In light of ongoing market volatility, a leading retirement specialist is warning pension savers to remain alert to potential risks that could jeopardise their financial future.
The warning comes as global markets remain unsettled following economic tensions sparked by former US President Donald Trump’s tariff decisions and persistent uncertainty surrounding international trade relations. In response, investment platforms such as Hargreaves Lansdown and Interactive Investor reported record trading activity earlier this week, as many investors viewed market dips as buying opportunities.
Gary Smith, a financial planning partner and retirement specialist at wealth management firm Evelyn Partners, said that the increased volatility would be particularly unsettling for many Britons due to significant changes in the nation’s pension landscape.
“The decline of defined benefit pension schemes in the private sector and the widespread adoption of auto-enrolment have essentially turned most UK workers into investors,” Mr Smith said. “Unlike the guaranteed salary-based income of older schemes, defined contribution pensions leave the saver to shoulder the risk of their pot’s performance.”
Mr Smith warned that private sector employees, as well as the self-employed with personal pension schemes like SIPPs or stakeholder pensions, are likely to see steep declines in the notional value of their pension savings depending on their investment choices.
“Some savers may look at their pension statements, see negative figures, and understandably feel a degree of panic,” he added.
However, Mr Smith was quick to urge calm, stressing the historical tendency for markets to recover over the longer term.
He advised individuals to take into account their full financial picture, including any non-pension assets they may hold. When in doubt, savers are encouraged to consult with Government-backed services like Pension Wise or seek independent financial advice to determine the best course of action tailored to their circumstances.
Mr Smith outlined several key pitfalls that pension savers should consider carefully:
1. Becoming overly cautious
“One common mistake is to pull out of investments entirely at the first sign of trouble,” he explained. “But with people now living well into their 90s, and many retiring in their 50s or early 60s, a 40-year retirement isn’t out of the question.”
He noted that most pension pots won’t be large enough to eliminate all risk and still sustain long-term income. A well-diversified investment portfolio, even through retirement, can provide better resilience and the flexibility to adapt to market shifts.
2. Underestimating sequencing risk
Mr Smith also warned of “sequencing risk” – the danger that poor investment performance in the early years of retirement, combined with regular withdrawals, can cause permanent damage to retirement funds.
“If your portfolio drops early on and you’re taking money out at the same time, you lock in losses that may be hard to recover,” he said. “Planning ahead with a cash buffer and adjusting withdrawals according to performance can reduce this risk.”
3. Becoming a forced seller
One of the biggest threats to long-term financial stability is being forced to sell investments during a downturn to cover costs.
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“To avoid this, we typically advise savers approaching retirement to hold up to two years’ worth of income needs in cash or cash-equivalent assets,” said Mr Smith. “This way, unexpected expenses can be met without dipping into the core investment pot.”
4. Adopting a rigid withdrawal strategy
A fixed-income approach may appear sensible but can be risky during times of market instability.
“Instead, consider a dynamic withdrawal plan based on market performance,” he suggested. “Withdraw a percentage of your pot rather than a fixed sum. In years with good returns, you can afford to take more, and in leaner years, reduce your drawdown to give your investments a chance to recover.”
As markets continue to ride waves of uncertainty, Mr Smith emphasised that flexibility, planning, and seeking proper guidance remain the savviest tools in a pension saver’s arsenal.
