Default pension funds: Are you sleepwalking into retirement?
Many UK investors are sleepwalking into retirement by relying on default pension funds. In this piece, Castlefield Head of Engagement & Advice Rupert Lovesy explains why default pension funds might not be working as hard as you are, and some of the steps you can take to wake up to better long-term outcomes.
Imagine spending 30 or 40 years saving for your retirement, only to arrive and realise you’re short of what you need or what you thought you’d have.
Many UK investors are sleepwalking into retirement. One of the biggest reasons is they are unknowingly relying on default pension funds – these may not be aligned with personal goals, values, or even their financial best interests.
Below I'll explain why default pension funds might not be working as hard as you are, and I'll provide some of the steps you can take to wake up to better long-term outcomes.
What is a default pension fund?
If you’ve been auto-enrolled into a workplace pension scheme, there’s a good chance your money is invested in a default fund.
This is the investment fund you’re placed into automatically if you don’t actively choose where your pension is invested. These funds are designed to be “good enough” for most people, offering broad exposure to markets with lower fees and less volatility than more bespoke options.
But that’s also where the problem starts. Default funds are, by nature, a one-size-fits-all solution in a world where everyone’s financial journey is different.
The typical ‘flight path’ to retirement
Most default funds follow a pre-set investment journey, often called a lifestyle or glide-path strategy.
Early on, your money is invested more heavily in equities (shares) to try and maximise growth.
As you get closer to retirement, the fund automatically moves your money into ‘safer’ assets, like bonds and cash, to reduce risk.
This gradual shift is meant to protect your pension pot from market drops just before you retire, which sounds sensible, in theory, but can be quite different in practice.
If you’re someone who cares about where your money is invested, then default funds may not align with your ethical values.
What could go wrong?
You're following a plan that may not suit your real life
Default funds assume everyone retires at the same age, in the same way, with the same needs.
But what if you want to retire early? Or later? Or stay invested during retirement and draw down gradually?
If your fund is “de-risking” while you’re still years from using it, you could miss out on growth when you need it most.
You’re taking on risk without realising
Some default funds aren’t as low-risk as you might expect. Others are too cautious, limiting long-term growth - especially if you're young and have decades before retirement.
Risk levels can vary significantly between providers. One “moderate” fund might have 60% in shares; another only 30%. Yet both are called “balanced.”
You could be missing out on better returns
Many default funds are UK-heavy or invest largely in large companies and government bonds.
Compared to more global or actively managed alternatives, this can lead to poor diversification and lower returns. Over 30 years, even a 1% annual difference in performance could mean tens of thousands of pounds more or less in your retirement pot.
You’re not factoring in your values
If you’re someone who cares about where your money is invested, for example, seeking to avoid environmental and social harm (e.g. climate change, human rights, animal welfare), then default funds may not align with your ethical values. Many are still invested in fossil fuels, arms, or in companies with questionable practices.
Wake up: here’s how to take back control of pension planning
The good news is it’s never too late to open your eyes and take simple, smart steps to ensure your pension works harder and more ethically for you.
1. Check where your money is actually invested
Don’t assume the default fund is your only option. Log into your pension provider’s portal to find out:
- What fund am I in?
- What does it invest in?
- How has it performed over 5–10 years?
2. Think about your personal ‘flight path’
When do you want to retire? Will you take a lump sum or draw income over time?
Your answers could drastically change the kind of fund that suits you best. If your fund is reducing equity exposure too early, it might be time to switch.
3. Review performance and fees
Even small fees can compound over time. Make sure your fund’s charges are reasonable for the returns delivered. Sometimes, a slightly higher fee might be justified by stronger growth but often, people are unknowingly overpaying.
4. Get personalised advice
Everyone’s situation is different. Speaking to a regulated financial adviser (especially one focused on ethical investing) can help you:
- Tailor your pension to your specific goals
- Align investments with your values
- Understand your risk profile
- Explore tax efficiency and income planning for later life
Default funds aren’t inherently bad. They provide a valuable safety net and a starting point for many investors. But they were never meant to be your entire retirement plan.
By waking up now, reviewing your fund, asking the right questions, and making conscious choices, you can build a future that truly reflects your goals, your values, and the lifestyle you deserve.
Default funds aren’t inherently bad...they were never meant to be your entire retirement plan
Need help waking up your pension plan?
As a financial advice and ethical investment organisation, we help clients take control of their pensions and invest with purpose.
If you're ready to move beyond the default and make smarter, values-led decisions for your future, we're here to guide you.
Let’s make sure your pension is working as hard as you are, so you can retire on your own terms.
Written by Rupert Lovesy
This article is intended for information purposes only and it does not constitute a personal recommendation or inducement to invest. It is based on information obtained from sources which we believe to be accurate but the accuracy of which we cannot warrant and may be subject to change at short notice, therefore we cannot be held responsible for the implications of relying on this information. The contents of this document are not intended to be construed as legal, accounting, tax or investment advice. With any investment your capital is at risk. You should seek independent financial advice if you are unsure whether an investment product is suitable for your personal financial circumstances and appetite for risk. Unless otherwise stated this information is accurate as at 18/07/2025.