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A CONCERNED pension scheme member recently contacted me after he had checked online to see the current value of his investments.
He wrote: “My pension pot is largely invested in equities, since I have over 20 years before retirement. It has decreased in value due to the Iranian war. Do I need to be worried?”
This is a common concern when there is instability in the global economy, and currently the pressure is from a much higher oil price. However, the way in which your pension pot is invested is typical for employer pension plans, and similar to other workplace defined contribution pension schemes and retirement trust schemes.
The majority of your investment holdings are in equity funds because growth is important to achieve, and movements in capital value are not an immediate concern for members a long way from retirement.
It is the price at retirement that will be important, when the balance of the pension pot is paid out, not the price today.
Global equity markets fell after the start of the Iranian war, and this may have been when you checked your pension’s value. Since that time, they have recovered but have remained very volatile.
Viewed over your 20 years to retirement, any decreases should be a relevantly short-term dip in your long-term retirement savings journey. Historically, when equity markets decline, with even more severe decreases than we have currently seen, eg after Covid-19, they tend to recover within a number of years. While it can be worrying to see falls in your pension pot value, you should remember this is a long-term investment.
One advantage is that any regular contributions, which you or your employer pay into your pension pot, will be buying equities at a lower price during periods of market falls. This means that when the Iranian war is resolved, the positive impact on equity markets may produce a higher investment return from those investments as a consequence.
