Pension savers could unwittingly lose out on tens or even hundreds of thousands of pounds if they allow their fund to be 'lifestyled' in the run-up to retirement, new analysis reveals.
Lifestyling is the widespread but little-understood strategy of gradually derisking pensions that many people with invested 'defined contribution' pots will be defaulted into without realising in the decade before retirement age.
'The approach lifestyle pensions take sounds sensible enough, but the reality is that lifestyle pensions are actually far riskier than you initially think,' warns Adrian Murphy, chief executive of Murphy Wealth.
Lifestyling reduces the potential returns on the pot when they can make the most difference, he says.
'Because your pension fund will be at its largest in the later years, this is when compounding can have the greatest impact – a difference of just a few percentage points in annual returns could mean tens of thousands of pounds.'
