There’s a lot of upheaval and uncertainty in the world right now and this ripples through to every aspect of our lives. Pensions may not be the first thing that springs to mind but in times of conflict I do get messages asking about the potential impact of stock market turbulence on pension values and whether action needs to be taken.
It can be concerning when you check your pension and you see that it has gone down. You might think about whether it’s time to make some changes – it might feel like you are taking some power back in a turbulent time.
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But while I don’t have a crystal ball and can’t predict the future, what I can say is that pensions are a multi-decade investing journey and you need to take a long-term approach to them.
During my own pension saving experience I’ve been through several periods of huge stock market turbulence including the 2008 global financial crisis, the pandemic, the Russia/Ukraine conflict and more recently Trump’s tariffs. All these crises impacted pension values but given time the markets, and pensions, recovered.
Making knee jerk reactions such as changing investments or cutting contributions can cause more harm than good.
If you change investments, you risk crystallising your loss by selling out towards the bottom of the market and you won’t benefit when it starts to recover.
By keeping up your contributions, you can buy more units in your investments as the price is lower and so when they do recover it helps you bounce back more quickly.
Stopping or reducing pension contributions will also mean it takes your pension longer to recover. In short, if you have regular contributions set up, and are in the growth stage of saving for retirement, the best thing to do right now is actually nothing.
If you are coming up to retirement, then you will be concerned about the impact as you may be looking to start drawing an income from your pension soon. If this is the case, then first of all check to see if you are invested in what is known as a lifestyling fund.
These are funds that start to switch you out of equities into so-called lower risk assets such as bonds in the final years before retirement as a means of protecting your pension from stock market swings.
If this is the case, then when you look at your pension you may find that you have been worrying unnecessarily as your pension has not been impacted to the degree you thought.