What does market volatility mean for pension savings? And why is it important that savers stay focused on the long term?
Market ups and downs can feel unsettling for savers, especially when you see headlines about market volatility or drops in value, but it’s important to remember that pensions are designed for the long-term.
Markets can go up and down and that’s a normal part of the saving journey. Pensions, like any investment, may be affected by short-term market changes, but over the medium to long term, history shows that markets tend to recover and grow.
In a master trust like Smart Pension, pension savings are invested in the world around us. The main ways of investing are owning part of a company (equities or shares), lending to companies (bonds) or lending to governments (gilts or government bonds).
Investments are accessed through “funds” which pool together money from lots of people to invest as one. Money in the fund is shown by the number of ‘units’ you have bought with your pension savings. These units have a price which can go up or down, which is the return savers will see on their investments.
Why do investments go up and down?
Various events can cause investments to go up and down, including global pandemics and other events, changes in government or central bank policies, war and crises, changes in the demand and supply of certain products, and much more.
At Smart Pension, while we can’t control the impact of these changes on investments, we look to offer a range of investment options. For our default investment strategy, we look to reduce the fluctuations by using lots of different types of investments, which are suitable for the long term. Pension savings are invested for our members’ future retirement and the aim is to provide strong outcomes over the long term.
All investments involve some degree of risk and savers should think about their risk tolerance when choosing investments for their pension savings. Our default investment option has a long-term outlook and, although investments may go up and down in the shorter term, over the longer term they are expected to produce a positive return.
In 2025, there has been global market volatility, influenced by geopolitical tensions, trade policies and recession concerns. Frequent market changes have made the volatility apparent on a day-to-day basis and the market continues to be under some stress. Short-term fluctuations can reflect immediate reactions to political announcements, such as US President Trump’s tariffs announcements and global retaliations. It is important to stay focussed on your retirement goals and check that your investment choices are suitable for you, in particular as you get closer to retirement.
Markets have experienced similar fluctuations in the past. In August 2024, fears of a US recession triggered volatility across global markets. The Japanese Nikkei 225 index suffered its worst day since October 1987 (the Black Monday crash) and the sell-off continued in Europe. In 2022, global investments were negatively impacted by Russia’s war in Ukraine, rising inflation and the cost of living and UK policy shocks.
Investment downturns have occurred multiple times before and are likely to happen again in the future – they are a normal part of investing. Whilst we can’t predict the future, past events show us that investment downturns have been followed by periods of recovery and growth.
On Monday 19th October 1987, also known as Black Monday, global investments fell more than 20% in a single day [1]. It is widely thought that slow economic growth, investor panic and relatively new computer-driven trading models drove the downward spiral. Black Monday had knock-on effects on global economies, but with the help of central banks these economies fully recovered within a couple of years.
During the Global Financial Crisis of 2008-2009, the FTSE 100 (UK stocks) fell by over 31% in 2008 [2]. Governments intervened, central banks cut interest rates and more regulations were introduced to provide safety nets for investors. Investments bounced back quickly, with the FTSE 100 recovering c. 22% the following year [3].
While we do not have a crystal ball to tell the future and cannot guarantee investments will always bounce back, we can see how investment cycles have behaved in the past. Some investments may do poorly compared to other investments over short time periods, and the opposite might happen in other time periods. Therefore, our default investment option diversifies across different investments, as well as increasing its allocation to investments known to be less risky as a member approaches retirement. We monitor investment performance on a regular basis with our appointment of external advisers.
What should savers do when investments fall?
With Smart Pension, members can make changes to their investments whenever they like. However, please be aware that “panic selling” can crystallise losses and potentially harm future returns by missing out on the positive days. In times of high volatility, it is important not to panic or make any rash decisions about changes to your investments, including transfers and claims.
Our investment strategies look to provide strong returns by investing over the longer term across diversified investments rather than trying to profit from short-term turning points. Savers may wish to check that their investment choices reflect their longer-term goals, as some individual funds and asset classes have different levels of risk and potential returns.
When closer to retirement and in a predetermined investment strategy, savers may wish to review the retirement target amount chosen and retirement date.
Smart Pension can only provide guidance and is not regulated to give financial advice. If requiring professional advice, savers can get in touch with an independent financial adviser or you can find information through the MoneyHelper website.
If you want to read more about our investment approach at Smart Pension, read our latest guide here.
Footnotes:
1 www.federalreservehistory.org/essays/stock-market-crash-of-1987
2 www.forecast-chart.com/historical-ftse-100.html
3 Financial Times, market data
