Speculative bets are back on as first-time investors make record trades

Savers with £18bn in “lifestyle” funds, which gradually move pension pots from stocks to bonds in the run-up to retirement, have been warned about big losses as fears of rising inflation rattle markets.

Bond prices are falling – and their yields are rising – because of the growing likelihood that the reopening of economies combined with government stimulus will lead to inflation, which eats into the real value of the fixed coupon that bonds pay. Lifestyle funds, deemed safe for their big bond weightings, are down 8pc since the start of the year.

Those closest to retirement have been hit the hardest. Lifestyle funds can hold up to 70pc in bonds one

‘The risk of rising interest rates comes at the worst possible time for lifestyle investors’

year from retirement, with 20pc in cash and the remainder in stocks and other investments. Once the investment approach is activated, typically 10 years before retirement, the fund buys more bonds each year, selling shares, with more cash held as retirement nears.

Lifestyle funds were designed for savers buying annuities when they retired. The idea was to reduce volatility in the years preceding the purchase of an annuity so savers had an accurate idea of the income they could buy.

However, since “pension freedoms” were introduced in 2015, savers have not been funnelled into buying an annuity, which leaves them at high risk of falling bond prices, according to Laith Khalaf, of stockbroker AJ Bell.

“For these lifestyle fund investors, the risk of rising interest rates is high, and could come home to roost at the worst possible time – just as they are about to retire,” he said.

Mr Khalaf urged savers in default pension funds who did not intend on buying an annuity to check their pension plan, as they were likely to automatically switch into bonds when they were 10 years from retirement.

“Savers should take control of their pensions by consolidating them in one place and devising their own investment strategy as they approach retirement,” he said.