WHEN you’ve saved diligently into your pension plan for your future, sudden market volatility can be unnerving, to say the least. As in times of volatility, the value of investments can go down as well as up, so you may get back less than you invest. But whether retirement is a long way off, just around the corner or you’re already retired, here’s what you need to know. And remember, this information is not a personal recommendation for a particular course of action. If you’re unsure of the right approach for you personally, you should speak to an authorised financial adviser.

1. Your workplace pension is an investment

When markets experience volatility, you may see fluctuations in the value of your pension savings. These are a normal part of long-term investing, as the value of investments can go down as well as up. And while the invasion of Ukraine prompted markets to fall significantly, some volatility was already likely this year, with central banks beginning to change their monetary policies and interest rates on the rise.

2. Take your time

During uncertain times, feeling fearful could lead some people to make rushed decisions about their pension savings, based on short-term circumstances. Some may think about selling or moving investments in the hope of minimising any loss, but this could have significant long-term consequences for your financial wellbeing and retirement, as you may miss out on any market bounce-backs.

So, think carefully, don’t make a rushed decision and consider talking to an authorised financial adviser before making any decisions.

3. If you’re close to retirement

If you’re approaching retirement, it’s likely that your appetite for risk has already reduced and you may have selected funds (such as a cash fund) to help to reduce the possibility of your pension savings falling in value, just when you need to start using them. If you’ve already taken these steps, it means you should be able to ride out short-term volatility. 

If you’re using a company pension’s default option, and you’re close to your selected retirement age, your retirement portfolio may already be set up to be invested in lower risk funds that may be less susceptible to market volatility. This is because, often default funds tend to be what are known as ‘lifestyle’ funds and they change where you are investing over the years, to aim to reduce investment risk as you get closer to retirement.

Even if you are on the cusp of retirement, it may be sensible to hold tight. By adjusting investments when their prices are falling – for example, by moving your money into cash or low-risk investments – you’re more likely to lock in losses and erode your pension savings.

Easier said than done, but the key is not to take knee-jerk action. Market ups and downs are normal over the short term, and staying invested may mitigate the effect of any market falls - although this is not guaranteed.

If you want to do something, log into PlanViewer and check your retirement age to make sure it reflects your current retirement goals and plans. The retirement age is set automatically when you start saving into your pension, but you can choose a date that is right for you. It’s also important to highlight that you can’t normally access your pension until the age of 55, which may change to 57 in 2028.

4. If you’re in retirement

If you’re already in retirement, you should think carefully and consider talking to a financial adviser before making any decisions.

If you’ve remained invested and are taking income through drawdown, you may want to consider temporarily reducing the amount of income you take right now, when market moves are potentially more exaggerated than usual. This is because if you drawdown too much money during a market fall, you may make it harder to recoup any losses when markets pick back up.

Of course, if you’re currently aged 55 or over, there are a number of different retirement income options available to you that you may have or be considering. These include annuities, which you can buy using all or part of your pension pot. An annuity provides a guaranteed income for life, so could help you lock in some certainty over your retirement income. It could also give you the breathing space to leave some of your pension invested - in a combined drawdown and annuity strategy. This can work well during times of volatility, since it gives you the reassurance of a guaranteed income as well as the ability to stay invested and benefit when the market turns around.

If you need more information

Whatever happens, don’t make a rushed decision.

The Government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at moneyhelper.org.uk or call them on 0800 138 3944.

And remember, if you are unsure of the suitability of an investment or course of action, you should speak to an authorised financial adviser.

Important information: the views expressed here may no longer be current and may have already been acted upon.

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