Protecting your pension in difficult times

Pensions and retirement
Views & insights

In a time of stock market volatility and soaring inflation, find out the steps you could take to protect your pension savings.


5 April 2022 | 2 minute read

The combination of stock market volatility and soaring inflation may have you wondering how to protect your pension in these uncertain times.

It can be difficult to make decisions about how to safeguard your lifetime savings when you’re feeling anxious and unsure about the future. A financial adviser can help you decide on the best route for you but, in the meantime, these are some of the main considerations.

Avoid making rash decisions

It’s perfectly natural to be worried about your investments and the impact of wider economic events on your pension’s performance. However, letting your emotions cloud your judgement could prove extremely costly in the long run. Selling investments that have fallen in value risks crystallising losses; and if the markets recover quickly, you could miss out on subsequent gains.

Before you rush into making any decisions, take a step back and try to understand how recent events may have affected your broader retirement plans. A financial adviser can give you a clear picture of your savings, such as how long they’re likely to last, and whether your goals are still achievable.

Beware inflation

When stock markets are volatile, you might be tempted to start shifting all your retirement savings into cash. However, this might not be the wisest move. As well as the risk of crystallising losses and selling good quality investments at an unfavourable time, you’ll be at the mercy of inflation, which in Ireland recently reached a 30-year high. Over time, inflation has the potential to erode the purchasing power of your savings, which means your money might not last for as long as you need it to.

Although cash is important for short-term expenditure and unexpected costs, the current rates of interest on cash savings products tend to be very low and below the rate of inflation. Keeping a portion of your pension invested in the stock market will give it the chance grow in real terms, tax efficiently, over what is hopefully a long retirement. If you don’t need the growth, then instead of cashing in you could move to a lower-risk level to try to limit the level of volatility while still, hopefully, at least keeping pace with inflation.

If you’ve not yet reached retirement, a market dip could present an opportunity to top up your pension; the income tax relief and potential market recovery could give your fund a serious boost. But whether this is appropriate for you will depend on your exact circumstances, objectives, and time horizon, and you should always seek advice before investing.

Maintain a diversified portfolio

Beware that taking on too much risk could cause problems, particularly as you approach retirement. If you plan to crystallise benefits at retirement, your investment time horizon may be shorter, and there might not be sufficient time to recover from dips in performance.

However, if you intend to take the alternative route of investing 75% of your pension savings into an approved retirement fund, then your investment time horizon could be much longer. For example, you may be retiring at age 60, and invested for a further 30 years. Over this period, investments in your approved retirement fund can continue to grow tax efficiently, although the mandatory income drawdown is subject to income tax and associated levies.

One way to seek to safeguard against losses is to hold a range of diversified assets, with different risk and return characteristics. Different asset classes tend to perform differently to one another in a range of market conditions, which can help to minimise overall losses and smooth returns over time.

If you are in the process of de-risking your pension portfolio you could, for example, take gains from the best-performing investments to buy more defensive assets, that are well positioned to weather future market volatility. Doing this by yourself can be complicated. An adviser will help you balance your portfolio to ensure you have the right mix of investments for you, and that they’re appropriate for your stage of life.

Be mindful of investments held in ‘lifestyle funds’. These automatically shift your portfolio into lower-risk assets prior to retirement to match it to an annuity purchase. This may be an inappropriate strategy if your intention is to go the approved retirement fund route.

Next steps

Understanding the steps you need to take to protect your pension from market volatility and inflation isn’t always easy. The key is to remain calm, and remember that stock markets tend to recover, given time. Seeking some smart advice can help you feel confident you’re doing the right thing and that you’re on track to meet your goals, regardless of where you are in your financial journey

Warning: The value of your investment may go down as well as up.
Information is provided only as an example and is not a recommendation to pursue a particular strategy.

More on this topic

You may be interested in

Optimism pays

Insights 9 min read
Optimism pays

Investment Conference Reflections 2023

Insights 10 min read
Investment Conference Reflections 2023

Artificial Intelligence – Ephemeral Vs. Durable

Insights 9 min read
Artificial Intelligence – Ephemeral Vs. Durable