Trump’s tariff turbulence has caused a lot of people to worry about their pensions.
It’s never nice to see the value of your retirement savings go down and there can be real uncertainty as to when things will get any better. However, it’s important not to panic.
Pensions are a long-term game – your investment horizon could span 70 years, so it pays to take a long-term approach.
This article isn’t personal advice. Past performance isn’t a guide to the future. Investments can rise and fall in value so you could get back less than you invest. If you’re not sure if an action is right for you, ask for financial advice.
Markets tend to recover
Over the course of your pension saving journey, you’ll encounter several periods of market turbulence, and the data shows that given time these markets have recovered.
Looking at the global financial crisis, the FTSE All Share index plunged by more than 37.1% over the following month in 2008. Over time it recovered – one year on it was 11.1% lower and by the time three years had passed it was back in positive territory. This isn’t guaranteed in the future of course.
How markets have behaved in previous times of market turbulence
Total return FTSE All Share
Event | 1 month on (%) | 6 months on (%) | 1 year on (%) | 3 years on (%) | 5 years on (%) |
|---|---|---|---|---|---|
Black Monday (1987) | -33.3 | -22.4 | -18.4 | -7 | 33.9 |
Dot.com bubble | -39.7 | -29.7 | -24.8 | 8.9 | 14.6 |
Global Financial Crisis | -37.1 | -22.8 | -11.1 | 3.8 | 31.1 |
Coronavirus pandemic | -31.7 | -18.2 | -7.2 | 5.8 | 34.2 |
If you’re contributing to a pension, you’ll likely be invested in a default fund that’ll be diversified over different areas and asset classes. You won’t be fully exposed to stock market swings, and this can help smooth things out.
Default funds, through workplace pension schemes, will shift you into less risky assets as you approach retirement too. This is called ‘lifestyling’.
However, it’s worth checking to see what your situation is.
Making knee-jerk reactions like switching investments or stopping contributions could cause damage to your portfolio – and make it harder to recover when things settle down.
By continuing to add to your pension, you can buy more units in your investments when markets are down. This can help your pension get back on track and help you rebuild your retirement resilience.
What if I’m nearing or in retirement?
For those in income drawdown or nearing retirement, you’ve probably been looking at your investments already to ensure your portfolio meets your goals.
This includes how much risk you’re comfortable with.
Other options amidst the volatility include delaying your retirement, or taking less income than initially planned giving your investments time to recover.
Those in the market for a guaranteed income will have seen incomes soar in recent years which can soften the blow.
The latest data from HL’s annuity search engine shows a 65-year-old with £100,000 pension can currently get up to £7,685 per year from a single life level annuity with a five-year guarantee.
Inflation linked products are available, but the starting incomes are much lower – you’ll need to think about the best option for you.
You also don’t have to annuitise your entire pension at once – you can annuitise in slices throughout your retirement.
This means you can leave a portion invested in income drawdown where it can hopefully recover further, and potentially get higher annuity rates as you age, as long as you’re happy with the risk with investing.
What you do with your pension is an important decision. You should check you're making the right decision for your circumstances and that you understand all your options and their risks. The government's free and impartial Pension Wise service can help you and we can offer you advice if you'd like it.
This is also the perfect time to make sure you have an emergency savings safety net big enough to cover one to three years’ worth of essential spending. You can draw on this to avoid eating into your pot while markets are down.
If you’re not yet in retirement and are still working, we think three to six months’ worth of cash will be enough of a safety net.
Calmer heads can prevail
Of course, there’s no crystal ball to predict how the situation will play out, but there’s value in taking a calm approach during these uncertain times.
While stock market volatility is uncomfortable, it’s important to remain calm. By taking a longer-term view, sticking to your plan and staying diversified, you can ride out the ups and downs in the short-term to pay off over the long term.
