Why are pension investments falling? A pension pot is invested, so its value moves with shares, bonds and currencies, and what a fall means depends on your timing.

This page explains what moves a pension's value, why some "lower-risk" funds fell in 2022, and how a drop looks different if you are years from retirement, about to buy an annuity or already in drawdown. Weighing the drop on your latest statement against your funds and dates is what a call-back is for. An FCA-authorised adviser provides one at no charge, and it is set up by the form on this page. The value of investments can fall as well as rise, and you may get back less than was paid in. The points here apply across the UK.

Why are pension investments falling? Four things that move a pot

A defined contribution pot is not a savings account. Nest, a large workplace scheme, says its members' pots are spread across many markets, including stocks, shares and property, so the pot is worth whatever those holdings are worth on the day. Four things do most of the moving.

Shares. Company share prices rise and fall with profits, confidence and the wider economy. Nest says a fund with a larger proportion of company shares is more affected by uncertainty than other markets, which is why a higher-risk fund can drop further than a cautious one over the same period.

Bonds, and the gilt yields behind them. A bond pays fixed amounts on fixed dates, and a gilt is a bond issued by the UK government. The Bank of England explains the pricing rule: a higher discount rate makes the value of a stream of future payments go down, "implying that prices of securities tend to fall as interest rates rise (and vice versa)". It adds that this inverse relationship is "easiest to understand for bonds", because their payments are known in advance. So when interest rates and gilt yields go up, bonds already issued usually lose value, and a fund full of them is worth less. Nest lists rises in national interest rates alongside energy shortages, global conflict, pandemics and political crises as events that interrupt long-term price rises.

Currency. If a fund holds overseas assets, their value in pounds depends on exchange rates as well as on the assets. Scottish Widows' fund guide says an investment's value can go up and down depending on performance "and currency exchange rates where a fund invests overseas".

Charges. Charges are taken from the pot whatever markets do, and each provider sets its own. Pension charges explains how to find yours, and Nest pension charges works through one scheme's figures.

These effects add together, and which one dominates depends on what your fund holds. Where UK pension funds invest gives the wider picture, and private pension growth rates looks at what pots can realistically earn over the long run.

Why did lifestyling funds that held bonds fall in 2022?

Lifestyling moves a pot out of higher-risk investments as the retirement date nears, and some providers build it into retirement-date funds. Nest, which calls this "lifestyling", says that roughly ten years before the member's retirement date it starts to move investments out of higher risk markets, which "helps to protect your savings from sharper falls if the wider economy or the stock market takes a fall". Scottish Widows says its lifestyling can target an annuity, cashing in or flexible access (drawdown), so the destination differs by fund.

That design is aimed at share-market falls. In 2022 the strain came from elsewhere. On 28 September 2022 the Bank of England announced a gilt market operation, saying the repricing of assets was "particularly affecting long-dated UK government debt" and that it would carry out "temporary purchases of long-dated UK government bonds", with auctions running until 14 October. Gilts of that kind were at the centre of the disruption.

Some lifestyle strategies hold exactly those bonds. Aegon's guide to reading its fund factsheets describes one of its lifestyle funds moving money into its Long Gilt fund, and cash in the final year, over the six years before the target retirement year. The guide explains that "long gilts and long corporate bonds are used in lifestyle strategies because of their inverse relationship with annuity rates, not because they are ‘safe’ investments." It adds that when long bonds go down, annuity rates generally go up, so the annuity the pot can buy stays roughly the same, but that this link is not perfect and can fail, for example when annuity rates lag behind bond prices. How far a particular fund fell, and when, is on its own factsheet.

The lesson is not that bonds are bad or that lifestyling is a trap. "Lower risk" describes the usual size of movement, and different risks sit in different holdings: shares carry share-market risk, bonds carry interest-rate risk. Lifestyling: pros and cons weighs the approach, and choosing where your pension is invested covers how much say you have.

What a fall means if you are years from retirement

For a pot you will not touch for a long time, a drop on paper matters in a different way. Nest treats short-term falls as a normal part of investing and says that "once the short-term uncertainty is over, markets tend to begin rising again". It adds that its approach means "we don’t need to react to short-term changes in the market, which can often lead to poor decisions". That is one provider describing its own strategy, and the warning above stands: nothing guarantees that a market recovers, or when.

Several things are worth weighing rather than acting on:

  • How many years the pot has before you plan to take it. A longer period leaves more time for prices to move again, in either direction.
  • What the fund is meant to do. A higher-risk fund can fall further than a cautious one, so a large fall may simply match its design.
  • Whether a lifestyling switch is due. If your fund is about to start moving out of shares, the pot's mix will change on its own schedule.
  • Whether you hold several pots. A fall in one says little about the others, and the State Pension against private pensions shows how the pieces of a retirement income fit.

What a fall means if you are about to buy an annuity or are in drawdown

This is where timing bites, because there is less time to wait.

About to buy an annuity. MoneyHelper says an annuity gives a guaranteed retirement income, so you know how much you will get and how often, and that once you have bought one and any cooling off period has ended, "you typically cannot change your mind". The income is set from the pot you have when you buy, so a pot that has fallen buys less at that moment. The Financial Conduct Authority's 2024 thematic review notes that "Lower interest rates have impacted returns from government bonds which affect annuity rates", so gilt returns feed into annuity pricing as well. How a particular fall and a particular day's rates combine for your pot is a question for someone who can see your figures; the call-back is a chance to put it to an adviser.

In drawdown. MoneyHelper's drawdown guide says: "As your pension remains invested, its value can rise and fall until you take the money. This means your retirement income is not guaranteed." It also warns that because you set the timing and size of withdrawals yourself, you need to "plan carefully to reduce the risk of running out of money". Pension drawdown explains how it works.

Whether to buy an annuity, stay invested or split the pot is the decision a fall makes harder. Annuity or drawdown sets out the trade-offs, and how a pension annuity works covers the product itself; Pension Wise is another route to guidance. Because the choice is hard to undo, this is a sensible moment for someone to check everything together; an FCA-authorised adviser will do so on the call-back that the form here arranges.

What to hold back from doing when the value drops

A falling statement makes people want to act, and a few pauses are worth building in. None of this is a recommendation for your pot; they are points providers themselves stress.

  • Check what actually fell. One quarter's drop in a fund is a different thing from a pot that has stopped working. Scottish Widows describes its quarterly review as an overview of the markets that may explain downturns in performance, which helps tell a market-wide fall from a fund-specific one.
  • Think before switching everything after a fall. Moving out of an investment after it has dropped turns a paper change into a real one. Nest's warning that reacting to short-term changes can lead to poor decisions makes the same point.
  • Take advice before changing funds. Scottish Widows says switching between its funds is currently free, and also that you should seek financial advice before making changes. Free to switch is not the same as wise to switch.
  • Do not judge by performance in isolation. The same provider says "It is very important not to look at performance in isolation as it doesn’t indicate what could happen in the future", which cuts both ways: a bad year is no guide to the next, and neither is a good one.
  • Treat unexpected offers with suspicion. Pension scams explains how to check an offer before you act on it.

Where to see what your fund holds: the factsheet

Your provider's website or online account is the place, and the document is called a fund factsheet. Scottish Widows says it publishes fund prices and factsheets showing performance for most of its pension funds, and invites members to call if they cannot find the right one. Other providers use their own names for similar documents; Nest points members to its quarterly investment reports for a breakdown of where the money is invested and how the fund is performing.

Your annual statement names the funds you are in, and pension statements explained shows how to read one. On the factsheet, these parts are worth reading first:

  • Asset allocation. This shows what the fund invests in and how diversified it is, so you can see how much is in shares, bonds, property or cash.
  • Fund aim. Growth, income or a mix, and which kinds of asset the fund uses.
  • Performance table. Year-by-year and cumulative figures, which are history only.
  • The date. Factsheets carry the date they were last updated, so check you are reading the current one.

Put the allocation next to the four drivers above and the reason for a fall is usually visible: a lot of shares, a lot of long-dated bonds, a lot of overseas holdings, or a mix.

Other worries when a pension value drops

Are pension investments going up again?

No one can say, and this page makes no forecast. The factsheet shows recent history, which is no guide to what happens next, and its date tells you how current the figures are.

Why did my pot fall by more than a colleague's?

Two members of the same scheme can be in different funds, or at different distances from their lifestyling switch. Nest says its Higher Risk and Sharia funds may show bigger falls because a larger proportion of the money is in company shares.

Is a fall in value the same as losing my pension?

A fall in unit prices is a change in what your holdings are worth, not money taken from you. Whether a pension provider or scheme could fail is a separate question, covered in are UK pensions in danger?

Why did my pot fall when contributions are still going in?

Contributions add money, but the whole pot is revalued as markets move, so a large enough drop can outweigh recent payments. If you want to see how your own contributions and the market combined, the call-back is a good place to ask.

Getting a second pair of eyes on your pot

If your fall relates to a fund you did not choose, a pot close to the date you need it, or several pots you cannot easily compare, an FCA-authorised adviser can call once you send the form here, and the call carries no fee.

Sources