Lifestyling vs Pension Drawdown: What's the Difference?
Lifestyling is a default investment strategy used in the years before retirement. Drawdown is a way of taking income in retirement. They serve very different purposes.
What Is Lifestyling?
Lifestyling — also called lifestyle investing or a lifestyle strategy — is an automatic investment approach used by many workplace pension schemes in the years leading up to retirement. The strategy gradually shifts your pension investments from higher-risk assets (typically equities) to lower-risk assets (typically bonds and cash) as you approach your selected retirement date.
The logic behind lifestyling is straightforward: as you get closer to retirement, you have less time to recover from a market downturn, so reducing investment risk helps protect the value of your pot in the years immediately before you access it.
Why Lifestyling Was Designed for Annuity Purchase
Lifestyling strategies were originally designed for a world where most people used their pension to buy an annuity at retirement. An annuity purchase is a one-time transaction — the value of your pot on the day you buy matters enormously. Reducing risk in the years before purchase made sense.
The default lifestyle strategy in many older workplace schemes moves heavily into bonds and cash in the final 5–10 years before the target retirement date. This was appropriate when annuity purchase was the norm.
The Problem With Lifestyling for Drawdown Users
Following the introduction of pension freedoms in 2015, the majority of people with defined contribution pensions now use drawdown rather than annuities. Lifestyling strategies designed for annuity purchase are often poorly suited to drawdown users.
In drawdown, your pension remains invested for potentially 20–30 years after retirement. Moving heavily into bonds and cash in the years before a drawdown retirement date can significantly reduce long-term growth potential. If you remain in a default lifestyle strategy designed for annuity purchase, you may be taking less investment risk than is appropriate for your circumstances — potentially at the cost of future income.
What to Check
If you are in a workplace pension with a default lifestyle strategy, it is worth checking:
- What the strategy is invested in now, and how it is changing over time
- What the target is at your selected retirement date (cash, bonds, mixed?)
- Whether the strategy assumes annuity purchase or is designed for drawdown
- Whether the target retirement date is correct — many people don't update this when plans change
Many modern workplace pensions now offer drawdown-targeted lifestyle strategies, which maintain higher equity allocations closer to retirement and into it.
Drawdown: A Different Approach to Retirement Income
Pension drawdown is not a pre-retirement investment strategy — it is a way of taking income in retirement. In drawdown, your pot remains invested and you withdraw from it flexibly as needed. The investment strategy in drawdown should be tailored to your withdrawal rate, time horizon, and income needs — which is fundamentally different from a one-size-fits-all lifestyle strategy.
Speak to a qualified financial adviser for personal guidance on whether your pre-retirement investment strategy is appropriate for your planned retirement approach.