Back in April 2020, as the Coronavirus Pandemic was taking hold, we provided an update on the affect that significant movements in the stock market might have on your pension. Here we provide a further update two years on. Since April 2020, markets recovered from the initial significant movements but have continued to remain volatile as the pandemic progresses. More recently, the of the situation in Ukraine has led to a period of heightened volatility in capital markets and nearly all economies are suffering from significantly higher inflation.
The affect that this may have on your pension will depend on the type of pension you have, and how close you are to retirement.
If you are a member of the Defined Contribution Section, both you and the company pay a set level of contributions into your Pension Account while you are employed. These contributions are used to buy units in your chosen investment fund, which go up or down in value depending on the performance of your fund. When you reach retirement age, the value of your fund can be used to provide you with a cash lump sum, purchase an annuity (a contract with an insurance company that pays you an income for the rest of your life), or be used more flexibly (by transferring your benefits to a drawdown arrangement that would allow you to take a series of lump sums or a regular income).
It is important to remember that pension savings are a long-term investment. If your savings are invested in a Target Date Fund and you are in the early/mid-life stages of your investment journey, your fund will be invested in higher risk funds to achieve growth over a long period of time. In these stages you can expect to see movements in the value of your account day to day, but in the long term your fund should increase in value.
If your savings are invested in other funds on the investment platform, the extent that your funds’ value is affected by the recent market movements will depend on the type of fund that you are invested in. It is important to note that as interest rates rise, the capital value of Government Bonds and other Fixed Income instruments fall in value.
As such, even if you are close to retirement and invested in a Target Date Fund whilst, your fund will be invested in less risky funds to protect your fund value, it may still increase or fall in value. It is therefore important that if you are considering taking retirement within the next 6 months, that you carefully consider the timing of when you disinvest your pension fund.
If you are a member of the Defined Benefit Section of the Scheme, you will be provided with a certain level of income when you retire, based on the length of time you have paid contributions to the Scheme and your Pensionable Earnings close to retirement. Investment risk is borne by the Company, not the member, although if you have made any AVCs these could be exposed to market movements as explained above.
The State Pension is unaffected by fluctuations in the market.
The Trustees are in regular dialogue with their Investment Managers to continually review the current situation and take action if needed. Further updates will be provided on the web site, so please check back.
In addition, unfortunately the pensions industry is finding scams related to the outbreak being reported. The Pensions Regulator has produced a leaflet which gives useful guidance on how to avoid scams:
The MoneyHelper service has also published guidance on their web site to help you spot and avoid a pension scam:< Back to News