Are you planning to retire in the next 10 years? Check if your pension is being 'lifestyled'

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.' Stocks and bonds: Equities are riskier but bond markets are prone to crashes too How does lifestyling work?Late in working life, savers in pension schemes typically see their pots shifted out of stock markets and all or part way into bonds, historically regarded as the 'safer' option, and cash.The aim is to ensure you don't suffer big losses due to a financial market crash just before you retire.It can be suitable for those who intend to cash out or want to maximise a fund to buy an annuity to fund old age, but can backfire on long-term investors.Being in a mix of cash and government and corporate bonds – typically low growth compared with stocks – is not advisable if you plan to stay invested in stock markets and try to keep growing your pension throughout old age.Murphy crunches the numbers on the impact of lifestyling at the end of a 40-year working life below, and he points to the events of 2022 as a cautionary tale.'Rising interest rates saw the value of bonds collapse, leaving a large hole in many retirement plans - particularly those who were in lifestyle strategies that had begun to de-risk.'What was labelled "low risk," in fact turned out to be far from it.'Although bonds are generally 'safer' and less volatile than stocks, this shows how you can get unlucky with the timing of bond crashes.Bond markets are currently in turmoil again after US debt hit $40trillion, and a market intervention by President Donald Trump's administration has so far failed to halt a bond sell-off.What can lifestyling cost you?Murphy looked at the median salary of £29,000 for someone aged 22-29, who is making the minimum pension contributions through auto-enrolment or putting in bigger sums.The contribution figures below include personal and employer contributions and tax relief from the government, and assume wage growth of 3 per cent a year on average over 40 years.Murphy calculated the returns if you remained invested in the final decade versus moving into cash and bonds in that period.The investment growth assumptions are 6 per cent for stocks, which Murphy says is a relatively conservative return, versus 2 per cent which is more typical of bonds and cash under a lifestyling strategy. Adrian Murphy: The approach lifestyle pensions take sounds sensible enough, but it is actually far riskier than you initially thinkContributing £132.80 a month under auto enrolmentRemain invested £395,000‘Lifestyled’ pot £232,000Difference £163,000Contributing £250 a monthRemain invested £492,000‘Lifestyled’ pot £279,000Difference £213,000Contributing £500 a monthRemain invested £984,000‘Lifestyled’ pot £558,000Difference £426,000Should you let your pension be 'lifestyled'?If you are ten or fewer years away from the normal retirement age set by your pension scheme, you should check whether your fund is going through the process known as lifestyling, de-risking, or sometimes target-dating.You might have received letters about it and not realised the implications, or some pension funds have stopped sending paperwork and instead leave messages on your pension account, which are easily missed if you don't log in, or only occasionally.If you are being lifestyled that might fit with your plans anyway, for example if you want to avoid big swings in the value of your fund before buying an annuity.The point is to find out what is happening and then decide if it matches your goals for funding retirement or not.Murphy says: 'If you suspect you are in a lifestyle pension fund – bearing in mind the majority of people likely are – check the date it begins to de-risk and carefully consider whether that type of product matches your plans for later life.'The key is to make sure your investment strategy is aligned with how you actually intend to use your wealth.' He adds that the exact number of individuals enrolled specifically in lifestyle pension funds is not published.But the vast majority of the UK’s 22 million workplace pension savers are likely to be in default funds, which you are signed up to unless you actively choose your own investments within a work pension.And many of these use a lifestyle approach that automatically shifts investments into ‘safer’ assets as retirement approaches, explains Murphy.'Other lifestyle pension strategies have begun to emerge – especially options that don’t fully derisk into cash.'Instead, they maintain a blend of lower risk assets such as short dated bonds, diversified fixed income, and sometimes infrastructure or defensive equities as you get closer to retirement.'But that shift has only been relatively recent, and we won't see most of the people on these schemes approach retirement for some time yet.'Check our guide to pension lifestyling for what to do if you find out about it midway through the process, or are sitting on unexpected losses when you want to stop work.SIPPS: INVEST TO BUILD YOUR PENSIONAJ BellAJ Bell0.25% account fee. 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