Choosing Your Workplace Pension Fund Instead of the Default

Workplace pension contributions are usually placed automatically into a default fund, commonly a lifestyle fund that gradually moves from growth assets toward lower-risk assets as you approach retirement age. This default is designed as a reasonable choice for the average scheme member, but it may not suit someone planning to draw down flexibly rather than buy an annuity, and most providers allow a free switch to a self-select fund instead.

Why a default fund exists in the first place

Automatic enrolment requires employers to place eligible staff into a workplace pension, and because most members never actively choose an investment fund, schemes need a sensible default to invest contributions into automatically. This default is generally designed to suit a broad range of members reasonably well, balancing growth potential against risk in a way that is not tailored to any individual's specific circumstances or goals.

Because the default fund has to work reasonably for a very wide range of people, from someone in their twenties decades from retirement to someone a few years away, it is inevitably a compromise rather than an optimal choice for any single member, which is part of why actively reviewing whether it suits your own situation is worthwhile rather than simply assuming it has been chosen with you specifically in mind.

How lifestyling actually works, and why it matters

A lifestyle default fund typically holds a higher proportion of growth assets, such as equities, when a member is many years from retirement, then gradually shifts the balance toward lower-risk assets, such as bonds and cash, as the member approaches their scheme's selected retirement age. The intention is to reduce the risk of a significant fall in value shortly before the member needs to access the money.

This approach was originally designed around the assumption that most people would use their pension pot to buy an annuity at retirement, converting the pot into a guaranteed income. Since pension freedoms introduced greater flexibility in how pensions can be accessed, many people now plan to draw down their pension gradually over a much longer period instead, which changes the risk profile that might actually be appropriate as retirement age approaches, since the money may need to keep growing for many years after that point rather than being converted into an annuity all at once.

Why the default might not suit someone planning drawdown

If your realistic plan is to draw down your pension flexibly over twenty or more years after reaching retirement age, rather than buying an annuity on a specific date, a default fund that has already shifted heavily into low-risk, low-growth assets by that date may leave your pension with less growth potential than would suit a much longer overall investment horizon.

This does not mean the default fund is wrong for everyone in this situation, but it is a genuine mismatch worth understanding, since the default's built-in assumption about how and when you will access the money may not match your actual intentions, particularly if those intentions have become clearer since the pension was first set up.

What alternatives are usually available

Most workplace pension providers offer a range of self-select fund options alongside the default, commonly including global equity index tracker funds, which passively follow a broad stock market index at a low ongoing cost, alongside actively managed funds, ethical or ESG-focused funds, and lower-risk fixed income or cash funds.

Why chasing last year's best performer is a common mistake

A frequent error among members who do engage with fund choice is switching into whichever fund performed best over the previous year, based on the assumption that recent strong performance will continue. Past performance of any specific fund over a short period is a poor predictor of future results, and this kind of reactive switching often means buying into an asset class or fund just after its strongest period, rather than before it.

A more considered approach generally involves choosing a fund, or combination of funds, based on your actual time horizon, risk tolerance and retirement plans, then reviewing that choice periodically rather than reacting to short-term performance league tables, since pension investing is fundamentally a long-term decision rather than a short-term trading exercise.

Why cost matters as much as fund choice itself

The ongoing charges figure of a fund, the annual percentage deducted to cover management costs, directly reduces net returns over time, and because pension investing typically spans decades, even a modest difference in ongoing charges compounds into a meaningful difference in the eventual pension value. Passive index tracker funds generally carry lower ongoing charges than actively managed alternatives, though this does not automatically make them the right choice for every situation.

Comparing the ongoing charges figure of your current default fund against any self-select alternatives you are considering, alongside their investment approach and risk profile, gives a fuller picture than focusing on investment strategy alone, since a fund with a stronger strategy but meaningfully higher costs may not actually outperform a cheaper, simpler alternative once costs are properly accounted for.

How to actually make the switch

Switching funds within a workplace pension is typically done by logging into the provider's online member portal, selecting the fund switch or investment choice option, and choosing from the available self-select range, a process that usually takes only a few minutes and does not normally involve leaving the pension scheme itself or affecting your employer's contributions in any way. If your scheme does not offer online access, contacting the scheme administrator directly, or your employer's HR or benefits team, is the usual alternative route to request a switch.

Getting a second opinion if you are unsure

If comparing fund options feels genuinely overwhelming, many pension providers offer basic guidance tools or access to a pension adviser, and MoneyHelper offers free, impartial guidance for anyone unsure how to approach their own pension fund choices, without recommending a specific provider or product. Using one of these resources before making a change is generally more reliable than guessing or copying a colleague's choice without understanding whether it actually suits your own circumstances.

A final word on reviewing your choice periodically

Whatever fund choice you make now, revisiting it every few years, particularly after a significant life change such as a new job, a pay rise, or a shift in your retirement plans, keeps your pension investment aligned with your actual circumstances rather than reflecting a decision made at a single point in time that may no longer fit.

Frequently asked questions

Do I have to accept my workplace pension's default fund?

No. Most schemes allow you to switch to a self-select fund from the range available, usually for free through an online portal.

Why might the default fund not suit me?

Default lifestyle funds are typically designed around buying an annuity at retirement, which may not match your plans if you intend to draw down your pension flexibly over a longer period instead.

Is switching to an index tracker fund always cheaper?

Generally, passive index tracker funds carry lower ongoing charges than actively managed alternatives, though you should compare the specific costs and objectives of the funds available in your scheme.

Should I switch funds based on which one performed best last year?

This is generally not recommended, since past short-term performance is a poor predictor of future results and can lead to buying into a fund just after its strongest period.