As you approach retirement (in the 5-10 years before your targeted retirement date) you should start to consider how you plan to take your retirement savings (Cash Lump Sum, Annuity or Cash/Income Drawdown), as this will have a significant impact on your investment decisions in the run-up to retirement.

Annuity

If you plan to buy an Annuity you will want to think about protecting the value of your retirement savings from sudden falls in value as you approach retirement. This will probably be more important than growing your savings.

If you choose to buy an Annuity, investments in bonds and cash are generally thought most suitable to protect, as far as it is possible, the value of the benefits your Pension Account will buy. Bond investments tend to go up when the cost of buying annuities is rising and go down when the cost of buying annuities is falling meaning that the pension you can buy remains relatively stable. Investments in cash are unlikely to fall in value and can match the tax-free cash sum that you are allowed to take when you retire from the Plan.

If you plan to buy an Annuity at retirement you may want to be invested in one of the two annuity Lifestyle options. You can find out more about these options here.

A series of Cash Lump Sums or Income Drawdown

If you are looking to take your savings as multiple instalments of cash or Income Drawdown, you will need to transfer your savings out into a different pension policy either with Aviva or an alternative provider (unless you want to take the whole of your pension savings as a single Cash Lump Sum) at the point you wish to access your pension. But here are a few points that you might want to consider.

If you choose to access your savings periodically, using Income Drawdown, it may be many years before some of this income is used. If left in low-risk, low-return investments in the run up to retirement you could miss out on valuable returns, meaning if your money doesn’t grow in line with inflation then it could be worth less in the future in real terms. So, you might want to consider keeping some of your savings invested in higher-return funds for longer to counter this effect.

If you are invested in one of the Plan’s four lifestyle programmes, then switching happens automatically. If you have chosen individual funds and want to aim to protect the value of your Pension Account, you can switch growth-type funds into bond and cash funds over a period of years in the run-up to retirement. Your attitude to risk will influence when you start to switch to bond and cash funds.

You should be aware that the value of the investment options can fall as well as rise, and that past performance is not a guide to future performance.

If you plan to take your savings as Income Drawdown at retirement you may want to be invested in one of the two Drawdown Lifestyle options. You can find out more about these options here.

Remember, you can review and change your investment options by visiting MyWorkplace, the Aviva member portal. Learn about the myths around investments.