Over the past year, pension values have experienced volatility. As the majority of pensions are invested, it’s part of a wider trend. However, as your pension savings are earmarked for providing an income throughout retirement, it can be a worry if the value falls, even if retiring is some way off.

Why are pension values rising and falling?

According to Moneyfacts UK Personal Pension Trends Treasury Report, over 2018 pension fund performance saw many pensions fall in value. The average pension fund suffered a 7.3% decline in the final quarter of the year, leaving pensions down by 6.2% over the full year.

It’s not just a trend that’s reflected in pension values. For many, 2018 marked a difficult investment environment that’s been characterised by economic and political uncertainty. As a result, just 9% of pension funds analysed for the report delivered growth for savers putting money away for their retirement. Essentially, that means the value of your savings are likely to have declined over 2018 and may have a knock-on effect for retirement plans too.

Of course, the amount of volatility, and potential decline, a pension fund experiences will vary. Often when you first start paying into a pension, you’ll be paying into the default option. However, the majority of providers offer more than one option for you to choose from with different risk profiles.

If you’re uncomfortable with the amount of volatility your pension has experienced recently it may be worth checking to see if your views and risk profile are still aligned. Opting for a pension with a lower risk profile can help reduce volatility. However, it’s important to keep in mind that investments typically deliver returns over the long term, smoothing out the peaks and troughs of investing.

How should you respond to pension volatility?

So, if your pension has experienced volatility, should you take action? That’s a question that will depend on a whole range of factors, from whether your pension has been underperforming in the long term to your target retirement income. But one of the most important questions to answer first is: When will you be accessing your pension?

Accessing your pension now

If you’ve already accessed your pension and are using Flexi-Access Drawdown making withdrawals when investments are performing poorly it can have a detrimental effect on retirement wealth. Where possible, it may be wise to pause or reduce withdrawals to give the value time to recover.

However, research from Zurich found that 52% of over-55s didn’t know they could reduce the value of withdrawals and 56% were unaware they could be stopped. It was labelled as a ‘critical gap in consumer awareness’ by Zurich, which could leave retirees exposed if stock markets plunge due to the effects of pound-cost-ravaging. This is where investors are forced to sell more investments to maintain income, depleting capital quicker and reducing growth potential.

As a result, it’s important to be aware of investment performance when already withdrawing from a pension. Taking a fixed income each month could leave you struggling. Having cash and other assets that can be used in the event of a downturn can provide you with a buffer where necessary.

Retiring soon

Are you eagerly looking forward to retirement and plan to start accessing your pension soon? Seeing the value of your pension fall close to this point can certainly be worrying.

However, one thing you need to keep in mind is the bigger picture. Yes, your pension may have declined over the last couple of months, but when you look over the investment returns, along with tax relief and employer contributions, it’s likely your own contributions have grown over the years. It can be disheartening to suffer a loss, but a pension is often still a wise investment over the long term.

If you’re worried about how accessing your pension soon will have an impact on retirement income, delaying taking money out can help. Using other assets to fund retirement initially can allow your pension to recover. Alternatively, making withdrawals that are essential, and leaving the rest invested, where necessary, can help you avoid the effects of pound-cost-ravaging early on in retirement.

Retirement still several years away

No one wants to see investments fall in value. However, if retirement is still some way off, there’s usually no need to worry. Historically, investments deliver returns over the long term and given time to recover, your pension value should rise again. Of course, you should still keep an eye on investment performance, but keep the bigger picture in mind, a dip in value now is likely to have little impact in five or ten years’ time.

If you’re worried about your pension and the level of income it will deliver in retirement, please contact us. We’re here to help you understand how provisions can deliver the lifestyle you’re hoping for.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rate at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.