Chris Inman, partner in DC investment at Aon, said: “There have been high levels of uncertainty in global equity markets since the start of April. While there have been some periods of relative stability within the overall unrest, we do not expect this to be the end of volatility in investment markets.
“It all underlines key things for DC members to remember:
• The ups and downs of markets, while uncomfortable, are a normal part of investing.
• DC pension savers and those running pension schemes, should generally be focusing on the long-term. That is, they should not solely focus or make decisions based on short-term market movements.
• It is important for DC savers who are close to retirement and planning on accessing some or all their pension fund, to consider the potential short-term impact of recent market volatility on their plans. Before taking action, it’s likely to be beneficial for them to speak to a financial adviser for guidance that is specific to their situation.
“It’s also important to highlight that, over time, we expect markets to recover from the recent volatility. It is also well worth remembering that as markets recover, pension savers who are making regular contributions will be invested at more attractive prices. This might seem counter-intuitive but can lead to greater long-term returns. For DC savers who are closer to retirement, one bright spot is that diversification, especially through short-dated government bonds, has been beneficial. Values have generally held steady or increased during the equity slump of the past few days. We haven’t seen this negative correlation between bond and equity price movements – and to this extent - since the COVID-19 crisis-hit markets.”
Staying alert to scams
DC scheme members should also stay on their guard against pension scams. Scammers may be looking to prey on concerns about falling pension values by trying to persuade people to transfer retirement savings out of one scheme and into another - and with a promise of higher returns or early access to their savings.
Chris Inman said: “Pension schemes and employers should encourage their savers to be cautious with the funds they have built up for their retirement. They should also signpost them to the Pension Regulator or FCA guidance on avoiding scams. Whatever the circumstances, the key message to savers is not to rush into decisions affecting their long-term savings, based on short-term market volatility. And, if in doubt, seek professional advice.”
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