Lifestyle switching: what it is, when it starts, and why Phoenix stopped it

Lifestyle switching is an automatic process that gradually moves pension savings from higher-risk funds, such as shares, into lower-risk funds, such as cash, as you get closer to your chosen pension date.

It is designed to reduce the impact of short-term falls in fund values shortly before you plan to take your pension savings.

Lifestyle switching usually starts five years before your chosen pension date, although some plans switch savings at a different time or move them in one go.

Phoenix has decided to turn off the lifestyle switching option on some pension plans because it may no longer match how some people intend to use their pension savings.

If lifestyle switching applies to your plan, you can normally choose where your pension savings and any future payments are invested.

An example of how lifestyle switching might work

The way lifestyle switching works depends on the type of pension plan you bought.

In this example, each month units are automatically switched, without charge, from medium or high risk funds into a lower risk fund. This will continue each month so that after five years all the pension savings are invested in lower risk funds.

To find out how lifestyle switching works on your own pension plan (where the option is available), please contact us.

 

Benefits and risks of lifestyle switching

Benefits

  • Moving to a lower risk fund reduces the impact of falls in the stock market close to your chosen pension date.
  • Moving your pension savings gradually reduces the risk of switching at a single point when the market price is low.
  • Moving your pension savings gradually means that savings remaining in the higher risk fund benefit from any future growth.

Risks

  • Lifestyle switching targets your chosen pension date. If you access your pension savings before or after that date, there is the possibility of funds not being switched at the right time. You might be investing in lower risk funds too early or higher risk funds for too long.
  • You may miss out on future growth if financial markets produce strong returns.
  • Inflation may reduce the buying power of your pension savings and impact your future income. A low risk fund with lower growth potential may not always outperform inflation.