With this option, you’re always invested in a fund that has levels of risk and expected returns that are considered appropriate for an average person your age.
The idea behind it is that when you’re young, you have a reasonably long time until retirement. This means you can invest in riskier ‘growth’ assets (such as shares or property) which have the potential for higher returns. These kinds of investments are also typically more volatile (i.e. their value is more likely to go up or down); however the good years should more than balance out the bad years.
As you get older, your savings are invested more in ‘income’ assets (such as fixed interest or cash) which are likely to have lower but more stable returns – giving you more certainty as you get closer to retirement.