My pension pot has lost value – should I be worried?
Investment markets have taken a big hit recently, due to the impact of coronavirus. If you have looked at your annual benefit statement or current fund value, you may have seen that it has gone down in value.
You are most likely invested in a ‘Lifecycle’ arrangement (unless you’re one of the 5% of members who have specifically selected an alternative). The Lifecycle arrangement manages some investment risk, as follows:
Younger members (those with more than 20 years until their selected retirement age) are heavily invested in Equities (Shares) because, over the longer term, Equities are expected to produce higher returns (although they are typically more ‘volatile’). Equities have been most affected by the impact of coronavirus on the investment markets. This video from Scottish Widows talks about the importance of taking a longer-term view to pensions investments.
As members approach their selected retirement age (age 65 for most members, unless you’ve chosen a different age) their pension pot is gradually moved into Cash and into Bonds in order to reduce the level of risk. These assets are typically safer and less prone to losing (or gaining) significant value in the short term although they too will be affected by markets. So, if you fall into this category, you may not have seen a big change in your pot value.
If you have self-selected the funds you are invested in, or if you are likely to take benefits from the Plan much earlier than your selected retirement age, it’s a good idea to regularly review your investment options, to check that the funds you are invested in are still suitable for your circumstances.
Remember to think carefully before making changes, and to consider your investment time horizon. For many members, pensions are a longer-term investment and no changes are required as a result of a period of market volatility like we have just seen.
If you have any questions, contact Scottish Widows, but please bear in mind they may be busier than normal.
Venetia Trayhurn Chair, Royal Mail Defined Contribution Plan