Many people assume that investing stops at retirement. But in reality, your pension often remains invested long after you stop working.
That makes your investment strategy in retirement just as important, if not more so, than during your working life. Withdrawing from your pension while keeping it invested introduces new risks and considerations.
Unless you use your whole pension pot to buy an annuity or take it all as cash, your savings will likely remain invested – especially if you’re using flexi-access drawdown.
This means your pension:
Making the right investment decisions in retirement is critical to long-term financial security.
Before diving into why low-cost passive investing can be a strong strategy in retirement, let’s briefly define the two main styles of investing:
Usually, active investing means hiring a fund manager who then chooses what stocks and bonds to invest your money in. The aim is to use research, analysis and personal expertise to try and beat market returns.
This means investing in assets that are likely to increase in value over the short to medium term and avoid investing in things that are likely to decrease in value. Whatever the skills and experience of the specific fund manager, this approach still contains an element of trying to predict the future.
In summary:
Passive investing is rooted in the work of a group of economists and scientists who, in the 1970s, demonstrated that stock markets generally rise over time. You can see this in action by typing FTSE 100 into Google and then clicking the Max view.
Whilst we cannot guarantee that stock markets will always rise over the longer term in the future, accepting the premise set out by those economists and scientists does give us a different perspective. Rather than trying to beat stock market returns, the aim is to match them.
In summary:
Passive investing is often associated with index funds or exchange-traded funds (ETFs) that offer broad market exposure with minimal fees. Put simply, broad market exposure means investing as widely as possible rather than putting all your eggs in a small number of baskets.
For retirees looking to draw income from their pension, a low-cost passive approach offers several potential advantages:
Every pound spent on fees is a pound that doesn’t stay in your pension. Over 20+ years of retirement, high charges can significantly reduce your income and therefore the choices you have when it comes to how you live your life.
Passive funds typically charge a fraction of what active funds do—often 0.10%–0.25% vs. 0.75%–1.5% or more for actively managed funds.
That difference adds up over time and boosts the sustainability of your retirement income.
Passive funds don’t rely on a manager’s judgment. They track the market—whether it’s UK equities, global bonds, or a diversified mix of the two.
That can make it easier to:
This predictability can be valuable in retirement, where income stability often matters more than chasing high returns on your investments.
Passive strategies allow you to own hundreds or thousands of tradable assets (securities) across different markets, sectors and geographic areas, often in a single fund.
This diversification reduces the impact of any one company or sector underperforming, which is important when you are accessing your pension and cannot afford big losses.
Decades of research suggest that most active managers underperform the market over the long term—especially after fees. For a recent example, read this article.
In retirement, where preserving your money and managing risk are often more important than trying to outperform the market, passive investing offers a low-cost, evidence-based alternative.
While a passive strategy can lower costs and simplify your portfolio, it’s not a silver bullet. It still involves:
The key is to structure your investment portfolio around your income needs, time horizon and risk tolerance. Passive funds are the building blocks. You still need a plan for how to use them effectively. That’s where financial advice comes in.
Whilst this article offers general guidance, building an appropriate investment strategy in retirement is a personal decision.
A qualified financial adviser can help you:
At Pension Sense, we use low-cost passive funds as part of a tailored retirement income strategy, offering clients simplicity, transparency and strong value for money.
The shift from saving to spending your pension is one of the biggest transitions you’ll ever make financially. Getting your investment strategy right can mean the difference between income that runs out and income that lasts.
A low-cost passive approach can offer many benefits: reduced fees, diversified risk and a straightforward way to stay invested for the long term.
But it’s not just about picking a few index funds, it’s about having a plan that works with your income goals, tax position and lifestyle. Tax treatment depends on your circumstances and is subject to change.
Making sense of your pension investments
At Pension Sense, we help people planning for, approaching or in retirement to:
We’re here to provide clear, personalised financial advice, not just general guidance, so you can retire with clarity and confidence.
Discover more on this website about our services and how we do things. If you are ready to start your journey towards a more secure retirement:
