When stock markets are falling, it's natural to worry about your pension. Watching the value of your retirement savings drop — even temporarily — is unsettling. But reacting in the short term could make things significantly worse.
Here's what to consider when markets are turbulent, and how to make informed decisions about your pension.
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Markets go up and down — that's normal
Investment markets move up and down regularly. This is called volatility, and it's driven by economic events, political changes, interest rate decisions, and global crises. It's a normal part of investing — not a sign that something has gone permanently wrong.
What history shows us is that over the long term, markets have generally recovered from even severe downturns. The 2008 financial crisis, the COVID-19 crash, and multiple recessions have all been followed by recoveries.
Past performance is not a reliable guide to future performance. But long-term data consistently shows that investors who stayed invested through downturns fared better than those who sold during them.
The danger of reacting in the short term
When markets fall sharply, the instinct is to act — to sell before things get worse, or to wait for calm before reinvesting. But this approach has a fundamental problem: you'd be selling after the fall and potentially missing the recovery.
Markets can recover quickly and unpredictably. If you sell during a downturn, you lock in your losses. If you wait for things to "look better" before reinvesting, you may miss the sharpest part of the recovery — which often happens before the headlines turn positive.
Even professional fund managers with access to vast amounts of data and analysis consistently struggle to time markets accurately. For most people, trying to do so is likely to reduce returns, not improve them.
Selling during a market fall turns a paper loss into a real one. Before making any changes to your pension investments, consider whether you're reacting to short-term noise or a genuine change in your long-term circumstances.
Think longer term
The key question is: when do you need this money?
If you're 10, 20, or 30 years from retirement, short-term market movements are largely irrelevant to your final outcome. The longer your investment horizon, the more time your pension has to recover from downturns and benefit from long-term growth.
Even if you're closer to retirement, it's worth remembering that your pension doesn't all need to be accessed on day one. Many people draw their pension over 20–30 years in retirement — meaning a significant portion remains invested for a long time.
The power of staying invested
To illustrate the impact of staying invested through volatility, consider a hypothetical £10,000 investment in a broad UK stock market index in 1985. Despite multiple major crises — the 1987 crash, the dot-com bust, the 2008 financial crisis, and the COVID-19 pandemic — an investor who stayed invested would have seen that £10,000 grow to over £300,000 by 2024.
An investor who sold during any of those downturns and missed the subsequent recovery would have captured only a fraction of that growth.
| Scenario | Outcome |
|---|---|
| Stayed invested through all downturns | ~£300,000+ by 2024 |
| Sold during a major crash and reinvested late | Significantly less |
| Sold and stayed in cash | Lost to inflation over time |
Illustrative example only. Past performance is not a guide to future performance.
Check where your pension is invested
If you're in a default or lifestyle pension option, your money is likely already diversified — spread across different asset types (equities, bonds, property) and geographies. Diversification means that when one type of investment falls, others may hold their value or rise, smoothing out overall returns.
If you've chosen your own investments, it's worth reviewing:
- Are you concentrated in one sector or country?
- Does your investment mix still match your risk tolerance and time horizon?
- Are you approaching retirement and still in a high-equity fund?
Most pension providers show your current fund allocation in their app or online portal. It's worth checking periodically — not just when markets fall.
Has your attitude to risk changed?
Market falls can reveal that your actual tolerance for risk is lower than you thought. If seeing large swings in your pension value is causing you significant stress, it may be worth considering a lower-risk investment mix — but do this as a considered long-term decision, not a panic reaction to a short-term fall.
Most pension funds have a risk rating that indicates how much the value might move up and down. Moving to a lower-risk fund during a downturn means you'd be selling assets at depressed prices — the opposite of what you'd want.
Consider your personal circumstances
How you should respond to market volatility depends heavily on your situation:
- Years from retirement: The longer your horizon, the less short-term volatility matters
- About to access your pension: If you're drawing down soon, you may want to review how much is in higher-risk assets
- Already in drawdown: Consider whether your withdrawal rate is sustainable and whether you have enough in lower-risk assets to cover near-term income needs
Salary sacrifice: still worth it during volatile markets
One thing that doesn't change during market turbulence is the tax efficiency of salary sacrifice. Every pound you contribute via salary sacrifice still saves you income tax and National Insurance — regardless of what markets are doing.
In fact, contributing consistently during a downturn means you're buying more units at lower prices — a natural form of pound-cost averaging that can benefit you when markets recover.
| Item | Amount |
|---|---|
| Monthly salary sacrifice | £500 |
| Income tax saved (40%) | £200 |
| NI saved (8%) | £40 |
| Real cost to you | £260 |
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When to seek advice
If you're considering making significant changes to your pension investments — especially during a period of market stress — it's worth speaking to a regulated financial adviser first. The decisions you make now could have a lasting impact on your retirement income.
MoneyHelper (moneyhelper.org.uk) is a free, impartial government-backed service that can help you find a regulated adviser.
Summary
- Market volatility is normal — markets have historically recovered over the long term
- Selling during a downturn locks in losses and risks missing the recovery
- The longer your investment horizon, the less short-term falls matter
- Diversification helps smooth returns across different market conditions
- Salary sacrifice remains highly tax-efficient regardless of market conditions
- Make investment decisions based on your long-term circumstances, not short-term headlines
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This article is for general information only and should not be taken as financial advice. The value of pension plans and investments can go down as well as up and you may get back less than was paid in. Tax rules may change. Always consult a regulated financial adviser for advice tailored to your personal circumstances.