The stock market crash: The affect on your pension

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Credit: Moneyandmarkets.com

Many people’s initial reaction to “the markets” is that they are not directly affected, because they do not invest money.

Yet there are millions of people with a pension – either private or through work – who will see their savings (defined as a contribution pension) invested by pension schemes. The value of their savings pot is influenced by the performance of these investments.

So big rises or falls in shares can undoubtedly affect your pension.

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Big shifts in the stock market are often in the news, whether they are booms or falls owing to coronavirus or the financial crisis.

As companies grow, they issue shares. The largest companies in the UK have shares which are bought and sold on the London Stock Exchange.

Their collective performance is often quoted amid a blizzard of numbers that may feel confusing and irrelevant to the average person.


But there are good reasons why this performance affects your life and finances.

Many people’s initial reaction to “the markets” is that they are not directly affected, because they do not invest money.


Yet there are millions of people with a pension – either private or through work – who will see their savings (in what is known as a defined contribution pension) invested by pension schemes. The value of their savings pot is influenced by the performance of these investments.

Pension savers mostly let experts choose where to invest this money to help it grow. Widespread falls in share prices are likely to be bad news for pension savers.

As much as £600bn is held in defined contribution pensions at the moment.

Anyone who has a pension pot invested and is taking an income from it will again see their investment go up and down with the stock markets.

That could mean getting less than you expected if you cash in too much after stock markets have fallen, making it important to plan how to make up any of this shortfall, experts say.

Timing is more critical for those at retirement age, as this may be when a retiree uses their pension pot to buy a retirement income, or annuity. The bigger the pot, the more income they will get in retirement.

As you approach retirement age, pension pots are moved to less risky investments, such as government bonds. When stock markets fall, these bonds can do better.

Dozens of big companies have warned, for example, that the coronavirus will hit their share price.

Trouble over an extended period could have an effect on the amount of work available, says Moira O’Neill from Interactive Investor.

“Stock market falls also affect business confidence and the ability of companies to raise money,” she says.

“There could be an impact for the wider economy and maybe your job.”

Are stock market falls always bad though?

It can be hard to find positives when people’s jobs are affected, or – as in the case of the coronavirus – stock market performance has been affected because lives are being lost.

Yet, in investment terms, lower share prices can offer an opportunity to buy, in the hope that they recover and rise. Many people will do this initially through a stocks and shares Individual Savings Account (ISA).

Ms O’Neill points out that anyone tempted to do so must consider how prepared they are for their investment to keep falling and make sure they do not put all their money in one type of investment.

Some people invest money in what are known as tracker funds. These go up and down in line with the performance of a certain index, such as the FTSE 100.

So if the index falls, so does the value of their investments and vice versa. One advantage of these funds is that they often cost relatively little to sign up to.

So big rises or falls can affect your pension, but the advice is to remember that pension savings, like any investments, are usually a long-term bet.




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