Pensions may be for the long-term, but it’s vital to regularly review where your money is being invested. You should be keeping a close eye on which funds your retirement savings are in so that you can check you’re comfortable with the risks involved. You should also keep a close eye on how much you’re being charged, as fees can have a considerate impact on the amount you end up with at retirement.

Here, we explain the different pension investment plans, and how your choices might change as you get closer to retirement.

Personal and Workplace Pension

If you have a personal pension, or belong to a workplace defined contribution pension scheme, and you don’t say how you want your contributions invested, your money will generally automatically go into your scheme provider’s ‘default’ fund.

Default funds are basically a type of ‘one size fits all’ investment. They are often what is known as ‘multi-asset’ funds, which mean they invest in a selection of different assets, including shares, bonds, property, and cash.

Sometimes default funds will aim to focus more on riskier investments such as stocks and shares when you’re younger, and then gradually move your money into less risky investments such as bonds and cash as you approach retirement.

Usually pension scheme providers will offer a wider selection of funds to choose from. This may allow you to choose investments that more closely represent your appetite for risk. For example, if you’ve got many decades to go before retirement, you may be comfortable putting your money into mainly high-risk investments, typically shares, in the hope of higher potential rewards.

If you’re not sure how, or where to invest your retirement savings, you should consult professional finance advice.

Investments Explained

Stocks and shares

Stocks and shares are high risk due to their prices going up and down depending on how well people think a company is performing. If share prices drop, then the value of your investment will reduce too, and vice versa. Over long-term periods, however, shares have historically provided greater returns than other assets such as cash or bonds, although there are no guarantees.


Bonds are usually considered lower risk than shares. They are effectively IOUs issued by governments and companies looking to raise funds, so when you invest in a bond, you are basically lending the bond issuer your money for a set period. During this time, you’ll receive a set rate of interest, and when the bond matures, you should get the original amount you put in back. However, if the bond issuer runs into financial difficulties, there is a possibility you could get back less than you put in. The greater the interest rate offered by the bond, the riskier it is.


When a fund invests in property, this is normally commercial property, such as retail parks and office blocks. Property is known as an ‘illiquid’ asset because it isn’t always simple to sell quickly. Property values can, like any other type of investment, fall as well as increase.


Cash is the lowest risk type of asset, but when interest rates are low, returns will be small and may struggle to keep pace with inflation, or rising living costs.

The Importance of Diversification

When looking at where your pension is invested, the main thing to remember is that you should never keep all your eggs in one basket. By spreading your money across a range of varied assets, this should ensure that if one type of asset isn’t doing so well, hopefully the performance of some of the others might make up for it. Most default funds will already be well-diversified, but it’s worth confirming. Make sure you review your fund choices at least once a year to check that you’re happy with the level of risk you’re taking, and that the charges haven’t increased.

Final Salary or Defined Benefit Schemes

If you belong to a final salary or defined benefit pension, the income from this type of pension is proportional to your earnings when you worked for the employer of the scheme and doesn’t depend on how any other investment does. That means you won’t need to make any investment decisions, as these will be made by the company you’re employed by.