it may be worth less than you paid in. Investment returns aren’t guaranteed.

The value of your investment can go up or down and may be worth less than what was paid in.

The information in this blog should not be regarded as financial advice.

Access to impartial advice

We recommend you seek appropriate guidance or advice to understand your options at retirement. You can get free guidance over the phone or face to face with Pensionwise.

Go to or call 0800 138 3944

The Money Advice Service (MAS) guide is also available on the Pensionwise site.


1Standard Life, overall customer behaviour, 01 January 2016 to 31 December 2016

2Financial Conduct Authority Retirement Outcomes Review Interim Report, July 2017

3Willis Towers Watson FTSE 350 defined contribution pension scheme survey 2017.

4Source: Financial Express. FTSE® Actuaries UK Conventional Gilts Over 15 Years TR Index in sterling, 30 September 2016 to 30 September 2017.