Pensions are invested in global stock and debt markets, and therefore “what happens around the world will also be felt in our pensions,” the team at UK’s PensionBee explains.
PensionBee wrote in a blog post that September saw “the continuation of the domino effect created by the international energy crisis and the ongoing war in Ukraine.”
The combination of low energy supplies, and high demand for them, “has pushed prices upwards.” PensionBee added that these costs are “passed from business to consumer, making the cost-of-living higher and increasing wages, which in turn leads to higher demand for goods and higher prices.” In short, “a vicious cycle that the world’s central banks have sought to break through rising interest rates.”
The online pension provider pointed out that rising interest rates themselves “can cause a lot of turmoil for businesses and households by increasing the cost of borrowing and reducing expenditure.”
This in turn “reduces inflation (by reducing the demand for goods) but can simultaneously lead to business closures and job losses, which September continues to bring news of.” At the same time, rising interest rates “reduce bond prices, meaning diversification of pension assets is less effective in the short term.”
While sharing other updates that may impact your pension balance, PensionBee noted that company shares can be “traded on stock markets, and their value’s influenced by all sorts of factors, including: a changing political climate, business performance, interest rates, local and global economies and the rate of inflation.”
September marked “a subsequent chapter in this year’s unfolding story of market volatility.”
PensionBee also mentioned that uncertainty over measures taken by central banks to combat inflation (interest rate rises), along with the energy crisis, “has clouded any optimism for an imminent recovery.”
In UK stock markets, the FTSE 250 Index “fell by over 10% in September, bringing the year-to-date performance close to -29%.”
In European stock markets, the EuroStoxx 50 Index “fell by almost 6% in September, bringing the year-to-date performance close to -24%.”
In US stock markets, the S&P 500 Index “fell by almost 8% in September, bringing the year-to-date performance close to -24%.”
In Asian stock markets, the Hang Seng Index “fell by over 12% in September, bringing the year-to-date performance close to -26%.”
The PensionBee team added:
“We’re currently in a bear market (a period of economic decline). The good news is global markets have recovered from every bear market in history, without exception. Moreover, the value of company shares has not only recovered but typically goes on to reach new highs. Even the biggest market crash since the Great Depression, the 2008 global financial crisis, was followed by the longest period of sustained growth in market history until the coronavirus pandemic struck markets in 2020.”
They also mentioned:
“As a general rule of thumb, when markets are down company shares become more affordable to investors. For example, if you buy company shares during a downward trend at £1 per share, then when markets recover and they increase to say £1.50, you’ll have seen a 50% increase on your initial investment. Of course, there’s no guarantee that this will happen, but if you’re able to, then adding to your pension pot could allow you to effectively grow your pension in the long term.”
PensionBee pointed out that you may find yourself “rethinking your pension savings during the cost of living crisis, or worrying about whether you’re making the right choices.”
PensionBee customers can “rest assured knowing that [their] pension plans are being managed by some of the world’s leading money managers.”
Again, it’s worth remembering that “it’s normal and expected for pensions to go up and down in value.”
If you’re over the age of 50 and are considering your retirement options, “you may benefit from a free Pension Wise appointment.”
For more details, check here.