What does de-risking involve? 

De-risking means reducing investment risk. For pension savers, that’s usually as you get closer to retirement age and before you start drawing from your fund.   

With most modern pensions, your  provider will invest your savings on your behalf. That might be in their default funds, which might change as you get older. Or you might have selected a fund and risk level yourself. 

During your working life, you might take on more risk (as long as it’s suitable for your personal risk tolerance). You have more time to ride out market dips, especially when you’re younger and at the start of your career, with the potential for greater growth.

So, investing more in higher-risk assets like stocks and shares can make sense. They’ll move up and down more, but could increase in value more than other options.

Then, as you get closer to retirement, you or your provider might reduce that risk by moving into a lower-risk fund. Usually, that involves lower-risk investments like bonds, and moving into cash.

Importantly, de-risking doesn’t mean taking no risk at all. Instead, it means reducing the risk your pot is exposed to, while still aiming for growth on your savings.

Have a Self-Invested Personal Pension? 

If you have a Self-Invested Personal Pension (SIPP), you'll choose your own investments.

In that case, you’ll need to choose lower-risk investments yourself if you want to de-risk as you get closer to retirement.

Why de-risking can be useful

The benefits of de-risking depend on how you access your pension (from 55, rising to 57 from 2028).

Pension drawdown

Drawdown allows you to take money flexibly from your pension. That could be regular withdrawals or one-off lump sums.

With drawdown, your money stays invested in the market. As a result, your pension’s value will continue to move up and down depending on how your investments perform.

However, that might mean having to draw from your pot when markets are volatile.

When you draw from your pension savings, you choose how much you want to take from your pot. Your provider will then sell ‘units’ in the plan you’ve chosen to turn your withdrawal into cash. 

The value of these units depends on the value of the investments the plan holds. If you take money while the market is down, your provider would have to sell more units for you to receive the same income.

For example, let’s say that you want to take £1,000 a month from your pension. If each unit is worth £100, your provider would need to sell 10 units. 

However, if the market then falls 20%, even just for a short time, your units would be worth £80. As a result, your provider would need to sell 12.5 of them to get the same £1,000. 

This is an effect called ‘sequence of returns risk’, or ‘sequence risk’. Over time, it could see you deplete your pot a bit quicker than you might expect or had planned for.

At the very least, it can introduce uncertainty with your income. That can make budgeting for retirement a bit more difficult.

Moving into lower-risk investments reduces this possibility. While the potential returns will likely be lower, you’ll be less exposed to market swings. This can keep your pension’s value more stable and steady.

Annuity

An annuity is a type of insurance product you can buy for retirement using some or all of your pension savings. 

In return, you’ll get a regular income for a fixed period. Depending on the annuity you choose, it could be (and often is) for the rest of your life.

Before the introduction of the pension freedoms legislation in 2015, buying an annuity was the default method for accessing your pension savings.

How much you’ll get from an annuity depends on factors such as your:

• age;
• health; and
• lifestyle.

It also depends on your pension’s value, which could be important.

Imagine that you reach the age at which you want to buy an annuity. But you haven’t yet de-risked your pension investments, and the market is down.

That could lead you to have to wait until the market recovers, delaying your retirement. Or you might have to settle for a lower annuity income.

To counter this, you could de-risk before you buy your annuity. That might give you a clearer idea of what your pension's worth, and the income you’ll be able to receive.

In turn, that might make planning for retirement easier.

De-risking and pension lifestyling: what’s the difference?

When thinking about de-risking, you may come across the term ‘pension lifestyling’. 

Lifestyling is an automatic process in which your pension provider de-risks your investments as you get closer to retirement age. Many defined contribution pension providers - that’s most private and workplace schemes these days - take this approach.

Historically, this was a standard process ahead of using your savings to purchase an annuity. By reducing risk and moving into fixed-income investments, it was easier to track annuity prices and gain a clearer picture of what you’d have for retirement.

However, the automated nature of this strategy presents its own risks, because it doesn't take market conditions into account before it de-risks you. If you happen to de-risk at a time when fixed-income investments perform poorly, you could lose value on your savings.

That’s exactly what happened in 2022 when many lifestyling plans moved savers into UK government bonds (‘gilts’), just as the gilt market dropped. Some people saw their savings’ value fall by as much as 40% as a result.

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Even if you think de-risking might still be right for you, it’s worth checking whether your pot is set to be automatically lifestyled. This standard approach may not be right for you. 

When to start thinking about de-risking your pension

The ‘right’ time to de-risk your pension investments usually depends on your ideal retirement age. 

As a general rule, thinking about de-risking five to 10 years before retirement can be sensible.

So, if you want to retire between 55 and 60, you might think about reducing investment risk around age 50.

However, if you wanted to wait until State Pension age to retire (66 in 2026/27, rising to 67 from 2028), you might want to hold off de-risking until a bit later. 

Making a decision based on your goals can be useful in approaching de-risking. That way, your choice is more likely to support your long-term financial wellbeing.

Is de-risking right for you?

De-risking can be effective. But that doesn’t mean it’s always the right move.

For example, imagine that you decide to de-risk your investments on a specific date. If the market is down, you might actually lose some of the value of your balance.

That's because your provider will sell units of your higher-risk investments to get the cash value of your pension. They’ll then re-invest this in your chosen lower-risk fund. 

But instructing your provider to sell during a market downturn could see you get less than your pension would be worth if markets were higher. So, although you’re de-risking, you could still lose value on your pension investments.

Another factor to consider is that you might end up not taking enough risk. If you have specific retirement goals, for instance, you might need a pot of a certain size. 

In that case, you might be better off staying invested in higher-risk investments - at least to some extent. That gives you more potential to grow your savings, although this isn’t guaranteed.

You might also want to think about inflation and the risk it can present. Inflation measures how quickly prices are rising. If your savings don’t keep pace with inflation, they lose their spending power over time.

De-risking could mean lower returns. As a result, while you aren’t as exposed to investment risk, your money could be less likely to keep up with the rising cost of living. That could be particularly impactful over the course of your retirement. 

It’s worth keeping these things in mind before you make any changes to your savings.

You could also use the PensionBee Inflation Calculator. This handy tool allows you to work out what your savings could be worth in future, accounting for inflation. 

You can adjust the value of your fund and contributions, your ideal retirement age, and the rate of inflation. So, you can see what might happen in a range of circumstances.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. Past performance does not guarantee future results. This information should not be regarded as financial advice.

Last edited: 22-05-2026