Pension strategy leaves grandmother working past retirement - here's what happened
A pension investment method called lifestyling caused one womans retirement savings to drop by almost half in just three months. The strategy‚ meant to protect savings turned into a financial nightmare
Holly expected to enjoy retirement by age-65‚ caring for her grand-daughter after years of working as a receptionist‚ But her plans changed drastically when her pension dropped from £740k to £400k in early-22 (which was quite a shock)
The drop happened because of pension lifestyling - a strategy thats supposed to make retirement safer. This method switches growth-stocks to supposedly low-risk bonds and cash when people get close to retirement age; most DC pension schemes do this by default
The bond-heavy strategy backfired when interest rates jumped from near-zero to 5 percent between 21 and 23. Long-term government bonds (also known as gilts) lost lots of value - leaving many soon-to-be retirees with much smaller pensions
Now at 66‚ Holly still works as a legal-firms PA and cant help with her almost two-year-old granddaughter. “I couldnt look after her because I was working‚ so her parents had to pay for childcare; its affected our whole family“‚ she explained
Financial expert Adam Walkom calls lifestyling a “weapon of wealth destruction“. He points out problems with this approach:
- Its based on old-fashioned ideas about buying annuities
- It doesnt protect against inflation risks
- Cash and bonds grow slower than stocks
- Most people dont understand how it works
Lifestyling has caused a permanent loss of capital exactly what it claims not to do
Pension provider Aviva says the value drop came from “unprecedented market volatility“ in 22. They still think lifestyling works to reduce risk - but admit theres no guarantees when markets get extra-volatile
