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Is your Deferred Benefit invested in a Lifestyle Fund?

by | Jun 28, 2017 | AHEAD OF THE CURVE |

Do you hold a Deferred Benefit under a previous employer’s scheme? Many Defined Contribution Group Pension Schemes are invested in what are known as Lifestyle Funds. A Lifestyle Fund strategy spreads employee’s pension contributions across a range of assets. Where an employee is in the early years of pension funding they will be invested predominantly in Growth Seeking Assets: Equities, Property  and Alternatives.

The Lifestyle Fund mandate is to reduce individuals allocation to high risk assets as the individual approaches retirement, for example 5, 10 and 15 years from retirement the fund will reduce the allocation assigned to what are perceived as risky assets and increase the weighting to Bonds and Cash.

This reduced risk approach was appropriate in the past as in retirement individuals were no longer invested in the market; they generally purchased Annuity contracts/pension for life. Where an Open Market Annuity Rate secured was in line with the Bond Yield received on the run up to retirement, therefore the strategy was aligned. The fund available to purchase an Annuity after the tax free lump sum has been taken, locks in the Annuity Rate at the date of purchase. See a recent blog here, where we explain how Open Market Annuity rates are set and linked to the ten year German Bund Yield. Individuals who traditionally would not have taken part in the markets after retirement are now investing in A(M)RFs to seek return.

At retirement, under a Defined Contribution pension an individual will be presented with two options after they receive a tax free lump sum:

Option 1) Annuity

Option 2) Approved (Minimum) Retirement Fund


As the majority of individuals are now opting to take the Approved (Minimum) Retirement Fund route, Lifestyle funds may not be the most suitable strategy for deferred benefit pensions. As mentioned above, the fund invests in Bonds and Cash as the individual approaches retirement. Should there be a change in the direction of Bond yields, this will have an inverse effect on the Bonds capital value. Should the capital value of bonds held reduce so too will the value of an individual’s lifestyle fund. Some companies have made changes to their lifestyle fund mandate, it would be prudent to review this if you are invested in a Lifestyle fund.


Metis Ireland recommend that you diversify your portfolio with assets that have low correlation to dampen volatility. It is also important to set Asset Allocation in line with your Capacity and Tolerance for risk. If you would like to discuss a Deferred Benefit or your current investment strategy, please do not hesitate to contact us on 061 518365.

Niamh Breedy

Financial Planner


Metis Ireland Financial Planning Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland.

All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified independent financial adviser before entering any financial contract. Metis Ireland Financial Planning Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts