Lifestyle funds could be putting pension savings at risk, according to June’s pensions spotlight, as a new breed of de-risking funds come forward.
Bob Campion writes that the traditional approach of investing in a lifestyle fund is coming under the microscope as alternative options emerge.
“Many advisers are starting to question whether lifestyle funds are providing their clients with the protection they need,” he said. “So should advisers be wary of lifestyle funds or recommending that their client take an alternative course of action?”
The traditional wisdom of lifetyle funds has been a de-risking process: investing in equities earlier on, then moving into bonds as retirement nears to protect against huge drops in the stock market.
But, Mr Campion says, the fear of a bubble in bond prices could damage the pension pots of near-retirees at the very time they are trying to retain value. In addition, there is a fear of a ‘great rotation’ that could see investors selling out of fixed income in favour of equities, damaging bond prices further.
At the same time, target-date funds are becoming a possible alternative. Instead of an almost automated de-risking process running up to retirement, managers of target-date funds have a greater level of discretion to manage funds with the retirement date in mind. This gives them more freedom to potentially avoid large market swings in any direction.