Is your pension in a ‘lifestyling’ arrangement?

I just came across an early version of a factsheet that I wrote for clients post the ’08 crash, warning clients against going into gilts at low yields. By way of a bit of perspective, look at these gilt prices from 2012 and last night.

Treasury 4.75% 2038 was then 131.3, is now 102.9.

Treasury 4.25% 2040 was then 121.36, is now 96.7.

Treasury 4% 2060 was then 118.6 and is now 93.6.

The prices quoted are per £100 of nominal stock, i.e., in October 2012 it cost you £131.30 to buy £100 of Treasury 4.75% 2038 which is only worth £102.90 today.

I’ve been sending my factsheet to clients pretty much constantly ever since, updating it from time to time, to warn them off ‘lifestyling’ strategies that would funnel them into gilts as they approached retirement. Last year of course the gilt market turned, we had the Truss/Kwarteng budget, and anyone in all but the shortest gilts got hammered. We had a client in here a few weeks back who’d been put 100% into gilts a few years ago and who was looking at a massive loss in the last year, which he’d never recover by sitting where he was. He’s now in equities and understands why.

Without getting too technical, in general terms, if you’re going to buy gilts you want to be buying when interest rates are high and expected to fall, not when they’re on the floor and all they can do is rise, which was pretty much the case from 2010 until last 2022. But still, insurance company lifestyling arrangements pushed clients into gilts regardless.

If you elected to allow an insurance company to decide where your pension was invested, and you signed up for a lifestyling arrangement, you maybe need to get independent financial advice.