Bond bubble talk is making lifestyle funds riskier

Pensions invested in lifestyle funds have become riskier in the last year because of speculation of a bubble in the bond market, according to a poll of financial advisers by AXA Life Europe.

New research reveals that 56% of IFAs believe heavy investment in bonds has made pension funds more risky in the past 12 months, with one in ten (13%) now claiming they are too risky to invest in.

Lifestyle funds invest your pension more in government and corporate bonds the closer you get to retirement to reduce the risk on your investment.

Simon Smallcombe, UK head of guaranteed distribution for AXA, said: "Investment professionals have been saying for some time that the current rise in many government bonds is unsustainable and that savers could be in for a shock should sentiment turn against bonds.

"There are options such as 'unit-linked guarantees' for people who want to protect their pension pot from negative market movements but stay invested to capture any growth at the same time."

However, it appears that pension investors themselves aren't keeping abreast of the professionals' concerns. The AXA report found that fewer than one in ten clients had asked their IFAs to review their investments because of speculation of a bubble in the bond market - with 58% of investors not raising the issue at all.

Smallcombe adds: "Billions of pounds of pension assets are invested in lifestyle funds and yet the potential risk to investors has not been widely discussed and, from our research, it seems most advisers have not been asked to consider these risks by clients."

We all want to boost our pension to retire in comfort. Here are a few of Moneywise's top tips to getting the most from your pot.

  • Start saving early. Even though it may seem far away, you're never too young to start investing in a pension. The best ways of boosting your pension are simply to increase the amount you invest in your fund and the length of time you invest in it.
  • Use your company's pension scheme. Some employers will match whatever you pay into your pension, some pay less and some pay more but, whatever they pay, don't opt out of the scheme, otherwise you'll be turning down free money.
  • Always shop around when buying an annuity. Buying one is perhaps the most important financial decision you'll ever make, so take your time and compare the best rates available to you from the open market instead of accepting your pension provider's first offer. Failing to do this could cost you tens of thousands of pounds.
  • Review your pension regularly. You should review your pension at least once a year, or if your personal circumstances change, to ensure you are getting the most from it.