If you don’t understand what it means, you could lose tens of thousands of pounds worth of retirement savings. Yet most people have never even heard of it.

The piece of jargon is called “lifestyling”. It is an automatic process that kicks in on most workplace and personal savings as savers approach retirement.

Usually, it is the default option, so it happens automatically even if it isn’t the right thing for you.

Unless you understand what it means, you could end up sleepwalking into a retirement disaster.

Lifestyling is designed to prevent a last-minute stock market crash from smashing the value of your nest egg shortly before you retire.

It does this by steadily shifting your funds out of the stock market and into lower risk investments such as bonds and cash over the final 10 years of your working life, and into retirement.

Yet while lifestyling reduces your investment risk, it can dramatically reduce your returns and ultimately, the size of your pension pot and retirement income.

Typically, your pension company will contact you, to say that your savings are going to be invested in a “lifestyle profile”.

It may say that it will move your money into pre-selected funds as you get closer to your selected retirement date.

However, these letters often fail to make it clear that this involves steadily moving your money out of shares and into cash and bonds.

Switching into lower-risk, lower-return bonds could backfire by delivering far lower investment return over a retirement that could last as long as 20 or 25 years, said Tom Selby, head of retirement policy at AJ Bell.

READ MORE:Pensioner drawdown double whammy – inflation and crash threat

Default pension funds using lifestyling have underperformed the stock market, Selby said. A typical default lifestyle selection of funds would have turned £10,000 into £20,964 over the past decade, but the most popular global fund investment sector would have delivered £31,420.

Measured over 30 years, lifestyling would have returned £76,480 versus £101,990 from a mix of global equities. That’s £25,510 less.

Selby said: “The concept of lifestyling belongs to a bygone era, when savers were forced to buy an annuity at retirement with their pension.”

After 2015’s pension freedom reforms, most retirees now leave their money invested through drawdown, taking money as required to fund their spending.

Selby is issuing this warning now because City watchdog the Financial Conduct Authority (FCA) is consulting on plans to force providers to impose lifestyling as the default option on personal pensions.

“If it does, millions could end up investing in a sub-optimal fund for decades,” he said.

DON’T MISS:
New warning on Sunak’s horror 55% pension tax grab – worse from April [REVEAL]
Urgent £70,000 pension warning – you could ‘wipe out’ your savings [ANALYSIS]
Pension warning – just ONE mistake could wreck your retirement [INSIGHT]

Andrew Tully, pensions technical director at Canada Life, said default options may work for some but de-risking may be wrong for those choosing drawdown. “It makes no sense to shifting into bonds and cash in your late 50s and early 60s, as you could miss out on up to 30 years of stock market growth.”

Getting a higher return is now even more important as inflation rages.

As more people work beyond 65, Tully warned that some default options have been automated to the wrong target date.

Taking too few investment risks in the run-up to retirement could be even more costly than making too many, he added.

It is worth checking your company and personal pensions to see if you have already been shifted into lower risk default option, said Becky O’Connor, head of savings and pensions at Interactive Investor.

“Read any correspondence carefully to decide whether you want to go along with this, and alert your pension provider if you don’t,” she said.