Why your pension balance may be fluctuating more than usual

Oli West

by , Senior copywriter

at PensionBee

08 Oct 2021 /  

Up and down arrows displayed next to percentage sign

Those of you who check your pension balance regularly might have noticed that it’s been a bit up-and-down in recent weeks. This usually isn’t anything to be worried about in the long term, but we wanted to explain what’s going on to relieve any concerns.

Businesses around the world are facing some challenges

Depending on your plan, your pension will invest a substantial proportion of your money into company shares via the stock market. This is an effective way to grow your money over the long term, since companies focus on improving their performance (and therefore their value) each year. But in the short term, companies have their good days and their bad days. This is influenced by all sorts of things, from the changing price of raw materials to their ability to ship their products on time. And this, in turn, affects how much investors are willing to pay for a share in that company’s future.

Your pension balance reflects the value of the companies your money is invested in. And lately, companies have been dealing with a number of challenges, including:

  • Labour shortages
  • Energy price rises
  • Covid disruption
  • HGV driver shortages and Brexit changes, particularly in the UK

We don’t know how long these challenges will continue for, and therefore how much they’ll continue to impact businesses. However, it’s possible that some of these challenges could be resolved in the near future with strong government action. And if that’s the case, the long term impact on companies (and therefore their share price) could be relatively minimal.

Investors are concerned about the wider economy

The value of a company is influenced by its performance, which in turn is impacted by the wider economy too. These days, investors are concerned about several trends in the global economy.

Rising inflation

Inflation occurs when the average price of goods increases each year. With current supply and labour shortages driving price increases in many sectors, investors are concerned that central banks around the world (including the Bank of England) will begin raising interest rates. This would make it more expensive for people and businesses to borrow money, reducing the amount of money circulating in the economy and investment in new projects. That could limit business growth and that could impact their share price.

Technology rotation

When investors are concerned about a challenging business environment, they tend to look at investing their money in more stable and traditional companies. For many years, the big tech companies like Apple and Amazon have driven a lot of stock market growth. But now they’re under the scrutiny of governments around the world who are tightening up regulation and considering ways of making them pay more tax. This has got investors concerned, and we’re seeing big tech’s share price growth slow as a result.

Exposure to Chinese debt

China’s impact on the global economy is huge, so any economic challenges there could eventually be felt around the world. Currently, several Chinese property developers are rumoured to be struggling to service their debts. If those developers were to default on their debts, it would be bad news for both Chinese and non-Chinese companies who are lenders or somehow otherwise exposed as suppliers. Investors are understandably cautious, and this is having knock-on repercussions for a number of companies’ share prices.

Should you be concerned?

Pensions are long term savings products that are expected to weather even the worst of short term economic challenges. One way pensions are resilient is through diversification. So when some shares fall, others may rise. More broadly when stocks fall, other asset classes, like bonds, may rise. Over the long term, share prices have increased. So while you might see your pension balance go up and down more than usual today, it’s likely to regain any lost growth over the long term.

If you’re approaching retirement, you may be more concerned since there will be less time left to recover any short term losses. Our older customers will have been able to take up our lower-risk plans which aim to preserve your money by investing in more stable assets like bonds. This will limit your exposure to current challenges.

When markets aren’t doing well, there are more opportunities for investors. So you may want to increase your contributions and take advantage of lower prices than before the market downturn and boost your long term savings.

If you have any questions or concerns about your pension, you can contact your BeeKeeper by live chat, email or phone. We’re always here to help.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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