Why has my pension pot gone down in value?

Dear MoneyHelper,  

I’ve checked my private pension pot, and the value of the fund has gone down since I last looked at it about a year ago. I’m hoping to retire in four years, so this is really worrying me. Is there anything I can do to keep as much money in my pot as possible?

If you are saving into a defined contribution (DC) pension you will build up a pot of money which can then be invested in a variety of ways, such as through equities (which are typically higher risk) and bonds (which are typically lower risk). 

Most people do not make pensions investment decisions for themselves, but you should check that the way your pension provider is investing your money matches your plans, as it can have a big impact on the amount you have available at retirement. 

Most people invest in what’s known as a ‘default fund’, which is the fund chosen by the provider as the most likely to be appropriate for the majority of people.

Most people do not make investment decisions, and the idea behind the default fund is that people should not be disadvantaged by not making a choice (but like all investments, there is still a risk the value can go down as well as up). 

Many default funds follow a ‘target date’ or ‘lifestyling’ strategy, where pension savings are moved from higher to lower risk funds as you approach retirement, to try and avoid a sudden drop in value. 

Pension providers need to balance a number of factors when they choose the funds your pension is invested in.  

• Growth: Your pension savings should grow over time to increase the amount of money that you can access at retirement (and to combat the effects of inflation). Higher risk investments are likely to help your pension grow over the long term, particularly in the earlier stages of saving. 

• Risk: The level of risk that is appropriate will depend on various factors, including: how you want to access your pension; any other savings or property you might have to support you, and your own preferences.  

• Timing: You will typically have a ‘target retirement date’ based on when you expect to access your pension. Your investment approach should differ depending on when and how you want to access your pension. 

If you want to access your pension all at once, the ‘lifestyling’ investing approach might be the right choice for you. It’s designed so that your pension shouldn’t be affected by a sudden drop in value. This is important if you’re planning on buying an annuity that will provide you with a guaranteed income for the rest of your life, when you retire. 

People have different needs and plans for retirement, and the options available at retirement have changed.   

Many of these default funds were set up on the assumption that you would reach retirement and use your pension money to buy an annuity. 

However, there are now more options available when you reach retirement. You could choose to buy an annuity if you want a guaranteed income for the rest of your life, but you might also choose to take your pension more gradually, through more flexible arrangements such as drawdown or UFPLS (uncrystallised fund pensions lump sums).

If you are invested in a ‘lifestyle’ fund that’s set up for you to buy an annuity when you retire, your pension will be moved from higher risk funds to lower risk funds. This might mean you have less money to draw down than you would if you remained in higher risk funds.  

Most larger pension providers have an online platform where you can log in and see the funds your pension is invested in at any time.

All pension providers should send you a yearly statement with details of your pension, and how much your pot is worth. If you aren’t receiving these, you might need to update your contact details.  

Find out more in our guide to checking your pension savings.

You should also make sure all your pensions have a nominated beneficiary; this is the person who’ll inherit your pension if you die. Find out how to do this in our blog.

If you have older pensions that you can’t remember the details of, our article about finding lost pensions could help.

Many default funds are designed with the idea that when you reach your target retirement age, you’ll use what you have saved to buy an annuity to give you an income for life.  

However, there are many options for how you use your pensions savings. You might even choose to keep your pension invested after you retire.

If you’re over 50 you can book a free appointment with Pension Wise where you can ask questions and talk through your options with an expert.

You can also get in touch with your pension provider to find out how your money is invested, and find out how you can change funds, and if there are any fees to do that.

You might also choose to seek financial advice about your pension.

If you find that you are invested in a ‘lifestyle fund’, but you are planning to access your pension flexibly, don’t worry, it is not too late. You can change your target retirement age with your pension provider, usually up to age 75. You can often do this by logging on to your online account with your provider, but if this is not possible you should speak to your provider, and discuss your plans with them.