Lifestyle profile and gilt values

Many of the funds offered on our Workplace pension schemes are passive ‘index-tracking’ funds (which aim to match the performance of the benchmark rather than outperform it). Where a benchmark comprised of gilts has fallen in value, so will any fund which tracks that benchmark – and were the benchmark to increase in value, the fund would replicate that increase.

Likewise, changes to Gilt values have been reflected in underlying annuity prices, meaning a fall in the value of a pension pot invested in gilts is often offset by annuities becoming cheaper to buy at retirement.

For example, at the start of 2022 you could set up a £100,000 lifetime annuity and receive £4,762.34 each year in guaranteed income. By January 2026 the same pension pot size provided you with £7,396.87 in guaranteed income. (Both annuity quotes are based on an average annuity rate for a 55-75-year-old in good health taking out a single life annuity with no benefits or guarantees and no escalation).

A lifestyle profile is an investment strategy that automatically moves your money, over a period of time, into funds that support the way you want to take your money when you get to your selected retirement date, such as taking a regular income or cash lump sums.

If your pension is invested in a lifestyle profile, you should regularly review the investment to ensure its target retirement aims match your own. You should also check your expected retirement date is still appropriate for your needs. More information about your investments, and the funds and lifestyle profiles available to you, are available in your online account and app.

You can also find out more in our Guide to investing.

If you’re thinking about switching your investment, it’s something that needs to be considered very carefully.

If you switch out of a current investment into one that’s less volatile, it may reduce your level of risk. You may also lock in any current losses, as you might lose the opportunity to recoup the investment in the future because funds that fluctuate less in value may have less scope for growth. However, different individuals will have different attitudes to risk and volatility, so may feel more comfortable with reduced growth potential in future if it means the possibility of less risk now.

Learn more in our article 'Take stock of your pension'.

Investing in cash is generally viewed as less risky. But cash has a lower growth potential than other asset classes. For cash savings to grow, you need to see interest rates that are consistently higher than the rate of inflation (the rate goods and services are increasing in cost). High rates of inflation will tend to reduce the buying power of your money, especially over the long term.

You may like to consider these factors when choosing which assets to use for your pension savings:

• how soon you intend to take your pension benefits
• whether you intend to take it all as cash in one go or leave it invested throughout your retirement to provide a regular income and/or occasional cash lump sums
• whether you intend to exchange some or all of your pension pot for an annuity which will provide a guaranteed income for the rest of your life or a fixed period of your choice

We can help you to access guidance and advice. Please visit your scheme website (if applicable) to see what services are available to you. Or you can call us on 0345 070 8686 for more information. Call charges will vary and we may record and monitor calls.

If you’re over 50 and thinking about taking your pension money now, the government offers a free and impartial guidance service, Pension Wise, provided by MoneyHelper, to help you understand how your pension works and the options for taking your money out.

They can’t provide personal advice, and won’t suggest particular investment options or products, but they will help you understand what’s available and the things you need to think about.

Alternatively, if you’re unsure how to proceed, you might like to get professional financial advice. If you haven’t got a financial adviser, you can find a list of advisers at Unbiased.

However, if you’re considering taking your money out, we would recommend that you remain calm, and make informed decisions according to your personal circumstances. The value of individual pension pots will go up and down from time to time and it’s important to take a long-term view.

If you really need or want to cash out your pension investments, on the basis that you need the money now or are unable to risk the potential for further losses to the value of your pot, you need to ensure you have considered the long-term implications and that you’re comfortable with the potential for losing out over the longer term. Remember, taking your pension benefits is a one-off decision. You should only cash out what you need.

You may have seen a reduction in the value of your pension pot. We should be prepared to see volatility in the financial markets for some time to come. World events can impact how quickly and significantly the value of investments can change. However, while this can be worrying, it’s important to remember that pensions are long-term investments and history suggests that markets which go down, will typically go back up again at some point.