How does a stock market fall affect pensions?published at 13:45 British Summer Time
Simon Jack
Business editor
There are two things to stress here: what happens in stock markets is not necessarily the same thing that happens in the economy. They can be linked, but they are exactly not the same.
Some people invest directly in shares – and this will definitely affect them.
These are some big falls, some of the biggest we’ve seen in a couple of days since the pandemic panic that gripped the market back in 2020.
The other way people are exposed to this is in their pension funds.
Now pension fund investing is a long-term game. Not all your money will go into shares, some will go into government bonds.
And the closer you are to retirement, the more weighting you will have in things like cash and bonds – so this will affect you less.
There are also two kinds of pension funds:
- defined benefit, where you get a promised percentage of your salary at retirement
- defined contribution, where your pension pots value will rise and fall with financial markets
So yes, people’s pensions are exposed. But we’ve seen things like this before and during the pandemic.
The warning sign flashing here is not the value of your pension pot – it’s what is going to happen to the economies in which we all live and work.
A lot of people are saying the chance of recession in both the US, UK – and even globally – have gone up a notch, which has implications for things like jobs and wages.