Market fluctuations: Pension Saving in context

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• Standard Life highlights the importance of maintaining a long-term view with investments
• Analysis shows £10,000 invested in 1985 would have been worth around £200,000 in 2022, beating inflation by approx.170kⁱ
• Standard Life shares key considerations in falling markets

Over the past twelve months multiple financial shocks have hit UK consumers, with high inflation and rising interest rates accompanied by fragile market conditions. Sudden falls in the value of pensions and other investments have added further concern to those already looking nervously at rising prices and spiralling borrowing rates. There is always a risk and you might get less back than you paid in if your investment underperforms, however Standard Life analysis of the FTSE All-share index demonstrates that despite multiple ups and downs it tends to grow over a long-term period.

Market volatility in action

The chart below shows what would have happened if you’d invested £10,000 in the FTSE® All-Share Index on 31 December 1985 to 31 May 2022. It’s a bumpy journey through recent history with several big events prompting notable fluctuations:

Despite the turbulence, holding an initial £10,000 investment during a number of market falls, and subsequent recovery periods sees it grow to £200,000. Even taking account of the real value of £10,000 from 1985 being about £27,000 today the return from the FTSE All-Share handsomely beats inflation and the best cash return over the period, demonstrating the growth potential achieved by taking on a level of investment risk.

While we can’t use past performance as a guide, it demonstrates the potential for growth over the longer-term, and the opportunity to recover from periods of underperformance.

Jenny Holt, Managing Director of Customer Savings and Investments at Standard Life, part of Phoenix Group, explains market volatility and outlines considerations for savers during these periods:
“The events of the last year have had big repercussions on the economy and financial markets, and as a result there have been periods of volatility which have had a knock-on effect on people’s own finances. The market is expected to continue to be choppy in 2023, and it’s important to be prepared for this.

"When stock markets and other investment markets are fluctuating it’s natural to worry about how this may impact your pension and other investments. Although it’s unsettling to see the value of your pension fall because of market turbulence, it’s important to remember not to focus on the short-term and instead consider your longer-term investment goals and outlook. With markets usually recovering over time, a reaction in the short term could consolidate the fall in value. Despite all the challenges of the past twelve months, the FTSE 100 has just reached a record high, demonstrating the ability of markets to recover. The general consensus is that if you don’t need to sell then don’t and wait for the natural recovery of the markets before considering your next step."

Jenny Holt on key things to think about:

“It’s hard to keep perspective when headlines are worrying, and your investment is falling in value, but it’s exactly those times when it’s crucial to focus on what will help you make informed decisions about your money. Before acting, there are a few things to consider:

1. Think longer term - History has shown that over the longer term (usually more than 10 years) markets have risen in value. So consider how your investment has done over the longer term, rather than focussing on short-term falls.
2. React and you may regret it - If you panic and sell, you’re likely to be selling after markets have already fallen and, importantly, before they rise again. That means you’re not only locking in your losses but also missing out on the eventual recovery - so you’re feeling the pain of loss twice.
3. Check where your pension is invested - If you’re in a low involvement pension option, then it’s likely that your money is being spread across different types of investments and countries, as this helps smooth out the returns you get. This is because different investments tend to go up and down in value at different times and are affected in a variety of ways by factors such as economics, politics and conflicts. This is what’s known as “diversification”. Some low involvement investment options, often called lifestyle profiles, may also reduce the level of investment risk that you are taking as you approach your selected retirement age, helping to protect you from market falls when you have less time to wait for markets to recover. However, if you select your own investments, you might want to check the assets you’re invested in. Your pension provider may have online services that allow you to check the value of your plan.
4. Has your attitude to risk changed? - If you’re uncomfortable seeing large movements in the value of your plan, you might want to consider lower risk investment options, but be aware that these types of investment typically offer less growth potential so you should consider how this might impact your ability to achieve your goals. Most investment options have some sort of risk or volatility rating that can give you an indication of how much your option may move down and up in value.
5. What are your circumstances? - You should consider all these factors in relation to your own circumstances. For example, you might be some way from retirement, about to access your pension money for the first time, or already taking money from your pension plan.
6. Seek advice if you need to - It’s a big decision to make changes to your pension plan and it could impact how much you’ll have in the future. So you may want to take professional advice before making any decisions. If you don’t have a financial adviser, you can find a list of advisers on the FCA website. Unbiased is an independent site that can help you find the right adviser for you. There’s likely to be a charge for any advice you receive”.

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About Standard Life

• Standard Life is a brand that has been trusted to look after peoples' life savings for nearly 200 years
• Today it proudly serves millions of customers who come to Standard Life directly, through advisers and through their employers' pension scheme.
• Standard Life is part of Phoenix Group, the largest long-term savings and retirement business in the UK. We're proud to be building on nearly 200 years of Standard Life heritage together
• Our products include a variety of Pensions, Bonds and Retirement options to suit people's needs, helping our customers to invest and save for their future. We're proud to offer a leading range of sustainable and responsible investment options.
• We support our customers on their journey to and through retirement with comprehensive, easy-to-understand guidance so they can invest in the right way for their needs, and plan a future they feel confident about
• The value of investments can go down as well as up and may be worth less than originally invested.

ⁱ According to Inflation calculator | Bank of England, £10,000 in 1985 is equivalent to £27,287.32 in 2022