Most people have no idea how their workplace pension is invested. They trust that it is being managed sensibly on their behalf. For millions of savers, that trust has been misplaced.
Lifestyling funds, sometimes called lifestyle or target date funds, are the default option in the majority of UK workplace pension schemes. The concept sounds reasonable: as you get closer to retirement, the fund automatically shifts your money from equities into bonds and cash to protect you from volatility.
In 2022, that approach backfired spectacularly.
What Lifestyling Actually Does
The glide path below shows how a typical UK lifestyle pension fund automatically shifts its asset allocation in the decade before retirement. By the time a saver is one to two years away from stopping work, they are often holding 70 to 85 per cent in bonds and cash.
The idea is that bonds are safer than equities. History suggested that was broadly true. Then 2022 happened.
Chart 1: Typical Lifestyle Fund Glide Path
Asset allocation shift in the 15 years before retirement
Illustrative of standard UK lifestyle fund de-risking profiles (NEST, L&G, Aviva, Scottish Widows default strategies)
The 2022 Wipeout
The Bank of England raised interest rates at the fastest pace in decades. Liz Truss's mini-budget sent gilt markets into freefall. Long-dated UK gilts fell by more than 40 per cent. Anyone sitting in a lifestyle fund within five years of retirement had their savings concentrated in exactly the assets that were collapsing.
-40% | -30% | +38% |
Long-dated UK gilts fell in 2022 | Approx. cumulative gilt loss 2022-2025 | Diversified multi-asset cumulative gain 2020-2026 |
The chart below shows the approximate calendar year performance of some of the UK's most widely held lifestyle pension funds in 2022, compared to a diversified multi-asset alternative.
Chart 2: 2022 Annual Returns — UK Lifestyle Pension Funds vs Multi-Asset Alternative
Funds shown at or near retirement vintage (1-3 years to retirement). Calendar year 2022.
These are not fringe products. NEST is the government-backed auto-enrolment provider used by millions. Scottish Widows, Aviva, and L&G dominate workplace pension provision across the UK. These losses hit ordinary people who had no idea their pension had been moved almost entirely into one of the worst-performing asset classes of the decade.
Still Underwater in 2026
What makes this even harder to accept is what has happened since. Global equity markets delivered approximately 20 per cent in 2023 and a further 16 per cent in 2024 in sterling terms. Yet many near-retirement lifestyle funds remain below their pre-2022 levels. The reason is straightforward: because these funds are still weighted heavily in bonds, they have not participated in the equity recovery. UK gilts delivered negative returns again in 2024 as yields remained elevated, compounding the original damage.
By the start of 2026, a saver in a typical near-retirement lifestyle fund is sitting on approximately 15 to 20 per cent less than they had at the start of 2021. A saver in a well-diversified multi-asset fund over the same period is up by a similar margin. That is a gap of 30 to 40 percentage points, built up over just four years, on money people believed was being protected.
Chart 3: Indexed Performance — Lifestyle Fund vs Diversified Multi-Asset (Q1 2020 to Q1 2026)
Indexed to 100 at Q1 2020. Near-retirement vintage lifestyle fund vs balanced multi-asset.
Chart 4: Annual Returns 2022 to 2025 — Lifestyle Fund vs UK Gilts vs Multi-Asset
Shows how the compounding damage accumulates year on year when a portfolio cannot participate in equity-led recoveries.
Someone who retired in 2022 after 30 years of disciplined saving could have seen their pension fall by 20 per cent in the final year alone. Three years on, they are still waiting to get back to where they were.
Three Reasons Lifestyling Fails
- It assumes bonds are always safe. They are not. Rising interest rates destroy bond values, and 2022 proved that a bond-heavy portfolio can be every bit as volatile as equities, just in a different direction.
- It ignores how people actually retire. The original design assumed savers would buy an annuity at a fixed date. Since pension freedoms in 2015, most people do not. They draw down flexibly. A lifestyled fund penalises them for that.
- It is one size fits all. Someone with a final salary pension, property wealth, and other income sources does not need to be 80 per cent in bonds at 63. But the auto pilot does not know that.
What Good Looks Like
A properly structured retirement portfolio considers the whole picture: income needs, other assets, tax position, flexibility, and how long money actually needs to last. This is done by using a robust and stress tested cashflow model using reasonable assumptions.
It does not mechanically de-risk into one asset class on a predetermined schedule with no regard for what markets are doing or what the individual actually needs.
If you are in a workplace default pension and have not reviewed how it is invested, now is the time. Many people are still sitting in the same structure that caused significant losses in 2022, with no awareness that the risk has not gone away.
The question to ask your pension provider is simple: what percentage of my fund is currently in bonds, and why?
At Niche Private Clients, we review investment structures as part of every full annual review and cashflow planning meeting. If you would like to talk through how your pension is structured, get in touch.
About Aled Phillips : Aled is a Fellow of the PFS, a Chartered Financial Planner, and a Chartered Fellow of the CISI.
This article is for informational purposes only and does not constitute financial advice. Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise.
