How Fund Allocation Works

Overview

Fund allocation is how your pension is split across different investment funds. You might have 60% in equities, 30% in bonds, and 10% in cash, for example. This mix determines how your pension behaves - how much it might grow and how much it might fluctuate along the way.

Why Allocation Matters

Your allocation is the biggest driver of your pension's performance over time. Funds invested heavily in equities will generally grow more but experience bigger swings. Funds weighted towards bonds and cash will be steadier but grow more slowly.

Getting the right allocation means balancing growth potential against the volatility you're comfortable with, while considering how long until you need the money. There's no perfect answer - it depends on your personal circumstances and attitude to risk.

How Your Allocation Is Set

Your allocation is set in one of two ways. If you're in the default strategy, it's set automatically according to the scheme's lifestyle approach and adjusts over time. If you've self-selected funds, your allocation reflects the choices you made when you set up or last changed your investments.

New contributions follow your current allocation instructions. If you're set to 60% equities and 40% bonds, each contribution is split that way and invested accordingly.

Lifestyle Strategies and Automatic Adjustment

Many workplace pensions use a lifestyle strategy that changes your allocation automatically as retirement approaches. Early on, you're invested more heavily in growth assets. As your retirement date gets closer, the strategy gradually shifts towards lower-risk assets.

This happens without you needing to do anything. The scheme knows your target retirement date and adjusts the mix according to a pre-set schedule, sometimes called a glidepath. The idea is to protect your pot from big market falls just when you're about to need it.

If you're in a lifestyle strategy, don't be surprised to see your allocation changing over time - it's by design.

Checking Your Current Allocation

Your current fund allocation shows what percentage of your pension is in each fund. This might be different from your contribution allocation if markets have moved since you invested, or if a lifestyle strategy has made adjustments.

For example, you might have set contributions to go 60/40 between two funds, but strong equity performance could mean your actual holdings are now 70/30. This is called drift and is normal.

We can tell you your current allocation when you get in touch. Your annual statement also shows your fund holdings.

Rebalancing

Some members periodically rebalance their pension - adjusting holdings back to their target allocation. If equities have grown faster and now make up more of your pot than intended, you might switch some to bonds to get back to your preferred mix.

Lifestyle strategies handle this automatically. If you're self-selecting, rebalancing is your responsibility. Some people do it annually, others less often. It's not compulsory but helps maintain your intended risk level.

For Financial Advisers

For IFAs, we provide current allocation breakdowns by fund with values and percentages. We can confirm whether a lifestyle strategy is in place and its glidepath details. Contribution allocation versus actual holdings data is available for drift analysis. Historical allocation changes can be provided for review purposes.