pensions

Workplace Pension Investment Choices UK: Should You Change Your Default Fund?

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Over 90% of UK workplace pension members are invested in their scheme's 'default' fund — a pre-set investment strategy chosen by their employer and scheme trustees. For many workers, particularly those with decades until retirement, this default fund may be unnecessarily cautious, high in fees, or poorly suited to their retirement income plans. Understanding your pension's investment options — and when to consider changing — can meaningfully improve your retirement outcome.

How Default Pension Funds Work

Most workplace pension default funds use a 'lifestyle' or 'target date' strategy. When you're young and far from retirement, the fund holds a higher proportion of growth assets (equities, property) — aiming for long-term capital growth. As you approach your target retirement date (typically 10–15 years out), the fund automatically shifts to lower-risk assets (bonds, cash) to protect the accumulated value. This de-risking is called 'lifestyling'. The rationale: protect your pot as you approach retirement so a market crash doesn't devastate your savings just before you need them. The problem: many default funds began 'lifestyling' at 55–60, which was designed for annuity purchase. Many people now take flexible drawdown rather than buying an annuity — meaning staying in equities longer can be appropriate.
  • •Default 'lifestyle' fund: high equity in youth, gradually reduces risk near retirement
  • •De-risking starts 10–15 years before target retirement date
  • •Designed originally for annuity purchase at 65
  • •Less suitable if you plan income drawdown (staying invested in retirement)
  • •Check what your default fund actually holds via your pension provider portal

When to Consider Changing Your Default Fund

Consider reviewing your pension investment choices if: you're under 40 and invested in a cautious or balanced fund (you have decades of growth potential to capture with equities); your default fund has an ongoing charge ratio (OCR) above 0.5% (there may be cheaper multi-asset options); your retirement income plan is income drawdown rather than annuity (the de-risking profile of many defaults is calibrated for annuity buyers); or you're invested in a fund with meaningful exposure to your employer's sector (concentration risk). The alternative for most self-directed investors: a low-cost global equity index fund for the growth phase (20–40 years out), transitioning to a diversified multi-asset fund closer to retirement.
  • •Under 40 in cautious default: consider switching to global equity fund
  • •OCR above 0.5%: check if lower-cost options exist in the same scheme
  • •Plan drawdown (not annuity): default lifestyle de-risking may not suit you
  • •Too much employer sector exposure: consider diversifying
  • •Always check available fund options via your pension portal first

Understanding Fund Charges

The annual management charge (AMC) or ongoing charge figure (OCF) on your pension fund has a compounding impact over decades. A 0.75% annual charge vs. a 0.25% annual charge on a £100,000 pension pot over 20 years costs an extra £12,000+. Many workplace pension schemes offer a range of funds at different charge levels. Index-tracking funds (passive) are typically cheaper (0.1–0.3% OCF) than actively managed funds (0.6–1.0% OCF). Decades of research shows passive index funds outperform most active funds after charges over the long term — the low-cost passive approach is appropriate for the vast majority of pension savers.
  • •0.75% vs 0.25% AMC on £100k over 20 years: ~£12,000 additional cost
  • •Passive (index) funds: typically 0.1–0.3% OCF
  • •Active managed funds: typically 0.6–1.0% OCF
  • •Research: most active funds underperform passive after charges long-term
  • •Check your fund's OCF in the scheme literature or online portal

How to Change Your Pension Investments

Log into your workplace pension provider's member portal (Nest, People's Pension, Aviva, Legal & General, Standard Life, Scottish Widows, Royal London are the most common). Navigate to 'investment choices' or 'change my investments'. You can typically: switch existing pension pot into a different fund, change the funds for future contributions only, or both. Make changes in writing (email or portal) and keep a record. Note: if you change to a non-default fund, you take on personal responsibility for your investment choices and lose some of the safeguards built into the default. If you're uncertain, consider the scheme's 'self-select' balanced or global equity option rather than building a custom portfolio.
  • •Log into provider portal: Nest, Aviva, L&G, Standard Life, etc.
  • •Options: switch existing pot, change future contributions, or both
  • •Record your changes in writing
  • •Non-default funds: you take personal responsibility for choices
  • •If uncertain: use the scheme's 'global equity' or 'balanced' self-select option

Frequently Asked Questions

Is it risky to change my pension fund to equities?+

At 20+ years from retirement, holding a high proportion of global equities is historically the best long-term growth strategy. Markets will fluctuate, but time averages out short-term volatility. The risk of being too cautious (too early) and growing slowly is often greater than the risk of short-term market falls.

My employer uses Nest — what options does it have?+

Nest offers a range of self-select funds including its Higher Risk fund (global equities, low charges), alongside ethical and Sharia-compliant options. Visit nestpensions.org.uk for the current fund range.

Should I consolidate multiple workplace pensions?+

Possibly — consolidation simplifies management and may reduce fees. But always check for valuable guaranteed benefits in old schemes before transferring. See our guide on consolidating pensions.

I'm 5 years from retirement — should I change my fund now?+

At 5 years out, your investment strategy should depend on whether you plan to buy an annuity (in which case a more cautious approach makes sense) or take income drawdown (in which case staying partially invested in equities makes sense). This is worth discussing with a financial adviser.

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