Market volatility

Your pension plan may be invested in different types of financial markets including stock markets, property and bonds. Markets moving up and down is normal – this is called market volatility.

Sometimes the movements can be small and at other times they might be bigger, for instance in response to major economic and political news, conflicts and natural disasters.

As an example, think about the drops you might have noticed when the coronavirus pandemic hit, compared to the rises you might have seen in the period since then.

When markets are ‘in turmoil’, you may see the value of your plan’s investments fluctuate, including some bigger falls in value than you might expect in normal times.

This can be unnerving, but it’s important to understand that volatility is a normal part of investing. Historically, over the long term (usually more than 10 years) markets have risen in value. So, generally, investors who’ve stayed the course and held onto their investments during times of market volatility are likely to have seen their value increase. Adopting a longer-term mindset could therefore support a better financial outcome.

How much the value of your pension plan moves up and down depends on where it’s invested. For instance, equities (company stocks and shares) are typically riskier than bonds (loans to governments or companies) and property. Often, the options available to you will have some sort of rating designed to give you an indication of how much the underlying investments may move up and down in value. To find out how to check what investments are in your pension plan, see the question 'How can I check where my pension plan is invested?'

Remember though that past performance isn’t a reliable guide to future performance. The value of all investments can go down as well as up and may be worth less than was paid in.

We consider market volatility when we invest your money

If you’re in one of our lifestyle profiles then it’s likely that your money is being spread across different types of investments and countries. This is called diversification and it can help to manage the effects of market volatility by ‘smoothing’ out the returns you get.

This is because different investments can go up and down in value at different times because they are affected in a variety of ways by factors such as economics, politics and conflicts. While it isn’t possible to eliminate the risk of market volatility, not ‘putting all your eggs in one basket’ can help smooth your investment experience over time. That’s why we adopt this approach when aiming to grow your investments over the long term.

If you’re a Standard Life customer and you’d like to check where you’re invested, you can do so on the Standard Life app or by logging in or registering for online services.

If you select your own investments, you might want to check what you’re invested in and that you’re still on track to meet your goals.

The money in your pension is invested to give it the chance to grow over the long term. That’s because investing your money gives you the potential for higher returns than if you were to save it in a standard savings account. Your money is generally secure in a UK bank or building society, whereas there are risks involved with investing.

The longer you leave your money invested, the more likely it is to grow. This is because each year you have the opportunity to achieve growth, not only on the money you’ve invested, but also on the growth you may have already experienced. This is called ‘compounding’ and it can help to build up the final value of your investments. Find out more by watching our short video.

If you’re a Standard Life customer and you’d like to check where you’re invested, you can do so on the Standard Life app or by logging in or registering for online services.

In most cases, you, your employer or an adviser will have decided where your plan is invested. We can’t make any changes to your plan’s investments unless you tell us to – it’s your decision. If you want to make any changes, with some accounts you can do this online, or you can contact us direct.

Before you do anything, you might want to consider your long-term needs and if moving into other investments will help to meet them. Remember that your pension is invested with the aim of helping it to grow over the long term.

Changing your investments during periods of market volatility can be risky. If you move out of your existing investments after markets have fallen, you could both lock in your losses and miss out on any potential recovery.

If you want to make any changes to your plan’s investments, it’s your decision. If you feel a lower-risk option is right for you, then you will usually be able to switch into it. If you’re not sure about your attitude to risk, our guide to understanding investment risk and risk questionnaire can help.

Remember, though, that if you’re investing for the long term, a lower-risk investment could be more likely to provide a lower return.

The type of investments you hold in your pension should reflect both how you feel about risk and your life stage. In general, people who still have a long time to go until they retire may be able to accept more risk from their investments than those who are at, or near, retirement, but it’s a personal decision. If you’re not sure which funds best suit your attitude to risk and your life stage, you should seek financial advice.

Most investment options have some sort of volatility rating which can help you decide if the option is right for you.

If you have a Standard Life pension plan, you can find these ratings (called volatility ratings) in your plan’s fund guide or factsheet. You can find these by logging into your online account or the Standard Life app (look under view plan details and the investments section).

Before you move into other investments, here are some things to think about:

• All investments have some level of risk from volatility.
• Will moving into lower-risk investments help you to meet your longer-term goals?
• Lower-risk funds may have less potential for growth than higher-risk funds.
• Assessing your attitude to investment risk before you move into different investments can help. There’s a risk questionnaire that you can use to help you figure this out.
• If you move out of your existing investments after markets have fallen, you could miss out on the chance to lessen or even reverse the impact of any losses if those markets then recover. However, if and when markets do start to recover, you may want to think about the types of investments you’re in.

When your money is invested, you can’t avoid the impact of market volatility entirely. But below you’ll find some things to consider which might help lessen its effects. Remember though that this isn’t advice, and the value of all investments can go down as well as up and may be worth less than was paid in.

If you’re in one of our lifestyle profiles then we’re considering market volatility for you. For instance, it’s likely that your money is being spread across different types of investments and countries, as this can help smooth out the returns you get. Check where you’re invested today by logging in or registering for online services or the Standard Life app.

Try to think long-term

Historically, over the long term (usually more than 10 years) markets have risen in value. So, generally, investors who’ve stayed the course and held onto their investments during times of market volatility are likely to have seen their value increase.

Remember though that past performance isn’t a reliable guide to future performance. The value of all investments can go down as well as up and may be worth less than was paid in.

If you need to access the money from your plan fairly soon, for example because you’re close to your selected retirement date or you’re already taking money from your plan, see the last two questions:

• Markets have fallen and I need to access my pension soon – what does it mean for me?
• I’m currently taking money out of my pension to live on – what impact will market volatility have on my remaining pension?

Avoid reacting in the short term

It can be easy to feel concerned when you see the value of your plan’s investments fall but try to avoid making a knee-jerk reaction. Consider how your investments have done over at least five years or more against their aims, rather than concentrating on short-term ups and downs.

If you move out of your existing investments after markets have fallen, you could miss out on any recovery in those markets. In other words, you’re not only locking in your losses but also missing out on the potential recovery. That means you could end up feeling the pain of loss twice. You might ask, “Why not get out when things are bad and just get back in when they improve?” But if you didn’t expect the fall, would you know when the recovery is coming? Even professionals, with all sorts of data and analyses to hand, can’t always ‘time the markets’ – it’s incredibly difficult to do.

So, going back to the previous point – if possible, try to take a long-term view.

Check your investments are diversified

This means spreading your money across different types of investments and geographical locations. If you’re only investing in one or two of these, then you could be exposing yourself to quite a degree of risk. Diversifying across investments and countries can help smooth out the returns you get. You can find out more in our Diversification guide.

It's possible to do it yourself and build a diversified portfolio. But this can take a lot of ongoing time and work, and you need knowledge and experience to choose the best mix of investments. If you’re in one of our lifestyle profiles then we’ll be considering diversification for you.

Consider how much risk you’re willing and able to take

Generally, higher-risk investments will tend to be more affected by market volatility and you’re likely to see their values change more often and by bigger amounts. However, they also have the potential for higher returns over the longer term.

If you’re uncomfortable seeing large movements in the value of your plan, you might want to consider lower-risk investment options in the longer term. Most options have some sort of volatility or risk rating to give you an indication of how much risk they take.

If you’re not sure about your attitude to risk, our guide to understanding investment risk and risk questionnaire can help.

As well as considering how much risk you’re comfortable taking, you should think about how much risk you’re able to take with your money when investing – basically how much money you can afford to lose.

If you’re not sure what action to take, or whether the investment options you’re in are right for you, we recommend you speak to a financial adviser.

Market ups and downs are a normal part of investing. It’s likely that most of the time you won’t be aware of what’s affecting their performance. But occasionally a big event, like we saw during the pandemic or when the conflict began in Ukraine, means you hear much more about market volatility and the potential short-term impact on your pension investments. At such times, the key is not to worry and instead to focus on the long term and what you can control.

If you’re in one of our lifestyle profiles then we’re considering market volatility for you

For instance, it’s likely that your money is being spread across different types of investments and countries, as this can help smooth out the returns you get. You can check where you’re invested by logging in or registering for online services or the Standard Life app.

Consider how much time you have before retirement

If you’re still some years from retirement, your pension investments should have time to recover from any short-term losses. If you’ve been saving into your pension for some time already, you may have had experience of this in the past.

Historically, over the long term (usually more than 10 years) markets have risen in value. So, generally, investors who’ve stayed the course and held onto their investments during times of market volatility are likely to have seen their value increase.

If you need to access the money from your plan fairly soon, for example because you’re close to your selected retirement date or you’re already taking money from your plan, see the last two questions:

• Markets have fallen and I need to access my pension soon – what does it mean for me?
• I’m currently taking money out of my pension to live on – what impact will market volatility have on my remaining pension?

Remember though that past performance isn’t a reliable guide to future performance. The value of all investments can go down as well as up and may be worth less than was paid in.

First, check where you’re invested (see 'How can I check where my pension is invested?'). If you’re heading for retirement or you intend to access your pension soon you may already be invested in a ‘lifestyle profile’. These options are designed to manage the potential impact of market volatility, especially as you near retirement, and to get you ready for how you plan to take your pension savings. However, your plan may still have seen its value fall.

It's a particularly important time to consider your next financial steps carefully. You may want to seek guidance from Pension Wise or take advice specific to your personal situation from a financial adviser before making any decisions. If you don't have your own adviser you can find out more about choosing one on Moneyhelper.

This depends on where you’re invested. We’ve provided some examples below. However, it’s important to consider seeking financial advice in this situation to make sure you stay on track to support your future financial needs. This is because your outcome will be impacted not just by market volatility and the level of income you’re taking, but the level of investment growth too.

• If you’re in lower-risk options, you’re less likely to be affected significantly by market volatility than if you’re in higher-risk options. However, you may miss out on future growth opportunities.
• If you have a mix of lower-risk and higher-risk investments, taking money out of the lower-risk investments first could give your higher-risk investments more opportunity to grow in value if and when markets recover.
• If you’re taking a regular set amount from your pension and continue to take this amount when markets are falling, your money could run out sooner than you expect it to. This is because it will have less opportunity to recover from any losses.
• If you move out of your existing investments after markets have fallen, you could miss out on any recovery and essentially ‘lock in your losses’. However, if and when markets do start to recover, you may want to think about the types of investments you’re in.

As you’ll know, there are a number of ways to take your pension savings. If you're thinking of making changes, we recommend you seek suitable guidance or advice before making any decisions. You can get free guidance over the phone or face-to-face with Pension Wise. Alternatively, a financial adviser will be able to talk you through the things to think about that are specific to your own situation.

Remember that the value of all investments can go down as well as up and may be worth less than was paid in. And because you’re taking money out of your pension, there’s a greater risk that it may run out sooner than you had planned.