Are today’s lifestyling solutions suitable for DC pensions to be sold without advice?

by Dr. Ros Altmann

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Lifestyling solutions suffer from the disadvantages of any ‘one-size-fits-all’ approach. It may work for some people, but it will not be right for all. The problem stems from a misunderstanding of investment risk. Most investors do not understand how markets work and they do not understand ‘investment risk’. For them, the only risk they really care about is ‘will I lose money’, rather than ‘will I outperform bonds, or the stock market’!

There is no guarantee that investing in equities, even over the long-term, will definitely produce good returns. Theory only says that investors can ‘expect’ to be rewarded for taking equity risk, but this does not mean all investors will benefit individually, only that on average this will happen.

For many people, their DC pension is not the icing on the cake for their retirement, it is actually part of the cake itself, because state pensions are so low. For those who want to be able to plan their later life income, guaranteed funds of some kind may offer them what they want, rather than just investing in the markets without any downside protection. It is really important that individuals are given the choice to diversify much more widely beyond just equities and bonds and also that they have some help in recognising whether they can afford to take losses at all.