Bonus episode: How does market volatility shape your pension pot?

The following is a transcript of a bonus podcast episode of The Pension Confident Podcast. Listen to the episode or scroll on to read the conversation.

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Takeaways from this episode

• Bull markets last longer than bear markets - historically a rising ‘bull’ market produces bigger gains and outlasts the ‘bear’ market downturn that precedes them.
• Keeping contributions going during a downturn can work in your favour - if you buy shares at a lower price, when the market eventually recovers, those holdings might be worth more than what you paid.
• Tax relief acts as a built-in buffer - a basic rate taxpayer putting in £100 receives £25 in government tax relief, cushioning the initial contribution from the impact of a market fall.

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PHILIPPA: Welcome back. Today’s bonus episode is all about something that often makes headlines - market volatility. Whether it’s tariffs, geopolitical tensions, or yet another twist in the Westminster news cycle, the markets have had a turbulent time recently. And if you’ve noticed your pension balance moving up and down, you’re not alone. So, what’s actually going on, and what does it all mean?

We’re going to look at what you need to know. Whatever stage you’re at, we’re going to talk about why the plan you’re in matters, and perhaps most importantly, explain why you should not rush to action. I’m Philippa Lamb, and if you haven’t subscribed to the podcast yet, you can click that subscribe button before we start. Now, here to help me make sense of market volatility is Maike Currie. She’s PensionBee’s VP Personal Finance. Welcome back.

MAIKE: Thanks for having me. Great to be here.

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What’s market volatility?

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PHILIPPA: Now, look, before we get into volatility, when people talk about the markets, what exactly are the markets?

MAIKE: Well, the easiest way to think of the stock market is a place where you can buy or sell slices of companies. So, think of it a bit as a farmer’s market, but instead of buying [a] fruit or vegetable, you’re buying a small portion of a business.

PHILIPPA: OK, so what’s market volatility?

MAIKE: So, the key thing to think about is the prices of these company slices that you’re buying can go up rapidly if a lot of people want to buy a share. Or also fall rapidly, if a lot of people are rushing for the door. So, volatility really is that rapid movement in share prices, and it can be caused by a number of things. It can be caused by geopolitical events, it can be caused by uncertainty. The key thing really is that market volatility is part and parcel of investing.

PHILIPPA: It can happen really quickly, can’t it?

MAIKE: It can happen really quickly, but as quickly it can dissipate. So, the key thing isn’t to panic and to know that markets never move in a straight line. They go up and down.

PHILIPPA: Yeah, and we hear these terms ‘bull market’, ‘bear market’.

MAIKE: What exactly do they mean? Well, I’m no David Attenborough, but they really replicate the movement made by these animals. So, a bull kind of thrusts up with its horns, and that represents a rising stock market.

PHILIPPA: OK.

MAIKE: And a bear would typically swipe or claw down, so a bear market would represent a falling market. So really, a bull market is when markets are rising over a bear market is usually when the market falls, and the definition of a bear market is if the market has fallen more than 20%.

PHILIPPA: OK, and these are a normal part of the cycle, it’s worth saying.

MAIKE: Absolutely. The key thing we always say, and the key thing that investors need to remember, is that markets go up and down over time. But really, if we look at the difference between a bull market and a bear market, bull markets - so when the market is rising like the bull’s horns - they tend to last much longer than a bear market, which typically lasts around 10 months. And I guess the key thing to remember is that bull markets typically tend to last longer than the bear markets or the losses that go before them.

PHILIPPA: So, they produce bigger gains generally.

MAIKE: Generally. There’s no hard and fast rule, and as we always say, past performance is no indication of future performance. But there’s enough research out there that shows over the long term, stock markets tend to outperform more.

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How far can a pension balance fall?

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PHILIPPA: OK, but obviously from an investor point of view, you know, if you see your pension balance falling, it’s concerning. Worst case, what would it actually take for it to get to zero?

MAIKE: Well, it’s important to put this in context because for your pension to go down to zero, every single holding, every company share that your pension is invested in, will need to fall to zero. Now, that has never happened, even in the dark days of the Great Depression, even during World War II, even during the COVID-19 pandemic. We [have] never seen that. Yes, markets fell quite drastically and quite rapidly, but they did recover over time and in fact recouped all the losses and ended up higher than where they started.

PHILIPPA: I’m thinking that for listeners who are earlier in their careers, this might all feel a bit alarming because, you know, they’ve just started building up their pot, the pot’s probably quite small, suddenly they see it dropping in value.

MAIKE: It’s going to be concerning, but honestly, if you’re just starting on your pension journey, you’re in the best place possible because time is on your side. And as I always say, the most powerful force when investing, and when you’re putting money into a pension, isn’t how much you’re putting in necessarily, but time. When you start out, you’ve got time to ride out those ups and downs, those bear and bull markets, and over time the market will smooth out, and you’ll see your portfolio eventually recovering those losses.

PHILIPPA: Even though we always say “Past performance is no guarantee of future performance”, and that’s true, markets have historically always come back, haven’t they?

MAIKE: Absolutely. Markets have historically always come back. And if we look at history, a good example of this is the Dow Jones Industrial Average, which is one of the oldest stock market indices out there. Now, between 1997 and 2021, that market rose 357%. What’s key to remember is that period included some of the most seismic market events we’ve seen, including COVID-19 pandemic, the global financial crisis, and others.

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The investor upside of a market downturn

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PHILIPPA: So, should those younger savers then maybe think about pausing contributions during a downturn?

MAIKE: Actually, keeping your contributions going is the best possible approach because you’re buying those shares at a lower cost, and when the market recovers in value, those shares you bought in the dip are actually worth more. So, you basically got a bargain on the sales rack.

PHILIPPA: OK, now I heard what you said about younger savers having longer for all this stuff to, you know, iron out over time. If you’re closer to retirement, volatility is going to be a bigger worry, isn’t it?

MAIKE: Absolutely, because when you’re closer to retirement, you’re getting closer to the point where you want to draw money from your pension pot. So, a massive market event which wipes out some of the value of that pot can be very concerning, and your biggest focus then isn’t so much on growth but on stability, preserving that pension value. So, what you can do is you can ride out the ups and downs. You can possibly look at taking less from your pension pot, giving it some time to recover.

PHILIPPA: So older savers might be, I think, perfectly understandably nervous. There’s going to be a temptation to take their money out, isn’t there?

MAIKE: There will definitely be a temptation, but the key thing to remember is when you do move money out of the market during a market fall, you’re essentially locking in losses.

PHILIPPA: Because you don’t have a chance to recover later?

MAIKE: Yeah, so when the market does recover, and sometimes it can do that relatively quickly, you’ve basically sold at the bottom of the market. And it’s really key to remember that the [Financial Conduct Authority] (FCA), the city watchdog or the regulator, actively encourages investors to stay patient and to remain invested during times of volatility. That really is, even though it does test the nerves, is the best possible approach when we see those massive moves in share prices.

PHILIPPA: So, thinking about those older savers again, should they at least think about pausing contributions?

MAIKE: The key thing I would say that we really need to remember with a pension, and what makes a pension different from a [Stocks and Shares] ISA, is when you contribute money into a pension, you automatically get government tax relief. So, say I’m a basic rate taxpayer and I’m putting in £100, I get 20% tax relief. So, I’ve got £25 added to my pension. Now let’s say the market does fall dramatically. In fact, let’s say it falls as dramatically as it did during ‘Black Monday’ [crash of 1987], which was a massive crash which saw the Dow Jones fall by [around] 20%. Even if I saw that kind of once-in-a-lifetime fall, because of the tax relief, I’ll still have £100 in my pension. Now, if I had put that £100 into a [Stocks and Shares] ISA, I wouldn’t have received any money in the form of tax relief that would have cushioned me against any market fall. And I think a lot of savers underestimate the power of tax relief. It’s free money from the government. What’s not to like about that?

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How quickly can markets recover?

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PHILIPPA: Yeah, there’s a lot of ins and outs with pension contributions and tax relief, but we did do a bonus episode all about that back in May. So, if you listen to this and you’d like to know more about that, go back, have a listen to that one. Give us more recent examples, because we were talking about Black Monday, that was a long time ago. More recent examples of how quickly markets can recover.

MAIKE: So actually, if we go back in recent memory, there’s been quite a few dramatic market events. The first one I’ll refer to is back in 2022 when Russia invaded Ukraine. Dramatic time in markets. The S&P 500 fell 7% and everyone was really worried about what the future could hold. But less than a month later, the market had rebounded and actually ended up higher where it started.

PHILIPPA: And we had another one, didn’t we, with President Trump’s Liberation Day tariffs. 2025, that was last year.

MAIKE: Just remind us [of] what happened with that one. Well, very recently really, in recent memory as you say, April 2025, Trump’s Liberation Day, a big hoo-ha about tariffs. The market acted very dramatically. There was a 12% fall. In May, the market had recovered and in fact it was 3% higher than where it had been. So, as you can see from these examples, you can have quite dramatic falls in markets, but over time they do recover, sometimes quicker than we expect.

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Pension plans for different life stages

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PHILIPPA: What you can usefully do, it seems to me, is look at your plan, right? Because it’s not just about how you react during volatility. A lot does come down to the investment plan your money is in to start with, right? So how can you tell if you’re in the right plan for the stage you’re at and the state of the markets and everything you’d need to think about?

MAIKE: The key thing to say is different plans are built for different stages of your retirement journey. And as we spoke about, when you’re at the start in your early 20s and you’re saving into your pension, you’ve got more time to ride out market volatility. Whereas if you’re in your 50s and you’re getting closer to retirement age, it’s really about preserving capital and about stability. So, with PensionBee, we’ve got a number of plans that are suited to those different life stages. Our Global Leaders Plan is for anyone under the age of 50. It’s well diversified over the 1,000 biggest companies in the world. But then we also have a 4Plus Plan, which is for those over 50s, and that’s all about looking at volatility, managing volatility, and delivering a return around 4% plus the bank base rate. But very much managing volatility, which obviously is key if you’re in that age group.

PHILIPPA: As you say, obviously these plans are specifically aimed at people in certain stages and ages, but it’s up to them, right? I mean, it’s about their appetite for risk, so they can choose whichever they want.

MAIKE: That’s true. You don’t need to go into a specific plan just because you fall into that specific age group. The key thing is what’s your appetite for risk and when do you want to draw down your pension.

PHILIPPA: So, any sort of rule of thumb for which type of plan might suit which type of saver?

MAIKE: Well, as a PensionBee customer, I would look at the full suite of PensionBee’s plans, and if you still have questions, you can always speak to a PensionBee BeeKeeper, which is a UK-based team. Or once again, if you need to, you can speak to a regulated [Independent] Financial Adviser.

PHILIPPA: Maike, thank you. Really helpful as always. A brilliant reminder that markets going up and down isn’t the story. Staying invested and staying in the right plan and staying calm, that’s the story.

If you’re enjoying the series, we’d love it if you’d let us know with a rating or a review. It really does help us reach more people who could benefit from these conversations. If you’ve missed an episode, don’t worry about it, you can catch up anytime on your favourite app, YouTube. If you’re a PensionBee customer, of course, you can listen in the PensionBee app too.

Here’s our usual final reminder: anything discussed on the podcast shouldn’t be regarded as financial advice or as legal advice, and when investing, your capital is at risk. Thanks for being with us, we’ll see you next time.

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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.