If you’re approaching retirement, you might be inclined to take as little risk as possible with your retirement savings, but how much cash should you really hold in your pension?

You can put your money into a wide range of assets in your pension, such as stocks and shares, investment funds, property, bonds and cash. Depending on the type of pension you have, you may be able to choose how much you hold in cash, although most people rely on their provider to move their savings gradually into lower risk options such as bonds and cash as they near retirement (more on this later). 

However, while cash is predictable and returns have certainly improved in recent months, historically over long term periods stock market returns have typically beaten those from cash , and you’ll want your money to work as hard as it can for you, in the hope you’ll end up with enough for a comfortable retirement. That said, past performance cannot be relied on as a guide to what will happen in the future, and when you invest you must accept that there’s a chance you could get back less than you put in. 

Alistair McQueen, head of savings and retirement at Aviva, said: “Cash is usually perceived as a low risk, low return investment option. It is typically seen as a good option for those who are seeking short-term access to their savings, and who are willing to sacrifice longer-term investment growth for shorter-term financial certainty. It may be less attractive for those who are investing for the longer-term, such as in pensions.”

Here, we explain what factors you should consider to decide how much cash you might want to hold in your pension. 

If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.

Alternatively, if you’re looking for somewhere to start, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.

Fidelius are rated 4.7 out of 5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.

How much cash should you have outside your pension?

Everyone needs some cash savings that are readily accessible. Experts recommend you hold three to six months’ worth of expenditure in cash, but for many people this isn’t possible, particularly with rising living costs. But the golden rule is that it’s better to try to save something rather than nothing, so that at least you have a bit of money to fall back on should you need it. However, this money is typically held outside your pension in a standard savings account. Read more in our articles How to build an emergency fund and the Best instant access savings accounts for the top paying accounts.

Your workplace pension

If you’re paying into a workplace pension, you probably don’t know exactly how much you’re holding in cash as you’ll usually be invested into a so-called ‘default fund’, unless you’ve chosen a different fund. 

The default fund automatically changes the underlying investments as you approach retirement. The closer you get to retirement, the more you’ll probably be moved into investments that are considered less risky such as bonds and cash. However, if you still have some time to go until retirement, you may be comfortable taking more risk with your investments, and most workplace schemes offer a range of funds that you can switch to that hold less cash. Read our article Where is my pension invested? to find out more. 

McQueen said: “These default funds give some indication of the use of pure “cash” in retirement planning. It is not uncommon for default funds to invest between 1% and 5% of the total fund in cash. As the employee approaches their retirement date, the amount invested in cash, and other lower risk investments, will typically increase as the desire for investment growth is replaced by a desire for investment certainty. 

“These percentages may suggest how cash is used in pension saving, but should not be seen as the right percentages for everyone. The best way to meet your own retirement aspirations is to base your retirement plans around your own circumstances and needs.”

Your personal pension

If you’re paying into a personal pension, or self-invested personal pension, you’ll usually have a wide range of different investment options to choose from. These may include individual shares, investment funds, investment trusts, and cash. Find out more in our guide What are the different types of pensions? and What is a SIPP and how does it work? 

You can tailor your pension to suit you and your personal needs. During difficult economic periods, though, it can be difficult to know what’s best, which may make it tempting to hold a greater amount in cash. Usually, the best approach is simply to ensure your portfolio is well-diversified. This means investing in a wide range of different asset types such as both UK, global and emerging market equities, bonds, and alternative investments such as commodity funds. Bear in mind that you will typically earn little interest on cash held within your pension, too, compared to the top paying savings accounts. 

McQueen said: “Your age, proximity to retirement, financial confidence, and appetite for risk will all influence how much cash you hold in your pension. And investing in pure “cash” can sit next to other typically lower-risk investments for those who are seeking to minimise their exposure to financial risks. These other examples include government gilts or corporate bonds. So, it would be misguided to consider cash as the only lower risk investment option at your disposal.” 

You can read more about the different types of investment options for your pension in our articles What are bonds and how do they work? and Investing – the basics.

Get your free no-obligation pension consultation

If you’re considering getting professional financial advice, Fidelius is offering Rest Less members a free pension consultation. It’s a chance to have an independent financial advisor give an unbiased assessment of your retirement savings. Fidelius is rated 4.7/5 from over 1,000 reviews on VouchedFor. Capital at risk.

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Factors that may affect how much cash you hold in your pension

It can be tricky to decide what proportion of your pension pot should be in cash. Here are the main factors you should consider:


If you’re investing in a pension that you won’t access for at least a decade or two, you can probably afford to take a little more risk with your investments than if, say, you need the money in five years’ time. Your timeframe and how long you have until you plan to access your pension has a major impact on which assets you choose to invest in. However, bear in mind that this decision will depend on whether or not you remain invested into retirement. You can read more about your pension options below, and how these could affect how much you hold in cash.

You may be anxious about losing money in the market no matter how long your timeframe. However, It’s important to remember that markets have bad years as well as good ones, and the longer your investment timeframe, the more time your money has to recover from market downturns. After all, the stock market has recovered from a series of crises, such as the dotcom bubble, global financial crisis and covid-19 pandemic, even though a comeback may have seemed unlikely at the time.

Attitude to risk

If you’re approaching retirement, and deciding how much cash to hold in your pension, you’ll want to think about your attitude to risk. This means thinking about whether you generally take a more cautious approach to your finances, or if you’re happy to take some risks for potentially higher returns. Read more in our article What’s your attitude to risk? 

Generally, though, your pension is likely to be the place where you take the most risk with your money in pursuit of potentially higher rewards. After all, it may need to provide you with an income for decades in retirement. Bear in mind, too, that cash isn’t without risk as inflation can eat into the purchasing power of your money over time. 

Becky O’Connor, director of public affairs at PensionBee, said: “Cash interest rates are much higher now than they have been for a long time, making cash look like a more reasonable place to store a proportion of your savings, especially anything you might need to access in the short term. However, over the long term, the stock market tends to outperform cash for returns.”

Your pension choices

You should also factor in what you plan to do with your pension if you’re approaching or have already reached retirement. These days, many people choose to remain invested into retirement in a flexible drawdown plan. This enables them to take an income from their pension as and when needed, but remain invested. In this case, you may want to remain fully invested in the stock market into retirement to increase the potential for future gains, or hold a smaller proportion of your pot in cash. Read more in our article What is pension drawdown and how does it work? 

If you plan to buy an annuity, though, or income for life, with some or all of your pension pot, then you want to safeguard your pot from suddenly plummeting in value. This could mean moving more into cash ahead of buying an annuity. Read more in our articles Annuities explained and Your pension options at retirement.

Where to seek further help with your pension

There’s no definitive answer when it comes to how much cash you should hold in your pension. You’ll need to weigh up various factors, including your age, attitude to risk and what you plan to do with your pension at retirement.  

If you’re 50 or over, you can get free guidance on the options available to you from the Government’s Pension Wise service.

If you want personal recommendations or advice about your specific circumstances, you’ll need to seek professional financial advice. Check out our guides on How to find the right financial advisor for you or How to get advice on your pension.

You can find a local financial advisor on VouchedFor or Unbiased, or for more information, check out our guide on How to find the right financial advisor for you.

If you’re thinking about getting independent financial advice, financial services company Fidelius is offering Rest Less members a free initial consultation with an independent financial advisor to chat about your finances, where you are now, and where you want to go.

There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved. Fidelius is rated 4.7/5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.

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