Many pension providers will manage your money for you, so you don’t need to do anything. But if you want to choose how your money is invested, or you’ve been asked to decide, here’s what you need to know.
What’s in this guide
- Pension providers use investments to grow your money
- Check if you’re able to choose your own investments
- Check if you’re happy with your scheme’s ‘default’ fund
- Your main investment options if you want to choose yourself
- What to consider before choosing your investments
- Review your investment choices at least once a year
Pension providers use investments to grow your money
Your pension provider (or the trustees) will usually use a range of investments to help grow your money – or their money if they’ve promised you a retirement income instead.
For many pensions, after any contributions from you and/or your employer, investment growth will usually have the biggest impact on how much you’ll have when you retire.
The types of investments pension providers might use include:
- government or corporate bonds – where your pension provider lends money to others
- stocks and shares – where they buy and sell portions of different companies
- commodities – where they buy and sell something physical, like gold or gas
- property
- cash.
As investments can go up and down in value, pension funds usually use a mix of investments to balance the risk. This is called diversification and essentially means if some investments go down, hopefully the others will stay the same or increase.
Check if you’re able to choose your own investments
When you join a pension, your money will often be automatically invested for you – typically into your pension scheme’s ‘default’ fund. Default funds usually use a range of investments that meet the needs of most scheme members.
You might also have the option to choose where your money is invested, depending on the type of pension you have. Your pension provider or employer can tell you what type of pension you have if you’re not sure.
You might be able to choose your own investments if you have a:
You cannot choose your own investments if you have a:
defined benefit pension (often called a final salary or career average scheme) or
If you’d like this option, you could consider setting up a separate pension scheme like a self-invested personal pension scheme (SIPP).
Check if you’re happy with your scheme’s ‘default’ fund
If you’re considering choosing your own investments, first check if you’re happy with your pension provider’s ‘default’ fund – where your money is typically put automatically.
These are often known as ‘lifestyle’ or ‘target date’ funds, with professional fund managers managing your money for you. This means they can use their experience of investing to:
spread your money across a range of investments
check your retirement money won’t be reduced by inflation
factor in fees and charges.
Default funds usually take less risks as you near retirement age
Many default funds will make investment choices based on your expected retirement date.
This usually means your pension provider will take less risks with your money the closer you get to retirement, as there’s less time to recover any investment losses.
For example, your pension provider might:
invest in riskier investments when you’re younger – these are likely to grow over long time periods but might go up and down in the short-term
move your money to more stable investments as you near your retirement age, like government bonds and cash.
When staying in the default fund might not be right for you
A default fund typically assumes you will:
retire at your ‘normal pension age’ – this depends on your scheme’s rules, but it’s often the same as your State Pension ageOpens in a new window
take all your pension money out when you retire, so none is left invested – for example, you might take a cash lump sum and use the rest to get an income for life (an annuity).
This means you might want to consider a different way to invest your money if you’re planning to:
retire earlier or later than your normal pension age – you can usually access your pension from age 55 (age 57 from April 2028)
take a flexible retirement income – where you access some of your money and leave the rest invested until you want to take it out (known as pension drawdown).
For more information on your options, see our guide What can I do with my pension pot?
If you’re aged 50 or over, you can also have a free and impartial Pension Wise appointment to discuss the different ways you’re able to take money from your pension pot.
Your main investment options if you want to choose yourself
If you’ve decided not to stick with your pension provider’s default pension fund, or you’ve been asked to choose, you’ll need to make some decisions yourself.
Your pension provider will usually offer a range of other funds you can choose between, often with different themes, such as:
- ethical investments that avoid certain industries like gambling, tobacco or mining
- investments from a certain country
- investments that follow Islamic law (Sharia).
The choice of investments within each fund will be managed by professional fund managers.
You can usually invest in multiple funds
You can usually choose to invest in one fund or spread your money over a number of funds. Your pension provider will normally have an online platform or mobile app you can use to change your options, or you can call them.
To help you decide, your pension provider should clearly list information such as:
how each fund is invested
how the fund has performed in the past
the fund management charges you’ll need to pay – usually a percentage charged yearly
if the fund is high, medium or low risk.
There might also be a robo-investment option, where your funds are automatically chosen for you based on the amount of risk you’re willing to take. This is usually based on a risk questionnaire you’ll complete when you sign up.
What to consider before choosing your investments
Before deciding to choose your own investments, make sure you’re comfortable with the concept of investing your pension money. Remember:
your investments can go up and down in value, so there’s a risk you’ll get back less than you’ve paid in
you won’t be able to access your pension until at least age 55 (57 from April 2028)
you'll pay charges for each fund you invest in – for example, 1% of the money you’ve invested as an annual management fee.
This means you’ll need to consider many things while managing your pension investments, including:
the level of risk you’re willing to take – lower risk investments are less likely to fall in value, but your money will typically grow at a slower rate
how best to spread your money between different types of investments or levels of risk
how much your money needs to grow each year to beat inflation – the rate prices increase by over time (£1 now will buy you less in the future).
For more help and information, see our guides:
Consider paying for investment advice
A financial adviser can give you advice on how to invest your money.
Our Find a retirement adviser tool can help you locate an adviser specialised in retirement planning online, in person and over the phone.
For more information, see our guide Choosing a financial adviser.
Review your investment choices at least once a year
At least once a year, it’s worth checking you’re still comfortable with your chosen fund’s:
- risk level
- performance (how much your pension money has changed), and
- charges and fees.
You can find this information on your annual statement. You might want to check more frequently the closer you get to retirement, or if you’re managing your pension investments yourself.
