Pension savers have been advised not to make any hasty changes in reaction to market volatility in the wake of Trump’s tariffs.
The past fortnight has seen chaos in the stock market after the US President announced a raft of import tariffs. The latest twist in the saga saw Trump pause higher trading rates for 90 days.
Events over the other side of the pond have had a knock-on effect on UK pensions, with millions seeing their retirement pot plummet in value.
Here’s how to navigate your pension savings during uncertain times.
Focus on things within your control
Currently, we don’t know if recent events will prove a transient tremor or mark the start of something even more severe.
Craig Rickman, personal finance expert Interactive Investor, said: “Either way, it’s best to turn down the noise and focus on simple things that you can control, like making sure your retirement portfolio is diversified, meaning your money is spread across various asset classes, geographies and sectors. The idea here is that if some areas of your portfolio are struggling, others will be there to support them.”
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Most pensions are ‘defined contribution’ (DC) arrangements, which is when you build a pot of money for retirement – the size of which is determined by how much you pay in and how your investments perform.
But if you have adefined benefit(DB) pension, this will be protected from market falls. DB schemes are a type of workplace pension that pay a guaranteed and inflation-linked income for life based on your salary and number of years’ service.
Rickmansaid: “As most of us invest a significant amount of our DC pensions in the stock market, stock market wobbles will affect our savings. This is by no means a prompt to hit the panic button and not everyone will be impacted to the same degree.”
Market falls affect some investors more than others
The pain of market slumps isn’t felt equally across savers – it can depend on several factors. Those with smaller proportions in shares and more in safer assets, such as Government bonds and cash, will have experienced softer falls.
Age is a factor too. If you’re decades from retirement, the recent volatility should be far less of a worry. In fact, drip-feeding money into your pension monthly could actually work in your favour, as when stock prices fall, your regular investment will buy more shares.
“When prices recover – which history tells us does happen, we just don’t know when – you’ll own a greater number of shares to benefit from the rebound. This is a concept known as pound cost averaging and is a handy tactic to help soften the impact during volatile investment periods,” said Rickman.
The message for younger savers is to continue paying into your pension when stocks fall, and don’t be tempted to reduce risk, otherwise you might forfeit valuable future growth.
Revise your plan if you’re approaching retirement
While market turbulence can rattle any investor, those approaching retirement may need to keep their guard highest. That’s because sharp losses shortly before the point you plan to draw retirement income could impact your retirement plans.
Rickman said: “A big consideration is whether to reduce investment risk as your golden years draw closer. The process of de-risking involves gradually moving out of shares and into bonds and cash – usually over the course of three to seven years.
“Whether this approach is right for you will depend on several factors, which include your personal risk appetite; whether you plan to stay invested in retirement or buy a guaranteed income; your access to other income streams such as property rentals or DB pensions; and your flexibility regarding retirement dates.”
Don’t panic
In times of market volatility, knee-jerk moves are rarely the best approach. One urge might be to swap stocks and shares in favour of cash and cash-like assets.
In theory, if stocks suffer further falls and you re-enter the market at the right time, you could be quids in. But accurately predicting market movements in the coming weeks or months is impossible, and you risk sitting in cash while markets rise.
Rickman said: “Often the best approach is to keep faith in your investment strategy, as the storms will eventually pass. There’s nothing wrong with being concerned about how falling markets will affect your retirement savings; just make sure to take a step back and consider the bigger picture.”
