A Quick Guide to Pension Investment Options

Written by Karen Bryan

£10 note fanIt’s never too early to begin investing in your pension, but chances are that if you start investing at 30, you’ll have very different goals by 60. Your life will experience many changes as the years progress, and these mean that it’s important to regularly review not only how much you’re putting aside, but also where it’s going. Aside from anything else, most people feel the need to reduce the risks surrounding their fund as retirement draws ever closer and the chance to fix any mistakes shrinks to a much smaller window.

If it’s time to review your investment choices, then read on…

Pension Investment Choices: Are They Down to You?

The level of influence you will have over your investment choices will be heavily impacted by the type of pension you have.

Personal, Stakeholder and Defined-Contribution Workplace Schemes

If you have one of the above types of pension, the power to make investment decisions will normally rest in your hands. Although this may seem daunting at first glance, providers will usually try to make the process as simple as possible for you.

The majority of these providers will offer an array of different funds, all defined by broad investment strategies that tend to suit almost everyone; quite simply, this makes it hard for you to get things wrong. If you still don’t feel confident, there will usually be a default option for you to fall back on, saving you the hassle and uncertainty of trying to settle on the right decision by yourself.

Defined-Benefit Workplace Schemes

Your position is a little different if you’re a member of a workplace defined-benefit scheme, as it will be down to your employer to make investment decisions rather than you.

However, even then, it is always worth reviewing your pension strategy on an annual basis; after all, you might decide that it’s beneficial to boost your savings by making contributions of your own to a defined-contribution scheme.

The Main Pension Investment Options

If you do have the power to drive your own pension investment decisions, then you’ll find that you have a range of investment funds to choose from. As we mentioned, most of these are tailored to suit the majority of people, but that doesn’t mean that they’re all exactly the same. It is your prerogative to find one that offers the broad investment strategy that you want. Once you’ve made a decision the lesser details, like the specific assets that the fund will invest in, will usually be handled by professionals on your behalf.

You’ll find that these funds can be split into two broad categories: those specialising in specific assets, and those investing in a mix of different assets. Most people make the decision to invest in the latter, as diversifying a portfolio helps to reduce the risks associated with investments.

Lifestyle Funds

One of the most popular types of pension fund is the lifestyle fund. Many pension plans offer these, and their main function is to help investors maintain an appropriate level of risk.

As a rule, shares tend to perform better than bonds and cash, although the latter are lower-risk investments. In order to build the maximum possible fund, whilst balancing this with an appropriate level of risk, lifestyle funds automatically shift the balance of your investments from higher to lower risk assets as you near retirement.

‘Target date’ funds function in a very similar way.


SIPPs (self-invested personal pensions) are another incredibly popular option, although they should only really be considered by those with a substantial pension pot. They provide the investor with greater control over their investments, as well as offering access to a wider range of assets. This means that they’re often unsuitable for amateurs, and should be left to those who are comfortable making their own investment decisions.

If it’s time to review your pension choices, what changes will you make?