My pension is losing money: What to do

The first step to take if you discover your pension is losing money is to not panic.

The worst thing you can do after a dip is attempt to access or move your money. That's because once your savings are taken outside of your pension, any losses become realised.

While your money is invested, any losses are essentially on paper - they only become 'real' when you withdraw or move your money.

Often, simply leaving your money and waiting is the best course of action. That way, you give your pot a chance to recover. Generally speaking, small drops in value are nothing to worry about when you’re investing for the long term.

At Penfold, we strive to be completely transparent with our pension performance. However, by giving our savers complete visibility into their pension, chances are you’ll notice the frequent and expected ups and downs more often.

Again, this shouldn’t be something to worry about. A single month of poor performance isn’t going to be critical when you’re saving for 20, 40 or 50 years.

Fluctuations are a normal part of investing and pensions are no different. It’s why your return on your contributions will vary over time. There will always be ups and downs but over the long haul, investing has consistently delivered a net gain for savers.

Penfold fund performance

Penfold’s plans use a variety of diverse investments to help protect you from most of the extreme ups and downs. The only time you’ll want to pay a little closer attention to any drops is when you’re a few years from retirement.

If you’re getting ready to access your pension, we recommend shifting the investments inside your pension fund into a less volatile plan.

Our recently launched Lifetime Plan does this for you, adjusting your investments automatically over your life. You may also want to put off retirement for a short while until markets recover.

For most, however, the best thing to do if your pension pot value drops is… nothing.

Could I end up with less money than I started with?

Another completely normal response to seeing your pension dip in value is: will I lose everything?

Pensions, like all investments, involve risk. Very briefly, this means there is a (small) chance you could lose some of the money you invest.

But here’s the thing to remember: over the long term, diverse investing has a nearly negligible chance of losing you money. In fact, investing tends to outperform other methods of saving.

Over the past 40 years, pensions have seen an average return of 7%. This means saving pots have grown 7% bigger - not bad when most regular saving accounts in the UK are offering around 0.5% interest.

At Penfold, our most popular plan has achieved an average yearly growth rate of 10.8% (based on the last 5 years).

Assuming the average growth rate of 7%, contributing £250 a month for 40 years would mean your pension would earn just under £500,000 from growth, mainly thanks to compounding. Remember, time is your friend.

While it’s vital to be aware that there is an element of risk whenever you invest your money, it’s equally important to know that the longer you invest in a pension, the lower the chances of losing money.

Why are pension funds dropping?

You may have read in the news or heard from someone you know that “pensions are falling” or “pension funds have dropped”. What does that actually mean?

Infrequently, global financial markets will have a bad run that affects investments everywhere - seen most recently during the global Covid pandemic and the aftermath of the conflict in Ukraine.

If you notice your savings have taken a hit, just know this isn’t only limited to your Penfold pension or even pensions in general. All investments and savings globally will feel some impact during an economic crisis.

However, the key thing to remember is that pensions are a long-term investment, and they will go up and down in the short term. Over time, any widespread drops should correct as financial markets recover.

Past performance is not a guarantee of future performance.