Aligning pension strategy with retirement reality

In most Irish defined contribution (DC) pension schemes, members who do not actively select their own investment funds are automatically placed into a default investment strategy, typically through a lifestyling approach. 

While this lifestyling structure offers clear benefits, particularly in terms of simplicity and risk management, it also involves trade-offs that may not suit every individual, especially as retirement approaches. This has become increasingly relevant in the context of auto-enrolment, which is expected to bring around 800,000 new savers into pension schemes, the majority of whom will remain invested in default strategies. 

What is a default investment strategy?

A default investment strategy is the automatic approach applied when a pension member does not make an active fund selection. In Ireland, these strategies are typically designed using a lifestyling framework, allocating members to growth assets such as equities early in their careers, before gradually de-risking into bonds and cash as retirement approaches. This process typically begins 10 years before retirement and follows a predetermined “glidepath” that may or may not align with the member’s retirement plans. Industry studies suggest that the majority of pension members remain in the default strategy throughout their working lives. This reflects low engagement, limited investment confidence and a perception that the default represents a “good enough” solution. 

The strengths of lifestyling

Lifestyling is designed to manage key behavioural and investment risks:

• Simplicity: removes the need for complex decision-making
• Behavioural protection: reduces the risk of poor timing decisions or inertia-driven mistakes
• Automatic risk management: reduces exposure to market volatility as retirement nears
• Strong governance: subject to ongoing oversight by trustees
• Broad suitability: provides a reasonable outcome for a wide member base 
• Low cost and scalability: typically delivered at competitive fee levels, making lifestyling accessible to all members 

Limitations to consider

While appropriate for many, lifestyling is built on assumptions that may not reflect individual circumstances:

• Standardised assumptions: retirement age, risk tolerance and benefit choices are pre-defined 
• Mismatch with Approved Retirement Funds (ARFs): de-risking can assume benefits will be taken at retirement, yet many investors move into ARFs and, due to longer life expectancies, remain invested for decades, creating a structural disconnect between strategy and outcome 
• Lower long-term growth potential: conservative positioning, particularly in the final 5-10 years, can result in investors foregoing growth during a critical compounding period
• Timing risk: age-based switching means investors may reduce equity exposure during market downturns, effectively locking in losses. For example, a member reaching age 60 during a period of market weakness may be automatically moved out of equities under a lifestyling strategy, crystallising losses as a result of the glidepath rather than investor choice 
• Limited visibility and control: many members are unaware that their allocation is changing, meaning outcomes are driven by default rather than active decision-making, reinforcing the importance of taking greater control of investment strategy approaching retirement 
• Inflation risk: conservative allocations may struggle to preserve real purchasing power 

Transition to retirement

Retirement represents a shift from accumulation to decumulation, where investment decisions become more active and ongoing. For those entering an ARF, key considerations include investment strategy, income withdrawals and overall sustainability of the asset base. A central challenge for ARF holders is managing the income withdrawals sustainably. An ARF must continue to generate returns to support withdrawals while preserving capital, otherwise the risk of the fund being depleted increases over time. This highlights a key distinction in retirement outcomes - annuities prioritise income certainty, whereas ARFs require ongoing investment discipline and market participation. 

The role of advice: aligning strategy with the individual 

While default investment strategies can provide a strong foundation, retirement requires a more tailored approach.

At Davy, financial planning is a core component of our client offering, spanning the full wealth management spectrum, including pensions, tax, structuring, succession, philanthropy, protection and investments. This integrated approach ensures that all aspects of an individual’s financial life are aligned as they transition into retirement.

This begins with bespoke financial advice supported by a comprehensive financial plan, providing clear visibility on retirement outcomes and the sustainability of future income. A key focus is ensuring withdrawal strategies remain sustainable, aligning income needs with portfolio returns to reduce the risk of capital erosion or the ARF “running out”. 

We understand that circumstances change as your life goes on, and our financial plans are designed to evolve accordingly. Your Davy advisor will work with a team of tax and pension specialists to deliver a financial plan with measurable goals and action points, reflecting your needs, your family and, where relevant, your business. By integrating financial planning, investment management and ongoing oversight, this approach aims to deliver more resilient and personalised retirement outcomes over the long term.

If you would like to learn more about how your investment strategy could support your long‑term financial goals, why not book a no‑obligation consultation with a member of our team.