Pension lost 19.55% in a year- normal?

[mamaof3kiddos]

I received a letter from my financial advisor at Christmas time which said because of the markets my pension had lost value. I put the letter in a drawer and forgot to deal with it.

I've just received the annual statement and the letter confirms it has now lost 19.55% (so £20k in value, I'm 35 so far). The letter gives some blurb about the first half of 2022 being a difficult year for investment funds.

They advise that they anticipate that things will begin to calm down once inflation has peaked and portfolios should then bounce back.

Last year I put 21% of my income into a pension and all of that seems to have simply evaporated.

Any advice? What are other MNs experiencing?

Mine has lost a massive amount too. Everyone's will have. There is time for it to recover, you're still very young.

Still falling when you see the statement though

*galling

It hasn’t evaporated. Your 21% income contribution bought more units, which are temporarily worth less due to market fluctuations. The market will recover, and now is the time to put more in when prices are low.

My investments have dropped more than that in a year but I have fairly risky investments. The stock markets, crypto etc have seen a massive decline over the last year. The only thing that seems to have risen is commodities such as oil, gas and gold etc.

It's scary looking at the statement, but view it as a snapshot in time and put to one side since pensions are long term investments.

This year, unfortunately that is normal. I'm finding it hard to hold my nerve regarding some of my pension investments right now!

I think we are in for a bumpy road, economically speaking, over the next 5 years.

Mine has too. Its horrible seeing it but you're young and it will pick up again.

Investments go up and down, the FTSE250 is down 17% in the year to date, so depending on where it has been invested, your return isn't abnormal (given what's happened this year). Advice... You're presumably years off retirement, invest it in funds which are at an appropriate risk level for you, and forget about it, investing is a long game!

I feel for anyone in their 60s who is going to have to start taking their pension before things recover. At 35, you have decades more to go before you really need to worry about it's value at a specific point in time.

It's your pension. You're unlikely to cash it in for 30+ years. You don't need to worry about short term fluctuations due to immediate circumstances.

It's only a problem if you need to take your pension anytime soon or need to sell. As others have said the units will bounce back so you will benefit then.

This is all really helpful thanks. Should I take it out of the scheme with my financial advisor and invest directly myself? What do others do? At the moment it's in a Transact scheme and the financial advisor chooses the funds to invest in...

And yes- don't intend to take it out for another 25 years !

Should I take it out of the scheme with my financial advisor and invest directly myself?

What would be your reason for doing this? I think when things fall it's tempting to believe you might have avoided it if you'd been managing your investments yourself but there's not really any reason to think that. The whole market is down.

Not a bad idea to use this moment as a spur to considering whether you're happy overall with where your investments are, approach to risk, diversification etc- do these things still match your objectives? If not, make some changes. But resist the urge to make knee-jerk changes in response to a drop in value. As others have said, this is a good time to be investing and there's a lot to be said for boringly carrying on paying in month in and month out.

Not saying you should or shouldn't switch to managing your own investments- there are pros and cons. You need to think through whether it's the right decision for you based on where you are now- don't do things in a panic because your pension has lost value. Sorry for such a boring answer!

I received a letter from my financial advisor at Christmas time which said because of the markets my pension had lost value. I put the letter in a drawer and forgot to deal with it.

TBH this is probably the best thing you could do in response. You are much more likely to lose in the long-term if you make knee-jerk decisions in response to temporary circumstances. As pp said, review your long-term strategy and if you are happy with that then just be happy that you are currently benefiting from cheaper prices.

Use this as a trigger to think more about what your investment goal and strategy is.

Ultimately you want a certain level of income in retirement - enough to buy X and do Z. People get that several ways but in the UK, it's usually a mixture of State pension, any work based Defined Benefit pension ("final salary" except these days sometimes it's average salary, but the principle is that what you get out is related directly to what you put in and you don't bear the investment risk), and your investments, which can include pensions, ISAs, plain old investments, but all of them are just you (sometimes with a tax-efficient wrapper) buying shares, bonds, property, gold, or funds which own a variety of all that...and hoping their value goes up and the income from them is good, because EVENTUALLY you will sell them to get that retirement income.

It's never recommended you take it out during a downward trend. That's all it is, it's a trend, and you need to look at the long term, it will go back up.

I felt the same about my pension contributions but now I’m just considering it as buying stock cheaply. So when the market picks up I’ll benefit from all the cheap stock I bought!

Mine has dropped significantly and I'm just riding the storm . It's alarming seeing it in free fall though .

Transact is an adviser platform which gives lots of drawdown options, segmentation and things like that so can be really good when it comes to a withdrawal strategy.

You wi have fund fees - look at what those are. They may be very similar to the fee that you would get on another platform like HL, Vanguard Investor, AJ Bell. Your adviser will charge you a fee - often assets under management fee... that may be a bit under 1%. Only you can decide if that is worth paying for the ongoing advice. It is certainly helpful to have someone to call when you feel like selling, to talk you out of that. It is useful to have someone to model cashflow so you can see how the investments could give you an ongoing income in older age.

Neither of mine have lost money ... in fact they are up

What exactly are you invested in?!

Yes that's why it's so important to learn about returns sequencing as one nears retirement

I'm keeping an eye on mine and will continue to work if needs be (now retirement isn't forced) until the markets benefit the annuity I can buy.
It's like keeping your nerve on whether to fill the car full this week or not, only on a bigger scale.
As you won't need to draw your pension for years, I'd not worry - what you're putting in at the moment will buy more stocks than it would have last year so when the market recovers you'll be doing a lot better.

Can you explain further? I’m 55 and wondering when to reduce my risk level (currently 6-7).

This.
I retire in a few months time (aged 57) but due to the poor performance of my DC pension I am going to take just my DB pension and leave my DC for a few years when everything will have (hopefully) calmed down.
At your age you have plenty of time to ride out the storm.

Investments go down sometimes because shit happens, it's expected, you're young enough for it to not matter, don't panic and keep doing what you're doing

Just to add: when the market is down, you are buying really cheap. So when the market turns, you will make lots on the cheap stuff you bought this year.