Asset Allocation Through the Pension Lifecycle: From Accumulation to Drawdown

Getting asset allocation right is arguably the single most important decision a pension saver makes — and it is not a one-time choice. The portfolio that serves you well at 35 will not serve you well at 65. As your time horizon shortens and your goals shift from building a pot to drawing a sustainable income, the balance of equities, bonds, cash, and alternative assets in your pension must evolve in a deliberate, planned way.

We work with clients at every stage of this journey — from first pension contributions through complex drawdown strategies in retirement. This guide sets out the framework we use.

Phase 1: Accumulation (20s to Early 50s)

Time is your greatest asset

In the early and middle decades of a working life, time horizon is long. A 35-year-old contributing to a pension today will not typically draw benefits for 25 to 30 years. Over that span, the compounding effect of equity returns — despite short-term volatility — has historically far outpaced bonds, cash, or any defensive asset class.

Holding large allocations to bonds or cash during the accumulation phase is a common and costly mistake. Inflation quietly erodes the real value of fixed-income assets over decades, and cash earns returns that rarely compensate for the opportunity cost of foregone equity growth.

Our accumulation portfolio framework

For clients in the accumulation phase, we typically target an equity weighting of 70–90%, structured across:

• Global developed market equities — the foundation. Diversification across the US, Europe, Japan, and other developed markets captures long-run global growth without excessive concentration in any single economy.
• Emerging market equities — a smaller allocation (10–15% of the equity sleeve) adds growth potential from faster-developing economies, though with higher volatility.
• Property REITs — listed real estate investment trusts provide indirect property exposure within a SIPP, with daily liquidity. They offer some inflation linkage and diversification from pure equity returns.
• Infrastructure funds — regulated infrastructure (utilities, toll roads, airports) provides long-duration, inflation-linked cash flows that complement equities without the interest-rate sensitivity of bonds.
• Commodities — a small allocation (5% or less) to commodity funds or exchange-traded products provides a partial hedge against inflationary shocks.

The remaining 10–30% can be held in short-duration bonds or money market funds as a tactical buffer rather than a strategic allocation — available for rebalancing when equity markets fall sharply.

Pound-cost averaging and rebalancing

Regular pension contributions made monthly through payroll or direct debit automatically apply pound-cost averaging — buying more units when prices are low and fewer when prices are high. This removes the temptation to time the market and smooths the impact of short-term volatility on the overall average cost of your holdings.

We recommend annual rebalancing — reviewing the portfolio once a year and restoring it to the target allocation. Over time, a portfolio left unmanaged drifts: after a strong equity run, the equity weighting may exceed 90%, leaving the client more exposed than intended. Rebalancing captures gains systematically.

Phase 2: Transition (Approximately 10 Years Before Retirement)

Why the transition phase demands attention

As retirement approaches, the nature of investment risk changes. In accumulation, a market fall is largely an opportunity — you buy cheap units and time allows recovery. But in the decade before retirement, a severe and prolonged downturn becomes dangerous. If a market crash reduces your pot by 30% in the year before you plan to retire, you may be forced to draw income from a significantly smaller fund before it has time to recover.

This danger is known as sequencing risk, and managing it is the central challenge of the transition phase.

A managed glide path

Rather than an abrupt de-risking — moving suddenly from 80% equities to 40% — we advocate a gradual glide path that begins roughly 10 years before the planned retirement date. Over that decade, the equity allocation is reduced systematically, replaced by:

• Investment-grade bonds — shorter-duration gilts and corporate bonds provide more stable returns and lower correlation with equities.
• Multi-asset income funds — diversified funds targeting income and capital stability.
• Cash and short-duration instruments — building a modest cash buffer that can fund the first one to two years of retirement without selling growth assets into a falling market.

A typical transition target by retirement might be 50% equities, 30% bonds and multi-asset, 20% cash and short-duration. The precise mix depends on whether the client intends to purchase an annuity or enter drawdown.

The bucket strategy starts here

The transition phase is the right time to begin thinking in buckets. We help clients identify:

• Near-term bucket: enough cash or near-cash to cover one to three years of planned retirement income
• Medium-term bucket: bonds and cautious funds to fund years four to ten
• Long-term bucket: retained equity allocation for years ten-plus

Structuring contributions and existing savings into this framework before retirement takes much of the income risk off the table.

Annuity considerations

For clients who are considering purchasing an annuity — or a partial annuity — the transition phase is when annuity pricing becomes relevant. Annuity rates move with gilt yields: when yields are high (as in 2022–2023), annuity rates are attractive; when yields are low, they offer poor value. We monitor gilt yield movements as part of annual reviews and flag when annuity rates cross thresholds that make purchase worth evaluating.

Phase 3: Drawdown (Retirement Years)

The shift from accumulation to distribution

The goal of the portfolio changes fundamentally at retirement. Rather than maximising long-term total return, the portfolio must now sustain income over a period that may span 25 to 35 years, while managing volatility to prevent the sequencing risk described above.

Most of our clients enter flexible drawdown through their SIPP or personal pension rather than purchasing an annuity. This preserves flexibility and control, but it places the investment management burden on the client — and on us.

Income portfolios vs total return portfolios

There are two broad approaches to drawdown investment:

Income portfolio approach: The portfolio is constructed to generate sufficient natural income — dividends, bond coupons — to fund the required withdrawal without selling units. This reduces sequencing risk because income is collected rather than units being sold. The drawback is that income portfolios tend to be yield-focused and may sacrifice long-term capital growth.

Total return approach: The portfolio is managed for total return — capital growth plus income — and income is funded through a combination of natural income and selective unit sales. This allows a more growth-oriented allocation and greater long-run sustainability, but requires disciplined management of withdrawal rates.

We typically advocate a modified total return approach combined with the bucket structure, maintaining:

• 40–60% equities — global, diversified, with a dividend tilt
• 20–30% bonds and multi-asset — to provide stability and a source of rebalancing capital
• 10–20% cash or short-duration — the near-term income bucket

The role of global diversification

Different equity markets do not fall and recover in unison. When UK and US equities are weak, Asian markets may be performing more strongly. Maintaining genuinely global equity exposure in drawdown — not just UK-centric income stocks — means that in any given year, some part of the portfolio is likely to be holding up, and rebalancing can sell strength to fund withdrawals rather than selling weakness.

Currency considerations for expat clients

For clients who retire overseas, there is an additional layer of complexity: the currency of the portfolio may not match the currency of their spending. A pension invested in sterling assets generates sterling income; if you spend in euros, dirhams, or Thai baht, you are exposed to exchange rate fluctuation. We help clients think through currency matching — where appropriate, holding a portion of the drawdown portfolio in local-currency assets or using currency-hedged funds.

Annual drawdown review

The sustainability of a drawdown strategy depends on three variables that change each year: fund value, investment returns, and withdrawal rate. We conduct a formal annual review of each client's drawdown position, modelling forward projections under a range of return scenarios and adjusting the withdrawal rate or asset allocation where necessary.

How Global Investments can help

We build bespoke pension portfolio strategies for clients at every stage of the lifecycle, from first-time savers in their 20s to clients managing complex drawdown portfolios in retirement. Our investment process begins with a thorough assessment of your time horizon, risk tolerance, income needs, and wider wealth picture — and produces a written asset allocation plan that we review and update with you each year. Where pension scheme rules allow, we manage self-invested pension portfolios directly; where they do not, we advise on fund selection within existing workplace schemes.

For expat clients and those approaching retirement, we pay particular attention to sequencing risk, currency exposure, and the interaction between pension income and overseas tax obligations. Please note that pension rules, tax rates, and investment markets all change — past performance is not a guide to future returns, and investments can fall as well as rise. The information in this guide is for general educational purposes; we always recommend taking personalised, regulated financial advice before making changes to your pension investment strategy. Contact our pensions team to arrange an initial consultation.